In this morning's video I note that government bonds do not fund government spending any more than tax does. So, I ask, why do governments keep issuing bonds when there is no obvious need for them to do so?
The audio version is here.
The transcript is:
Why does the government issue bonds to the savings market if it isn't necessary to do so to fund government expenditure, which it is not?
Now that's a really good question, but one that needs explanation if we are to understand how the UK government finances work and how the UK savings market works.
I've already explained that no part of taxation or borrowing funds government expenditure because literally all of UK government expenditure is funded in the first place by the Bank of England giving money on overdraft to the government so that it might spend in pursuit of its legal programs. That is literally what happens day in, day out in the UK government, and it's really very hard to argue with that because as a matter of fact it's true.
I've already discussed why we tax despite that. I have made a video on the six reasons why we tax despite the fact that tax does not pay for government spending.
But why, then, does the government appear to borrow by issuing bonds into the financial markets when it doesn't need to do so? That is really confusing because it ends up creating this narrative about the burden of national debt, which is beloved of so many of our politicians who believe that we are going to, well, hell in a handcart if you like, because we will not be able to repay this sum that the government has, in their words, borrowed, which word I don't agree with.
So, let me explain what the government does.
Once upon a time - and that is the right way to open this part of the explanation - once upon a time the government did have to borrow, because there was an artificial constraint placed upon the amount of money in the economy, and that artificial constraint was supposedly the convertibility of money into gold.
Now, there was definitely a finite amount of gold in any economy, and if that economy tried to produce money, including paper money, in excess of this value of gold that it held, then serious consequences arose, including the deflation of the currency on international exchange markets, which existed long before we got the 20th century, but also because there was a shortage of literal cash movement within the economy and convertibility, which was an essential quality that banks were meant to maintain.
Therefore, at that time, when this supposed requirement of convertibility of money into gold was in operation, and the government wanted to borrow, and it couldn't create more money because it couldn't get its hands on any more gold, it had to go into financial markets and literally secure the funds that it required from those markets by borrowing.
In that case, the tradition developed of the government issuing what were called gilts. They were only called gilts because the paper on which these bonds were printed had a gold edge to it. Hence the name.
And the bond was a savings instrument. Somebody could place their money in a government bond on a fixed date and on a further date, sometime in the future, they would get their money back. And in the meantime, they would get interest paid on it, usually twice a year. And rather curiously, in times of old, and again, I stress, I'm talking about ‘Once upon a time' here, there were actually a series of coupons printed on the bottom of these gilts, and you clipped off your coupon, took it into your bank, who redeemed it for you, making a claim against the Bank of England, and therefore the Treasury, to be paid the interest in question. So, that's where we get the term coupon rate from.
But this is history, and history is not the same as what is happening now. We don't have a requirement to have money that is converted into gold now. We have what is called a fiat currency instead. And fiat, in this case, does not refer to a brand of Italian car. It refers to the fact that our currency is legal because the government has declared it to be so. And it is that declaration process that is the fiat. That makes the money legal tender. There is, therefore, no constraint on the amount of money that a government can create.
We know that because when we came to the 2008 global financial crisis, and when we came to COVID, the government created money at will to meet the needs of our economy. And thank heavens that it did so. Therefore, there is no such constraint now.
But, historically, what happened was that the whole edifice at the City of London, and all the banks located in it, got incredibly used to having these things called gilts available to them to save in.
And in fact, the big advantage of gilts for the banks was that they could place their money safely with the government who could guarantee repayment when they had excess funds available.
And the same pattern goes on now. Whilst you and I can save in a commercial bank and have the government guarantee our deposits up to the value of £85,000 for each bank we might save money in, if we are so fortunate, that is not true for companies who want to place billions of pounds on deposit, particularly when they have no use for them in what is called the overnight trade. In other words, they have no use for this money because it is not being used in their active trading during the course of the hours of darkness, and they wish to place the money on deposit, which is what they do.
