I am so bored by the claim the the UK has a credit card, and that it's maxed out that I made a video about it:
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Nice article in the Guardian agreeing with exactly this credit card myth.
https://www.theguardian.com/commentisfree/2020/nov/26/uk-maxed-out-credit-card-bad-economics-pandemic-austerity
I agree
From a good economist
She isn’t that good. In the article, in her critique of true believers, she said that ” true believers … refuse to confront the facts that the UK government is borrowing at record low interest rates and that next year, it will pay back £20bn less in interest than it had planned for”. So what? Of what import is this to the economic health of the nation or its Treasury? This indicates to me someone who has not yet ‘got it’. I’m not contending she is terrible, only that she isn’t as good as she could be.
Meaning what?
Let’s please not pretend that a person is no good if they are not MMT
And let’s get real – I support the payment of interest on government binds and have no desire to get right of them
Amnd I am seen as pretty pro-MMT
But as a result of living in the real world I am not a purist
Larry,
Can’t see a problem with pointing that out at all,it is quite helpful. MMT says the state should create money at zero interest(no debt). The fact that interest rates are currently historically very low actually helps people see that this is possible to do in a recession, when banks stop lending(creating money) and the markets are running for safe money by buying govt debt, the govt can create more money to spend and interest rates do actually fall not rise all without any inflation. We can now see that it is the govt who leads the markets in the bad times not the other way round.
This is therefore a very good reason in favour of going the whole hog and adopting an MMT approach.
Stephanie Kelton does not say that
She is not committed to ZIRP
And there is, as I point out time and again, very good reason for national debt – not least to deliver interest rate control
Richard,
Mosler likes ZIRP however, I have no particular strong opinion either way as I can’t see much difference between low and zero interest rates other than current low interest rates are allowing us to see state money creation taking place on a massive scale,(I must however read Stephanie’s book soon.)
I’m not sure setting interest rates is that useful a tool in the larger scheme of things in any case. I also don’t believe the state should pay interest on bonds (Why give the already wealthy a free meal?) Though it may be useful in certain circumstances I wouldn’t see it as a major MMT tool, which is surely spend and tax.
It’s a Mosler / Kelton difference – ZIRP is not in The Deficit Myth
Love it. Also like the new setting. Reminded me of the tax evasion documentary film you contributed to all those years ago when you were still a partner. Can’t remember the title but I did remember your contribution.
Thanks
M
That was also made in my home
Richard, I would like to go off-topic and address your last comment to me on the vexed subject of banks cancelling money. You said, “that’s not what the Bank of England says.” Now I have to declare that banking is not my bailiwick, but I went to the B0E website and all they have to say on the subject is, “this also means as you pay off the loan, the electronic money your bank created is ‘deleted’ — it no longer exists.” I then emailed them to query the veracity of this comment and they referred my to https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf Which is Quarterly Bulletin 2014 Q1. There, the quote (above) is repeated but with two citations Bridges, Rossiter and Thomas (2011) and Butt et al (2012), both of which feature in BoE Quarterly Bulletins. The first does include the following quote, which does not suggest that bank created money is destroyed when a loan is repaid:
“More generally, any transaction between the banking sector and the non-bank private sector will involve the creation or destruction of banking sector deposits and will thus affect the supply of broad money. For example, paying out dividends will create money when a bank credits shareholders’ accounts with a deposit. Conversely, if banks retain profits that would otherwise have been paid to shareholders as dividends, this will reduce the supply of money. Issuance of long-term debt or equity by banks will also destroy money as asset managers purchase the instruments using their deposits.”
Understanding the recent weakness in broad money growth: Jonathan Bridges, Neil Rossiter and Ryland Thomas (2011)
The second citation is about QE and makes one reference to this subject which is not relevant.
My understanding is that, while it is true to say that as the loan is reduced, eventually to zero – on the “asset” side of the bank’s balance sheet – as repayments are made, that is not the same as saying that money is “deleted,” this in simply perfectly normal bookkeeping.
The electronic money, created by any bank, has been used to pay the borrower who has used it to buy whatever it was that he or she wanted, and the money remains in circulation.
As far as I can tell, this is a classic case of reification, but I have considerable respect for your reputation in this area and feel that if anyone can point to something I am missing, it will be you.
This is a very important issue to pin down because if I am right it means that since 1996 our commercial banks have created £1.4 trillion and they have not used it altruistically to create, say, a Sovereign Wealth Fund for the UK as a whole. No, they have chosen instead to make a few of their leaders as wealthy as Croesus, and funded a property boom which has put housing beyond the reach of our youngsters and made the richest 1% wealthier still. While largely ignoring the needs of our new entrepreneurs.
The whole point of the 2014 report was top say that all that went before was wrong
They were very explicit about that
The a=earlier articles were wrong
And remember – the entry in the ledger is the money. That is all there is. When the ledger is clear the money has gone. So with tax debt. When paid the leger is wiped
I have not read the earlier BoE reports, so I am not influenced by their earlier views.
I must, though take issue with your comment, “When the ledger is clear the money has gone.” Clearly, the money has gone from that account but it has not been destroyed as the BoE (and you) insists, it has gone somewhere else in the economic macrocosm. Clearing the entry on the bank’s ledger removes it, but the money created was paid to the borrower and still very much exists, as the annual growth in money supply figures attest. And indeed, the borrowers repayments have been piling up in the bank’s reserve account and they have not been destroyed either.
We’re going to have to agree
There may be new ledger entries but they are different money, to be wiped in turn
You think there is a stock but ultimately there are only flows
Just read the Guardian article about the bad ‘maxxing out the credit card’ analogy. I was particularly interested in the comments, some of which asked ‘but how will we pay the debt off’ It struck me that it might be worth writing about how the post war debt of 250% was ‘paid off’ as my understanding is that the bulk of it simply disappeared through inflation – the debt came down to under 100% of GDP by 1963 largely because inflation over the period?
The Guardian has not taken my last three attempted articles
Interesting and informative video. I always thought that the term debt is not like a household but shows how strong the economy is? If the notion of debt as a household is incorrect how does that work against our exchange rate and foreign investment etc which is tied to confidence in the market again linked to this Debt definition. Europe had to bail out Greece for its debts and Iceland and Ireland went bankrupt during the financial crash is this significantly different.
In summary, Greece and Ireland were like households – they did not have their own currency
And Iceland was overwhelmed by failed banks that swamped its economy – but was very well managed out of the mess
So very different from us