Zepfan
pfm Member
That is a very good question. Those who worry about it should perhaps ask themselves what the National debt actually represents. Richard Murphy deals with this convincingly in his e-book “Money for nothing and my tweets for free”
UK National Debt
- Thread starter Sloop John B
- Start date
PaulMB
pfm Member
Because it is public spending that creates a national debt. And "servicing" that debt is also part of public spending, and becomes more expensive as interest rates go up.
ks.234
Half way to Infinity
Sorry, not true. It was William III’s war debt that caused the debt, and it was a group of Stock Market speculators who got together to buy the debt as an asset to sell on for profit that created the Bank of England.
The National Debt is only ever a burden when it is sold as a public debt, in the real world it is sold as an interest bearing asset to mostly private interests
PaulMB
pfm Member
"Because it is public spending that creates a national debt. And "servicing" that debt is also part of public spending, and becomes more expensive as interest rates go up."
Yes it is true, in any country in the world.
I am also convinced that if you print more money the currency will be worth less, both domestically and internationally.
But perhaps you have "seen the light" and I have not, because I cannot see the logic of your reasoning.
Perhaps it is best if we each remain with our own view of economics.
Yes it is true, in any country in the world.
I am also convinced that if you print more money the currency will be worth less, both domestically and internationally.
But perhaps you have "seen the light" and I have not, because I cannot see the logic of your reasoning.
Perhaps it is best if we each remain with our own view of economics.
ks.234
Half way to Infinity
AIUI yes serving the national debt comes from public spending, but they don’t *necessarily* go up with interest rates because bond interest rates are calculated by a sort of auction among interested parties. Interest rates will impact that bargaining, but sometimes the results are what economists call ‘weird’.
Depends what you do with it
Since you ask, the logic of my reasoning is simple; tax does not fund our government spending’. It is true by definition, like a triangle has 3 squares.
However, if we discuss my view we will be breaking the OP’s instruction about Mentioning MMT.
This is however a very good place for people who do believe that tax does fund our government spending to express their opinion in a considered way.
Surprising how all those people who were so angry at the idea that tax does not fund our government spending are taking so much time. They were very quick to complaint in the first place.
That last paragraph was not aimed at you by the way.
ks.234
Half way to Infinity
“British Tory MP, the bumbling Jacob Rees-Mogg blew the cover on a major mainstream macroeconomic myth yesterday.
He appeared on Sky News and said among other things the following (thanks Jeffrey for the sound file):
If you look at the borrowing of the state at the moment, total borrowing, excluding the quantitative easing of 875 billion pounds, which is owed by the government to the government, so if you net that off, we under 60 per cent of GDP, I think that is a perfectly sustainable level.
He was trying to justify the proposed tax cuts that one of the leadership candidates has promised if she becomes the next British Prime Minister.
But several points are relevant:
1. The actual QE purchases by the Bank of England between March 2009 and 2021 were £895 billion (Source).
This was split into £875 billion of UK government bonds and the remainder spent on UK corporate bonds.
So he was right in the numbers – government owing government.
2. The very fact that he is now adopting my ‘left pocket/right pocket’ approach indicates he doesn’t believe that the Bank of England is an independent entity from government.
This trashes the mainstream claims to the contrary that have been used to depoliticise macroeconomic policy making in the neoliberal era.
The holdings of government debt by the Bank of England is truly the government owing itself. It is a total charade.
3. The Bank of England could write that debt off immediately and no-one would be any the wiser!
Jacob Rees-Mogg is effectively admitting that the Bank’s public debt holdings don’t count.
4. Apart from that admission, the rest of his logic is unsound – all public debt issued in pounds sterling by the British government (the currency-issuer) is sustainable”
He appeared on Sky News and said among other things the following (thanks Jeffrey for the sound file):
If you look at the borrowing of the state at the moment, total borrowing, excluding the quantitative easing of 875 billion pounds, which is owed by the government to the government, so if you net that off, we under 60 per cent of GDP, I think that is a perfectly sustainable level.
He was trying to justify the proposed tax cuts that one of the leadership candidates has promised if she becomes the next British Prime Minister.
But several points are relevant:
1. The actual QE purchases by the Bank of England between March 2009 and 2021 were £895 billion (Source).
This was split into £875 billion of UK government bonds and the remainder spent on UK corporate bonds.
So he was right in the numbers – government owing government.
2. The very fact that he is now adopting my ‘left pocket/right pocket’ approach indicates he doesn’t believe that the Bank of England is an independent entity from government.