But, there's no guarantee they'll be repaid. And since Northern Rock and then Lehman Brothers failed in 2007 and 2008 respectively, they know that even very large banks can go bankrupt on them. And if they did, they wouldn't get their money back the next morning. In fact, there will be a massive knock-on effect for the companies who have put money on overnight deposit with these banks, and, as a consequence, the companies in question could fail.
So, instead, there's a trade that goes on. What happens is that overnight, these large companies with quite probably billions of pounds of money to put on deposit overnight will buy government bonds from banks, keep them from literally late in the evening to early the following morning, and then sell them back to the same bank they bought them from. The price will change very slightly overnight and that increase in price will be the interest rate that's being paid.
But the critical point is that this provides the security for these companies to save safely in a way that they couldn't with the bank themselves. So, government bonds do in part exist simply to make the City of London work.
And that's true for other parts of the City of London as well. For example, pension funds need to match their very long-term liabilities to people who are going to live for a long period of time after they've reached retirement age, and they need somewhere safe to put funds to guarantee that they will be able to repay in 25 or more years' time. Where do they put that money? Quite often, they put it in government bonds.
Life assurance companies will be in the same position.
And there's another group of people who particularly like buying government bonds as well. That is people who want to save in sterling, our legal tender, and they come from overseas.
Who are those people? Well, some of them trade here and they just want to hold sterling deposits to make that easier. We are, after all, still a major trading nation.
Others have made profits here and don't yet want to repatriate them to the country where they are. They will want to leave money here. They won't want to leave it on a bank account any more than will a UK depositor because they will suffer the lack of a guarantee. So, they buy sterling bonds as well.
And other governments want to hold sterling because sterling is still a reserve currency for the world and other governments therefore want to hold sterling balances and therefore they buy bonds too.
Now, for all these reasons, the government issues gilts still.
Does it do so because it needs the money? No, it doesn't need the money. As a matter of fact, it could simply borrow all the cash it needs to fund its programmes from the Bank of England, pay interest to them, which will go straight back to the government, and that would be the end of the story.
But they issue bonds instead because without those bonds the City of London, the pension market, the life assurance market, and the overseas international trade of the UK probably wouldn't be able to happen in the way it does.
So, bonds don't exist to help the government, because the government doesn't need help, it can create all the money it needs for itself. Bonds exist to let the financial markets work.
So, let's never pretend that the government is in hock to those markets, and that those markets can tell the government what to do. The reality is that those markets are utterly dependent upon the government to provide the savings mechanism that they need so that they can function.
The power is all with the government, never with the financial markets. It is time that our politicians recognise that, and we stop the nonsense that we are dependent upon these markets for money because we aren't, and we never will be.
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My view on this is that it is pure theatre.
It is done to obfuscate and create the impression that Government is on hock to the banks, and to create fear of debt.
I think that paying interest in the CBRA does the same (although accept it is also be a clumsy way to transfer interest rates into the private banking sector).
Disinformation central is what this practice is. It’s a huge confidence trick.
“Why do governments issue bonds when they don’t need to?”
Because most people are clueless democracy depends upon three types of money creation one for lending, one for saving, and one for collective spending.
You don’t want to be reliant on money lenders to pay your taxes, save, and collectively tackle the problems thrown at your community or country, or indeed helping other nations do you?
The rich maybe perfectly happy that it’s other people’s borrowing that allows them to save on a grand scale but their control over capital can hardly be declared equitable for all can it?
https://www.theguardian.com/business/article/2024/aug/12/ftse-100-chief-executive-pay-reaches-highest-level-on-record
I agree with you PSR
The grand charade of government finance is built in and on language that is meant to deceive and obfuscate from what actually happens in the real world. If the populace at large ever found out that we could have a fully funded NHS with as many hospitals doctors and nurses as we needed, well resourced schools, local councils, a well funded and efficient justice system, and indeed just about anything we could do or build we could have, imagine the anger at all those wasted years of austerity and neoliberal Thatcherite bullshit we have had to put up with it’s as if there might be a revolution.
I can but dream!
Don’t worry, patthepublican, these are capitalism’s end days. Once the world population starts shrinking, which could be within the next 10 years or so, an economic system based on growth will not be viable. We will have to start co-operating instead of competing, which will be better overall.
