Interesting that all the discussion defaults to where to find energy.
Because that is the current issue.
I have mentioned several times that we can just stop using energy and the problem goes away.....
EDIT - that's not actually true, as energy is used to make pretty much everything we buy and the shortage is global (not just UK), even if we switched off the gas network tomorrow, everything we import will still cost more due to the rise in energy costs in it's manufacture and transport.
NB 2: Our gas network is currently supply Europe as we have excess LNG capacity at our ports so are pumping all our spare LNG across the UK (from Wales to France / Netherlands) as they are short on gas. So switching it off would impact Europe as well - it's all very interconnected!
Yes, but that’s precisely what the UK hasn’t been doing. Investment in the UK is low, and has been for a long, long time, and investment is a big deal as the UK has rubbish productivity, and this isl inked to investment and matters. This hasn’t been helped after the crash of 2008, after which the UK economy seemed tp start to enter a zombie state (more poor performance). You’ve then been ‘blessed’ with austerity, so more poor investment, further lagging in productivity. All these things add up to make the UK a bad place to invest for the long term, more stagnation, then you get a weakening pound, and stuff from abroad costs more and inflation is harder to manage.
You forgot to add Brexit - another reason not in invest in UK PLC when you can invest in somewhere interested in trading with other countries.
I don’t think fiddling around with a few tax cuts will help stimulate the economy either. It’s beyond that sort of minor fiddling around
Pissing in the wind, but the Tory candidates are not trying to solve any problems for UK PLC they are only trying to get elected, which means appealing to a very small demographic who are probably receptive to Tax cuts regardless of how many Teachers and Nurses we get rid of to pay for the tax cuts.
Spend the money – but spend it on the things that fix the holes in public services and infrastructure.
Yes - but private money won't necessarily follow - depends on the return AND the speed of that return. These are long-term and for the benefit of all - private investment doesn't usually prioritise those.
The UK is like an old stately home. The original family still live there, but the statues in the garden are crumbling, the grass is straggly and overgrown, weeds everywhere. They've been forced to rent bits out to weddings and conferences for decades now - they put up with the spew and noise so they can hang on to the old pile. But now the actual building is crumbling. The pipes leak and the ceilings sag. Pretty soon they won't be able to rent bits out either. There's no money to do the repairs because all the revenue has funded the unsustainable lifestyle up until now.
MMT is not the answer - at least not on its own:
MMT assumes that the capacity of the economy can supply all of the necessities - not true of the UK.
MMT has nothing to offer against externally-driven inflation like the current energy crisis - if you can't afford the fuel to move stuff, that stuff might as well not exist.
MMT cannot deal with a world where the bad guys control most of the raw material and resources needed for that country's economy.
It feels very much to me that the situation we had pre-Brexit was pretty damned good. We had control over our currency, yet were part of a bloc with some clout and had a veto within that bloc. Halcyon days!
The BoE had to move to increase rates to curb inflation - they can't levy taxes to control it as MMT would suggest - the current government would have to do that and are obsessed with promising tax breaks. Even if they did raise taxes, they would raise them in areas that would suit their traditional support - so 75% of us would see no benefit or worse.
Despite the pound being a fiat currency it IS worth something. Be it dollars, euros, barrels of crude, cubic metres of gas, whatever. The UK doesn't have enough of those real things to fight off global economic realities without being part of a bigger bloc.
Raising interest rates will reduce demand, which is one way of balancing the current supply / demand miss match.
It's been a while since I studied Economics but (and apologies if answered somewhere - I haven't trawled through all 3 pages of this thread) I understood that changing IR's would a) encourage people to save money, b) make it more expensive to borrow and reduce demand for consumables - but if we are looking at the main drivers here - fuel/energy and food - people don't have a choice in purchasing these. They need to eat and they need to get to work.
Whacking rates up may make GBP a slightly more attractive investment/ raise the currency value v EUR/USD - But is it really going to achieve anything significant other than pushing those already on a financial knife edge over the precipice?
