The Office for National Statistics claimed that the so-called UK national debt was £2 trillion this morning.
To be candid, I think that's a politically motivated lie, and they can sue me if they like. I explain why here.
The reason why it's a lie is, in the first instance, that the government cannot owe itself money, and yet £735 billion of the so-called national debt is now owned by the government, and so cannot be included in the figure for debt.
And then there's the fact that almost £200 billion of this supposed debt is actually deposits at National Savings and Investments, and to call that debt is grossly misleading.
And if evidence is wanted, the government's audited Whole of Government Accounts agree with my position, stating debt net of quantitative easing, for example.
Those promoting this claim do so to pave the way for cuts in government spending.
It is shameful that the ONS play a part in this false accounting.
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The FT tells us that the pandemic “blows a hole in public finances” thanks to the “Covid-19 spending boom” and gives us the highest peacetime borrowing.
Better tune into their “Live Q&A: How will we pay for the pandemic?” I’m away to look down the back of the sofa!
I rather like Tim Rideout’s way of putting it, framing the issue in the parlance of accounting…..from the government’s perspective of the accounts it’s a “debt” but from the private sector’s perspective its our savings (and the cash that we use). Liabilities on one side, assets on the other. Its not hard to understand if one puts the “ideology and dogma” to one side (to quote a certain Rishi Sunak).
Why is it misleading to refer to National Savings and Investment products (which is money most certainly owed to individuals) as debt?
It seems quite obviously debt under any credible definition?
Why are we describing national savings as debt that has to be repaid when very clearly that is not what the depositors want?
Depositors don’t want their money back? You’ve doubled down on your nonsense.
People buy NS&I investments as they want low risk , government-backed investments with good liquidity so that they can get their money back at short notice.
No-one has ever invested in an NS&I product in the expectation that they won’t get their money back, that is absolute nonsense.
When did NS&I last repay all deposits, simultaneously?
If the answer is never, indeeed, if you cannot even find periods when they fell massively except by policy, then they may technically be a liability but repayment is not an issue
So, yet more nonsense
Holding deposits is not a matter to be concerned about
If it was, declare all banks at major risk now
But you know they’re not
But that, of course, is because their liabilities are guaranteed by banks: the one organisation that can never fail to meet its liabilities, which is why no one need claim on it and why NS&I will nit be making net repayments.
This is a very odd redefinition of “debt”. Lots of people borrow money from banks. Do the banks demand that the money is repaid all at once? No. Is it nevertheless debt? Yes.
Stick to the facts – it’s reasonable to say that NS&I likely won’t be repaying the debt any time soon, and that people invest long term in NS&I because they want low risk savings, and so the government doesn’t have to worry at all about this part of the debt.
Read what I wrote yesterday
And please stop using microeconomic logic in macroeconomics
Richard,
your rhetoric here is absolutely unfair to the ONS, and while I am sure they won’t sue you, it shouldn’t take that kind of action for you to correct this post and apologize to the hard working folks at ONS (my former colleagues).
ONS are publishing a number of different measures for public sector debt, and trying to do so in accordance with internationally accepted statistical methodologies, but these are tempered by other considerations.
The method for the headline number of debt (Public Sector Net Debt ex) has been basically unchanged for a decade and this was introduced during the global financial crisis. ONS still publish other measures of debt, including the original public sector net debt that predates the global financial crisis – this number is actually higher still.
Public Sector Net Debt actually blow threw 2 trillion back in 2008 – why did it do this? Becuase in 2008 the UK defacto nationalized RBS, Lloyds and Northern Rock, and so these entities were classified into the public sector, that meant their liabilities and their liquid assets entered into net debt – but back then, it was envisaged that these interventions, and the BoE quantitative easing, would be short term affairs – that the banks would be sold back to the private sector (as has happened now with Lloyds) and QE unwound.
Consequently, ONS and Treasury together agreed on a new measure, PSND ex, to exclude the temporary impacts of the financial crisis, hence the new headline measure, PSND ex, remain well below 2 trillion for the last decade – until now. You can read all about this in various places on the ONS website.
Now, in addition to this, ONS uses a definition of gross debt that includes three types of liabilities – debt securities (bonds and T-Bills), loans, and currency and deposits. These are all clearly liabilities, and widely agreed that these are debt (EU Maastricht debt includes these three instruments, the IMF Government Finance Statistics Manual definition of gross debt encompasses these and other laibilities too).
QE has the practical effect of replacing a government debt security liability with a Bank of England currency and deposit liability. There is still a liability there. Debt is only lower by 735 billion as you claim, if you use a narrow definition of debt, and ignore the Bank of England’s own liabilities. As for the 200billion at NS&I, these are clearly liabilities as well, I’m not sure why you’d argue to exclude these.
You can have a good sense of all of this by loooking at the BS-GG, BS-PC and BS-PS tabs of the ONS spreadsheet here https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.ons.gov.uk%2Ffile%3Furi%3D%252Feconomy%252Fgovernmentpublicsectorandtaxes%252Fpublicsectorfinance%252Fdatasets%252Finternationalmonetaryfundsgovernmentfinancestatisticsframeworkinthepublicsectorfinancesappendixe%252Fcurrent%252Fdatdataset7appendixefinal.xls%26fbclid%3DIwAR0M8te9kk1MzDYbHVzIVdw5LJOUr2U8I_qj_EO2a9aa9s1GDKyLqraP9EM&h=AT3mBPOecjDLi2bRmxcQw4aiA18DM9L-vnEacixnjcq2oZ8_-kW9Uc0zzjm5_G9AKMS6GK2XvkgyW9H-5VrgQ002uEuy8Hxmqt94WxcRPaj2DUPOWuhF5czkduAXBZDTesE
This shows the balance sheet of the general government, public corporations and the consolidated public sector, compiled according to the IMF Government Finance Statistics Manual – and here you can see General Governnent liabilities in the for of debt securities are lower than (the wider) Public Sector Liabilities in debt securiites. This is because the QE holdings of gilts are consolidated. But you’ll also see that while GG has relatively low liabilities in currency and deposits, the consolidated public sector has a lot – as here is where BoE liabilities to the banking system appear.