Let’s just hope things unwind in such a way as to minimise suffering.
I think you are overly optimistic about population growth.
Very useful – thanks!
“there was an artificial constraint “.
It wasn’t historically artificial. It was a constraint originally because sovereignty did not stretch beyond the authority of the sovereign. Gold was the solution to that problem. Almost the only reason Government raised money historically, was to fight wars. Sovereigns couldn’t enforce the use of their own currency for necessary goods and services, typically for a war in Europe by using their own money (in the form of currency); save where it had a value that was separately measurable by foreign suppliers to value currency. Gold (or silver) was the only commonly accepted international basis for the measurement of the specie of all countries.
The use of a commodity should simply never have lasted as long as it did; it is an illustration of the deep and persistent inertia of institutional thinking.
Thanks
There is, IMO, a moral issue here too. Over the years I have right wing politicians and newspapers claim that if a Labour govt got ‘too extreme’ or ‘overspent’, the ‘Markets’ would refuse to lend money and govt. would collapse.
It has never happened and can’t happen. The moral issue that the ‘markets’ are several thousand, or perhaps even several hundred, rich people seeking to maximise their wealth and the interests of the country are secondary by a long way.
One could see it as class warfare.
You could….
Two tales:
The first from Australia; in the early part of the century they were running a consistent surplus. The government stopped issuing debt. Their finance industry found that they needed more bonds than were available and eventually went to the government and asked them to issue bonds even though the had no need. They did so and so paid interest on those bonds – money they had no need to spend, but the finance industry did need them and the interest.
Secondly, the government, via the BoE, uses buying and selling bonds on the secondary market to fine control interest rates. Buying causes a downward pressure whilst selling causes interest rates to rise. You can see the effect in a gross way with the last few years. QE put a downward pressure on rates, whilst QT keeps them up.
So bonds do have other functions. One way of looking at it is that the finance sector, from the interest payments get an assured income. Government welfare payments to the whole sector; and then the financiers bleat about the social security payments. Hmm, my thoughts now become unprintable ….
Thanks
wasn’t Australia also running a trade surplus?
Stephanie Kelton showed that a revenue surplus would lead to recession.
Would a trade surplus mitigate that?
I’m not certain if the had a trade surplus, but I think you are correct – Thanks
But the point is that their financial sector wanted those bonds, presumably as a totally safe place, which paid interest for their money.
Thank you, this is (for me) a new insight and why I keep following your blog.
One question: is money used to buy bonds effectively taken out of circulation and thus neutralising new money created by government spending? In other words, would a government need to tax more to prevent their spending being inflationary in a world without bonds?
Some of that is money taken out of circulation. I don’t think this can be claimed due all the foreign holdings.
It is worth noting that Dirk Ehnts describes the function of government bonds in his new book, Modern Money Theory: A Simple Guide to the Monetary System (2024)
https://www.amazon.co.uk/Modern-Money-Theory-Professional-Organizations/dp/3031535367/
What does he say?
I have not read Ehnts book, but there is a possible ‘steer’ in a twitter-X post he made in June this year in reply to and FT article on the BoE and Treasury referring to this matter: “The British government can ask the Bank of England to pay its bills – even without issuing gilts (government bonds). It did so in 2020 and the Bank of England agreed to it. There is no question whether the government can “pay” for its policies – it can!”.
That is what I would expect from him
Ehnts writes that:
“Public bonds are issued… as part of an interest rate maintenance strategy and/or to satisfy eurozone rules” [..]
“Government bonds are issued to satisfy eurozone rules. Since they provide a risk-free asset, at least in good times, the bonds are also used as a means to stabilise the interest rate at some positive level. When a central bank buys a government bond from a bank, it just marks up the bank’s account. A government bond in the possession of the central bank will lead to an interest payment from the Treasury to the central bank. Since this payment increases the central bank’s profits and those are usually transferred to the Treasury’s account, it is up for discussion whether government bonds held by a central bank should be counted towards public debt.”
