At the weekend Andrew Bailey, the Governor of the Bank of England, said that the Bank would not engage in direct monetary funding (DMF) of government spending. He was adamant that this was the route to monetary hell. I admit that I was withering in my contempt for the crassness of his comments.
This morning the FT has reported that:
The Bank of England will directly finance the extra spending needs of the UK government on a temporary basis, the government announced on Thursday, allowing the Treasury to bypass the bond market.
The move highlights the extraordinary demands on cash the government has experienced in recent weeks, which it feels it cannot finance immediately in the gilts market.
In a statement to financial markets, the government announced it would extend the size of the government's bank account at the central bank, known historically as the “Ways and Means Facility,” which normally stands at just £400m.
This will rise to an undisclosed amount, allowing ministers to spend more in the short term without having to tap the gilts market. In 2008, a similar move saw the Ways and Means Facility rise briefly to £20bn.
This direct monetary financing of government would be “temporary and short-term”, the Treasury said in a statement.
I would like to point out that the national debt was also temporary in 1694 and we have had it ever since.
This time we are likely to also have direct monetary funding in perpetuity: nothing else is going to get us out the crisis that we now face.
As Keynes knew in 1940, governments can always create money at will.
And when the whole of the developed world faces the same crisis that we do, and all will also be doing DMF, the exchange rate risk of this is precisely zero.
Welcome to the new paradigm of government funding where we realise that goverments pay for themselves, as some of us have always argued that they can, and did.
Farewell taxpayer's money then: welcome to the realisation that what governments spend is all their very own.
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And one postscript: how long should Bailey stay in office, having now proved that he is not the man for the moment?
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It’s really difficult to comprehend how so-called “bright” individuals still have their thinking about money linked to “gold-standard” economics.
There must come a time when MMT is the common tongue and we start referring to national debt as what it really is, National Savings (curtesy of JD Alt)
Bob, they don’t get it because the present system gives enormous privilege to a small group of people and changing it would threaten that-to say the least.
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Upton Sinclair.
Bailey (and the Treasury) is fighting a desperate rearguard action. From saying ‘the facility was just a “historical feature’ about 3 weeks ago to he might use it as a temporary operation the other day and now we have the Treasury insisting that it will be repaid by the year end.
PoMo also say: “This use of direct monetary financing demonstrates once and for all that the government does not depend on the market to finance its spending. Hopefully now we can have an honest debate about how our collective resources should be allocated.”
Does Bailey have any credibility left?
None
After his (in)actions at the FCA, did he have any to begin with?
“This will rise to an undisclosed amount, allowing ministers to spend more in the short term without having to tap the gilts market. In 2008, a similar move saw the Ways and Means Facility rise briefly to £20bn”.
Maybe I was asleep, but I do not recall the announcement of the £20Bn in 2008. Also, the facility now is “undisclosed”: I hate to sound like a ‘broken record’, but if only we had known about the 1914 3.5% War Loan issue Treasury-Bank of England ‘shenanigans’, at least sometime between 1914 and 2014, we all might have been better informed about the real nature of Government credit creation.
It seems that Government has real difficulty overcoming the presumption that no Government could have any credibility at all without keeping the public entirely in the dark. Now, sit down, close your eyes and think that proposition through.
I have….
This magic money will no doubt be used to bail out their pals, when it should be used to provide for us all by way of a universal basic income at the very least, and how about spending some of it on frontline staff, on ventilators, on ppe, and on a credible lockdown exit strategy by way of a coherent and comprehensive testing strategy! That is just for starters but no doubt the tories will abuse their power even further.
Something to think about:
in 1492 Columbus ‘discovered’ the Americas and within a few years a tidal wave of gold was flowing to Spain and continued to do so throughout the 16th century. What the Spanish did was to stamp it into coins and print them with the King’s head. Then they spent the new coins. Largely on consumption so it left little behind in Spain other than palaces and churches, but it did mean that it was literally a golden century of European prosperity and economic development. Michelangelo, the Medici Bank, the Dutch Republic, etc etc. There was so much gold the Spanish state had very little need of any tax revenue.
In what way was what Spain did not 100% ‘printing money’? Quite literally as bits of metal were printed with the sovereign? So why is it fine and dandy to ‘print money’ if it is shiny pieces of metal, but a catastrophic end to the known universe when printed on anything else?
Incidentally it is estimated the inflation in Europe for the 100 years to 1600 was around 3-4% pa which we now consider to be fairly optimal.