All of this is complex, all of this depends on the accounting conventions used (ONS is not following IFRS or the public sector equivalent, IPSAS), but statistical standards, in line with the Eurostat manual ESA 10 and the IMF GFSM.
You are objectively wrong to state that ONS are lying, and its not correct to call this false accounting either. You, as much as anyone, now that accountancy is riddled with conventions and differences in treatment which is why the accountancy communities professional in joke is “What is 2+2? What do you want it to be”.
ONS are following a consistent approach, that has been in place for a decade, and its disgraceful for you to question their motives in this way, and you should strongly reconsider this post.
By all means, suggest that the headline measures should be changed, by all means do alternative analysis to say why it should be different, but to impugn ONS, as you are doing here, and falsely ascribing political motives that are simply, not present, is not acceptable.
Apologize.
Of course I will not be apologising
If the ONS puts out unqualified misinformation I will say so
And that’s exactly what it is doing because it is ignoring the fact that QE is monetised – and as you note that’s the result of an agreement with the Treasury – which means it is a political deal. A ten year old deal has achieved this. That does not mean it is right.
And as the Whole of Government Accounts show the result is not debt: it is regulated and required bank deposits under effective government control to ensure that the banking system can work
As a result I completely disagree with you
Mr Stokoe,
“All of this is complex, all of this depends on the accounting conventions used (ONS is not following IFRS or the public sector equivalent, IPSAS), but statistical standards, in line with the Eurostat manual ESA 10 and the IMF GFSM.”
It is, in short overdue that someone asks; why is it just so complex? Why so many measures? This, I submit results not in public information, but public obfuscation. I notice that you describe the ONS as “hard working” (I am sure they are); but so what? The work has to produce something usable, and that represents reality. Following conventions carefully is not really much of an argument, if they do not do the job.
You make the point that after Northern Rock, “the UK defacto nationalized RBS, Lloyds and Northern Rock, and so these entities were classified into the public sector, that meant their liabilities and their liquid assets entered into net debt — but back then, it was envisaged that these interventions, and the BoE quantitative easing, would be short term affairs”.
Well, that did not work out very well, in so many ways; did it? What precisely, did that fix, beyond the short term panic? Not least ‘too big to fail’ meant government could nationalise the debt (dump it on the bublic purse), and leave the profit making (and the irresponsibility) in the hands of the privatised failures. They are still free to botch the system, as they did before. I still cannot quite understand the jaw-dropping free-pass we have given a private sector banking sector that has committed categorically unforgivable blunders. Do not forget that in creating the ‘too big to fail’ industry by out-of-control banks, the genuinely great British mutual funds financial sector was completely destroyed.
Mr Stokoe, I submit you are too interested in mere ‘form’, over ‘substance’; indeed over the form being very polite while it is pushed around by bullies, and while reality may be overlooked. I think if you stand back and look at the handiwork of your comment, you are actually making the case that our publicly published information on public debt is a mess; however international the polite conventions used, that manifestly confuse the public. Do you really think the public understand the public debt, because of the ONS?
John
I am working in a blog in this
But I am so angry about the abysmal available data I might need to calm down before finishing it
That, and I also have a life to live as well
To be very politely, Phil Stokoe’s argument is deeply disingenuous
Richard
If you don’t consider BoE as part of the UK state, the so-called state “debt” is £2,000bn.
If you do consider BoE as part of the UK state, the so-called state “debt” is £2,000bn, including £745bn of reserve balances issued by BoE.
You can’t consolidate BoE’s assets with HM Treasury and at the same time not consolidate its liabilities.
Why are regulated bank deposits debt?
And given the government can set the interest rate on the deposits as it wishes, including zero if it also so wishes, can you explain how this is debt?
Just because you aren’t paying interest, doesn’t mean that you don’t have to repay the capital. What are you on about, you appear to have completely lost the plot?!
Where is the obligation to repay central bank reserves?
You know that the Bank can dictate what sums are held?
This is yet more nonsense on this issue
Dear Richard,
I wrote the “the so-called “debt” ” for a reason. It’s a record. A register of accumulated historic deficits, with some implications (I believe) but mostly of interest to historians.
But if you take the accounting approach and consolidate BoE’s assets with those of HM Treasury, you must also consolidate the liabilities.
Else it is intellectually incoherent, and you need another argument.
Which is available. There’s no need to rely on sophistry.
I am not the sophist here
I have stated the facts correctly
I have a blog coming in this, again, because you too clearly are clueless
What gets me is that politicians are constantly telling us they are here to make our lives better but they don’t even understand the importance of making their country’s civil service do their balance sheet accounting of monetary flows correctly! This results in politician’s like Joe Biden stating the following in his presidential nomination acceptance speech yesterday:-
“We can, and we will, deal with climate change. It’s not only a crisis, it’s an enormous opportunity. An opportunity for America to lead the world in clean energy and create millions of new good-paying jobs in the process.