This trashes the mainstream claims to the contrary that have been used to depoliticise macroeconomic policy making in the neoliberal era.
The holdings of government debt by the Bank of England is truly the government owing itself. It is a total charade.
3. The Bank of England could write that debt off immediately and no-one would be any the wiser!
Jacob Rees-Mogg is effectively admitting that the Bank’s public debt holdings don’t count.
4. Apart from that admission, the rest of his logic is unsound – all public debt issued in pounds sterling by the British government (the currency-issuer) is sustainable”
RidleyRumpus
Registered User
But we pay interest on that debt....Which the independent BoE then returns to the treasury.
Cav
pfm Member
But none of it matters does it, in the real world?
What would you do if you were chancellor?
Spraggons Den
pfm Member
Of all the people to quote, I would have thought spiteful, elitist Mogg would be among those you are least likely to champion. I am ideologically committed to disagree with anything he says.
At least you can rejoice in the fact that Chelsea didn’t get beat this weekend thanks to HRHs demise.
ks.234
Half way to Infinity
Yet again you show your self incapable of engaging with content and revert to personal comment. If you think I have championed JRM then you have understood nothing.
Marchbanks
Hat and Beard member
Aha! I think I’m now beginning to make sense of this stuff...
ks.234
Half way to Infinity
That is certainly the starting point…
Joe Hutch
Mate of the bloke
It's also interesting to read this, about the sacking of the top Civil Servant at the Treasury:
https://www.bbc.co.uk/news/uk-politics-62869880
'Throughout her campaign to be Tory leader, Ms Truss blamed "Treasury orthodoxy" for slow economic growth over recent years.
The new PM, a former Treasury minister, has accused her old department of promoting an "abacus economics" of "making sure that tax and spend add up," saying greater focus was required on promoting economic growth.'
'Abacus economics' sounds remarkably like 'household economics'.
https://www.bbc.co.uk/news/uk-politics-62869880
'Throughout her campaign to be Tory leader, Ms Truss blamed "Treasury orthodoxy" for slow economic growth over recent years.
The new PM, a former Treasury minister, has accused her old department of promoting an "abacus economics" of "making sure that tax and spend add up," saying greater focus was required on promoting economic growth.'
'Abacus economics' sounds remarkably like 'household economics'.
ks.234
Half way to Infinity
For anyone interested in looking at Debt, here is the summary to a chapter on Debt by Richard Murphy.
https://www.taxresearch.org.uk/Blog.../Money-for-nothing-and-my-Tweets-for-free.pdf
Many thanks once again to @Zepfan for this excellent blog. Easy to read and understand even to a beginner.
“It’s claimed that we need to reduce the national debt. But first of all, we need to state it correctly in numerical terms. And then we need to understand what makes it up.
Roughly half the national debt is made up of gilts or government bonds when those gilts that the government already owns are taken out of account. And these bonds are just savings accounts, in effect.
But these savings have a massively important role in the economy because the holders of these accounts know that the government can never fail to repay these accounts. That’s because the government can always create the money to repay. That repayment is guaranteed then.
And in the world post-2008 the ability to repay is fundamental. The trust that existed before then has gone. We know banks crash now. Those demanding gilts be repaid ignore this. They are living in a fantasy past.
In the real present gilts underpin the smooth operation of banking, pensions, many savings products and foreign exchange markets. Since each of these is pretty darned important to the UK suggesting that bonds be repaid is akin to economic madness.
And it’s also mad to say that cancelling National Savings is a good idea, and yet around £200 billion of national debt is in this form.
But the craziest demand of all is that we get rid of the money that now underpins the smooth operation of our entire economy, whether by tax increases or austerity, given that bond sakes don’t work for this purpose. But then, as I have noted, nor do tax increases or austerity either.
So, what do we do? If repaying the national debt is undesirable, what next? There are four simple things to say here.
First, celebrate the fact that something that is a legacy from the gold standard era of money - which the national debt is - has morphed into something so multi-facetedly useful in the modern money era. Thank goodness that we have it.
Second, stop thinking this ‘debt’ needs to be repaid. The whole reason it exists is that people absolutely trust that the government can always repay it but quite emphatically do not want them to do so. Its virtue is that it continues to offer safe savings opportunities.
Third, stop all talk of ‘our grandchildren having to repay this debt’. That’s utter nonsense. They too will need it to make the economy work. And the lucky ones will own some of it, because the national debt is private wealth. The real issue is, how can some more have some of it?