Mainly silver not gold, and the Spanish crown took a fifth. You might call that a tax. Mainly spent on commodities and luxuries bought from other European countries (or on waging war) rather than invested into productive domestic activities, so relatively little left to show for it except for some fantastic art and architecture.
This is what empires tend to do. The UK received a cataract of value from its empire. Things get a little sticky when the flow of resources slows, and the costs increase. That might be where America is now.
I really wouldn’t use Spain as an example. Well, maybe I would but an example of how to undermine your empire and kingdom. By the 16th century, Spain was rotten to the core and on a long steep decline until it rallied in the 20th century.
Nobody was bothered to work. Nobody wanted to innovate. Why not? Because there was another boatload of doubloons coming over tomorrow.
More knowledgeable people than me can distinguish between MMT and the Spanish disease. But it’s not an example we want.
That was the way I understood it
The gold standard was really not a good basis for money
I think Andrew and James didn’t really get the point I wanted to make. I most certainly do not say that 16th c Spain is an example anyone should follow.
What I wanted to do was to show the complete confusion and nonsense about money that most of the public have and also a lot of economists. Most of those would see gold and silver coins as ‘real solid’ money, but a paper note or digital currency is not. Thus they would not accuse Spain of ‘printing money’ and devaluing the currency, yet they absolutely were printing it. Whether you print it on silver or a bit of paper or a computer system, it is just money spent into existence by the state. Now of course it was completely wasted by Spain as it almost all went on imported luxuries, etc. But that steady flow of new money throughout Europe resulted in a very prosperous century for the Flemish tapestry makers, their English wool suppliers, the Venetian glass makers, the artistic communities, etc etc. Of course nobody intended or understood that Europe was prosperous precisely because there was a steady and sustained expansion in the money supply. Folk often claim that the 30 years before 1914 (the Long Boom) were a huge success because of the international adoption of the Gold Standard and thus the adherence to ‘sound money’, etc. And of course as soon as we left the Gold Standard because of WWI we had money printing and QED the great inflation of the Weimar Republic. The reality is completely the opposite. There was another historical accident in 1886, which was the discovery of the Witwatersrand gold reef. The richest deposit ever found and there was a sustained increase in the global stock of gold of between 2-4% pa every year to 1914. Just as with Spain this directly led to a matching increase in the money supply as that gold piled up in the vaults of the BoE, etc. Before 1886 the Gold Standard and a drying up of previous mines and thus an inability to increase the supply of cash had been causing persistent deflationary recessions. So the lesson of all that should be that it is precisely appropriate spending of new money by the state that ensures good performance of the economy (though bearing in mind that Spain’s spending mostly benefitted everyone except the Spanish since it was not invested in anything appropriate for Spain – you could say what Spain did was pay a dole to the Spanish just like Thatcher did with the oil revenues in the 1980s).
Bringing us up to date then Germany has an absolute horror of ‘printing money’ which has caused an endless Eurozone recession since 2008. Yet over the past 20 years the Bundesbank has purchased a stockpile of gold that is now the second largest in the World and worth over €300 billion. But that, apparently, isn’t printing money so it is fine. However, if the Bundesbank had instead bought €300 billion of aluminium it would clearly be a hyper-inflationary catastrophe because they would have printed €300 billion to pay for it. So how does the traditional economist work that one out in their grand theories of money?
So the upshot of all that is that all money has been created and spent into existence by the state thus direct monetary financing of the state. So there is absolutely no reason to be having fainting fits and palpitations because we are doing DMF now.
That will not stop those fist Tim, but you are right
The Bank of England are wrong, they have a perception complicit error with the free market individual viewing of false choice. Government has the total voted mandate of the influence of the populas people to create wealth for the people by there influence which is a part pretend representative democracy. No ones pays for government .. we the people are the government .. the security class of each other’s security. So when all round security is the baseline , the Bank of England can in crowded back to the state regardless what the interests of billionaire influence miners in the House of Lords and sovereign switches say. The people’s peace is the queens peace, the true treasury box. So no box of tricks this time for the banker jokers.
Sorry, Gary, you lost me there…
BOE will long-term try to lend underwrite money to government under bond gilt issues instead of a global devaluation of currency by increases money production for economic HOME production. The BOE undermines the populas into more debt. Will not happen. I think Negative base rates and BOE will be brought under state control public alliance as the BOE will try to make the country pay for an economical recession to stop China becoming the new international peg so the uk has to adopt an usa fed policy . People will not buy that anymore, post 2008, post brexit, post pan corona. At least Europe can be centralised with a new core system.
Gary
It is really hard to follow your logic
Sorry….but I am not clear where you are going
Richard
There’s no magic money tree!
