Attached to the new paper I have out this morning is a short glossary explaining some of the terms used within it in rather more detail than would be possible in the flow of the text.
The glossary entries in question might go on to form part of the book that I am working on, which is entitled 'How are you going to pay for it', about which I have already written in this blog and which I hope will be out early next year.
Am example of a glossary entry is this one on bonds, which many people find a particularly confusing issue:
Bonds or gilts. A bond is, in effect, a form of savings account available to save in for a fixed period of time. It is offered by a savings institution, whether that be a bank, building society, government, or company. The currency in which the bond is issued is fixed. The interest rate payable upon the savings bond is also usually fixed for the duration of the period for which it is made available. That period can vary in length. It can be a few days but is usually a period of a year of more. Both governments and companies now issue bonds for periods as long as fifty years. Those offering repayment within two to ten years of issue are usually the most popular.
In some cases no early redemption or repayment of the capital invested in the bond at the outset is allowed. In others this capital can be repaid early with a penalty being paid by the saver seeking that early repayment, usually in the form of interest foregone. This usually applies to the bonds offered by banks and building societies.
In the case of government and corporate bonds early repayment is very rarely an option but the bonds are instead traded on a stock market. To achieve this goal a bond issue is made on a specific date by a company or government. That bond issue is then effectively split down into many parts. So, for example, a £10 million bond issue could be traded in 10 million units of £1 each, or one million units of £10 each, or any other arrangement that suits the issuer. The bond in question can then be traded, with people buying or selling parts of it. In that case the price paid by the buyer of a bond reflects their assessment of the creditworthiness of the issuer and the value of the interest rate paid on the bond when compared to current alternative issues. Bond prices can vary as a consequence.
The bonds issued by governments are sometimes called gilts, because the UK government once printed its bonds with a gold edge. The term now more commonly refers to the fact that a bond issued by a government like those of the UK, USA, Japan and Australia cannot fail as the central banks of the countries can always create the funds to ensure that repayment will be made. This cannot be said of other bond issuers. Because of this implicit Treasury guarantee in some countries, such as the USA, government bonds are called Treasuries. Collectively, government bonds form a part of what is commonly, and inappropriately, called government debt. The term is inappropriate because whilst bonds are liabilities of the government they are not actually used to fund its activities, which funding is always provided by money creation by the Bank of England: they are merely the voluntarily deposited savings of those who want to take advantage of the security that the government can supply to savers. To describe these sums as debt is, therefore, inappropriate when they are simply part of a savings mechanism offered by the government.
There are plenty more entries in the new paper, but my question here is a simple one, and is to ask whether this is useful, and is the level of detail excessive, too short or about right, which questions might also be relevant to the tone, which is aimed very specifically at the non-technical reader? Constructive comments would be appreciated. Thsoe offering anything else might be wasting their time.
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Of course it is!
Your middle name is ‘useful’.
Thanks Richard.
A simple question that I think often confuses the man/ woman in the street. I think most think of bonds and gilts as something only available to institutional type banking and savings, ie Pension Schemes and Trading Companies.
Are things like Premium Bonds and savings with NP&I also Gilts? If so then they are part of the so called Natiobal Debt too.
I know it sounds like a nieve question, but I think a lot of people still separate in their heads their savings from that available to the Corporate Sector.
Premium bonds and NS&I are technically not gilts
But they can issue bonds – fixed interest savings accounts for determined periods of time and mu local building society makes these available
I was trying to find a relevant glossary trying to follow the recent discussions on money etc etc. Couldnt really find one and still surprised that so many of these basic definitions are contested.
Maybe a glossary with a short one or two sentence definition and a link to the detail – sort of two tier glossary?
That might happen…..
A little pressed for time, and haven’t read it yet; but a quick scan; Figure 1 and sources bring joy to my heart (what a dry old stick I have become; I blame Neoliberalism!).
🙂
They will be extremely useful.
My only “formal” study of economics was a National Council of Labour Colleges (NCLC) postal course that was essentially a Marxist viewpoint, end a one-year course for Economics A-level in the late 1960’s, only looked at the likely subjects for questions.