Source: Intereconomics, Volume 57, 2022 · Number 2 · pp. 128–134. Full text here: https://www.intereconomics.eu/contents/year/2022/number/2/article/modern-monetary-theory-the-right-compass-for-decision-making.html
Fair comment
A question:
In the paragraph starting “So, instead, there’s a trade that goes on”, you say (I think) that banks buy gifts from other banks overnight. Have I understood that correctly?
This seems to imply that some banks have a shortage of liquidity, that is that they need the BoE reserves that they get from selling the gilts.
However, at present, I thought there was an excess of reserves. If so why do banks sell bonds?
Confused.
No, depositors buy gilts from banks overnight, banks do not do so from other banks
The depositors want to own an asset other than a bank deposit. The gilts they buy overnight represent that
Then they sell them back in the morning
Incidentally, the gilts used are often borrowed from other institutions, but that is a whole other story, not for now
Thanks for the clarification 🙂
This may be of interest to some:
A House of Lords Committee has been looking at Debt Sustainability.
The relevant website is at
https://committees.parliament.uk/work/8090/how-sustainable-is-our-national-debt/publications/
and there was a submission from GIMMS giving an MMT view.
Their submission is near the bottom of the page. The detailed paper of their submission is downloadable from there but can be got directly from
https://committees.parliament.uk/writtenevidence/128254/pdf/
It’s not too long at 9 pages.
There are a couple of sections which are introductory and provide background information, the meat of their argument is in section 3.There are some parts where I have doubts about their argment.
It basically makes the argument that there are better and more sustainable ways of satisfying the current functions of government debt. The section 3.2 is the heart of it. But I still cannot see how it avoids ever-growing Interest payments, which is what the Committee is concerned about.
I found that paper less than clear in its meaning, and there was no excuse for that in 3.2
Yes, I agree, there were parts that left me wondering what they exactly meant too.
It is one of the areas of MMT that cause me to have some doubts about the detail. The job guarantee is supposedly nessary for MMT, but that too, just leaves me with unanswered questions.
There is no way I can make the job guarantee core to MMT
It is a possible recommendation – but I am not even sure it is that in the real world
I reduce MMT to its basics and it works. If that upsets some people, so be it.
Thanks for your reply; I’m relieved; it helps me a lot.
I’m glad that the problems I have with the concept of the job guarantee isn’t just me.
Bill Mitchell and others see it as an essential part of MMT. Yes, it’s nice in theory as it removes unemployment from needing active consideration, but I just can’t see it working in practice without creating other issues and problems.
Thanks again
Bill is not the answer to all questions on MMT. He won’t like me saying that.
“There is no way I can make the job guarantee core to MMT”
The way I see it, there is always community work in society that needs doing, and as long as there are unemployed, it makes sense to utilise people. A government job guarantee:
1 Costs the taxpayer nothing
2 Benefits infrastructure and services
3 Eliminates “unemployment benefits”
4 Improves people’s well-being and mental health
5 Grows the economy
Pavlina Tcherneva is strong on a jobs guarantee, and she makes the case for it here.
https://edi.bard.edu/research/notes/the-job-guarantee-mmts-proposal-for-full-employment-and-price-stability
The click the button “Download file”.
Tcherneva also discusses it here: “Pavlina Tcherneva on MMT and the Jobs Guarantee”
https://www.currentaffairs.org/news/2021/05/pavlina-tcherneva-on-mmt-and-the-jobs-guarantee
There are also some videos on the jobs guarantee via the Gimms website here: https://gimms.org.uk/job-guarantee/
Let me be clear: I get the job guarantee
But, it’s a consequence of MMT that makes it an option. I do not think it core to MMT.
“The way I see it, there is always community work in society that needs doing, and as long as there are unemployed, it makes sense to utilise people.”
The above statement is almost identical to a point made by Oswald Mosely (before he formed the BUF) in one of his “papers” presented to the “emergency” cabinet during the Great Depression of 1929-1939 regarding solutions to the unemployment crisis.