And last, stop worrying about the size of the national debt and instead ask whether we are using it wisely. The question is not whether the national debt is a problem, because of itself it is not. The question is whether or not the policies that change it are the best available.
If austerity is not wise - and it is not - and many tax increases might be destructive right now - what spending and tax policies do we really need to deliver national prosperity? That is the real big issue for current debate.
So now let’s come to my last point. Debate on debt repayment exists for a reason. It’s not that deep down anyone really wants to repay the so-called national debt. But those promoting debt repayment do so to stop us thinking about what the state can really do for us. The state could promote full employment if there was no debt obsession. It could also reduce inequality. It could consider a basic income. It could deliver a Green New Deal. All of these, and more, are possible. The state could care, in a word.
But those promoting debt repayment try to stop these things that would benefit most people in the country happening by promoting a false, and deeply harmful obsession with the so-called national debt. I hate to say it, but that’s because they don’t want the state to care.
The national debt is really no such thing. It’s actually savings and money. The real job is to spend those sums wisely. Let’s move on and talk about that, and so show that we do care.
But that’s for another day.
The end.”
https://www.taxresearch.org.uk/Blog.../Money-for-nothing-and-my-Tweets-for-free.pdf
Many thanks once again to @Zepfan for this excellent blog. Easy to read and understand even to a beginner.
“It’s claimed that we need to reduce the national debt. But first of all, we need to state it correctly in numerical terms. And then we need to understand what makes it up.
Roughly half the national debt is made up of gilts or government bonds when those gilts that the government already owns are taken out of account. And these bonds are just savings accounts, in effect.
But these savings have a massively important role in the economy because the holders of these accounts know that the government can never fail to repay these accounts. That’s because the government can always create the money to repay. That repayment is guaranteed then.
And in the world post-2008 the ability to repay is fundamental. The trust that existed before then has gone. We know banks crash now. Those demanding gilts be repaid ignore this. They are living in a fantasy past.
In the real present gilts underpin the smooth operation of banking, pensions, many savings products and foreign exchange markets. Since each of these is pretty darned important to the UK suggesting that bonds be repaid is akin to economic madness.
And it’s also mad to say that cancelling National Savings is a good idea, and yet around £200 billion of national debt is in this form.
But the craziest demand of all is that we get rid of the money that now underpins the smooth operation of our entire economy, whether by tax increases or austerity, given that bond sakes don’t work for this purpose. But then, as I have noted, nor do tax increases or austerity either.
So, what do we do? If repaying the national debt is undesirable, what next? There are four simple things to say here.
First, celebrate the fact that something that is a legacy from the gold standard era of money - which the national debt is - has morphed into something so multi-facetedly useful in the modern money era. Thank goodness that we have it.
Second, stop thinking this ‘debt’ needs to be repaid. The whole reason it exists is that people absolutely trust that the government can always repay it but quite emphatically do not want them to do so. Its virtue is that it continues to offer safe savings opportunities.
Third, stop all talk of ‘our grandchildren having to repay this debt’. That’s utter nonsense. They too will need it to make the economy work. And the lucky ones will own some of it, because the national debt is private wealth. The real issue is, how can some more have some of it?
And last, stop worrying about the size of the national debt and instead ask whether we are using it wisely. The question is not whether the national debt is a problem, because of itself it is not. The question is whether or not the policies that change it are the best available.
If austerity is not wise - and it is not - and many tax increases might be destructive right now - what spending and tax policies do we really need to deliver national prosperity? That is the real big issue for current debate.
So now let’s come to my last point. Debate on debt repayment exists for a reason. It’s not that deep down anyone really wants to repay the so-called national debt. But those promoting debt repayment do so to stop us thinking about what the state can really do for us. The state could promote full employment if there was no debt obsession. It could also reduce inequality. It could consider a basic income. It could deliver a Green New Deal. All of these, and more, are possible. The state could care, in a word.
But those promoting debt repayment try to stop these things that would benefit most people in the country happening by promoting a false, and deeply harmful obsession with the so-called national debt. I hate to say it, but that’s because they don’t want the state to care.
The national debt is really no such thing. It’s actually savings and money. The real job is to spend those sums wisely. Let’s move on and talk about that, and so show that we do care.
But that’s for another day.
