As readers of this blog will know, I don't really think there is such a thing as the UK national debt. What the government actually provides is an opportunity for those in the City of London, overseas governments and overseas investors to place funds on safe deposit with it, all denominated in sterling. The so-called national debt is, in this case, not a sign of weakness but of strength on the part of the government, just as the amount of deposits held is a sign of strength in a bank.
However, the City is stuck in the age of the gold standard and, without any apparent understanding on their part that all money is ultimately created by the government, thinks that the government is beholden to bid for the funds that they might wish to give it, which they think they might ration at any moment. As a result, they are of the impression that the size of the national debt really matters.
What few, even of those in that supposed centre of financial excellence, seem to realise is that there are quite a number of definitions of the UK national debt within the data produced each month by the Office for National Statistics on this issue. Good luck with fathoming them all. You are looking at tables in the PSA8 range if you want to find all the relevant information. Dong so should keep you occupied for quite some time.
None of the measures in question are based on the recognition of the use of the debt, or that they might have created assets to justify any of the debt creation.
None is based on double entry-book keeping.
And rather vitally, there is no concept of capital in the government's accounting.
In fact, there isn't even a balance sheet.
There are just some numbers added up entirely inappropriately in various ways to come to a range of differing answers, none of which do, as a result, have any real meaning.
But as we know, there is now a heated debate about whether Rachel Reeves might shift her fiscal rule to use a definition long published called the PSND, or public sector net debt, excluding public sector banks.
Ed Conway summarised this rather well on Sky yesterday, saying:
Might Reeves declare, at the budget or in the run-up, that it makes far more sense to focus on overall PSND from now on? Quite plausibly. And while in one respect it's a fiddle, in her defence it's a fiddle from one silly rule to an ever so slightly less silly rule.
Quite so. That's about it.
In summary, this is a debate between the economically illiterate on something equivalent to the number of angels capable of standing on a pinhead, the outcome of which discussion has no relationship to the real world because the data used is not really derived from it in any meaningful way.
And that is what passes for economic discussion in the UK right now.
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The so-called National Debt has never been “repaid” since it began in 1694.
That’s because it can never be “repaid”, as it represents the money in our pockets, and our savings.
If there is ever no national debt, then the public have no money.
The USA national debt started in 1790 and it has never been paid off either.
This constant obsession of avoiding borrowing to minimise the national debt never goes very well, and the media are so lazy they never seem to show any curiosity as to whether actual national debt levels match the forecasts of budgets prepared 5 years earlier. Well I did the work (using the OBRs own economic and fiscal outlook reports accompanying each budget) so they don’t have to. And the results are predictably hilarious.
For example, when George Osborne was running around in 2010 shouting how he was going to run surpluses and pay down the national debt, the actual result by March 2016 was that he borrowed £290billion more than he was boasting he would. This pattern is repeated for every budget throughout the Tory maladministration – the year 5 projection for the national debt is not just a few billions out, it is hundreds of billions out.
Then by the time one gets to budgets prepared in years 2015, 2016, 2017 etc where the year 5 forecast period crosses into 2020, 2021,2022, well those years are so hilariously inaccurate as to make a mockery of the whole exercise. The undershoot rises to more than £600 billion because of covid.
That level of variation is driven by events, rank complacency and hopelessly unrealistic assumptions that arise out of warped political ideology. And who needs fiscal rules when the forecasts are so poor they provide hundreds of billlions of so called ‘headroom’ on their own?
What I take from the rumour and gossip around the fiscal rules and Rachel Reeves pursuit of money she thinks she doesn’t have by an accounting adjustment (the magic money transfer), and Ed Conway’s rationalisation is that the Treasury conventional wisdom is trying to perform the biggest U-turn in British economic-political history, in broad daylight, without anyone noticing that the conventional wisdom has screwed everything up so badly they are having to abandon it, wholesale; but nobody is supposed to notice.
How do you do that. Redefine the fiscal rules. And lo, there is a Magic Money Transfer, and suddenly there is money to invest. But nothing changes. Everything is the same. There is no money. We must reduce the national debt (we just change what we mean by national debt).
It is a mere matter of calibrations of silliness; and Britain is, without question – the silliest.
I have a question. What’s the benefit to the city of the view they promote? How do they gain from misrepresenting how money works in this way? I can’t quite believe it’s incompetence, though it might well be, as I can’t help thinking of their misrepresentation as propaganda, promoting a view that works for them, against everyone else. I’d be interested in how you think they benefit.
Power
They think they get it as a result
Reduced taxes.
Well by “buying up” the extra £100bn in the next year whilst interest rates are 2.5% – 3% above inflation, it’s a very juicy little deal for them.
Much like throwing more debt at Greece with coupons above 20% – it looks really great on their balance sheets.
A crucial function of borrowing, which is not often mentioned, is surely that it removes from the economy exactly what has been put in by government ‘overspend’, making it a more effective and predictable anti-inflationary tool than interest rate control since it is precisely tailored to its cause.
I don’t get there is an overspend. Nor is saving a perfect withdrawal. I see where you ate going but that needs to be refined.
DB thinks:
What if the financial chapter of the Neoliberal Playbook is the money script that is designed to ensure that the illiterati never discover the economic truths.
It is entirely probable that the entitled few fully understand the truth, but have the power to propagate, verbatim, these well-honed lies.
Also, I am sure that Funding the Future, intelligent reader responses are studied gleefully and disparagingly in high places.
Yes, the truth is known, but not by the feeble masses. The lies and the liars need to be outed by a focused campaign: Stop the Lies.
Much to agree with
David Byrne has hit the nail on the head in identifying a group who know exactly how the money supply works and are dedicated to concealing the truth and maintaining the fiction underlying ‘fiscal rules’. Andrew Bailey at the Bank of England must be at the heart of this, using his power and authority to stifle any attempt to establish the truth about money supply and feeding the myth to the illiterati, including, apparently, most politicians and economists. How many in-depth discussions or investigations into by far the most important political issue of our time have we seen in the media? None. How many times have Richard or Stephanie Kelton been invited by the main media to explain MMT? None. That exposes the breadth of manipulation exercised by Bailey and the ‘economic illuminati’