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Brexit: give me a positive effect... XV

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The short answer is: no. But I'll do a longer one. Let's start backwards. QE is the government 'buying up' bonds, so the very reverse of bond sales. (Edit - important addition: to create money to buy bonds then say the government sells bonds to borrow money clearly does not make sense). Bond sales are used as a monetary policy tool as a reserve drain, to remove excess reserves so they don't need to pay interest on the reserves (and so that it meets the overnight bank interest rate). So yes bonds are sold, but not for 'borrowing'. It will make the post overlong if I go through the main three reasons why they are issued, so I'll find where I've said it elsewhere and put a link. What I will say is that they end up being a mere asset swap since the money people use to buy these gilts comes from money loaned from the bank in the first pace.
Back to QE though, the purchase of bonds by the BoE ends up as the swelling of banks reserves. Since monetarist economists actually think banks lend out reserves; that they need them to make loans. Be assured that banks do not like being forced to hold excess reserves, they prefer interest-bearing bonds. But that's what QE is: reserve increases.

But the question was: "what does the government do to make up the budget deficit". The first question is 'what is the deficit?' It's a problem question, not because it can't be answered, but because the answer often leads people astray. A deficit is a government spending more than it taxes. That doesn't mean they failed to get enough tax, therefore they had to somehow to fill a hole. It means they spent more than they destroyed with tax. Only that. Knowing they issue the money they use, this a logical conclusion. To assume they borrow is illogical, since if you had sole power of currency issue, would you borrow that currency? If so, why and from whom?

Deficit spending is not 'debt'. Debt (bonds) is something government issues by choice. Again they don't borrow for deficit expansion, so there can't possibly be an actual debt. And since the so-called debt is in the money of account anyway the interest payments on it can always be serviced. Always. The usual example is Japan, whose level has been enormous for decades. They never default, because they won't. Compare also pre-Euro Italy whose 'debt' was 20 times higher than Louisiana, but Louisiana 'defaulted'. How? Because it is in a currency union with imposed rules, it can't issue currency or service debt.

It certainly is counter-intuitive, because the common intuition (which is actually not intuition but the spread of erroneous theory) is wrong. There is an initial question to consider: why does the the private sector use/accept the government's currency? Because they need it to pay the tax. The idea that the money government issues somehow already exists first in the economy and then the government has to get it back in order to spend it, doesn't even make sense. Here is the very basic order of events:

Government sets legal tax liabilities in the money of account (this initially drives currency acceptance) >
People now owe a tax and are effectively unemployed until they enter into productive labour (in any sense) so they can get the currency to pay the tax (this is resource mobilisation) >
Spending into the economy (this includes money issued as normal loans) >
Productive activity creates goods/services. There is a profit motive to make the effort worthwhile, though a good deal of the production ends up as social product >
The tax is paid. This destroys a portion of spent money.

That is a skeleton outline.
None of that is 'state intervention' as popularly conceived by the right-wing. Their preferred governments in our lifetimes are the ones who have employed use of an unemployment buffer stock as inflation control. And so seem to prefer to have people idle (after creating national unemployment by default).

Not 'high levels', but levels that reflect the private domestic sector's desire for income/saving. Obviously things like surpluses, austerity don't achieve that. Can't possibly achieve it.

OK, grateful for this, a long post in which you've gone to considerable trouble to explain. It's going to take me a while to process it all, and in places it seems to raise even more questions than it answers.

I do take one point as read, and that is that a country (such as the UK/Japan) which has the ability to issue currency and service debt is far more resilient than one such as Italy (today) which doesn't. This has always been the logical argument against EMU, which places widely disparate economies into a monetary straightjacket. However, I find your analysis behind that conclusion very difficult to grasp.

One small question, what do you mean by 'money of account'?
 
It's not an EU thing, it's a cultural identity thing. We can all remember how TV was going to kill regional accents. It didn't, did it? That's why accents shift from one side of London to the other, either side of Leeds, and dramatically between Barnsley and Sheffield. Mind you, that's Deedars fo' thi.

Many regional accents are being lost. Maybe not so "oop North" but you will not hear a rural Essex accent, Huntingdonshire nor Northamptonshire accent spoken very often by someone under 70.
 
As regards my comment about cultural annexation, I think it's very real, the EU is an instinctive homogeniser. Homogenisation is what it does. However, I also think PsB, you and the others are right - the more the EU tries to homogenise, the more the individual national entities fight back. The EU has, with this as with so many things, overplayed its hand.

If anything, I'd say homogenisation is more about US cultural impact, eg via MacDonalds, than the EU. That's the only thing the various European countries I've visited seemed to have in common.
 