The end.”
ks.234
Half way to Infinity
No, you are mistaken here. In criticising ‘abacus economics’ Truss is showing a depth and breadth of understanding on an epic scale. She is an economic goddess. She is doing no less than opening up the narrow path to the sunlit uplands of deficit spending. She is saying that we don’t need taxes or borrowing to fund spending if we don’t want them to. We can just let the columns not add up for a while.
Liz Truss is the most enlightened economist of our time
Marchbanks
Hat and Beard member
Hang on - I just about got the 'triangle having three squares' bit earlier (it took a lot of time to work it out using a pile of Lego) but this seems a little hyperbolic to me.
ks.234
Half way to Infinity
Being the dumbass I am, I had to look up “hyperbolic”
Apparently it is the ‘trajectory of any object around a central body with more than enough speed to escape the central object's gravitational pull’. Doesn’t that just describe the enlightened one as she escapes the clawing tentacles of those evil treasury advisers?
Cav
pfm Member
I think Marchbanks was suggesting your categorisation of Truss as hyperbolic in the sense of exaggeration.
lawrence001
Basic Member
Interesting article in the ft today linked to this paper. I'll just link the paper directly as the ft is behind a paywall.
https://www.cambridge.org/core/jour...nd-the-state/33EE76D8B70FB954A03BF1124B79AA5C
To quote from the introduction:
Even though monetary sovereignty remains an important reference point in both academic discourse and international politics, it has throughout the past decades repeatedly been declared dead (Strange Reference Strange1996; Cohen Reference Cohen1998). There are good reasons for this. Creeping dollarization subjects states across the world to monetary and financial decisions made in the United States (Cohen Reference Cohen2015; Fritz, de Paula, and Prates Reference Fritz, de Paula and Prates2018). Local financial systems depend increasingly on globally active megabanks, asset managers, and hedge funds (Braun Reference Braun2022; Naqvi Reference Naqvi2019). Governments face global bond markets and the realpolitik of the IMF and the World Bank (Roos Reference Roos2019). Regulators and supervisors across the globe struggle with cryptocurrencies, stable coins, and shadow banking instruments (Fama, Fumagalli, and Lucarelli Reference Fama, Fumagalli and Lucarelli2019; Viñuela, Sapena, and Wandosell Reference Viñuela, Sapena and Wandosell2020). Meanwhile, even local banks in low-income countries seek to comply with some version of the standards set at Basel’s Bank for International Settlements (Jones Reference Jones2020). Lacking the ability to control money within their borders, states have increasing difficulties raising taxes and funding critical expenditures (Binder Reference Binder2019; Palan, Murphy, and Chavagneux Reference Palan, Murphy and Chavagneux2013; Zucman Reference Zucman2015). In what sense, if any, can states still be described as monetary sovereigns? (Pistor Reference Pistor2017; cf. Zimmermann Reference Zimmermann2013)
https://www.cambridge.org/core/jour...nd-the-state/33EE76D8B70FB954A03BF1124B79AA5C
To quote from the introduction:
Even though monetary sovereignty remains an important reference point in both academic discourse and international politics, it has throughout the past decades repeatedly been declared dead (Strange Reference Strange1996; Cohen Reference Cohen1998). There are good reasons for this. Creeping dollarization subjects states across the world to monetary and financial decisions made in the United States (Cohen Reference Cohen2015; Fritz, de Paula, and Prates Reference Fritz, de Paula and Prates2018). Local financial systems depend increasingly on globally active megabanks, asset managers, and hedge funds (Braun Reference Braun2022; Naqvi Reference Naqvi2019). Governments face global bond markets and the realpolitik of the IMF and the World Bank (Roos Reference Roos2019). Regulators and supervisors across the globe struggle with cryptocurrencies, stable coins, and shadow banking instruments (Fama, Fumagalli, and Lucarelli Reference Fama, Fumagalli and Lucarelli2019; Viñuela, Sapena, and Wandosell Reference Viñuela, Sapena and Wandosell2020). Meanwhile, even local banks in low-income countries seek to comply with some version of the standards set at Basel’s Bank for International Settlements (Jones Reference Jones2020). Lacking the ability to control money within their borders, states have increasing difficulties raising taxes and funding critical expenditures (Binder Reference Binder2019; Palan, Murphy, and Chavagneux Reference Palan, Murphy and Chavagneux2013; Zucman Reference Zucman2015). In what sense, if any, can states still be described as monetary sovereigns? (Pistor Reference Pistor2017; cf. Zimmermann Reference Zimmermann2013)