I posted this video this morning:
The transcript is as follows:
We don't have a national debt in the UK. We do have national savings, but we don't have a national debt, whatever you are told day in and day out by our politicians and by financial journalists and everybody else. Why do I say we haven't got a national debt? Well, the simple fact is that the national debt has two sides to it.
One side is that the government owes somebody money, and therefore, we say they're in debt, and the other side is that somebody has an asset. This is true of all financial transactions in the world. Every transaction has two sides to it. That's what accounting is built upon: debits and credits, ins and outs, pluses and minuses, call them what you will.
In the case of our so-called national debt, undoubtedly, the government has a credit, which is said to be a debt, but somebody else has a debit, and that is an asset. Now, that asset is private wealth, because quite literally what the national debt represents is money that people have chosen to deposit with the government for safekeeping.
That's something which is identical to what happens with a bank. People can choose to save their money in a bank, and when they do, nobody goes around and says, “Oh, the bank's in trouble, it's in debt, it's got to repay, everybody put money into it, and therefore if it doesn't it will all go bust.” No, they don't.
They actually want to encourage people to put money in the bank because the more money the bank has, the better it looks to be, the stronger it is, and the more likely it is it can pay off its creditors. Everyone feels as though they would like to be in the biggest bank because that is the safest bank. Well, why don't we use that logic when we look at the government?
The government is already the ultimate safe place to put your money because they make the money and therefore can always repay you without fail, whatever happens, because they can always make some more if they need to repay you whenever you demand it. But more than that, the government is simply providing you with a safe place to put your money when it creates the national debt, as it is called.
It offers you a savings facility. And we know that's true, because it's called National Savings and Investments or NS& I, its own savings bank. Which includes things like premium bonds. They're part of the national debt, by the way. So if you own any, or if you know somebody who owns any, do you know, they've got part of the national debt? They don't think that there's any crisis being created by that. They actually think they've got something which is valuable.
They have. They really do have, because the government will pay it back to them if they want to be repaid because it's a savings account.
But they also offer things like straightforward savings and deposit accounts. I've actually got some savings with NS&I. Seemed like a good deal at the time.
What about the rest of the so-called national debt?
Most of it is called government bonds. Well, if you go into many building societies and banks and ask if you can save money over a year or two, they'll offer you a bond, literally identical almost to the government, but for one thing. If you save your money in a bond with a High Street bank, only you can get the money back.
If you save your money in a bond that the government issues, you can sell the bond to somebody else. That's literally the only difference between what the High Street bank offers you and what the government offers you. You can sell it in less than three, four, five years - however long it lasts in the case of a government bond. You can't in the case of a building society. But otherwise, bonds are simply savings accounts.
So if we've got piles of money being saved with the government, do we have a government with a debt crisis when none of those people want to be repaid, they're all very happy to hold their money there, and they don't want it back?
No, of course we haven't got a debt crisis and nor should we be obsessing about how we have to repay it because it's a burden on our grandchildren.
The truth is the lucky grandchildren will inherit part of the national debt because it's part of their parents' or grandparents', or whoever else's, estate left to them in their wills.
So, the truth is that we don't have a national debt. We just have a National Savings Bank, and just as banks have creditors on their balance sheets for the sums that they owe back to the people who save with them, so does the government, but it doesn't mean it's in debt as such. It just means it's operating a banking facility, and that's what, in this case, the credit on its balance sheet means. There is no possible debt crisis in the UK created by people wanting to save with the government.
Let's stop talking about the national debt as if it's a burden, and let's start looking at it as if it's a national asset. Because that's exactly what it is for those people who save with the government.
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Best video yet, should be compulsory viewing for everyone.
Thank you
Simply and straight forwardly put. Why do we look up to politicians who can’t understand such simplicity? Laziness? They give democracy a bad name that’s for sure!
They have an agenda to keep people fearful. How often do ‘they’ describe government debt as if it was household debt?
I was expecting a video on this and I am not disappointed.
I am beginning to think that “what is the national debt” is a philosophical question. In that case then the “science of economics” can’t claim to speak that it knows anything about it. I think I am at least a decade late to this conclusion since a philosopher already has published a book called the “philosophy of debt”.
Debt has been an instrument for self titled kings to create armies, claim power and wealth for their own purpose rather than the good of society. So it is right that there are limits to this power. In the modern era we live in democracies where there are legal institutions, rule of law, courts etc. In such environment it is much harder to claim that debt will cause the sovereign to have too much power. I would suggest that courts, constitutional arrangements, elections, institutions etc are more important to keep liberty alive rather than debt policy.
Thanks
Northern Rock.
Posting such cryptic comments does not help.