It's not an EU thing, it's a cultural identity thing. We can all remember how TV was going to kill regional accents. It didn't, did it? That's why accents shift from one side of London to the other, either side of Leeds, and dramatically between Barnsley and Sheffield. Mind you, that's Deedars fo' thi.

Same with Liverpool v Wirral accents. Separated by a few miles and the Mersey, but totally different.
 
Many regional accents are being lost. Maybe not so "oop North" but you will not hear a rural Essex accent, Huntingdonshire nor Northamptonshire accent spoken very often by someone under 70.
I tempted to agree. I regularly go back to the UK and when I was in my home village and areas where I lived later (all in the North) I noticed that hardly anyone speaks the dialect that was pretty normal when I grew up. And that a lot of the accents have smoothed out. I also noticed that my brother has started to say 'book' and 'cook' like a southerner, whereas me, miles and miles away, I still say them the way I always have!
 
I respect your belief, Matthew, but disagree with your opinion it was a mistake.

I lived and worked in Greece during the bad days of the currency crisis 2012-2014. There was a lot of anger about everything: local politicians, EU politicians, bankers, economists etc. But I never, ever heard anybody say they wanted to drop the euro and go to a new drachma. On the contrary: all my colleagues knew that leaving the euro would hand the windfall of a lifetime to the same corrupt politicians and business interests that had got Greece in trouble in the first place and moved all their money offshore at the first sign of trouble (usually well before that). These people would just wait for the new currency to plunge and scoop up all the good assets at half price. Pensioners and anybody with savings (or with loans in euros) would be left high and dry. See what is happening in Lebanon at the moment for a real world illustration, but the Greeks didn't need that. They know their country and have been round the track before.

In the event, the troika enforced sale of national assets as a precondition of the various 'baleouts' had exactly the same effect, attracting hoarders of asset-strippers and massively further enriching the same, mainly German, banks whose greed had created the problem in the first place.

Somewhere on YouTube there is footage of my favourite EU trough-feeder, the truly repulsive Guy Verhofstadt, furiously and disrespectfully (to put it mildly) berating the democratically elected Greek PM, Tsipras, in the EU Parliament for not ensuring that Greek Government assets were being disposed of quickly enough, when in fact they were setting records. A cursory glance at Transparency International's corruption index revealed that even as he did so, GV was pocketing a generous (circa €150k, as I recall) consultancy fee from a private company (Sofina) that was half of the consortium bidding for Thessaloniki's public water utility supply.
 
Oh, and as for your assertion that pensioners and savers would have been left high and dry in the event of Greece coming out of the Euro, in the event of the 'baleouts' the troika demanded that pensions be cut to €500 per month for 1 million pensioners, unemployment benefits to cease after one year (leaving 9 out of 10 Greek unemployed without any income). The troika's enforced austerity left thousands of public sector employees on less than €1000 month, and one in three Greeks at or below the poverty line, destroyed 25% of GDP, reduced purchasing power by 37%, and destroyed 100,000 private enterprises.

The German Chancellor Merkel was depicted in the press as wearing Jackboots and a comedy moustache, and leading a column of tanks. I believe similar cartoons appeared in Ireland at the same time.
 
Frosty, in less portly days. It’s amazing what a volte-face a bit of ermine can produce.

ma8vMpw.jpg


Now as he gets tough over Northern Ireland, the industry is in direct line of fire should the EU respond to his threats with retaliatory import tarifffs. Exports to the EU are already badly affected.
 
I'm sure those things were in the best interests of the SWA. Unfortunately for them, the vote didn't go their way.

I thought Scotch exports were doing quite well at the moment.
 
I'm sure those things were in the best interests of the SWA. Unfortunately for them, the vote didn't go their way.

I thought Scotch exports were doing quite well at the moment.

That may well be.

I suspect Dec`s point was the utter hypocrisy of the person currently responsible for our negotiations with the EU......
 
My neck of the woods has certainly been annexed by geezers, and their tattoo'd and duck-lipped molls. Its spreading north, be warned.
Eurotrash!
In the event, the troika enforced sale of national assets as a precondition of the various 'baleouts' had exactly the same effect, attracting hoarders of asset-strippers and massively further enriching the same, mainly German, banks whose greed had created the problem in the first place.