PLEASE NOTE: I am NOT a supporter of Oswald Mosley nor am I a Fascists, a MAGAt or a Tory.
Richard , I think the word order in this sentence “And in fact, the big advantage of gilts for the banks was that they could place their money safely with the government who could guarantee repayment when they had excess funds available.” needs to be amended by moving the final clause back between , to avoid ambiguity for thickos like me.
Sorry – that can’t be done in the video now, but I agree it was superfluous
Richard
Of course you’re right that the government can create (“print”) all the money it wants, but it wouldn’t like the consequences of doing so.
If it printed enough money to cover today’s deficit, the result would be very rapid inflation. As you’ve said before, the government could deal with that by a big rise in taxation, eliminating the deficit. But either very fast inflation or a big rise in taxes would be extremely unpopular. The ability to sell gilts (getting the private sector to voluntarily park some of its purchasing power) allows the government to avoid the hardest choices.
For heaven’s sake, get real. Net bond sales in proportion to tax are tiny and there are other ways to retain funds, like national savings and simply on very low interest bearing centra, bank reserve account. Your argument makes no sense at all.
Richard
No one is suggesting that gilt sales replace all tax revenue. The issue is the efficient (politically palatable) handling of budget deficits.
The DMO website says that net gilt issuance in the ten financial years to 2023-24 totalled £990 billion. This is far too large to be replaced by any other financing approach that would somehow go unnoticed.
I think you need to pay attention.
How much of that do you think was dealt with by QE?
I would not take the DMO at face value.
“Of course you’re right that the government can create (“print”) all the money it wants, but it wouldn’t like the consequences of doing so.”
Not necessarily. As Abba Lerner pointed out in 1943:
“The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce.”
In other words, if the spending is on available resources (human, physical), there is no inflation, even if the amount appears stupidly large.
Conversely, if spending does not make use of available resources, there may be austerity and the problems it creates (health issues, food banks, etc).
I can recommend: “Functional Finance And The Federal Debt” (1943) by Abba P Lerner in Social Research, Vol. 10, No. 1 (Feb 1943), pp. 38-51 online here: https://archive.org/details/functional-finance-and-the-federal-debt-1943-abba-p-lerner/page/38/mode/2up
Thanks
In the area I live in Florida, we desperately need a main primary bridge expanded from four lanes to six lanes to handle increase traffic due to the influx of new residents.
The US Federal government will not pay for this bridge expansion because it is not on a interstate highway. However, the Federal Department of Transportation FDOT) will give the Florida Department of Transportation (FDOT) matching funds. The matching funds will have to be raised locally. On the November 2024 ballot there will be a referendum to pass a “bond issue” by the “County” to get this bridge built using matching federal funds. Money to retire the bonds will come from increased tolls collected to cross the bridge.
The bonds will be purchased for three reasons:
1. The bonds are a safe investment as they are issued by the “County” with a fixed rate of return.
2. There is no Federal tax on income from government bonds. (Florida has no state personal income tax).
3. People like to see “their money at work” in their local community.
No doubt many of theses bonds will be purchase by the financial sector but many will also be purchase by private people who see a better investment than money sitting in a savings account or Certificate of Deposit (CD). I could be wrong but I believe these bonds will be sold in denominations of $10,000.00.
This is what local bonds should do
Although six lane highways will simply fill with yet more traffic
“Although six lane highways will simply fill with yet more traffic”
If you have a solution to this traffic problem that is feasible and implementable, the city & county will pay you good money for your idea. LOL! LOL!
FYI: The west side of the river is a bedroom community population 175,000 and the east side of the river is where all the jobs are. To go around the river and cross at the north end of the peninsula is a 25 mile detour from the population center of the bedroom community. Have fun! LOL! LOL!
This USA company makes lightweight battery electric with hydrogen fuel cell range extender trams and sells them around the world :
https://tig-m.com/
Careful, Christian Wolmar asked, (rhetorically) “Are trams Socialist?” And we know what “socialism” means in the US.
https://www.christianwolmar.co.uk/book/are-trams-socialist/
Trams will not work in the area of Florida I live in.
