These got posted on Twitter this morning, the last two as a very short thread:
How many times this week will we hear the lie that the government has borrowed £300bn to pay for Covid? It hasn't. It has issued debt, but then immediately repurchased it using new money created by the Bank of England. This debt has already been repaid in that case, for good.
––––
There are problems with quantitative easing, which is the process where the gov't buys back its own debts using money newly created electronically by the Bank of England. But the one thing it does do is cancel debt. And that's what has happened with all the Covid debt, already.
––––
For those who are claiming today that it took a century to repay First World War debt, with it going in 2015, I am sorry to disappoint you, but it was not repaid. It was just refinanced with a new bond in 2015. We still owe it. The repayment was just another government debt sham.
––––
The government is claiming that a 1% increase in interest rates will cost it £25bn, and so austerity is required. That is a straightforward lie. Even they cannot claim the national debt is £2,500 billion: it isn't. It's under £2,200bn, at most. 1/2
Given the government owns over £800bn of the national debt and gets the interest back on that amount the real cost of a 1% interest rate increase is £13bn at most. Just by doing the accounting properly I just found £12bn of the money government does not want to spend on the #NHS. 2/2
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Not halving been previously aware of The War ‘debt’ having been refinanced in 2015, if the information is to hand, I’d be interested to know what the amount was in 1918, the amount refinanced in 2015, and the terms applied in the refinancing. Was WWII debt simply added on, or was that kept entirely separate?
I know I’m being lazy by not researching this myself, but life is short, and if the information is at your fingertips…
The remaining debt in 2015 was simply redeemed and rolled over into a new bond issue….that was it
Technically the old debt was repaid, but that’s as technical as saying a business rolls over its loan arrangements with the same bank every three years
Much amusement for my son as I sat shouting at the TV…. apparently they can’t hear me. I just need to shout louder!
First, it is already paid for. Full stop. end of story…. as you eloquently said in a recent video.
Second, there is SO much misunderstanding about interest rate costs. 1) the BoE exerts complete control over short term rates and, through QE and gilt issuance policy, pretty tight control over long term rates. 2) Modestly higher longer term rates may not be a bad thing for various reasons and if you are concerned about money being paid out to savers it can be recovered through taxation. 3) a 1% rise in rates today will take AT LEAST a decade before the £25bn or £22bn per annum additional cost kicks in.
Is there no journalist that understands this stuff?
Apparently there are no such journalists
Chris Giles from the FT said I was not telling the truth when making this argument on Twitter this morning….
Which sort of tells you what you need to know
So just print money to pay for things ad infinitum?
1. Then why have long term rates shot up?
2. So if you give savers a change to earn some return, the first instinct is to reduce that return by taxing it away. Seems smart.
3. Bond redemptions and coupon flows mean higher yields immediately feed into interest rate costs.
That is before you consider the massive loss the BoE asset purchase facility will take on it’s bond holdings as rates move higher.
Surprised nobody here seems to understand this stuff and just prefers the simple print and spend money argument. Which is total garbage by the way.
Where to begin?
I have never spend as infinitude
Rates have not shot up
And you can’t lose money on a cancelled debt you will never sell
You really need to learn some economics
Rates have not shot up? Guess you’re not looking at Gilt yields then. Which have shot up 60bp since the start of the year.
“And you can’t lose money on a cancelled debt you will never sell”
The APF can and does lose make and lose money on Gilts it holds. It’s called mark to market. basic accounting.
Which then gets passed back to HMT via the BoE.
Which implies that the debt isn’t cancelled, and that QE is intended to be unwound at some point.
Think you need to learn some basic finance, economics and maybe a bit of accounting to go with it chap.
60bp is not ‘shooting up’
And mark to market is not making or losing money. The gains and losses are unrealised. Not real, in other words. And not distributable as a gain, or loss. So not passed back, then. Oh, and ignored in national debt calculation.
How much more can you get wrong?
Are you serious?
60bp move higher in rates is a massive move. 10y Gilts were at 0.2% at the start of the year, now they are at 0.8%.
“And mark to market is not making or losing money. ”
Yes, it really is.
“The gains and losses are unrealised.”
So?
“Not real, in other words.”
Very real. Certainly in accounting terms, where you have to mark those assets…to market.
“And not distributable as a gain, or loss.”
Totally wrong. The BoE APF has already distributed profits from MtM gains from it’s holdings. This is very clearly stated in the APF accounts. It has also taken losses, though small which could be absorbed internally.
Aside from that, MtM gains and losses are distributed all the time. Just look at any Bank, for example.
By your logic, as long as you don’t realise a loss by closing a position, you could run those losses indefinitely. Lehmans would never have gone under. Which would amount to false accounting and fraud, but in your world, that seems perfectly OK.
“So not passed back, then. Oh, and ignored in national debt calculation.”
They are passed back. As clearly stated in the APF accounts. And clearly not ignored in the national debt calculation. Which has total liabilities where you would expect them to be if no debt has been cancelled.
“How much more can you get wrong?”
After you efforts above? Just a bit rich of you to say that isn’t it?
Actually, it has not distributed the MTM gains – because there is no cash to do so
And yes, I have checked
Why is there no cash? Because there is no real profit, or loss
Politely, you’re wasting my time with your claims
And as for the national debt calculations – I have checked with the ONS. You are wrong.
This was your last post
Presumably these assets would be considered “readily convertible into cash”, so upwards fluctuations in fair value could be considered “realised” and distributed. If the are beneficially owned by Bank of England Asset Purchase Facility Fund Limited.
But BOEAPFFL is essentially a nominee, as all profits and losses from its holdings are directly passed to or borne by HM Treasury anyway.
It doesn’t distribute anything, as page 6 of its 2020 accounts makes clear.
If there anything stopping BOEAPFFL from holding the assets to maturity? What then?
It would seem that none of the MtM gains are distributed
And there is good reason why not: there is no cash to do so
There is also real doubt about whether the bonds are readily marketable: after all, last year there were around £400bn of bonds. That quantity is not readily marketable. More so, the policy was to not make them so. So I think the gain unrealised.
The assets are all held to maturity: the premium paid unwinds over time. It was effectively pre-paid interest receipts
Ah the Murdoch Kamikaze Prole Party consisting of the Conservative and Labour parties where the following statement:-
“The National Debt is nothing more than all the pounds spent by the government that haven’t yet been used to pay taxes.”
is regarded as a pointless accounting identity completely unrelated to any useful economic model.
This is the current predominantly sorry state of majority UK thinking which clearly lacks a non-kamikaze economic model that will avoid the continuation of further austerity cuts and therefore the slashing of demand. There’s already a continuation of the public sector pay freeze!
https://www.theguardian.com/commentisfree/2021/feb/28/the-leftright-divide-still-exists-but-its-struggling-to-escape-the-lure-of-identity-politics#comment-147769382
The suggestion that the UK’s war debt was finally repaid in 2015 is the same sort of nonsense as the suggestion that the debt created to pay off slave owners in 1834 was finally repaid in 2015. Neither is true. We just keep on consolidating and refinancing.
Agreed
About your 1% argument (which seems sensible to me): the Institute of International Finance (which for some reason has not invited me to be a member) has estimated the effect of rate rises on a large range of countries’ debts, charted in a bloomberg piece: https://www.bloomberg.com/graphics/2021-coronavirus-global-debt/
“The Covid-19 pandemic has added $19.5 trillion to global debt”.
Would it make sense for someone (not me, and probably given your workload, not you) to do a simliar exercise for a range of other countries, e.g. developed economies ?
Yes….