And we can pay for these investments by ending loopholes and the president’s $1.3 trillion tax giveaway to the wealthiest 1 percent and the biggest, most profitable corporations, some of which pay no tax at all.
Because we don’t need a tax code that rewards wealth more than it rewards work. I’m not looking to punish anyone. Far from it. But it’s long past time the wealthiest people and the biggest corporations in this country paid their fair share.
For our seniors, Social Security is a sacred obligation, a sacred promise made. The current president is threatening to break that promise. He’s proposing to eliminate the tax that pays for almost half of Social Security without any way of making up for that lost revenue.
I will not let it happen. If I’m your president, we’re going to protect Social Security and Medicare. You have my word.”
https://www.cnn.com/2020/08/20/politics/biden-dnc-speech-transcript/index.html
Somebody better tell the IFS, they were on the Today programme this morning talking about the £2 trillion only being affordable “because of low interest rates”. Subtext: we can’t afford it whenever rates go back up.
I always think the distinction between ‘the national debt’ i.e. UK government bonds & plain old reserves is a bit of a diversion as both are government liabilities.
So I wonder Richard, if you can tell us what is the actual national debt is when ALL reserves are ADDED to the £1.27 trillion of gilts owned by the private sector?
I suggest you go and read the U.K. Whole of Government Accounts and tell me what you think and what interpretation you’re are using to reach your conclusion
Not sure I was concluding anything?
I only stated the fact that, beneath the skin, gilts & £s are both liabilities of the government. And so, in order to find out what that total debt is, I wondered if you happened to know how many £s of reserves are currently held by the non-government sector.
Tell me how the money the government creates is a liability?
How would you repay it?
You’ve got me scratching my head on this one Richard.
I wonder if you misunderstood me. You say in your video “Why Do We Need a National Debt?” that you are fond of making a very powerful and important point on the ‘scary’ national debt by pulling out a £5 note from your pocket and saying “that’s the national debt”. This is a completely correct statement (and also basic MMT), so its all the more puzzling when you replied “Tell me how the money the government creates is a liability?”.
Going back to that fiver. This is but one tiny part of billions of £s of reserves that the BoE have created. So, with an MMT lens, we know that BoE reserves are government debt every bit as much as the £1.27 trillion worth of gilts are government debt. The latter, for some reason, is what the media and politicians focus on.
So, out of curiosity, my question is a simple one.
What is the actual national debt? i.e. Gilts + Reserves = £?
I use the example of the note because it us recorded as a liability
Maybe you have missed the point that I do so ironically.
How can it be repaid? I know what the reserves are. I have read the accounts. I know how the BoE creates money.
Now tell me how to describe money – including the central bank reserves created at the whim of the BoE – as liabilities when the only mechanism bailable for their repayment is their own continued existence?
Please explain
And please do appreciate the irony
Richard,
When gilts are issued, the sale is settled by debiting the reserve balances at BoE by commercial banks.
Is HM Treasury issuing “debt” in exchange for something which is not “debt”?
When gilts mature, all that happens is the reverse – the reserve balances are credited.
So you can consider gilts as being prepaid forward contracts on BoE reserve balances – that is the only thing to which a holder is entitled at maturity.
In which case, under your argument, the national debt is precisely zero.
Maybe it is
I will be doing a blog on this
I think I did miss the irony very much so, since, as far as I’m aware, it is simply a statement of fact that £s sterling are a liability. In other words, £s are an IOU. Just as gilts are an IOU (but of course an even nicer kind of IOU, as they pay interest to the holder of more IOUs).
Regarding “How can it be repaid?”
I’ve said on this blog many times that the ‘O’ of government IOUs is the UK government’s OBLIGATION to accept its £s back in payment of taxes (aka a ‘UOI’). That is IOU of the value of £X meets a tax ‘UOI’ to the value £X and POOF! – both the government’s liability to accept £s and the private sector entity’s tax liability to pay £s are cancelled in the very moment of their mutual destruction. We all know that the government will never tax back all its £s, so inevitably the latter will not come to pass for all £s. Nevertheless, the obligation to accept £s in order to extinguish any potential future tax holds from the moment that the £s are created forward.
As Warren Mosler says of money, they are simply ‘tax credits’, so if Warren were to pull a $5 bill from his pocket and say its part of the national debt, I would see no irony in that statement at all. This is basic MMT and moreover is even well understood by noted anthropologists who have studied money, such as David Graeber.
PS Whether Gilt IOUs can be used to pay tax, I’m not exactly sure, but they can easily be exchanged for £s, so its not a problem.
Both the government and private sector banks create money from thin air so is that credit or debt? The answer is it’s both and if the majority of British people weren’t so monetarily illiterate they’d demand the ONS publish both the National Credit and the National Debt which include both sources. The ONS would also issue a qualification that government created credit does not all have to be redeemed unlike private sector bank credit. It really is hard living in a nation of pompous politicians, civil servants and journalists who ought to understand all of this. Human beings have only been using money for 4000 years, plenty of time to figure out how money works for goodness sake!
It’s simply ridiculous to treat macro debt (Government ) and micro debt (private/consumer) as the same thing. You are totally ignoring the sovereign apparatus of money issuance. The money that has been issued has been issued by a trio of Government bodies – the Government itself, the Treasury and Bank of England.
In Local Government whether enacting local bye laws or national laws, the LA can never take itself to court for some sort of issue.