Interesting one pager by Randall Wray “If Government Can Print Money, Why Does
It Borrow?” links in with “Finding Money” featuring Stephanie Kelton.
https://www.levyinstitute.org/pubs/OP_72.pdf
Wray asks three questions which you can guarantee almost no politician in the UK can answer which is why Jared Bernstein made such an ass of himself. Here they are:-
1) Government must borrow to finance its deficits because
printing money would cause massive inflation.
2) Government must borrow to finance deficits because
that’s the law.
3) Government sells bonds to reduce downward pressure
on interest rates.
I do remember, some years back, the media saying the “Government has been forced to increase borrowing….!” As though this was a terrible thing, at the same time the interest rate on NS&I accounts went up. I have an NS&I account, “I thought oh, thank you very much. maybe I’ll put some more money in there”
They forced your hand….
This is such muddled thinking.
In the same way that banks account for deposits as debts, the UK government has debts to repay those people that have lent it money.
The reason that people are happy to lend the government money is that a) they expect to get their savings back with an appropriate rate of interest for the risk being taken, but equally importantly, they expect that the value of their investment will be maintained.
And this is where your logic falls apart. Just because the government can print money to pay off debts, does mean that people will be happy to lend money if they think they will abuse that priviledge.
Which is the point you keep missing. It’s meaningless to have guaranteed repayment of a loan to the government, if you lend them £100 but this is only effectively worth £50 on redemption. Market interest rates will rise accordingly,
Which is what you keep ignoring when you struggle to understand why a non-distorted market needs positive real rates for savers/investors.
People don’t lend the government money any more than they lend banks money. They save. You ignored what I said.
Nor, devour tour small minded theory that ignores what happens in the real world, do they stop saving in cash when there is inflation. They still wish to save. They wish to save in the safest place. That is with the government.
Your nonsense ignores reality. Mine embraces it. Only one of us is confused and since I am explaining reality and you are seeking to justify your confused little theories it sure as heck isn’t me.
Richard,
You don’t seem to understand the differences between saving with banks (deposits), saving with government through gilts and saving with the government through National Savings products. A bit like your previous confusion between money and credit.
You treat them as the same when they are very different. Getting the basics wrong explains why the conclusions that you draw are also one.
But anyone that tries to push a political agenda by claiming that an entity can borrow money (that has to be repaid) from an individual or company, but that somehow isn’t ‘debt’ clearly doesn’t care about ‘the real world’, just some fictional universe where the laws of economics (or even basic accounting) do not apply.
Go on then, tell me what the differences that I have not noted are. You haven’t. If there are such big differences, tell me. Oh, and make the comparison ceterus parings I.e. hold bonds to redemption.
Your logic falls apart Stuart because you fail to identify two things; the UK government can create all the money it wants relative to triggering abnormal inflation (neither can licenced banks for that matter). Secondly, therefore because of your reasoning blindness you have failed to identify the true reason they issue treasury bonds which is to be able to control interest rates.
https://www.levyinstitute.org/pubs/OP_72.pdf
In a sense you are not to blame virtually all the politicians in the UK don’t understand how the country’s monetary system works and as such are destroying the country by telling voters lies about this system! Here’s how the UK monetary system actually works. Slightly different than the US one but the same in respect as the reason for issuing treasury bonds.
https://www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_purpose/files/the_self-financing_state_an_institutional_analysis_of_government_expenditure_revenue_collection_and_debt_issuance_operations_in_the_united_kingdom.pdf
Thanks
I am even more confused than I was before. You talk about government savings like premium bonds as debt. I can understand that but when politicians and MSM talk about debt all they are talking about is what the gov is spending on things like War & the NHS etc.
I understand being able to print money thing and I don’t fall for the “they will bankrupt the country” line but, I do think there is a case to call what the country has in the form of income like tax collection and what it needs to spend for state services can be called debt – if that calculation produced a negative?
I think you are very confused, but so are politicians.
The total ‘debt’ is the difference fro9m 1694 between tax income and spend, less the sum the government has bought back, which is around £1.7 trillion now. It is this sum that the government seeks to cover by attracting savings, as I think they should be described.
But you say savings is part of the debt, don’t you? And that’s the whole reason we should not be worried about it. If it is debt then how can debt be covered by more of it?
Of course, the gov wants us to give them as much money as they can get. it’s a pity they are not so concerned about foreign companies taking our money out of our economy by them selling off our asset to them.
I am sorry – but your questions really do not make sense and so I am not sure how to answer them without writing long essays, and it is Sunday
The savings are the money owed to individuals and companies. The debt is the liability owed by the government to those individuals and companies.
It’s not rocket science.
Why do you have to try and redefine globally accepted terms, to try and pretend they mean something different?
Do you know how advances in understanding take place?