Money is created as debt and taxation isn't collected into a big government "piggybank" — tax is effectively the destruction or 'removal' of money from circulation and a way to control inflation. A sovereign state can create money, which is either lent to the legacy banks (aka "quantitive easing") or is "realised" in the economy as government spending.
Governments that can print their own money cannot run out of it and this is why we can have endless war, "quantitive easing", bank bailouts, subsidise massive loss making industries, or effectively pay people to stay at home during in "lockdowns", etc.
So why does this narrative that the UK is somehow always on the verge of bankruptcy persist? Why is it never challenged in the media? Most people seem to accept the UK has a fixed money supply and this must be at parity with taxation, in the same way income is with household spending.
These are a set of beliefs I have about money, given admittedly fairly minimal research into the matter (a few documentaries and documentation from the BoE), but I'd be interested to know from anyone who's a specialist on this. I won't accept the Zimbabwe as an example because I do not accept it to be an equivalent to a food-secure and fully industrialised European power such as the United Kingdom.
If you create too much money you devalue the currency and cause inflation.
However ask 3 economists get 3 different answers.
Most economists however would agree at times like the the economy needs a stimulus and there is room to create more money before the downsides / side effects creep in. MMT and Keynes would have different points at which you need to turn the stimulus off.
Why labour continue with this nonsense? its because they are terrified of the right wing propaganda organs and of backlash from currency speculators - and there is also a fetish for keeping the value of the pound high.
Responses partly to the eff ups of the 70s and black friday
You only have to go back to the heady days of the Truss government to see the trouble cutting taxes and borrowing more can cause.
Lower tax/more borrowing sends the cost of government borrowing upwards and interest rates for the rest of us follow.
And yes OP too much borrowing does cause problems in developed countries, Greece and Argentina being two very good recent examples.
Why has nobody mentioned this before?!!!!
This is worse than Radio4 Last Word obituary program being on a Friday @16:00 just as I'm clocking out of work and driving home.
You only have to go back to the heady days of the Truss government to see the trouble cutting taxes and borrowing more can cause.
I think the tenuous household analogy for that cautionary tale is that using cheap debt to fund a partying lifestyle which also harms your ability to repay is a bad idea. Truss might have avoided that iceberg* had it been widely believed that her chosen path was actually likely to grow the economy.
*sorry; not sorry.
A food-secure and fully industrialised European power such as the United Kingdom.
I won’t accept the Zimbabwe as an example because I do not accept it to be an equivalent to a food-secure and fully industrialised European power such as the United Kingdom.
Errrr.
You only have to go back to the heady days of the Truss government to see the trouble cutting taxes and borrowing more can cause.
I'm not for one second suggesting Trussonomics was in any way good policy, but there's a significant sociological component in economics, and I do wonder how much of the reaction to that was down to it being delivered by Liz Truss.
Would the markets have had the same reaction if it was delivered with confidence by a Blair or Obama type figure? I'm not convinced they would.
I tend to agree with the OP's premise - however, if everyone knows (secretly) that this is true, why do we underfund the NHS and all essential services? Why don't we just take all the previously privatised utilities back into public ownership? Why don't the government do all these things and just say nowt?
there is also a fetish for keeping the value of the pound high
On this idea that the value of the pound isn't important when it comes to quality of life...
46% of our food is imported.
We import £25 billion worth of drugs a year (we export nearly as much, but specialisation means we're 100% reliant on imports for many of our needs, eg insulin, insulin delivery and CGMs).
So a FAST fall in the value of the pound would could drastic problems with food and healthcare.
Slower devaluations are easily absorbed though. Well, I say easily... they hit the least well off hardest, and cause inflation in healthcare well above inflation in the wider economy. We've seen this in the last 8 years to some degree... but that's stretched budgets enough already.
It's possible for these two things to be simultaneously true:
1) The "household budget" analogy is hopelessly misleading, the Govt can definitely spend more than it takes in taxes, and frequently should
2) Unlimited spending in excess of taxation is likely to have poor outcomes.