It is the same with the Government issuance of money. The Government can never be declared bankrupt because of its fiat money making powers and its latent (and under used powers) to regulate the financial system.
Please tell me why a Government would issue cash in an emergency like Covid-19 and then just happen to declare itself insolvent in doing so? What’s the point of creating such a bind?
I’ll tell you – it’s because of a mixture of thick politicians and politicians who actually represent vested interests who will benefit from such lies.
What I find incredible considering all the facts to the contrary, people would rather believe in the existence of God than believe the basics of MMT and monetary sovereignty.
It is not borders, laws or immigration control that defines sovereignty in my view: it is the ability to print our own currency and that tells you who is in charge of the country. The City of London, please take note – we’ve tolerated that State within a State for far too long.
As Richard suggest you need to read more.
You make a ver6 important point, @lthiugh I would put it differently
The point is that accounting always includes what is called a capital maintenance concept against which measurement of change takes place. So, in corporate accounting this is (now) financial capital under the control of the entity.
What is extraordinary is that there is no such concept in government accounting. There is simply a balancing number which is described as reserves. But there is no equity at all. And that’s what is missing in this debate.
“Zero” would be a more coherent argument. Of course, it is contrary to the accounting used, but interpreting the state’s balance sheet as if it were a private sector entity (subject to insolvency and liquidation) is a fairly daft exercise.
I would argue that the UK issues £, it chooses what (if any) interest it pays on its liabilities, and its liabilities are not a financial burden.
I’d note that WERE interest payments ever to become a large proportion of state spending, they might at some point constrain a government from spending in other areas. It could become “policy insolvent”.
I have mote to come on this if only the weekend would not keep getting in the way
“The Government cannot owe itself money” is nonsense because if money is in fact owed, then it must be owed to someone, otherwise massive fraud is possible, therefore the only way to pay is by taxation.
Respectfully, I think you need to do some reading on how government funding works
Respectfully you also need Colin to find out what the Rule of Law means.
Look Colin, if you had the power to create your own money, having done so would you call it a debt?
I bet you wouldn’t would you? You’d call it something to spend.
But that is because in the age of individualism, that would be good and appropriate wouldn’t it?
But for a State to do that, well that is wrong isn’t it, because we are not supposed to like the State are we these days, eh?
As for taxes, they act as a cooling agent on the economy from the injection of cash – they do not pay debt that a Government CANNOT create against itself having created the money in the first place as a sovereign entity.
Think it through Colin: How can a Government create the money needed for a country and then say it has created something that it cannot service?
Why in helping its people, would it then ask for the money back with austerity and sell offs? It would just take things back to square one. Why would it bother in the first place? It just leads to a never ending cycle of good and bad times (but mostly bad). It’s the modern equivalent of that ancient worry that the sky might fall down on our heads; it’s pure fatalism, not theory or fact.
Its Ixion economics – society bound to a fiery wheel for eternity for daring to try to help itself.
What you describe is the markets jaundiced view of how things work because they end up being a net beneficiary of such lies.
I like to think of it like a brewery claiming they need the beer back from the customers so they are able to put on a party. No one would think that made any sense though.
And there you summarise the whole problem in your thinking. You’re thinking microeconimically. And you’re not thinking about money
I know the brewery is in reality a currency user, but they are also a beer issuer. Imagine they paid their employees in beer to get them to run pubs. Then imagine they asked for beer back to pay their taxes.
Their employees would only want to trade with their beer since rival beer wasn’t used to pay taxes with.
Either way though, the brewery doesn’t want or need their beer back, since they are the ones making it in the first place.
This is probably not a very good analogy, but if you take away the emotional parts we attach to money it does help to understand it better. I found it very hard to accept when I first started reading about MMT. Stopping thinking about it as £s helped a lot.
Maybe the business card analogy is better.
But this one is fun
Ian Jack (or is it ‘Jerk’) some sort of political editor(?) has just been on the BBC 10′ o’clock news telling us that ‘hard decisions’ on public services will have to be made in the future because of this (although he mentioned the low interest rates but warned us that they might not stay low for ever – nice one Ian).
They compared the ‘debt’ to our income from all the goods we could sell or something and said that the ‘debt’ exceeded it.
My verdict? Pathetic. No debate, no discussion – a lie signed, sealed and delivered by an organisation that is rapidly going to the dogs (or has it been and come back to go again?).
God help us.
Richard, your podcast yesterday on the myths of public debt, got me thinking about the far more dangerous myths of private debt. I am constantly amazed that this never gets the same scrutiny.
I spent yesterday trying to list ten points about debt that I think I have learnt from you and other sane economists.
1) When the government “prints money” it is the exact equivalent of taking out an interest-free loan. Public debt is a choice.
2) Private debt is at least 2.5-fold greater than nominal public debt, let alone “real” public debt. It is far less scrutinised, disciplined or regulated than public debt.
3) Most (not all, because of regulation) private debt is money “printed” by banks. If government-printed money should be lumped with government debt, then bank-printed money should be lumped with private sector debt.
4) The government does not SPEND money it creates or borrows, it INVESTS it. One of the ways that tax can be thought of is as dividends on the government’s investments.
5) Government borrowing does not take money out of circulation, it re-invests it. It does not “crowd out” or reduce overall investment. It may redirect it.
6) Default on private debt really does destroy money. Otherwise, where is the money that disappeared in the 2008 crash?