Debatable
What is certain is that there is modern monetary theory
And it describes what really happens in gov’t money creation
Didn’t you know?
If you want to do DMF, you’ve got to Deny Monetary Funding (DMF {2}) at the same time.
After all, you don’t want to get people’s hopes up do you? That’s not what the proto-Edwardian Tory state would like, after all, is it?
On the money (pun intended) as ever, Richard. But how depressing that many ostensibly progressive (and highly influential) commentators simply don’t seem to see this:
https://www.theguardian.com/commentisfree/2020/apr/08/labour-test-coronavirus-crisis-spending-keir-starmer
I admit to being baffled as to their motivation, and I worry hugely that the opportunity opened up by fact even the FT et al are increasingly receptive to these ideas will be wilfully squandered by our own “side”. My God, if we don’t get it right this time…
I admit I have never thought Rafael Behr on the left…
Free money, free production , free choice, free people quite frankly.., the more people have influence the more wealth is produced , todays governments are designed to mine influence into the hands of the few so the wealth belongs to to Matthew via Parkinson. If production flows inflation does not flow , the issue being one of money controlling production by the kings ransom false note called currency. Maybe the balance of influence is the issue aka one of real freedom to evolve, not as growth but the essense of inherit right to exist in any form in lieu of whipped mind control boarding school elite system we have today. A crash is always precursor to zeitgeist. The global system was heading towards a recession and international peg flip to east anyway. Seems the virus assists with the control of mass social change with govern,mental centralised commonmanagement.
Can’t wait for the silly fight back from the ignorant Thatcherites where the mantra government has no money of its own is always accompanied by spending money on public goods and services will automatically create hyper-inflation. Since the Thatcherites never dare to say the country can dispense altogether with public goods and services the logic of their position is private sector banks creating money for these items will also create hyper-inflation. So what’s the ultimate logic of their position? Better revert back to barter!
Vindication!
https://www.theguardian.com/commentisfree/2020/apr/09/the-guardian-view-on-the-covid-19-fight-it-can-be-paid-for
Indeed
Hi, I work in a council learning disabilities respite unit and want to understand money creation better to help combat the embedded “there’s no money left” culture in my work place.
The FT article states that normally the Ways and Means fund only has 400 million for use. What was it used for before this crises?
As a public sector worker are my wages paid for by money taken from the UK bond market or is it simply created?
Any clarification or links would be very appreciated. Thanks
Lots here https://www.taxresearch.org.uk/Blog/2020/04/08/modern-monetary-theory-resources/
Great thanks
A whole thread on ‘money creation’ and no mention what the Treasury did to save the country from financial collapse at the outbreak of World War One.
May I humbly suggest you all need to read this:
https://www.newchartistmovement.org.uk/urgent-actions-this-day/alert-action-this-day
The whole privately controlled central banking system, run by the hardly known BIS, is rotten to the core – it all has to go lock, stock and barrel – you can’t tinker with something that is so fundamentally fraudulent and which seeks to enslave nations by creating unlawful debt.
There IS a magic money tree and its called the ‘Bradbury’. And Sovereign National Credit is the ONLY way for the peoples of the world to take back control of money creation and money supply.
And system-serving, university educated (LSE in particular) economists need to realise that the old saying ‘Garbage in – Garbage out’ applies to them. Common sense most certainly doesn’t!
With respect, that was history
And the debtor bank creates is lawful
Nothing harms the case for MMT more than the overstatement of their case by some supposed monetary reformers
With respect too, I don’t understand your response. What exactly do you mean by ‘that was history’. Surely if it worked then, it can work today. We are teetering on the edge of real economic chaos – it can be stopped in one very quick action by the Chancellor and the Prime Minister immediately authorising M0 at 100% thus harnessing the wealth and labour potential (creativity) of the nation to prevent a return to austerity and recession where only the weakest and most vulnerable in our society suffer appallingly.
And I’m not sure what you mean when you say “the debtor bank creates is lawful”. If ordinary people create money completely out of thin air as debt, money that’s based on absolutely nothing, they would end up in prison eating porridge for an awfully long time. It’s called fraud! So, what makes a private bank any different? Who or what gives them the right to create money that’s based on absolutely nothing? Just because our half-witted and /or criminally complicit politicians allow this to happen, doesn’t mean to say that we should persist with this criminal arrangement once we understand what’s going on.
And I just took a quick glance at your MMT – the ‘Modern’ bit worries me – ‘Modern’ for how long? Until the next set of economic theories come into place by academics wanting to make a name for themselves?