It's a pity that those who shout loudest tend to struggle with this concept.
the Govt can definitely spend more than it takes in taxes, and frequently should
And nearly always does.
Simply put: you don't understand Economics.
That makes at least two of us, it baffles the crap out of me as well.
Kelvin - yes but for decades we have kept the pound at an artificially high level - which creates its own issues. Remember black friday?
Cougar - no one does. its all guesswork and theories and there are many competing and mutually exclusive theories. ~sometimes you can look back and see what has worked in the past but that is no reliable indication of the future
hence ask 3 economists and get 3 different answers
So why does this narrative that the UK is somehow always on the verge of bankruptcy persist? Why is it never challenged in the media? Most people seem to accept the UK has a fixed money supply and this must be at parity with taxation, in the same way income is with household spending.
Printing more money is always seen as a last resort in a developed economy. Doing so causes inflation to rise, which in turn usually grows the inequality between the rich and the poor. Keeping inflation as low as possible is usually very high on any governments agenda, so much so that traditionally the perceived ability to keep inflation under control has been a swing vote winner in previous elections.
Keeping inflation low, encouraging prudent spending (and borrowing) etc. tends to cause more economic growth and maintain the health of the country's currency. Of course, the flip side is at what point does a policy of low inflation become "austerity" and it penalises those who actually have no choice but to borrow money too much...?
There are people who understand this FAR better than I do... Thankfully for us, some of them do seem to have been working at the Bank Of England whilst the outgoing government were trying to tank the economy to the benefit of their hedge fund manager mates etc...
My God op.
You. Are. A. Monster!
Somewhere in the Bat cave he stirs…
Post of the week. Genuine real world LOL, thank you Poopster.
Printing more money is always seen as a last resort in a developed economy. Doing so causes inflation to rise,
From my understanding even in Keynes which is as close to accepted widely as anything this is not true. You can pump money in to stimulate growth so long as there is space in the economy to do so. Its only after a certain point that inflation will become an issue. MMT would put that point further away
I think and thats about as much as I understand
Money is valuable because it’s scarce. Sometimes that scarcity is real (e.g. gold) sometimes manufactured e.g. bitcoin.
The rationale for tax is to discourage bad behaviour and raise revenue. Most spending still comes from taxation. The effect on inflation is marginal. Interest rates have a larger effect on that.
Broadly, economics is either MACRO (to do with the economy as a whole e.g. employment, inflation + tax) or MICRO ( related to individuals e.g. choice and prices).
printing lots of money has been tried a lot of times. its never ended well
Meh, the post war boom years were built on borrowing heavily for investment in public infastructure including huge capital outlays for social housing, the NHS and social safety nets for the whole population. This was repeated through much of mainland europe. So to claim it never ended well is demonstaratably complete bovine manure.
Printing more money is always seen as a last resort in a developed economy
I don't accept this — industrialised/developed economies constantly print money. When the 08 crisis broke, the Federal Reserve printed 17 trillion dollars and gave it to mostly foreign banks. Corporations use debt to finance their operations, although unlike individual borrowing, it's known as leveraging. You simply couldn't have the capitalist system without debt. Debt, as far as I understand it, is money.
As I said, and I'd be happy to be proven wrong, but the idea the HMRC actually "collects" money is false. In short, all money is created as debt, and taxation functions to give legitimacy of a currency and to cool things off. When the government suddenly needs a vast amount of money, it simply prints (or rather creates it on a computer) the money and then can use it because it is the sovereign currency and has agency in the economy because businesses, workers and banks accept it as currency.
"Most spending still comes from taxation."
So you're saying that the government actually "collects" the tax and puts it into an account somewhere and then dishes it out to its various departments? I'm not sure I could dig it out now, nor fully understand it, but I do remember reading something from the BoE that said this was a fallacy.
Money is valuable because it’s scarce. Sometimes that scarcity is real (e.g. gold) sometimes manufactured e.g. bitcoin.