At least we don't add any further costs to our "basket of goods" by having frictionless trade with our biggest trading partner, I guess.
Governor of the bank of england pretty much explicitly said that companies were taking advantage of the current climate to price aggressively - i.e. put their prices up and blame "inflation".
They're raising interest rates to take money away from the population so we can afford to buy less - so companies will be less likely to "aggressively" rip us off.
This will bring real inflation down.
The answer is wholescale global economic reform - capitalism is broken, and is breaking the planet. But we won't do that, we've no appetite to do it and as a result we don't make it as a species.
So the actual answer is - buy less crap, ride your bike more.
(and apologies if answered somewhere – I haven’t trawled through all 3 pages of this thread
Answers to all your Qs can be found above...
Yes – but private money won’t necessarily follow – depends on the return AND the speed of that return. These are long-term and for the benefit of all – private investment doesn’t usually prioritise those.
It will.
Government deficits produce private sector surplus.
It will.
Not in proper long-term infrastructure if they think the whole place is in terminal decline*.
*Actually we all know it is in terminal decline, but the pace of it is what will deter private investment. As well as better returns being available elsewhere.
MMT is not the answer – at least not on its own:
MMT assumes that the capacity of the economy can supply all of the necessities – not true of the UK.
Again, like lots of people you misunderstand MMT.
MMT is descriptive. It's a description of how things currently work. For several decades now.
MMT doesn't assume anything - MMT merely points out that you should identify the resources and labour force to operate your project. If they're not available that is your limit and you should look elsewhere to put your money.
Why is it critics of MMT don't understand MMT at all?
The BoE had to move to increase rates to curb inflation – they can’t levy taxes to control it as MMT would suggest – the current government would have to do that and are obsessed with promising tax breaks. Even if they did raise taxes, they would raise them in areas that would suit their traditional support – so 75% of us would see no benefit or worse.
Again MMT is a description of the monetary system - says if too much money is in circulation from government spending. Taxation removes money and lowers inflation.
We don't have inflation caused by TOO MUCH MONEY.
MMT has nothing to offer against externally-driven inflation like the current energy crisis – if you can’t afford the fuel to move stuff, that stuff might as well not exist.
Correct, but if you use MMT prescriptively - to identify economic problems in society you put something in place before it creates a problem. That hasn't been done.
MMT doesn't correct anything - government policy does, operated within the framework of MMT when it comes to spending.
Energy issues are a product of short-term thinking where could have used government spending 10 years ago to support.
The original Green New Deal was set up in 2007.
Spending, and political will.
Don't forget the argument coming from government for the last 20+ years or more is that we can't afford it. That's what MMT corrects.
Because we’re not energy self sufficient so you either buy energy on the market or stop using energy – there isn’t another choice!
Well we could invade the ME and try and steal oil – that would be a 3rd option….
But you could support people's bills?
And I'm guessing if HMG was the monopoly supplier of retail energy it could negotiate a better price for start. Or at least lower the cap and pay the difference itself like France.
Why is it critics of MMT don’t understand MMT at all?
Dogma, ideology, an inability to consider new ideas.. Take your pick.
We don’t have inflation caused by TOO MUCH MONEY.
Quite the opposite in fact. The increase in energy and fuel bills is going to do the BoE's job for them in sucking cash out of the rest of the economy and that in itself is going to cause the recession they desperately seem to want. All the interest rate rise is going to do is turbo-charge that inevitable process while filling the pockets of bankers and speculators. As usual people at the top will get richer off the backs of everyone else. Daylight robbery, plain and simple.
https://twitter.com/RichardJMurphy/status/1555190460712452099?s=20&t=NDncgRfLKB9N85pgdq-J1w
Hopefully good news for us savers. Rates on savings have been abysmal for 10 years or so.
Savings so last century 🙂
They can't make money out of savings as opposed to revolving debt.
Well we could invade the ME and try and steal oil – that would be a 3rd option….
probably cheaper to just pay everyone's energy bills...