Surely, when it comes to money creation and money supply, we need a simple, effective and consistent way of doing this that usury and the private, debt-creating and thoroughly corrupt bankers can’t manipulate to their advantage? And it’s also a fiscal arrangement that will remove the need for any direct taxation…something, Richard, that you won’t be able to agree with as it will put you out of business!
And by the way, for the record, the Bradbury Pound is NOT fiat money – it was based on something tangible, the actual wealth of the nation. Just as Colonial Scrip did when it served the American Colonists (and was the REAL reason for the AWI), the Greenback Dollar did when it won the ACW for Lincoln and the humble Guernsey Pound did when it built up the infrastructure of that island after the Napoleonic War.
Remember that old Army saying, KISS! Keep it simple stupid! The more complicated something is, the more the criminals can ply their trade. As I said before, the whole system is rotten to the core and has to go.
The money world of 1915 is nothing at all like the money world of know
All that was radical about Bradbury’s was that they were not convertible to gold i.e. they were fiat money
All money is fiat money now
Fiat money had value simply because of taxable capacity – the wealth of the nation
That was it
That’s what gives all fiat money its worth
You are making claims that really do not make a lot of sense
Well, Richard, my claims would have made perfect sense to that much-respected and truly honourable Labour MP in the 1930s, Thomas Johnston (he’s known in Scotland as the father of Scottish hydro-electricity). You need to read his account in Chapter 6 of his book ‘The Financiers and the Nation’. Entitled ‘Usury on the Great War’ (https://archive.sustecweb.co.uk/past/sustec12-6/extract_from_the_financiers_and.htm), he states clearly about those Treasury-issued M0 at 100% ‘Bradbury’ notes that “this new currency had been issued by the State, was backed by the credit of the State, and was issued to the banks to prevent the banks from utter collapse. The public cheerfully accepted the new notes; and nobody talked about inflation”.
There you have it – the Bradbury Pound was clearly based on the actual wealth of the state/nation. The Bradbury was most definitely NOT fiat money.
And it’s so sad that your life seems to be based around the need for taxation. Politicians like taxation because that’s how they can enjoy some sort of control over us. Over the years, taxation has become increasingly complex and it certainly has become much more invasive in our personal lives, especially as new surveillance technologies help those who seek more and more control over us. Indeed, it is just what the unelected and unaccountable ‘deep state’ requires – the last thing the financial elite want is for people to be in full control of money creation and money supply whereby direct taxation is no longer needed and people are free just to get on with their lives under the Common Law.
Justin
With respect, you need to learn what fiat money is
Bradbury;s were, quite emphatically, fiat money
And nothing else
That was their novelty
Before you promote something you really should know what it is
Richard
Richard, with the greatest of respect, I KNOW that I’m right, whatever system-serving economists may tell me what ‘fiat’ is. How do I know?
Well, my uncle was Sir Harry, later the Lord Pilkington. In 1954 he attended the first ever Bilderberg Group meeting actually at the Hotel Bilderberg in Holland. The next year he became a Director of the Bank of England, a position he held until 1972. Giving me some guidance to take through life, he told me “never believe anything you read in the press because ‘we’ control it – and never believe a politician when he says he can do something, he can’t unless ‘we’ say he can.
My uncle was a part of the so-called ‘deep state’. He told me that they effectively controlled everything – including education (he was actually the Chancellor of Loughborough University)…as I said previously, garbage in, garbage out. To get your Degree, you have to go along with what you are taught. And if people today do have Degrees in Economics, I’m sorry, but they had might as well just put them in the waste paper bin. All they are doing is maintaining and perpetuating a completely corrupt system that uses unlawful debt to enslave nations, communities and families. It’s all got to change and IS going to change as people wake up to the truth about money creation and money supply and how we’re all being robbed blind by unelected and unaccountable banksters who should be put on trial for appalling crimes against humanity…including the starting of wars!
In September 2012, the son of another Director of the Bank of England, who knew my uncle, rang me and told me to research the Bradbury. His father, extremely elderly and on his deathbed, had told him to tell me that if I was to research the Bradbury, I would find the solution to all of Britain’s economic woes.
The truth is, as I’ve already said, the whole debt-based financial and privately-run central banking system is absolutely rotten to the core – there’s not one aspect to it worth keeping. It is primarily run by the ‘deep state’, those unelected and unaccountable banking dynasties through their secretive and very little known Bank for International Settlements (BIS). Let me tell you what Professor Carroll Quigley wrote back in 1966 in his book ‘Tragedy and Hope — A History of the World in our time. Please read this extract very carefully and take in the enormous implications. He wrote:
“The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences. The apex of the system was the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups.”