It's not scarce when you can print it, which is rather the point of the thread. Of course, you can't print gold or BTC, but that's a different discussion.
What's interesting is why there's always billions for nuclear weapons or foreign occupations but not for financing new infrastructure or paying public service workers. It feels like some things are never spoken about in public discourse, but it seems bizarre to me that something as important as money, where it comes from and how it's produced, is never mentioned.
Maybe so Kelvin. I still think its too high but for sure not as bad as 30 years ago
for decades we have kept the pound at an artificially high level
The GBP is pretty much at a 40 year low against the USD (apart from 2 one-week long crises in Feb 1985 and Sep 2022)! It's a similarish story for the EUR.
I can't embed the chart - Google "GBP to USD chart" and select max.
I don’t accept this — industrialised/developed economies constantly print money. When the 08 crisis broke, the Federal Reserve printed 17 trillion dollars and gave it to mostly foreign banks.
You've already admitted that you know bugger all about economics, yet you've got some very strong opinions already! ?
Anyway... Knowing that sooner or later, all that money would end up back in US circulation, the Fed printed a metric shit ton of money... The US is and always has been (since the $ was accepted as the world's standard trading currency) a little different to everywhere else. Them printing money and sending it to other countries actively increases the flow of money back into the US economy. This doesn't really happen to the same degree, if at all, in other countries.
Meh, the post war boom years were built on borrowing heavily for investment in public infastructure including huge capital outlays for social housing, the NHS and social safety nets for the whole population. This was repeated through much of mainland europe. So to claim it never ended well is demonstaratably complete bovine manure.
The key word there is "ended"...
Borrowing copious amounts of money will always have significant benefits in the short term!
It's when the debt has to be paid back that the pain is often felt...
Of course, nobody will ever agree on a cost vs benefit analysis of governmental borrowings and spendings, it is literally the biggest topic of argument for grabbing our votes come general election time (or at least always has been historically)... So you absolutely cannot say for sure it's bullshit... That's just your position on it. Other viewpoints will differ!
What’s interesting is why there’s always billions for nuclear weapons or foreign occupations but not for financing new infrastructure or paying public service workers. It feels like some things are never spoken about in public discourse
It's worth remembering what is important when it comes to thinking about how easy money is to come by, or not, for a government...
Put simply, YOU (or me, or anyone else) DO NOT MATTER!
In the UK we have mostly lived under centre-right political institutions since the inception of the Houses of Parliament. There has briefly been periods where it has swung left of centre, there has briefly been periods where it has gone quite far to the right, but historically, we are a centre-right voting country overall... France is the opposite, they are much more left leaning, and have been for a very, very long time now (albeit it was a close thing in their recent GE, and it required the left leaning parties to form a coalition to defeat the far right). What that means here in the UK though is that our acceptance of things that do not serve our own personal interests (Welfare State, the NHS, free education etc. etc.) being less effective than they should be is far greater than in countries like France, where everyone goes on strike in such a situation!
If we valued things like Healthcare, education, the environment and voted more consistently so, then they would get more respect from the political elite... As it is, even the average voter typically values the performance of the £ and the economy over and above the social security system that actively benefits them, which is why things like defence spend (it keeps many hundreds of thousands of UK citizens in very well paid jobs too, don't forget!) have been given so much higher importance by successive governments.
It's worth remembering that whilst certainly not a socialist echo chamber by any means, the typical contributor to this forum (from my lengthy experience at least) is often better educated and also more left-leaning politically than your average voter... So whilst it might "make sense" to you to print loads of money, typically our govt has believed otherwise...
Of course the other problem with just printing money, is that unless you put all sorts of checks and balances in place to make sure that it doesn't just end up in the assets of the ultra rich, it can VERY quickly worsen the rich/poor divide, as poor people use it to buy necessary things (rent, food, taxes) and rich people accumulate it through rent (and tax loopholes) and then use it to buy up all the assets!