7) During lockdown, the money that would have paid wages and funded businesses has fallen out of the system. Where is it? Has it been destroyed, or is still there, and moving to where it can rerun the 2008 crash?
8) When private sector debt defaults, the deficit can only be made good with government-printed money or public sector debt. This process is a constant trickle, and occasional flood. It means that in the long term it is a mathematical impossibility for a government to “balance the books”.
9) A lot of private lending is against an asset, which increases competition for the asset and drives up its price. This creates an inherently unstable situation. In contrast, very little public spending needs to be directed towards asset inflation.
10) Finally, there is minimal correlation between price and value. As Oscar Wilde so nearly said, an economist is someone who knows the price of everything and the value of nothing.
(Hoping for a C grade, but fearing a U)
Good to 4
In 5 money is taken out of circulation and new money is made
In 6 default destroys value and not money as such, I suggest
7) There is simply no promise to pay – that money never existed then
8) That will take more time than I have, but it all depends on whether there is value left in the bank – is there a belief it is still good for its promise
9) True
10) True
Was yesterday ” Lets be nasty to Richard, day ” ?
Would it help the dialogue to remind your opponents that
1) For every liability there’s an asset, &
2) The Govt. is a currency issuer ?
That is coming…
It’s just Saturday, that’s all… 🙂
Great stuff Richard,keep banging away at it. Eventually the penny will drop, pardon the monetary oun.
Sorry “monetary pun”.
The issue of money creation in this country has been raging a long time. Yesterday I discovered a paper by L. Randall Wray that tracks Alfred Mitchell Innes’s argument that money creation is a credit and debt phenomenon to one Thomas Smith who published a paper back in 1832 to that effect.
This is nearly two hundred years ago!
You can therefore hardly call the study of economics in this country to be one of genuinely scientific endeavour. Indeed even in 2014 the Bank of England can publish a paper 2014 telling economists that private sector banks can create money from thin air but the majority of economists in this country appear completely oblivious or indeed interested why private sector banks are able to do this. Not merely this but why the government is not able to do this also and what the benefits would be and the necessary constraints on both the private banks and the government to make this credit/debt formula work well for the country. One can only conclude that venality and power is of far more importance to most economists!
The teaching of economics badly needs reform and we shouldn’t look up to these mainstream economists until they’ve earned our trust as honest investigators!
http://www.levyinstitute.org/pubs/wp_821.pdf
https://books.googleusercontent.com/books/content?req=AKW5Qaf3jklb0yidlbtYIjGwpQY-bw7FmZkWO5uqIu8v4JbDxTrXruR5SKPoU3p3tPhI3ckoiL-3WdhWKp1x3NTXylmuBtlIj_mGmOdBj4kT5B1yOqg7PiY17g4RmxapQd30AjxaVh6–LZDEn7VowCT97gpAwKpOilqQZ6YBge3hVZwd9meZlUd_LEr5JDIkD_AcK-Izm3Nd4CwFaF34EaRqXpFtJhnKuy7-XwPjc60qJZwguWmjEPg3UykH_-IrlGn08q5XEvjut74pD3YmGHQCykyTNXU1w
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
I am still waiting to discover the neoliberal explanation (or any official explanation), of exactly how the 3%, 1914 War Loan was ‘pulled off’, when the issue was a bad failure and in the BofE books, the “owner” of much of the money supposedly ‘lent’; was actually listed as the BofE Chief Cashier: Sir John Gordon Nairne (see the BofE Blog, of I think 2014, when the failure was finally acknowledged).
The failure was kept secret, for obvious reasons in a world war; only a select, very, very few knew that British (and world) captialism simply failed to back the government in the biggest issue ever undertaken. Everyone in the BofE and Government carried on as if it was all a great success; writing cheques and spending money ……
Here’s the BoE article you are referring to:-
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
Rinse and repeat for defeating the Invisible Covid Armed Force!
I wonder if some of this discussion may be helped by an article by Warren Mosler: “MMT to Congress: You are the scorekeepers for the US dollar, not a player!” (2011), here http://moslereconomics.com/2011/07/30/mmt-to-congress-you-are-the-scorekeepers-for-the-us-dollar-not-a-player/ :
I provide an excerpt here, that gives a flavour; but I suggest reading it. Mosler is not a literary stylist, but the thought is clear:
“So when China sells us goods and services and gets paid in dollars,
the Fed – the scorekeeper for the dollar – marks up (credits) the number in their reserve account at the Fed. And when China buys US Treasury securities,
the Fed marks down (debits) the number in their reserve account. And markes up (credits) the number in China’s securities account at the Fed. That is what ‘government borrowing’ and ‘government debt’ is – the shifting of dollars from reserve accounts to securities accounts at the Fed.
Yes, there are some $14 trillion in securities accounts at the Fed.
This represents the dollars the economy has left after the Fed added to our accounts when the Treasury spent, and subtracted from our accounts when the IRS taxed. And it also happens to be the economy’s total net savings of dollars. And paying back the debt is the reverse. It happens this way: The Fed, the scorekeeper, shifts dollars from securities accounts to reserve account. Again, all on it’s own books.
This done for billions of dollars every month. There are no grandchildren involved.
The Fed, the scorekeeper, can’t ‘run out of money’ as you’ve all presumed. The Fed, the scorekeeper, spends by marking up numbers in accounts with its computer. This operation has nothing to with either ‘debt management’ which oversees the shifting of dollars between reserve accounts and securities accounts, or the internal revenue service which oversees the subtraction of balances from bank reserve accounts. And so yes, your deficits of recent years have added that many dollars to global dollar income and savings, to the penny.”