So I will print your definitions and keep them by by my side.
Than you for an excellent idea.
They will appear in book, and maybe other formats, in due course
Video versions are possible
Hi Richard
No need to publish this on the site. Please keep up the good work.
An excellent glossary. The only improvement I can think of is to use the pyramid principle whereby if you only read 10, 30 or 100 words (etc) you still get the whole story. There are some key details (on the inappropriate use of the word ‘debt’) that appear near the end.
Alas one of the best examples of this writing is in the Sun where the content might be suspect but the structure is very good.
No need but useful and I will work on it
Doing these is hard work though – on me and my selected readers
Yes, it’s useful!
Such a glossary would be a great help to me. I don’t have a ‘financial mind’ and a lot of that stuff makes my head spin. Delineated stuff helps enormously especially with a brain that can miss lines or paragraphs in long text.
I have a couple of readers for these – both of whom keep nagging me to make them comprehensible
I think you need to nail down ” Govt. debt ” ” Govt. liabilities ” the phrase what ” Govt. can supply for savers ”
Gilts are IOUs arent they ?
Perhaps a line on the actual difference between debt & liabilities
avoid mutterings of being ” misleading ” ?
Noted
There’s also the deceptively simple-sounding word “borrowing”. Until I found this site, I imagined it to mean borrowing from a global financier like The World Bank, but its widely understood meaning and its very vagueness makes it a perfect smokescreen for confusion. Perhaps an explanation the various “borrowing” options available to the Treasury, BoE and Government might help public understanding.
Working on it….
Your glossary is very useful, although having followed your blog for a while, it does not say anything I find particularly surprising. However it is useful to know the precise use of terms.
Being an engineer and find diagrams very useful. I would like to suggest these would help visualisation of the flow of money in and out of the institutions and how they are combined and reported.
I am trying to develop them
The problem is the complexity of the system makes them really hard to develop and follow
Yes, it’s most useful.
Education is one of the factors that most influence our advancement and progress as individuals. I certainly find the work you are doing most helpful.
Neil.
Definitely useful for those of us not in the finance business.
Great – a glossary would certainly be useful.
Starting from analogies with everyday financial phenomena like having a bank account is definitely the way to go, where possible.
However, when it comes to seeing things in a different way from how they tend to by ordinary people in everyday life e.g. seeing lending to others as an asset rather than a risk (as mentioned by one of your readers a few days ago) lengthier explanations are likely to be needed, i.e. explanations that go beyond citing accounting conventions and provide the rationale/justification.
I think ordinary people think of credit/debt in terms of lending and borrowing, and want to know who owes who £x, and not in terms of something that can be owned, bought and sold. In such cases I think what makes people’s head spin is the difficulty of keeping track of who owns what and who owes who.
I accept all that
This is not going to be easy – and alternative methods may be required
I have no doubt that a glossary, developed by you, would be immensely useful in clarifying the base reality of the terms bandied about by the financial sector and the Treasury, in particular. I found the suggestion, from AI, to have definitions that could be of increasingly specific detail, to be intriguing. For instance: Money (i); “a promise to pay”, (ii) “a means of recording a debt owed by one party to another”. I haven’t attempted to make these examples very accurate, or in the form that you would probably present them, but simply wanted to illustrate how level one could express the core concept and subsequent levels deepen understanding and application. Thanks for producing my only “must-read” material every day.
Bill
Thanks. This, alongside book writing, is my major task of the summer.
And thanks for your final comment. No pressure then! I have to admit that I find the fact that there appear to be thousands of people who read this blog every day a matter of continual surprise. It began for a specific campaigning purpose and grew into its current role. Thankfully, I never seem to have run out of ideas, as yet.
Richard
Economics is not a science and isn’t reliable as psychology. Fifty years of it taught me that. Try forecasting or share tipping …Dancing on a ice flow is easier
Economics is not a science and isn’t reliable as psychology is not. aka Behavioural Economics which they recently invented Fifty years of it taught me that. Try forecasting or share tipping …Dancing on a ice flow is easier