For anyone who really wants to dive further into how economics really works, it's worth giving this guy on youtube a follow... https://www.youtube.com/@garyseconomics/videos
Maybe so Kelvin. I still think its too high but for sure not as bad as 30 years ago
New Labour govt has picked the value of the £ up very slightly against the $ already (or it might just be that confidence is dying in the US, given the ludicrous Biden/Trump debacle that is going to affect their next 4yrs!), but otherwise the £ has been pretty weak against the $ for a while now... Brexit didn't help that of course, but that only accounted for about 10% of the 35%+ devaluation we have seen in the £ against the $ over the last 15yrs...
Yes - that does not mean its not overvalued. This fetish of a high exchange4 rate has been all my adult life. Maybe its not so overvalued now as it was.
Its why we have no manufacturing left - imports are cheep and exports are expensive with an overvalued currency
Its why we have no manufacturing left – imports
areWERE cheap and exports are expensive with an overvalued currency
FTFY tj
So why does this narrative that the UK is somehow always on the verge of bankruptcy persist?
Tories say this to justify cutting things and shrinking the government. They believe in less government and letting us get on with whatever we want, which generally means screwing each other and the environment over without a care. Labour have been careful not to dispel it because otherwise people will expect too much too quickly.
If Wales were independent and the monarchy were abolished and the rest of the UK went back into the EU, then we'd technically be able to borrow cryptocurrency against the pound and then nationalise the debts the Bank of England owes the banks.
If Rachel Reeves borrowed a trillion pounds from HSBC and JP Morgan, but signed the loan agreement while she was standing in the US Embassy in London, then technically America would have to pay it back because embassies are foreign territory. Or if she signed the agreement in Belfast, then Ireland would have to pay it back because they claim Belfast is part of Ireland. Or if she borrowed the money but then changed the name of the UK, we wouldn't have to pay it back because the country that signed the agreement wouldn't exist any more.
It's just Starmer’s lack of imagination that he won't explore all this.
MMT is a beautiful theory, same as communism, but the problem is implementing it in a country that is just not black and white like the theory. As someone else stated, the only country with a real chance of using MMT is the US, and that's because they have the power behind their currency to counter any hyperinflation or financial attack. There's a few others who can barter a bit better as they have the resources to do so, but again, in the UK, we don't have a lot of natural resources that give us stability in the long run either.
I think on this board i keep seeing stuff that makes out the UK is stronger than it really is, we are not a superpower, we are not at the top table anymore, we are in quite a large crowd now in the tier below the US, China, Russia, etc.
@fatmountain because what you've written is classic student union stuff comrade. It simply isn't true. Ask Liz Truss.
Hi Joe. So out of curiosity, then, do you believe that the UK government has a sort of savings account with a bank which it funnels all our tax into and then pays it people on the dole, etc.? (Also, why the comrade jibe? Do you think talking about monetary policy makes me a communist?)
Its why we have no manufacturing left – imports are cheep and exports are expensive with an overvalued currency
This is a myth btw.
The UK is still one of the foremost manufacturing countries (apparently 9th) in the world. What happened was that it modernised, outsourcing heavy, labour-intensive production of low-value goods, moving into the production of high-value, high-skilled output, like vaccines or aerospace, etc. Deindustrialisation isn't unique to the UK.
Fatmountain : The UK is still one of the foremost manufacturing countries (apparently 9th) in the world.
That may well be but the companies involved will be offshored for tax reasons and owned by foreign entities, the UK manufacturing base has been gradually sold off since the mid 80's.
We are a now a poor 2nd rate country.
If MMT worked then someone, somewhere would actually be doing it. After all, the business of governments is to stay in power & what government wouldn’t want to have a happy, prosperous electorate who would reward you for wise economic policies every 4/5 years at the ballot box. Just think. The government could spend what it likes and it wouldn’t matter as there are apparently no downsides. Why do you think this hasn’t happened somewhere in the world?
The government could spend what it likes and it wouldn’t matter as there are apparently no downsides.
