As the FT noted yesterday
In the third revision to its financing requirement since March, the Treasury has demanded its Debt Management Office raises £275bn in the first five months of the financial year, compared with a full year estimate in the March Budget of £156bn.
Which is hardly surprising: coronavirus has changed a thing or two. As they then noted:
Between April and the end of August, the Treasury will have raised £55bn a month to fund its coronavirus spending, more than four times the Budget plan of £13bn a month.
Before adding:
There has been no strain in the gilts market so far and the government has easily raised these sums, sometimes benefiting from negative interest rates in short-dated government bond markets.
This is hardly surprising. The Bank of England is buying gilts, pound for pound, to match new issues, and usually ahead of the issues taking place. In net terms government debt is not rising at all, when demand for it is, which is why negative rates are sustainable. The FT only grudgingly admits this:
It has also been helped by Bank of England money creation, used to purchase almost exactly the equivalent quantity of existing government debt. The test will come in coming months when the BoE's rate of purchases falls to roughly half the level of Treasury issuance.
So, three thoughts. First, why the failure to put the acknowledgement that the government is being 100% direct monetary funded upfront?
Second, why the failure to acknowledge that debt is not rising?
And, third, why the presumption that QE will end? Why is that being assumed?
Does the FT have to play so hard to the idea that bond markets still have some financial clout that they have to make up situations where they might? It seems that way.
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Because I suppose everyone knows that the Government is going to cave in to fiscal mythology and there will be vultures waiting for a feast.
They have been thinking like this for so long they just cannot stop.
It is a modern wonder that those supposedly in the know,like FT correspondents,finance experts and most economists,cannot see the wood for the trees…..or if you prefer,that the tail is not wagging the dog
It’s enough to make you choke on your toast first thing in the morning. I saw this comment somewhere in the last few days and have only slightly edited it ‘ The way that money is actually injected into the economy is by the Treasury spending it into existence . The Treasury has full control over the creation of that money. It decides whose accounts should be credited and whose debited ( as tax payments ) . By spending more than it taxes some of the money it creates remains in circulation in private sector bank accounts. The Debt Management Office then sells bonds to banks and the Bank of England buys bonds from banks . This is a wash trade ( a practice banned in the private sector because its only purpose is to rig the market by creating a false impression of price movement ). It has no effect on the money in private sector bank accounts. Where the money subsequently moves to after the Treasury has injected it is up to those who had their bank accounts credited . ‘ The FT just has to keep up the pretence of the power of the bond market even as we move into negative interest rate territory just in case all us plebs see through this chimera and can’t be beaten with this stick called ‘ the markets ‘ .
Thanks
The Financial Times isn’t much interested in equitable solutions which is why it isn’t interested in governments that can create money without debt.
I share your frustration. But to be fair to the FT they merely reflect the narrow mindedness of the most financial market traders/investors and their readers.
Interestingly, within the financial community, it is the money market/repo traders that understand MMT best. They are totally familiar with the concept of adding and draining liquidity to money markets and see QE as no different to that (just a big “coupon pass” in their jargon). They also have no issue with the idea that fiscal policy can be used to add/drain too – it is a fairly simple extension.
That is who the FT needs to speak to.
I was thinking of Michael Hudson’s line that the financialisation of the economy is warfare!
Hudson says the same about trade.
I think he is right on both counts.
Meanwhile at the Bank of England ingestion of magic mushrooms continues.
https://www.theguardian.com/business/2020/jun/30/uk-on-course-for-a-v-shaped-recovery-says-bank-of-england
Andy Haldane has lost his marbles