Thanks
This gets even more preposterous as you try and defend your previous nonsense – apparently in the world of Richard Murphy, if there is no likelihood of all investors requesting their assets at the same time, the liabilities are suddenly no longer government debt!!!!
Previously you tried you tried to justify it on the ridiculous belief that investors didn’t want their money back!
Talk about trying to invent your own definition of ‘debt’ to justify a previous claim that makes no sense!
I know you want to sound very angry, but perhaps a little thought might help you
Imagine this
Suppose every government creditor demanded to be paid, today, and in full. Could the government do that? Yes. It could. It would just create the money to do so. All of which would immediately be deposited with it as central reserve account balances.
Now, if when you repay your creditors the total creditors the total credits in your balance sheet does not change, have you creditors? And if you borrowed from no one to achieve this – because that would be the case – how come these sums are called liabilities?
So you are now claiming that the government has no debt and no liabilities?
This gets better and better!
I will be blogging more on this….in development
You are simply showing your inability to understand what credits mean in accounts
Richard,
What you are saying is technically correct, but you haven’t followed the logic through to it’s completion. Which in the end will make very big difference.
Let’s say that every government creditor demands payment today, as you do, so £2trn needs to be created by government.
Government then goes and hands that money to it’s creditors to repay it’s debt.
So far so good, you might say. But in creating that £2trn you have nearly doubled the broad money supply, which currently stands at £2.75trn. Do you think the value of the Pound Sterling would be unchanged in such a scenario?
Realistically, the Pound would heavily devalue in exchange rate markets and through rampant price inflation. So the money you repaid to creditors wouldn’t actually be worth £2trn in real terms any more, and would actually be worth a significant amount less. In effect, by doing what you suggest the government will have defaulted in part to it’s creditors, even though the nominal sum of repayment has been made.
That of course is before you take into account the off-balance sheet liabilities the government holds. Particularly unfunded public sector pensions, of about £5trn as I understand it, which would also drop massively in value in real terms.
What you are saying is partly true, but you ignore the effects of doing it. Those effects would be disastrous for the economy, as every country which has ever tried printing money has discovered to it’s cost.
Also, just because debt can be repaid by printing money doesn’t make that liability disappear. That claim you make is simply incorrect.
Does today’s blog on this issue answer that?
Your headline claims that “debt isn’t £2trn isn’t actually £1.27trn” and then by your own logic you go on to say that debt is really actually zero as the government could simply create money to pay it off.
I’m not sure anyone credible would claim that the UK government has no debt, but it seems you would like to try and a few on here would support you regardless of the nonsensical nature of the argument.
Charles
Please submit your CV to prove your credibility to make that claim
And please explain why the government could not simply pay off the debt. After all, Krugman has seriously suggested it
So, why not? He’s a Nobel Laureate. Are you?
Richard
Stephen,
Actually the state printing money just to pay off the national debt would just mean that there would be more reserves created and used by the government to that. End result would be that the debt is paid off and no one has had to pay for it,least of all taxpayers.
Taxation is a different issue and is not used to pay off the national debt,taxation just destroys money,end of. So according to MMT taxation has the exact opposite effect to printing money. Taxed money is removed from general circulation (and not used to pay off anything) ,wereas printing money would put more money into circulation that COULD be used to reduce the national debt….should the gov want to do that!
The government pays national debt off because it may choose to do that at certain times, as for some strange reason Gordon Brown did as Chancellor, he did also run surplus budgets at the same time, but the two things are not necessarily linked.But most often Chancellors do not pay down the national debt.
Hi Vincent,
Thanks. I agree with much of you say. I wrote you a response, but, very annoyingly, I managed to hit the wrong key and it all got lost in the ether 🙁
However the essence of it is covered by another comment from me to Richard here. Hope it makes sense…
https://www.taxresearch.org.uk/Blog/2020/08/21/the-uks-national-debt-is-not-2-trillion-its-only-1270-billion-and-theres-nothing-exceptional-about-that-at-all/comment-page-1/#comment-861913
Charles,
If you stop using the word “debt” it helps to look at this anew. The word “debt” doesn’t really explain what is going on ,it is not a debt like an individual/business has, this is an amount of money that is created out of nowhere and no one else apart from the state can do this.(apart from private banks on licence from the state). It is also not really a debt because in reality it can be simply cancelled at any time by the state(by just printing more of it). No one else can cancel debt this way so it can’t really be said that it is a debt at all in the way you or I experience debt. So if it isn’t really a debt as in the normal understanding of debt, what is it? You could equally call it a “credit”,in that it allows others to have use of it for spending,saving and paying taxes,it is in effect our money supply. This so called debt is actually an asset to the nation, on whose behalf the state has to issue it.
This debt is not what it seems.
As to investors not wanting their money back,yes it sounds odd in one way ,but it depends if you are looking at this as an individual(micro) or on a cummulative(macro) basis. I, as an individual might want my money back….yes. But at the same time someone else will be surrendering their money to the state, overall the net amount invested remains fairly constant, so the macro effect is what Richard is talking about here ,not the individual,there is a different way of looking at this ,is all he is pointing out and both views are correct from their own standpoint.
You could call it a ‘credit’, you could call it an ‘aardvark’ or something else but you’d be wrong.
With respect Charles, abuse of other commentators might be something you’re used to, but is something I do not tolerate
You are on a final warning
Vincent,
The very last thing that will cancel the government’s debt is “the state…just printing more” debt, as all that would be achieved is the debt would be INCREASED even further.