It seems to be that the only argument that is ever used on here against MMT is this one. And it's bollocks, because MMT doesn't say that there are no downsides. Can you come up with something else?
So what are the downsides? Is this why no government is following an MMT based economy?
My understanding - and its very superficial is that MMT is Keynes on Steroids. the main difference is how much money you can create and pump into the economy before you start devaluing your currency and creating inflation. Also when you pay back created debt
It's because it's a simple, appealing lie that suits some politicians very well.
That's it, that's the entire reason, but the thread'll be able to run for pages anyway. No matter what you think about inflation, about MMT, about anything else, the version peddled by politicians is a lie and doesn't fit any of the possible competing models anyone might bring to the table.
Are any of the contributors to this thread economists - with something beyond a first degree - or financiers?
That background would provide a degree of credibility to the various posts.
Without that academic rigour, the posts are all...meh
That background would provide a degree of credibility to the various posts.
Without that academic rigour, the posts are all…meh
Not really. Understanding economics is one thing, opinions on what should be done in an economy is another which as TJ says, there are a lot of different opinions based on different biases. Nobody is right until they can be proved right and until that point all forecasts and choices pushed are pretty much even.
Also, MMT is not something we choose to do or implement, it describes how the economies work currently.
And neither of these things answer the OP. For that answer, look to who that narrative benefits (clue - it is not the 'working people')
That may well be but the companies involved will be offshored for tax reasons and owned by foreign entities, the UK manufacturing base has been gradually sold off since the mid 80’s.
Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims. I've quite often seen these claims and counter claims but never really seen an honest assessment with evidence.
*predictably, the first two google results are 1) it's in decline 2) we've jumped from 9th to 8th...
The government could spend what it likes and it wouldn’t matter as there are apparently no downsides.
That is not what MMT implies, there has to be a tangible thing produced by the spend to generate the money-go-round.
The economic falacies we're subjected to are the peaceful version of 1984's constant war. Not spending the money is a political choice and should be pointed out loudly every time it happens.
So what are the downsides?
The capacity of the economy to usefully use it.
It’s because it’s a simple, appealing lie that suits some politicians very well.
When it first started to be used, it wasn't. But its a simple way of saying a very complex arrangement of money creation, demand, resources management, mandatory (budgeted departmental spending) and capital spending (shit that happens) It's a lie, obviously, but in many ways its also true. You can only spend to the capacity of the economy to absorb it.
[Money]s not scarce when you can print it, which is rather the point of the thread.
You have unwittingly hit the nail on the head there. You just need to go back and understand what "scarcity" in an economic sense means and how it generally has an inverse relationship to value.
And then you'll see how printing an infinite amount of money reduces its value (ie inflation). In fact, this statement ceases to be true in high inflation economies - either economic actors insist on being paid in kind or in other currencies, or they simply withhold their labour/goods/services:
[fiat currency] has agency in the economy because businesses, workers and banks accept it as currency.
Meanwhile:
in the UK, we don’t have a lot of natural resources that give us stability in the long run either.
If Scotland were independent it could nationalise its immense oil, gas and water wealth and develop a reserve currency.
Are any of the contributors to this thread economists – with something beyond a first degree – or financiers? That background would provide a degree of credibility to the various posts. Without that academic rigour, the posts are all…meh
Two things: welcome to forums. Second, unless everyone signs their real name to things and allows their qualifications to be verified, there's nothing to stop anyone claiming to be anything so "credentialising" is a bit pointless.
Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims.
Perhaps not data but a nice real time illustration: Port Talbot steel works?
A major industrial resource, first privatised and then sold to foreign investors who subsequently keep threatening closures and job losses in order to get what amount to government negotiated subsidies for them to continue to run it into the ground.
Keynes which is as close to accepted widely as anything this is not true. You can pump money in to stimulate growth so long as there is space in the economy to do so. Its only after a certain point that inflation will become an issue.