“And we know what “socialism” means in the US”
@Geejay
Just for schitts & giggles: Nothing is more Socialist than Interstate Highway systems and local road systems (the USA is in the top three of the world) and National Defense (the USA is the top #1 in the world).
I used to teach Economics A-Level many years ago (sorry) and I don’t remember Government borrowing ever being analysed quite like this in the text books. It was just borrowing equals debt equals must be repaid, either by increasing taxes or, decreasing spending – austerity. Thank you again for your clarity and…. it wasn’t me that taught George Osborne!
Thanks
Richard this was an excellent exploration of an oft asked question.
Great posts by readers too. But if we pay interest on reserves there seems to be no way out. The overdraft would not save us anything would it?
Yes, because the interest rate could be wholly under government control.
I agree … if the government agrees to your proposal …
https://www.taxresearch.org.uk/Blog/2024/08/09/its-time-to-bring-the-bank-of-england-back-under-government-control/
In the meantime???
The mess will continue….
A brilliantly clear plain English explanation!
Now why can’t economists do the same???
Thanks
And I do not know
Rather late to this thread….
Whilst gilt issuance is not required to allow government spending, we do still need gilts.
Money spent into existence by government must (largely) be drained. Tax does the lion’s share but gilt issuance should be a part. We cannot accurately predict what tax revenue will be raised or what government will actually spend so gilt issuance is a handy way to drain money if required.
I think we should wrap the DMO into the BoE and put gilt issuance where it should be – part of monetary operations across the yield curve. These open market operations would be aimed at keeping rates at appropriate levels and be decided in conjunction with government.
Gilts are also good as a benchmark for non govt borrowing and a place to save. Governments that are typically in surplus still issue government bonds and offer savings vehicles as a service to citizens.
Finally, we should not worry about the interest paid on gilts once we understand that this does not constrain spending… if it is going to the “undeserving rich” this is best tackled by tax.
Agreed: the DMO has to go
“Finally, we should not worry about the interest paid on gilts once we understand that this does not constrain spending… if it is going to the “undeserving rich” this is best tackled by tax”.
Just as universal benefits are best tackled, when they leak out to people who do not need them; not by making them means-tested, which many will not apply to receive for many reasons; but is best corrected by taxing those who receive them. If we do not think that is working, that is only because we are not taxing the right people for the right reasons.
[…] as I pointed out yesterday, the government does not actually need to borrow funds to do a scheme like this. The decision to […]
Richard – “the mess will continue” … while I agree that your proposal for controlling the Bank of England is sufficient, my experience with politicians in such discussions is that they do not understand our current complex system to make such a change. Nor are the voters able to understand and demand your proposal.
In New Zealand your proposed change was made by its Treasury.
A summary by Chat GPT of a submission by the New Zealand Treasury to end interest on what we call Settlement Balances.
https://chatgpt.com/share/02648473-7d26-46e0-8238-63f786fceeab
https://www.treasury.govt.nz/sites/default/files/2023-04/t2022-2562-interest-settlement-cash%20balances.pdf
Interesting approach to summarising – and a good one
Richard, sometimes the question to Chat Gpt needs to be worked on a number of times until an effective helpful response is provided. Asking for quotes and references can be very helpful.
This one on the Greenback party is effective. Lincoln’s greenbacks and the party that followed shows a simple solution which he politicians can understand and the people can back is doable.
https://chatgpt.com/c/5495ee8f-7ff3-4f10-822c-7f85307ce91d
In 1935 Congress/senate tried to use Greenbacks again, and failed to overcome Roosevelt’s veto by 1 vote – many question versions to get this satisfactory response
https://chatgpt.com/share/6a7f68d8-f7fc-4f64-8197-fbea09ff3875
I could not get them to load, I am afraid
Re Greenback Party, and Roosevelt veto of greenback spending … These two should work
https://chatgpt.com/share/7c68c6b2-ed93-496d-ad5a-31a5694a650e
https://chatgpt.com/share/6a7f68d8-f7fc-4f64-8197-fbea09ff3875
Thanks
Governments across the world are issuing bonds (and incurring billions in interest charges which could be spent on services to the public) that they don’t have to, and only the great Richard Murphy has realised this?