In order to ‘cancel the debt’, all the government has to do is force people to give them the debt back. Sounds crazy, yes? No, as its easily achievable by the magic of taxation. So, to ‘cancel the debt’ (i.e. ‘pay off’ the national debt), all government need do is tax the whole lot back, every last penny. One slight problem – the populace would be rise up against them as we’d have no money left.
I think you’re wrong Stephen, even in microeconomic terms
Let me offer a simple example. Suppose the government decided to
A) Repay all government debt with cash
B) Pay no interest on central bank reserves (easy to arrange)
All debt would then have been repaid
There would be a lot of money about there – but since gilts and NS&I act as money now no real economic change except unless you can tell me how money is repaid without its substitution by one thing identical (in other words, it can’t be repaid, so it is not debt) then your claim is wrong.
There would remain a credit on the government’s balance sheet. But it’s not debt
And answering what that credit is may be my thinking for the day
I think we’re talking at cross purposes.
Here’s how It appears to me:
You’re defining government debt according to the definition this article addresses. That is ‘government debt’ = the grand total government bonds in the hands of the private sector (government bond in the hands of the BoE – as you have rightly pointed out – are not debt). In which case, your steps A) & B) make perfect sense. And is no different from Warren Mosler’s explanation given by him in 7DIF…
“to pay off the national debt the government changes two entries in its own spreadsheet – a number that says how many securities are owned by the private sector is changed down and another number that says how many U.S. dollars are being kept at the Fed in reserve accounts is changed up. Nothing more. Debt paid. All creditors have their money back. What’s the big deal?”
However, as I indicated in another part of this thread above, my take is a lot more purist. Every $ in the Fed and every £ in the BoE owned by the private sector is debt. If it wasn’t then it can’t be an asset. Pure and simple logic. Basic MMT.
So the grand total debt hasn’t really changed at all if the government, as Vincent said, ‘prints money’ and buys all the bonds. I get it that if ‘the debt’ is defined as bonds, then, yes, in that narrow definition the debt is paid off. However I worry that going along with that confused mainstream view reaffirms the ‘household’ myth. People are left with the impression that paying the debt off involves the usual way we pay debts – by obtaining funds to give to our creditors. But this avoids telling people a really, really important point of what ‘the debt’ REALLY is. It is nothing more and nothing less than a piffling obligation attached to each and every £ ever created – that the government promises to accept the £s it creates in payment of taxes. That’s it. No paying creditors, or ‘getting’ £s from the ‘markets’ in the private sector. No ‘printing’ £s to buy bonds.
In other words no fairy tales, just the bottom line MMT truth that shows up the so-called debt ‘burden’ hanging over all our heads for the complete nonsense it is.
I think we are in agreement
Charles back in 2014 the Bank of England issued a paper which stated very clearly that private sector banks create money from thin air. This was backed up by Richard Werner of Southhampton University:-
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
https://www.researchgate.net/publication/265909749_Can_Banks_Individually_Create_Money_Out_of_Nothing_-_The_Theories_and_the_Empirical_Evidence/link/55e0bd2e08ae2fac471c9fb5/download
Isn’t it time you got down to understanding exactly how the mechanism works that allows the creation of money from thin air and then ask yourself two questions why can’t a government use the same mechanism and secondly, are there necessary reasons why it shouldn’t automatically redeem all that it creates?
These are the questions MMT has pursued and answered!
Please don’t let facts get in the way of people’s prejudices Helen 🙂
There clearly is massive ignorance in the UK and the USA and it’s deliberately fostered by both bankers and the rich. In terms of money creation bankers clearly benefit from giving voters the idea they are the only source of money. The rich curry favour with the bankers by promoting this lie. The rich who own mainstream media outlets engage in deliberate repression of ideas that don’t suit their interests. Here’s a recent classic example:-
https://www.theguardian.com/us-news/2020/aug/22/william-barr-rupert-murdoch-muzzle-andrew-napolitano-fox-news-trump-critic-book
Go Helen!
You could call it Aardark,or anything else you like, but the use of the word debt in this application is what is wrong ,an arcane relic of a bygone era, which we are no longer stuck in, unless you want to be.
Charles
If a Government can print money to bail out the banks, why cannot it print money for itself and its policy objectives?
It does not need to tax to create this money. Moreover, it does not need to bring in austerity to claw it back.
The British Government is sovereign, not just because of its land or borders or laws but because it owns the currency. Whether you like it or not it has the power to use its money as well as officiate how the currency is used. The fact that recent Governments haven’t behaved in this way does not mean Richard or MMT or the tax issues are wrong.
The question you should be asking is ‘Why aren’t Governments using these powers?’. And that has a lot to do with the dominant politics and ideologies that we currently live with and which need challenging.
This seems a pretty disingenuous route to go down, Richard.
If you are saying that Government debt can be ignored as the government can simply print as much money as it wants, then no credible economist thinks that is realistic.
If you accept that there are some constraints on government money creation, that is consistent with being able to raise taxes (to take the money out of circulation), then this is equivalent to paying for debt, making your claim that this is not really debt after all, highly dubious.
I have not for a moment said there are no limited on money creation
But I can assure you there deeply credible economists who think that the limits are simply the availability of resources
And tax is only a part of that equation and a constraint only in quite exceptional circumstances, which also suggests you can’t handle about thinking about more than two variables at a time, which is pretty scary if you think you are qualified to comment
The real limits we are facing here are those of a lack of imagination itself, based on a lack of curiosity and knowledge with a big shot Neo-liberal snake oil thrown in for good measure.