Yes, true, although I would suggest rephrasing slightly that Keynesian Demand Management stimulates demand. Whether KDM results in growth or inflation depends on whether there is excess capacity in the economy (so that supply increases), how sustained the initiative is (a single overnight dump won't help), and how much money goes outside the domestic economy (where a big chunk of US stimulus money went on consumer crap from Temu).
The UK currently has a 50 year low in unemployment but also relatively low inflation. In a mixed economy like the UK, that's not a classic illness for which Keynesian economics is the cure. If the government was going to do anything, it should probably be long term infrastructure investment of the type the private sector can't or won't do - like HS2 or Northern Powerhouse or massive regeneration projects over 20 years.
https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23
Is this why no government is following an MMT based economy?
MMT=/= just printing money. It's a model that explains how most western mixed economies work currently.
Are any of the contributors to this thread economists
I certainly am not. those posts of mine have completely exhausted my economic knowledge 🙂
It’s a model that explains how most western mixed economies work currently.
Is this not opinion rather than fact?
I have an Economics 'A' Level, most of which I've forgotten. 🙂 But it did teach me that highly complex systems such as modern economies often do not respond in an orderly way to simple solutions.
It’s because it’s a simple, appealing lie that suits some politicians very well.
This.
But so is any way of describing government finances that can and will be digested by more than 1% of the population. Any simple description has to leave so much out as to be “wrong” or a “lie”… including anything you learned at A level economics and much of any degree level course.
The risk with exponents of MMT as a path to the government spending far more and quickly is that they dismiss so much themselves. Their descriptions are far more detailed than the “lie” of using home or business finances as an analogy, but still rely on leaving out so much else as regards how the economy and the state function as regards to essential outside influences and suppliers, and internal demographics and production.
This:
MMT=/= just printing money. It’s a model that explains how most western mixed economies work currently.
My understanding is that MMT is not a method that can be tried out to see if it works, it’s merely a description of what is already happening. That it doesn’t fit the household budget analogy very well is nothing to do with the efficacy or accuracy of the description MMT provides, it’s more that the analogy is just incorrect; the economy is difficult to understand and politicians have chosen a way to explain things that they think people will be able to relate to and consequently understand, that it’s inaccurate doesn’t matter because our misunderstanding is actually quite useful.
For the Cameron/Clegg coalition the household budget analogy provided a useful tool to justify austerity measures and lack of public service spending. As far as I can gather, this was political choice; it was not that the country had run out of money. They simply chose to spend the money elsewhere for their political priorities, but at the expense of public services (which were clearly not their priority).
In its simplest terms, the whole Tax pays for spending is false. The government borrows money every day, which is then put into the economy. Tax merely removes that money from the economy. So, it could argued that the household bank account analogy works to a certain degree (i.e. money out & money in), but it’s just too simplistic.
The problem is, I’m already bored typing this so getting the public at large to switch on to it and then understand it is impossible. So, what happens is… the household budget analogy ?♂️.
I think a fundamental problem is that when people are told that the government will never run out of money to spend, most people are outraged and just cannot believe it. That’s usually when the conversation collapses because a description of the checks and balances is complicated. It’s easier to just accept the analogy then move on.
If MMT worked then someone, somewhere would actually be doing it.
Believers in the theory will say the US and other countries are doing it
Why does this “we’ve maxed out the credit card” narrative persist?
imo it’s because the government of the day are happy to allude to it to indicate the level of their appetite especially wrt borrowing - but the problem is that without a better analogy it is a gross simplification of the complexities of the system - especially wrt to growth
…which is compounded by the general public then running with the analogy and simplifying it to spending money vs making money as per a credit card which dumbs it down to the point where it’s misleading.
Like every complex system that’s dumbed down for newspaper and clickbait headlines the main reason it’s not challenged is that to challenge it you need to understand it properly which results in threads like these every so often - and the general public find them tedious and won’t buy a paper on the back of the discussion.
