It's often said that the UK is in hock. The national debt is, according to some, going to cripple us. I have already made a video explaining why this is nonsense. We need our national debt.
But implicit in this suggestion that the national debt could cripple us is another idea, which is that there must be some 'dark powers' who own at least a part of the national debt to hold us all to ransom and deny any government the power to do what it wants, whatever an electorate wants. That's why it' worth knowing who owns the national debt, which is what this video is about.
There's an important point that flows from knowing who owns the national debt. There were three reasons why we thought the national debt mattered that are no longer relevant.
The first was that the government owned almost none of the national debt. Now it does, and QE suggests it can buy almost any amount of it any time it likes, neutering any challenge that markets can make on this issue.
Second, the exchange rate was, like the national debt, used in the past as an indicator of economic virility and so was heavily defended, right up to the time of Black Wednesday in 1992. That, however, is no longer true. That means the UK's reserves of foreign currency are no longer used to defend that rate, meaning that speculators have little to gain from challenging on that issue either now.
And third, although hedge funds and their clients (including pension funds) will seek to exploit any opportunity for profit the simple fact is that there are good reason for most of those who own government bonds to do so. And in that case, any attack is now likely to be short-lived, and largely fruitless. As the March 2020 trading disruption showed, the government can now react to a threat remarkably quickly.
The idea that the government is now in hock to markets is, in that case, simply not true: governments can now almost always outgun the markets and that means the threat from speculators is very largely over.
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Looks like good timing for this one given the hysteria in the press this morning about the National Debt reaching £2tr, which even The Guardian has got caught up in https://www.theguardian.com/business/live/2020/aug/21/uk-national-debt-hits-2tn-retail-sales-manufacturing-services-business-live
One thing that cannot be underestimated us the importance of the National Debt in the provision of private pensions.
The drop in interest rates is having a major impact on pension provision and in particular the remaining final salary schemes (mine)
Richard, Is – no – an ommission?
And third, although hedge funds and their clients (including pension funds) will seek to exploit any opportunity for profit the simple fact is that there are – no – good reasons for most of those who own government bonds to do so. And in that case, any attack is now likely to be short-lived, and largely fruitless.
I must be missing something
The BBC News/Business website has just published this https://www.bbc.co.uk/news/business-50504151, by Andrew Walker (BBC World Service economics correspondent).
His figures are from the ONS data just published for July 2020 –
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/july2020.
So we can’t blame Mr Walker for the data, and *some* of his words are OK. He says “Private savers also buy some.” If only he’d mentioned that “some” includes £197 billion in NS&I.
Anyway, the article has just been promoted by the BBC Politics Twitter feed, and the BBC Scotland News feed has retweeted it. So your tweet, blog, and video were very timely and need energetic promotion!
I have a video to come on this shortly
The claim made is absurd
And bluntly, false
The ONS publication is at – https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/july2020
They say in section 8 –
“At the end of July 2020, the amount of money owed by the public sector to the private sector was £2,004.0 billion, which equates to 100.5 % of gross domestic product (GDP).
Gilts make up the largest component of debt. At the end of July 2020 there were £1,681.2 billion of central government gilts in circulation (including those held by the Bank of England Asset Purchase Facility Fund). These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.”
Are the gilts held by the APFF “in circulation”?
No
At the end of his 1914 article “The Credit Theory of Money” (A response to critics of his 1913 article “What is Money?”) Alfred Mitchell Innes says “There is no such thing as a medium of exchange.”
https://www.community-exchange.org/docs/The%20Credit%20Theoriy%20of%20Money.htm
https://www.community-exchange.org/docs/what%20is%20money.htm
Making this statement is Innes’s way of making it clear that in his belief all money is a credit/debt relationship which emerges from the propensity of the human species engaging in a very high level of cooperation with each other, reciprocality if you like.
L. Randall Wray was the editor of a book called “Credit and State Theories of Money: the contributions of A. Mitchell Innes.” published 2004. Wray in the final chapter of the book attempted to sum up what Innes was trying to tell us. In 2004 Wray published an abbreviated version of that final chapter:-
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1010155
In this abbreviated paper Wray contrasts Innes’s view of money which is essentially a device for aiding reciprocality with the mainstream medium of exchange orthodox view of money which essentially believes it’s a facilitator for individual utility maximising. What struck me about Wray’s paper is that what was missing was an abbreviation of both these two ways of looking at money and that there’s advantage in doing this. So you might say money is just a”reciprocator” or you might say just an “aggrandiser” (used in the sense of enriching us). Money thus simplified poses the question is there only one true way of regarding money? I think not. I think both views of looking at money have validity but even more importantly helps explain why a battle currently rages in our societies between the two.
Evidence of that battle is the UK’s so-called “National Debt” having risen to one trillion pounds as a consequence of tackling the economic effects of the coronavirus and therefore cause for alarm. If it was generally accepted that the government needed to create money for the purposes of helping “reciprocation” in the economy and especially large quantities in times of crisis (usually when asset bubbles burst but not now) then it would be no big deal!
Indeed…..
What about an official complaint to the National Statistics Authority, if ONS is really falsely presenting govt ‘debt’ owed to itself, as owed to ‘the market’.
I may well make one