There is also a larger deficit as well – in empathy towards those who are affected by Covid -19 the most.
From day one, helping business, helping workers, helping anything or anyone has been portrayed as a liability – not a duty – by this Government and its cronies obsessed with denying a sovereign Government the right to do what Helen rightly points out that they do everyday in the private sector – create fiat money.
The grudging way for example that the furloughing scheme has been done is just disgraceful.
So the Tory mindset is reified – to issue money to make more money out of it is all money is for. Issuing money to help people is wrong apparently.
And if you’ve been ‘helped’, Boris and Sunak will want it back anyway – from all of us.
You couldn’t make it up. Being punished for needing help! What a sick & thick mindset!!!
Which ‘credible economists’ are proposing to create money to pay off the government’s debt and amount owed for NS&I investments?
A link would be helpful.
Thanks
All MMT economists – and the list is grow9ing longer by the day – think the so-called national dent is simply there by choice
It could simply be an overdraft from the BoE
And if your response is that MMT is not credible you’ll be for the spam bin before you know it….
Which current (or past) governments (or opposition) support MMT?
You don’t support MMT
It explains how the world works
It explains how all current governments with a fiat currency, a central bank and who are able to borrow in their own currency work
That you do not know that shows you have not read it
Let alone comprehended it
“Which current (or past) governments (or opposition) support MMT?”
The UK government continuously uses MMT Bryan. If you want a simple explanation how it does this try the following which is based on the USA method but this was copied from the British:-
http://neweconomicperspectives.org/2019/10/the-peoples-money-part-1.html
http://neweconomicperspectives.org/2019/10/the-peoples-money-part-2.html
If you want a more direct and dramatic illustration of how the UK government can create money from thin air try this:-
https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
Thanks
Start with Paul Krugman who has put forward the idea
I read somewhere that America actually believes in MMT principles too, but instead of issuing money for social security or affordable housing programmes or decent public sector pay – prefers to keep spending highly on its military instead – spending that has continued to rise even post 2008 and the huge Government ‘debts’ that The Credit Crunch created.
In England – what about the huge dodgy contracts that have been awarded to contractors during Covid-19 for track & trace and PPE – how was that money created – taxation? – yeah right………………………..the answer to that one is ‘No’.
And what about recent history – a £1 billion bung to the DUP by Theresa May to prop her premiership up – where did that money come from? No, it was not taxation.
The answer – these monies were created using the same basic principles of sovereign MMT.
So the ‘problem’ with MMT reveals itself to be more complex.
Maybe you MMT sceptics, the truth is that MMT does exist and Governments know it but it is directed towards the wrong policy objectives? And in doing so, the administrations who abuse it for their own benefit then disown it and claim it does not exist, leaving the rest of us to ‘market forces’.
So maybe MMT is just plaything for dodgy politicians? As Richard says, it’s actually all about executing choices.
MMT is being used in a privileged way by politicians who know it exists, usually to the benefit of those who are already privileged? Look at how the Government subsidy to the privatised railways is now higher than it was when it was nationalised.
So maybe the real task before us is to ‘re-democratise’ MMT – ensure that it is used to the benefit of all in our country, instead as a tool for enriching the already enriched or as a tool of privilege for politicians to ensure their personal survival?
“If you are saying that Government debt can be ignored as the government can simply print as much money as it wants, then no credible economist thinks that is realistic.”
Bryan where did you get these strawman arguments from? MMT does not say these things! You need to make more effort to read the MMT literature. Government uses debt for a variety of reasons including base rate manipulation but not to fund itself. MMT argues that government creation of money must be carefully targetted to avoid over-heating those sectors of the economy that are at or close to fully utilising available real resources.
http://neweconomicperspectives.org/2020/01/alternative-paths-to-mmt.html
http://www.levyinstitute.org/publications/keyness-approach-to-full-employment
[…] was aware I was being controversial yesterday when I suggested that the Office for National Statistics was lying about the scale of UK national debt in its bulletin on public sector finances, issued yesterday. I […]
I not certain but I expect the ONS is using a methodology that will make for clear comparisons with US, Italy, China etc. If so then, unless I’ve missed something, any valid criticisms here will apply to the whole lot.
Yes
They will
So to summarise the more extraordinary assertions you have made here in attempting to characterise what is and what is not debt (I may have missed some):
1. NS&I is not debt because savers don’t want their money back.
2. NS&I is not debt because, although savers may want their money back, not all will want it back at the same time.
3. Deposits held in bank accounts are not actually debt because they are guaranteed by the central bank.
4. Debt that is interest-free is not actually a debt.
5. Because it can create money to repay any monies it owes, a government does not actually have any debt.
I suspect you think you are being ironically clever.
So let me assure you that maybe that’s precisely what you’re being – clever that is, if only you realised that once you stopped thinking everything is microeconomic, and everything about the government’s so-called debt as a money creator is not the same as everyone else’s debt as a money user Then, in fact, nothing appears as it seems and to account for this as if it is a microeconomic issue makes no sense at all.
Tim Wall your failure is to understand that money is both credit and debt:-
http://www.levyinstitute.org/pubs/wp_821.pdf
So we as individuals and organisations are constantly moving from being creditors or debtors. This is a constant flow. Read the link carefully because it reverses your concept of the monetary economy you think you live in!