So in the end it’s not in the interests of the newspapers and media to challenge it, in fact it’s in their interests to run with it and mislead and make people feel something by reading the headline (worry/panic etc) enough for them to buy the paper and read the nonsense in the article/thread
And here we are! 🙂
IMO the problem with MMT is that it requires really detailed analysis for what inflationary pressures might arise from particular spending plans, and identify ways to reduce those. Economists (and therefore governments) aren't very good at that because economics isn't a science.
It is,far less of a lie than believing that a countries economy is lkke that of a household, or small shop, especially when you print your own currency.
A lot of countries do it a little bit, on and off. You can make very strong argument that when the UK gov applied austerity in a time of near zero interest races you had to be really stupid not to really push for a lot of growth and reinvestment, via painting money - austerity was applied purely as a point of dogma. Long term investment in infrastructure ( yes Inc HS2) would have put the UK in a far stranger position than it is.
Downside is inflation of course
Printing more money is always seen as a last resort in a developed economy. Doing so causes inflation to rise, which in turn usually grows the inequality between the rich and the poor
Nonsense.
Government issues money every time it spends. It's not a last resort.
There is this idea that somehow printing money is special or unique. It's part of the process of regular spending. Happens every day.
Issuing money alone can't cause inflation because you could issue money and the put it in a savings account etc. It depends on what happens to it.
I urge the majority of people to just watch the recent film 'Finding the Money' for a round trip. It's just been released but has yet to have a UK date specifically. But you can get to see it.
If MMT worked then someone, somewhere would actually be doing it.
Ahem. UK, USA, JAPAN, NEW ZEALAND, CANADA etc all do it. Have done for several decades.
Trouble is with MMT is people haven't taken the time to know what it's about before launching a criticism.
Technically MMT is set of descriptions or lens that describes Government spending in a fiat system.
It doesn't automatically say 'let's spend money' all the time with no consequences.
The myth of the maxed out credit cards persists because the middle ground of politics and journalism refuse to do just 10% of understanding that might shift the narrative.
Just ask yourself - money for Ukraine and no money for removing the 2 child benefit cap. Why?
Where does the money come from? It comes from the BoE through a series of unnecessarily complex system of mirrors and pulleys - to make it appear like it's being paid for by the private sector.
Then ask yourself where does the private sector get money?
Well yeah - totally simple logic that the only people tasked with issuing currency is the government via the BoE. Because legally no other person can create currency. So it follows the private sector can't create it.
Perhaps not data but a nice real time illustration: Port Talbot steel works?
There are different kinds of manufacturing industry. Making steel is fairly basic processing of raw materials which has long been better done by other countries where the costs are lower and the raw materials are. Developed countries need to move on to industries with higher tech and skill input e.g. making cars or even satellites etc. Ultimately I suppose the most developed countries would simply design these things and export the manufacturing.
There is a myth also about currency fluctuation and devaluation.
This comes from the same silly logic about finite money.
Example - USA have spent trillions recently and in no way shape or form did their currency specifically devalue.
In fact their economy grew.
Currency is meant to float - it goes up and it goes down.
The things that affect currency are linked to how successful your economy operates within different metrics - not simply because a government spends money.
Also - paying interest at 5.25% is deficit spending too. It's just that your Bank is paying to people with money already.
So let's cut the shit - the money is available when a government wants to utilise it.
This is why Labour are going to seriously mess things up and a missed opportunity is going to develop if they don't start tweaking their absolutely ridiculous fiscal rules.
My God op.
You. Are. A. Monster!
Somewhere in the Bat cave he stirs…
Ha ha cheers.
Luckily for you I'm on holiday in a different time zone.
But MMT even is more of a discussion here in Bernie Sanders' state!
And just to push back a little if I can - what I find particularly frustrating is there are some clever people on this forum who seem to spend an amazing amount of time pushing back against MMT because in their Centrist landscape they know it unravels a bit of their economic logic; and thus the current Labour party.
An economic understanding that has been derived from the Tories by the way.