Somewhere on YouTube there is footage of my favourite EU trough-feeder, the truly repulsive Guy Verhofstadt, furiously and disrespectfully (to put it mildly) berating the democratically elected Greek PM, Tsipras, in the EU Parliament for not ensuring that Greek Government assets were being disposed of quickly enough, when in fact they were setting records. A cursory glance at Transparency International's corruption index revealed that even as he did so, GV was pocketing a generous (circa €150k, as I recall) consultancy fee from a private company (Sofina) that was half of the consortium bidding for Thessaloniki's public water utility supply.
You've mentioned this before, but I just checked and Thessaloniki's water supply company (EYATH) is still* majority owned by two of the Greek state's sovereign investment funds (50% +1 share and 24%). Suez is* the only other shareholder with >5% of the shares (5.46% to be precise), and seems to have been a shareholder for a long time. Sofina was not part of either of the consortia bidding in 2013-2014, but Suez was. Sofina (not part of Suez but used to be a 0.7% shareholder) would seem to have failed in its GR mission, if it ever had one. Since then, Suez was merged with GDF to form Engie, a group that has since re-focused on energy rather than water and sold the Suez business to Veolia. And AFAICT Verhofstadt is a board member at Sofina, not a consultant.

*the last update I can find is late 2018 https://www.eyath.gr/investor-information/?lang=en
There was a big row about privatization in 2013-2014, with a local referendum in Thessaloniki 98% in favour of keeping EYATH publicly owned. The Greek courts blocked the sale of 34% of EYDAP, the public water company in Athens. The whole thing seems to be on ice.
 
Dare I venture that, assuming the WSA photo was taken prior to the referendum, that his Lordship, having campaigned to remain, accepted the result, and accepted a well-remunerated job trying to negotiate the best possible outcome. He is presumably thought to have appropriate skills by the PM.
 
Eurotrash!

You've mentioned this before, but I just checked and Thessaloniki's water supply company (EYATH) is still* majority owned by two of the Greek state's sovereign investment funds (50% +1 share and 24%). Suez is* the only other shareholder with >5% of the shares (5.46% to be precise), and seems to have been a shareholder for a long time. Sofina was not part of either of the consortia bidding in 2013-2014, but Suez was. Sofina (not part of Suez but used to be a 0.7% shareholder) would seem to have failed in its GR mission, if it ever had one. Since then, Suez was merged with GDF to form Engie, a group that has since re-focused on energy rather than water and sold the Suez business to Veolia. And AFAICT Verhofstadt is a board member at Sofina, not a consultant.

*the last update I can find is late 2018 https://www.eyath.gr/investor-information/?lang=en
There was a big row about privatization in 2013-2014, with a local referendum in Thessaloniki 98% in favour of keeping EYATH publicly owned. The Greek courts blocked the sale of 34% of EYDAP, the public water company in Athens. The whole thing seems to be on ice.

Indeed. The fact that the SUEZ bid failed doesn't mean that GV wasn't up to his armpits in what might, particularly given his spittle-flecked tirade in the EP, be seen as something of a conflict of interests.

Perhaps you don't see it that way.
 
Frosty, in less portly days. It’s amazing what a volte-face a bit of ermine can produce.

ma8vMpw.jpg


Now as he gets tough over Northern Ireland, the industry is in direct line of fire should the EU respond to his threats with retaliatory import tarifffs. Exports to the EU are already badly affected.

From Olly Robbins to Lord Frost. I guess Britain really is tired of experts.
 
Indeed. The fact that the SUEZ bid failed doesn't mean that GV wasn't up to his armpits in what might, particularly given his spittle-flecked tirade in the EP, be seen as something of a conflict of interests.

Perhaps you don't see it that way.
I don't see how GV would have stood to gain financially from this - his remuneration as a board member in an investment company is presumably fixed, Sofina had a <1% share in a huge publicly traded conglomerate like Suez, where a division of a division was making a bid for a Greek company with 300 employees. I doubt a successful bid would have even moved the needle for Sofina or for GV personally. So "up to his armpits" is an exaggeration, IMHO.

The more general question is whether politicians should be able to hold stakes and/or serve on the boards of private companies in general (or investment companies in particular) while still holding an elected position. They should certainly recuse themselves in case of any obvious conflict of interest, but we have examples every day that not all of them do so. In an ideal world you would want to keep things quite separate: anybody elected would have to resign board positions and put all financial holdings in something like a blind trust (and even that is questionable: how blind are these blind trusts?). In practice, many countries seem to struggle with this. I had a boss who became an MP after a successful career in business: he certainly kept his shares and his role in the group (just as well for him, as he soon became frustrated with his lack of influence in Parliament and was not re-elected).
 
The idea that the money government issues somehow already exists first in the economy and then the government has to get it back in order to spend it, doesn't even make sense.

For sure these are all really just accounting identities but this doesn't, at least outside the radical end of MMT, exist in a vacuum and is ultimately based on the amount of productive work and capital assets in the economy.
 
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