Now, to reinforce further what I’ve just written about this appalling financial system that effects each and every one of us, here are two damning extracts from the book ‘Economic Tribulations’ written by Vincent C. Vickers. This man was a leading industrialist as well as being a Deputy Lieutenant of the City of London and a Director of the Bank of England from 1910 to 1919. In 1926, Vickers publicly declared his opposition to the policies of Montagu Norman, especially about his proposed Bank for International Settlements. Vickers finished writing his book just after the outbreak of the Second World War but unfortunately died only one month later in November 1939. In his book… and remember he too was a Director of the Bank of England and ‘in the know’… he wrote:
“Although it is the money system which is to be accused of dishonesty, those who use and depend upon a dishonest system, knowing that system to be dishonest, cannot themselves be regarded as honest men. Moreover, it may be that the present system, which international finance has forced our democratic government to adopt, uphold, and protect by every possible means, has undermined the character of the people and forced them to alter their definition of the word honesty so that it may be made to comply more nearly with modern practice”.
“The supply and issue of money and the creation of credit still remain almost entirely outside the control of the Government, and are still managed by Banking and Finance and by the Bank of England with its intimate associations with the Bank for International Settlements; whilst, until our actual declaration of war, Foreign Exchange speculators were permitted at all times to gamble with the nation’s credit, untrammelled by any sense of patriotic duty and thinking only of their own profit… Until these financial Gangsters are permanently exterminated there can be no complete confidence in the economic welfare of the country”.
In the second extract, in Chapter VII, which is entitled ‘The Direction of Future Policy’, Vickers lists his proposals which are not too dissimilar to what we need today. They are proposals that would certainly ‘exterminate’ the financial Gangsters!
“In the question of what steps should be taken to put matters right, I can only suggest the general direction in which our future policy should point; for I myself do not believe that there exists any perfect cut-and-dried scheme which is likely hereafter to be adopted, lock, stock, and barrel, as our future monetary system. Moreover, there are many other technical and psychological considerations which would be necessary in order to achieve peace and contentment amongst the people. The main objectives however, should include:
1. State control and State issue of currency and credit through a central organisation managed and controlled by the State.
2. Stabilisation of the wholesale price level of commodities. That is to say, a fixed and constant internal purchasing power of money; so that a pound will buy to-morrow what it bought yesterday; an honest pound, not a fluctuating pound. And this can be done by so issuing and regulating the volume of available credit and currency that it shall at all times be adequate to permit of the purchasing power of the consumer being equated with the volume of production; not by limiting the purchasing power, but by firstly increasing purchasing power more in proportion to the productive capacity of industry.
3. Fixation of foreign exchanges by foreign exchange equalisation funds, and agreement with Empire countries and all other countries willing to fall into line; and, once this was accomplished, the removal or diminution of trade barriers which to-day protect the countries from the results of a bad monetary system.
4. Any additional supply of money should be issued as a clear asset to the State; so that money will be spent into existence, and not lent into existence.
5. The fluctuating quantity of gold lying in the vaults of the banking system should never be permitted to govern the volume of credit and currency needed by the country.
6. The elimination of slumps and booms; and more direct procedure for eliminating unnecessary poverty
7. The abolition of the Debt System where all credit is created by the banks and hired out at interest to the country.
8. Absolute State control over all foreign lending; and the adoption of the general principle that our foreign trade should be so conducted as to preserve
a. the interests of the Home Market,
b. the interests of the Empire countries and the English-speaking nations,
c. the interests of Foreign nations, and that this principle should particularly apply in the case of Home production and foodstuffs”.
So, Richard, you have to support me here, the system is criminal and rotten to the core. Common sense and the Common Law says it has to go lock, stock and barrel. And to draw off from the credit of your nation in a controlled and responsible way (M0 at 100%) in order to provide the debt-free and interest-free liquidity needed for a secure, stable and prosperous economy, is the ONLY way to proceed…and it’s not fiat in the ‘traditional’ sense like the criminal central bankers’ printing of helicopter debt-laden money for their Quantitative Easing scam. Come on Richard, please stop supporting this criminal system and join the people who have had enough and are now organising to wake up the nation. Please support the restoration of the Treasury-issued Bradbury Pound. Thank you. http://www.newchartistmovement.org.uk
Politely, this is nonsense
The Bradbury pound was a fiat currency issue in a gold standard era
And that was it
In its entirety
As for the rest, with respect, complete nonsense