I'd ask those people to maybe just spend a bit more time looking into it at least finding good counter arguments as they are part of the narrative problem too.
It's possible to want a Labour party to do good things and subscribe to MMT as a description of government spending.
Labour need taking to task over this. Otherwise things will never change, and we all want stuff to change yeah?
Because legally no other person can create currency. So it follows the private sector can’t create it.
Don't the banks (not BoE) create money every time they lend?
Don’t the banks (not BoE) create money every time they lend
Commercial banks absolutely do.
A few things:
Commercial banks operate under the license of the BoE. They have reserve accounts with the BoE. They wouldn't work without the BoE underpinning the entire structure. Hence your government backed 85,000 for all savers.
And second they make loans that always need paying back. So the net result is to cancel out the new money creation.
When the BoE issues money (currency) it doesn't require it to be paid back. There is a debt out there (all money is debt.) But it can exist until taxation destroys it.
Only the BoE via the consolidated fund (the government's current account) can inject money straight into public services as it does every day from a balance of zero.
Also one wheel god - there is distinction between currency and money.
Sometimes I use it interchangeably. But reality is the currency is enforced.
Money is not.
But it's easier to say money when in discussion.
Bond purchases can only ever be made with prior government spending. It simply would not work using commercial bank money to buy bonds.
So the government effectively has 'created' the money for the private sector to buy the bonds the government issues for borrowing. Ridiculous in mainstream explanation.
That is why the private sector can't fund the public sector.
Bonds are simply a swap of reserves that are interest bearing from non-interest bearing assets. It has absolutely nothing to do with borrowing money.
A government doesn't need to borrow what is is the sole issuer of.
Hi Rone!
How does it work in the EU? Does the ECB basically act like the BoE, but for the entire bloc? How does currency 'cancelled out' by taxation in Spain relate to currency creation in Germany, and so forth? Do EU economies have to literally collect taxation and then "pay it back" to the ECB?
I always suspected that the British didn't want to give up the BoE and their superpower printing press for obvious reasons, hence not going into the euro, but it's curious to me that countries like France and Germany were willing to. What was in it for them?
Regarding taxation and its collection, am I right in thinking that HMRC never actually "collects" anything? Rather, it's simply currency that is taken out of circulation and therefore destroyed? Also, when they talk about the deficit, which the MSM and politicians were obsessed with, they were actually talking about the money paid out on government debt, not the overall national "debt". If so, who receives the money that the government pays to "service" its own debt? Itself?
Bonds are simply a swap of reserves that are interest bearing from non-interest bearing assets.
Sorry, but could you explain this further?
Also one wheel god
Thanks for the clarification @rone - and thanks for the promotion. Bow down and worship me, two-wheeled peasants!
Bow down and worship me, two-wheeled peasants!
🙂
piemonsterFull Member
That may well be but the companies involved will be offshored for tax reasons and owned by foreign entities, the UK manufacturing base has been gradually sold off since the mid 80’s.
Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims.
Check out Matt Kennard - The Racket
Angus Hannard - Vassal State : How America Runs Britain
Vassal state will make you so ****ing angry though....best not to read it as you wait on a flight to the states.
There are different kinds of manufacturing industry. Making steel is fairly basic processing of raw materials which has long been better done by other countries where the costs are lower and the raw materials are. Developed countries need to move on to industries with higher tech and skill input e.g. making cars or even satellites etc. Ultimately I suppose the most developed countries would simply design these things and export the manufacturing.
Well, the initial response and this are the two normal responses I see to the "does the UK manufacture anymore".
A) we used to make loads of steel
B) we moved on to other stuff
Neither with sources about the true overall current state of UK manufacturing. Oh well, will go for a google.
Is it because Rachel Reeves had her parliamentary credit card suspended?
which we no longer do to any great extent. We assemble some and make some parts
I suspect you're doing that sector a bit of a disservice, it's a bit more than "some" even if were not a world leader.
www.smmt.co.uk/industry-topics/uk-automotive/
Anyway, enough of my thread drifting