Because we’re not energy self sufficient so you either buy energy on the market or stop using energy – there isn’t another choice!
Well we could invade the ME and try and steal oil – that would be a 3rd option….
But you could support people’s bills?
And I’m guessing if HMG was the monopoly supplier of retail energy it could negotiate a better price for start. Or at least lower the cap and pay the difference itself like France.
Yes, we could subsidise bills, but we just store up more debt for the future, so it's not free. But again, right now our potential new leaders are concerned about getting elected and only care what Tory party members think - hence tax cuts.
And I’m guessing if HMG was the monopoly supplier of retail energy it could negotiate a better price for start.
Highly unlikely, they're competing against the whole planet! Someone else will just buy it at the asking price.
probably cheaper to just pay everyone’s energy bills…
It will temporarily relieve one half of the problem - the increased cost of energy. The other part - the fact that everything we import uses energy in its production / transportation and hence has gone up in price, would be unaffected.
Plus just paying everyone's bills is just buy now, pay later - we just have more collective debt to deal with down the line.
It also might cause the value of the £ to fall, if the debt markets thought Uk PLC was running too high a budget deficit, which would in turn make everything even more expensive.
But you could support people’s bills?
Whilst I'm not pro austerity and the "living within our means" mantra of the Cameron/Osborne era. I can't see how a third wave of debt can be a good thing (2008 bail outs, covid, and now this) can be be sustainable. At some point we're either going to have to recover, or be utterly shafted.
Shaking the magic money tree a few times for some infrastructure projects (renewables, railways, the good stuff), that's one thing. Government borrowing to "give" people (well, ultimately the energy co's) money, that's another. It's a short term sticking plaster keeping money in our pockets, crossing your fingers that recovery is just around the corner.
Daylight robbery, plain and simple.
Conversely, inflation wipes out the value of those balance sheets. And the governments income* through taxation should track with inflation, which means the BoE issuing less of those bonds to cover the shortfall?
*yea yea yea, MMT, etc.
yea yea yea, MMT, etc.
Basically this.
And Jeremy Corbyn would have won the next election.
And the EU is a sinister conspiracy to provide modern day slavery.
I'm now on message. Nothing more to consider.
@ tthew
"Sorry, I know this part of the thread is old now, but Manchester Guardian quoted yesterday that only 0.2% of Shell and BP shares are owned by pensions investors, so you can’t really claim that’s a benefit of high fuel inflation."
thats direct ownership, most share ownership will be indrect via ETF's index funds and pension funds..
Yes, we could subsidise bills, but we just store up more debt for the future, so it’s not free.
Government debt is not an issue, and barely ever gets paid back.
It's not a debt as such when you're a currency issuer.
Government debt is just a rolling amount of money spent into the economy.
It's simply how modern economies with central banks work.
Nothing scary.
Shaking the magic money tree a few times for some infrastructure projects (renewables, railways, the good stuff), that’s one thing. Government borrowing to “give” people (well, ultimately the energy co’s) money, that’s another. It’s a short term sticking plaster keeping money in our pockets, crossing your fingers that recovery is just around the corner.
Government always spends with new money creation. Has done for decades.
It's the opposite to what you think here. Government spending, on the correct things is very much long term.
Too many people don't understand the difference between Q/E and MMT. But simply carry on conflating.
Government's don't really borrow and more to the point don't need to borrow. The spending comes first irrespective.
They are currency issuers.
The UK is buying electricity from Norway, and if you don't pay the current rate, we will sell it to someone else. It's not all roses locally in Southern Norway as the grid is so connected that household in Southern Norway are also needing to pay spot despite the fact that we are producing a massive excess of wind and hydro.
This isn't popular and isn't sustainable - a lot of people aren't happy subsidising the UK. Especially as power rates in North Norway, not connected to the UK, are about 100 times lower
Basically this.
And Jeremy Corbyn would have won the next election.
And the EU is a sinister conspiracy to provide modern day slavery.