Seems unlikely…
Why?
First, I am not alone, by a long way.
Seciond, how else do you think change happens? Someone has to notice that it is needed.
Fiona for almost a 100 years great economists have been saying what Richard has said.
Two examples
1. Milton Friedman: Under the proposal, government expenditures would be financed entirely by either tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. Government would not issue interest-bearing securities to the public; the Federal Reserve System would not operate in the open market.
https://miltonfriedman.hoover.org/internal/media/dispatcher/214916/full
2. Keynes – Indeed the transformation of society, which I preferably envisage, may require a reduction in the rate of interest towards vanishing point within the next thirty years. But under a system by which the rate of interest finds a uniform level, after allowing for risk and the like, throughout the world under the operation of normal financial forces, this is most unlikely to occur. Thus for a complexity of reasons, which I cannot elaborate in this place, economic internationalism embracing the free movement of capital and of loanable funds as well as of traded goods may condemn my own country for a generation to come to a much lower degree of material prosperity than could be attained under a different system.
https://jmaynardkeynes.ucc.ie/national-self-sufficiency.html
Thanks
At the risk of adding a tedious comment (and with apologies for the length) I’ll put here an email reply received this morning, after a LONG delay, from the Beeb – excusing their bias in ‘explaining’ government debt, as needed to fill the gap between spending and tax. If this is what ‘ordinary viewers and listeners’ get as their regular ‘explanations’ from the Beeb and other supposedly reputable and balanced media, what hope for a general understanding that “if we can do it, we can afford it” is true (JMK); and”we can’t afford it, so we won’t do it” (RR – not the luxury car!)
(Quote)
…
https://www.bbc.co.uk/news/business-50504151
I am one of the journalists on the BBC news website and deal with complaints. I have been going through some old correspondence and it appears that you have not received a reply about an issue you raised earlier this year.
We would like to apologise for the very long and regrettable delay in writing back to you. We were dealing with a large volume of complaints at the time.
I have looked carefully at the article and your email to us. The article is what we call an explainer, and we run it regularly (though updating it each time to take account of latest circumstances and news developments). You are not the first person to write in suggesting we are “anti-borrowing’ and that we should do more interviews with Richard Murphy.
I searched and found that we have interviewed him several times this year, including on the BBC News Channel (as he termed it on his Twitter feed) on 12 June. It’s now known as BBC News.
Regarding the article, we are writing for a general audience without specialist knowledge of the economy. This is always challenging and we do appreciate that some readers will wonder why we have not gone into more detail or will suggest that we have oversimplified. I am sorry if you feel that is the case, however I cannot see any inaccuracy in our reporting.
The purpose of the article is to spell out to readers the options for a government. We said The government generally spends more than it raises in tax.
To fill this gap it borrows money, but that has to be paid back – with interest – and that can influence wider tax and spending plans.
If taxation doesn’t raise enough then we said it will cover the gap by raising taxes, cutting spending or borrowing.
We explained that governments often borrow by selling bonds. We pointed out in relation to the size of the economy, UK debt figures are still low compared with much of the last century, and also compared with some other leading economies.
We then went into the pros and cons of extra borrowing.
Under the subheading Why does it matter if governments borrow more? we reported: Some economists fear the government is borrowing too much, at too great a cost. Others argue extra borrowing helps the economy grow faster – generating more tax revenue in the long run.
I am sorry you did not appreciate the detail in this article however I do not believe there was any inaccuracy and the article reflected the fact that economists disagree on certain aspects of how the government should raise money. Therefore, I am satisfied that the piece was in accordance with our Editorial Guidelines which underpin all BBC journalism.
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The inaccuracy is in saying that bonds have to be repaid
Technicall this is true
In reality it has never happened in aggregate
The are usinmg a micro lens to look at a macro issue
This is classic “on the one hand…and then on the other” which gets nowhere