On Sunday Andrew Bailey, the Governor of the Bank of England said that the Bank would not undertake direct monetary funding (DMF) of government spending.
As I pointed out at the time, that implied he really believed that the Bank of England is really independent of the government, which happens to own it, when as I have shown it is most definitely not.
Or as someone put it to me:
Bailey's behaving like the fridge that tells its owner what they may put in it.
This morning the government told Bailey to do direct monetary funding.
The fridge has been told the camembert is going in it whether it likes it or not.
Time for a new fridge, I think.
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The usual smoke and mirrors. The Central Bank (BoE) and the Government Treasury are one and the same. There is no such thing as an independent Central Bank in a sovereign fiat currency economy.
This is just another form of off balance sheet funding using the magic money tree, basically the same as the Funding for Lending scheme. Ways and Means (WM) is a government overdraft account at the BoE, a relic of Gold Standard days. It has a £370 million loan outstanding for decades to the Treasury.
The BoE will loan the Treasury National Loans Fund (NLF) with billions, while the same NLF guarantees the BoE loan in case the NLF reneges on its debt to, itself, via the BoE. What makes this even sillier is that the NLF is the sovereign fiat currency issuer that has a bottomless pit full of Pounds Sterling it will never run out of.
The BoE has little money of its own and normally can only handle Treasury paper and reserves swaps. The BoE can’t buy private sector commercial paper or print bank notes, unless the Treasury funds the BoE with its own bits of paper.
I think you need to learn some more NMT
The BoE can most certainly create money – any amount of it
Richard, you should learn the difference between government money and commercial bank credit. The BoE can create deposits in a customer account in exchange for a loan agreement, just like any other bank. The lone asset balances the deposit liability on the banks balance sheet. Hence every thing in the credit world sums to zero. The lending bank will need to acquire “reserves” at the BoE to allow the deposit it created to transfer to another bank, such that both banks balance sheet continue to balance. Ask yourself, where does the BoE get its “reserves” from, to allow the deposit it created for the Government Treasury, to be transferable into a virus hit SME bank account for instance.
Go and learn some MMT
You are missing fundamental elements of understanding – all explained on this blog of late
acorn,
Richard is absolutely correct to say “The BoE can most certainly create money — any amount of it”.
If you don’t believe me, please listen to BBC R4’s programme “Shaking the Magic Money Trees” in which presenter Michael Robinson was the 1st journalist ever have been invited to the BoE to see the ‘Magic Money Tree’. Not only that but he got a demonstration of how it actually works.
Listen from @ 1:30 mark and you’ll find the BoE only have to literally push a button on a laptop. As Michael jovially puts it to the division head that performs this duty: “Hit the button, make the money. Hit the button, make the money”. To she which simply answers “That’s right. That’s right.”…
https://www.bbc.co.uk/programmes/b09pl66b
Excellent analogy. You’re clearly back to firing on all cylinders. No shortage of issues and topics requiring your forensic analysis. Hope you’re well stocked with coffee 😉
Just going for another one now….
“The fridge has been told the camembert is going in it whether it likes it or not.”
May I paraphrase?
Dear Mr Andrew Bailey: Fuck you!
PSR!
Yeah – sorry Richard. I need to go out for a walk.
🙂
Enjoy it…
The Guardian absolutely nails it..
“The Guardian view on the Covid-19 fight: it can be paid for”
Guessing written by Randeep Ramesh. Article also quotes Randy Wray in the process.
https://www.theguardian.com/commentisfree/2020/apr/09/the-guardian-view-on-the-covid-19-fight-it-can-be-paid-for
It is good news
But I am not blogging today – too tired!
Quite right.
There are more important things in life.
The FT had an amusing article on the subject. Extract:
“Treasury said in its statement. “As well as temporarily smoothing government cash flows, the W & M Facility supports market function by minimising the immediate impact of raising additional funding in gilt and sterling money markets,” it added. It said any drawings on this facility would be repaid as soon as possible before the end of the year”
& thus we are in “I will lend myself £100 and repay it a bit later” territory.
Interestingly the Torygraph buried the “magic money tree news” – probably so as not to upset its mostly insane readers.
Had it been labour doing this the usual suspects would be over them like a rash.
Your last point is so true
The usual suspects, like Yvette Cooper, are also very quiet