I’m now on message. Nothing more to consider.
I assume this response is because you can't articulate anything else of merit?
This isn’t popular and isn’t sustainable – a lot of people aren’t happy subsidising the UK.
this isn't on message. I thought Norway did everything right that the UK didnt?
And the governments income* through taxation should track with inflation, which means the BoE issuing less of those bonds to cover the shortfall?
In what fantasy economic world do govt tax receipts go up in a stagflationary recession? In real terms tax receipts are going to go through the floor, requiring a lot more borrowing/QE to prop up a collapsing economy.
Meanwhile bank profits will soar and that money will end up in the pockets of millionaires in the city in the form of fat bonuses to be spunked on champagne, sports cars and prostitutes, whilst people at the other end of the spectrum freeze in winter and have to beg for food from food banks to feed their kids.
I assume this response is because you can’t articulate anything else of merit?
Yes, that's it. Totally.
It’s the opposite to what you think here. Government spending, on the correct things is very much long term.
That's the opposite of what was said, subsidizing energy bills isn't "the correct things" (infrastructure).
In what fantasy economic world do govt tax receipts go up in a stagflationary recession?
More than one in which you have stagnation/recession and no inflation? At the very least inflation encourages people/companies to spend their cash reserves or borrow money as it's driving the NPV of projects down.
Government debt is not an issue, and barely ever gets paid back.
It’s not a debt as such when you’re a currency issuer.
Government debt is just a rolling amount of money spent into the economy.
It’s simply how modern economies with central banks work.
Nothing scary.
You say that, but every month the BoE goes to the markets, cap in hand, to sell guilts, to pay for our deficit. The interest rate they achieve (or whether anyone buys them at all) depends on the market's perception of the fiscal probity of HMG / BoE.
So you can't just run up endless debt saying it doesn't matter, you have to at least look like it does matter.
Plenty of countries end up defaulting on their debt and it never ends well (except for the very rich).
At the very least inflation encourages people/companies to spend their cash reserves or borrow money as it’s driving the NPV of projects down
I'm far from an expert, but I can't see this being anything close to a universal truth in business particularly if there are shareholders to keep happy.
We are no longer in a short-term issue it's now a mid-term concern.
I’m far from an expert, but I can’t see this being anything close to a universal truth in business particularly if there are shareholders to keep happy.
We are no longer in a short-term issue it’s now a mid-term concern.
I think some of the problem is we're well outside the envelope that most rules/theories would claim to apply to.
If base rates were 5%, inflation was 2.5%, employment was 95%, supply and demand were balanced, then you could read an economics textbook and say "If this then that". But we're so far off normal that there isn't a simple answer to any of this anymore. Inflation being this much higher than interest rates isn't "normal".
People can jump up and down shouting MMT until they're blue in the face but:
Plenty of countries end up defaulting on their debt and it never ends well (except for the very rich).
Case in point, Thatcher. She might have ideologically loved the free market, austere government, etc. But at the same time the country was near bankrupt, subsidizing coal (c.f. calls to subsidize energy now), and having to go cap in hand to the IMF. It suited her ideology to close mines and end free milk, but it was as much circumstantial as it was a choice.
But at the same time the country was near bankrupt
Care to explain what this actually means? How does a country go bankrupt?
Care to explain what this actually means? How does a country go bankrupt?
You can't but that doesn't mean that teetering on the edge unable to borrow money from the markets is some sort of goal.
https://en.wikipedia.org/wiki/Crisis_in_Venezuela
You can’t but that doesn’t mean that teetering on the edge
???
How can a country 'teeter on the edge' of bankruptcy if it can't go bankrupt? Countries which issue currency and then borrow from markets in that currency can by definition never go bankrupt. The government has never failed to repay it's gilts. That's because by definition those bonds are guaranteed, which is why there's always a market for them. The alternative is the private sector allowing their savings to degrade from inflation, and no sensible company or individual would do that.
https://en.wikipedia.org/wiki/Crisis_in_Venezuela/blockquote >"Venezuela didn't pay coupons on its dollar eurobonds, causing a cross-default on other dollar bonds."
Can you spot the difference here with the UK which issues bonds in sterling?
Countries which issue currency and then borrow from markets in that currency can by definition never go bankrupt.
There may of course come a point where the markets are only willing to lend in a hard currency (ie someone else’s).
Then the argument changes.
And significant inflation has caused this with other countries and massive borrowing tends to be inflationary.
That’s because by definition those bonds are guaranteed, which is why there’s always a market for them.
And the market set's the price of them.
What happens if you go to the market and can't sell them for the usual 2%, and instead they want 20%?
Those saying that current inflation is not caused by money supply is forgetting the amount of money printde during Covid.
Money supply needs to match economonic growth. Print more and it's inflationary. Lots more was printed than the economy was needed and ended up as withdrawals from tje economy (in the economic sense).
As Covid ended some of the money went back into circulation but as supply failed to meet demand prices rose. Curent inflation is the result of printing money for Covid, the Covid inpact on supply, climatic change related drought and geopoloitical factors.
Restricting money supply by rasing interest rates will reduce inflation. But tightening to the poit where there is insufficient money in circulation to sustain the current level of economic activity wiil result in a recession.
There's no point making money available if there is limited supply - and that is the current situation. There aren't enough cars being made, houses built or holidays to book, util there are printing money will just drive inflation.
I think the BoE is about a year behind the xurve along with all the other central banks but they are heading in the right direction. They have been slow but might be able to stop before rates get really painful. If tbey hadn't raised now rates would have had to be higher in the future
What happens if you go to the market and can’t sell them for the usual 2%, and instead they want 20%?
The same as what happened after 2008. The govt buys back the bonds via Q/E to lower bond yields. It uses it's position as a currency issuer to manipulate the market to ensure that its bonds are always saleable.
The same as what happened after 2008. The govt buys back the bonds via Q/E to lower bond yields. It uses it’s position as a currency issuer to manipulate the market to ensure that its bonds are always saleable.
Which if the banks balance sheets hadn't been so poor would lead to inflation.
Edukator
Free MemberThose saying that current inflation is not caused by money supply is forgetting the amount of money printde during Covid.
It’s a funny one, almost globally this happened, including the ecb for all the EU nations. There wasn’t really any more money in the system, it was supporting the structure. It’s one of those weird scenarios where everyone says there’s no magic money tree, but as a once in a lifetime global event, I think they ran out of ideas on how to keep going.
FWIW the B of E could have raised them more steeply last time, maybe reducing the long-term effect. Now they're catching up. Either way, it was going to have an effect - that's the whole point!
You can't blame them for inflation though.
You can’t blame them for inflation though.
But the Conservatives and the right wing press surely will blame all of this on the BoE.
This is the way.
Truss is already muttering incoherently about re-examining the banks mandate.
Well if the UK economy was more diversified, that would make it more resilient. eg a stronger industrial, energy and agricultural sector. It's too reliant on the service sector and (city of) London.
+1 or 2 % last time would've been harsh, but would've put much more pressure on spending to reduce short-term inflation. Like I say, interest rates are all they can do!
The energy situation is a disaster waiting to happen - loads of schemes canned or objected to in the last 20yrs...
Could end up with the govt compulsory purchasing all N Sea oil/gas this winter + paying a fortune for it!
Letting the BofE set interest rates is better than govt - less interference.
Energy issues are a product of short-term thinking where could have used government spending 10 years ago to support.
This. This. This.
And not just a lack of UK government spending, but actively preventing other governments from investing in UK onshore renewables for us. Loopy. And we have two candidates to be the next Tory leader and PM trying to out compete each other as regards who’ll put even more blocks in the way of installing more onshore renewables RIGHT NOW, even while the energy crisis is raw and immediate.
The government has never failed to repay it’s gilts.
Always a first time - and then what?