The Telegraph has reported this morning that:
Their breathless report opens by claiming that:
Rachel Reeves' tax-and-spend gamble is driving Britain towards a 1970s-style debt crisis and bailout from the International Monetary Fund, leading economists have warned.
They have said the Chancellor's handling of the economy risks a return to the years of high inflation and borrowing that ended with Britain being forced to borrow billions from the International Monetary Fund (IMF) 50 years ago.
As is to provide evidence, they add:
On Saturday night, Nigel Farage, the Reform UK leader aid the economic situation was like “the 1970s all over again”, while Kemi Badenoch, the Conservative Party leader, said that the surging cost of government borrowing was “the price” of Labour's “economic mismanagement”.
Prof Jagjit Chadha, who recently stepped down as the head of the National Institute for Economic and Social Research, claimed the economy was at risk of “collapse”.
He said the financial situation was “as perilous the period leading up to the IMF loan of 1976”, when Britain had to be bailed out by the global banking body.
He told the When the Facts Change Substack, written by the Telegraph columnist Liam Halligan: “I'm in a world in which I could imagine it [an IMF bailout] happening, and we'll be bereft in that case.
“We will not be able to roll over debt, we will not be able to meet pensions payments, benefits will be hard to pay out.”
So, an interview with an economist who very obviously does not understand the nature of money, the ability of a central bank to create it at will, and the fact that IMF bailouts can never be required in a country like the UK unless its politicians wish to ask for them to symbolise their own economic incompetence, has been spun by a journalist who leans to the far-right to suggest we are about to go cap-in-hand to Washington when quite clearly nothing could be further from the truth because there is quite literally no eventuality where the UK might ever need to do so.
I am aware that many people in the UK are living in fear.
I understand why they are living in fear.
They are not getting the economic justice they deserve. That is a fact.
And the reason for that is very obvious when you read articles like this. It is because the mantra of neoliberalism, when mixed with the nationalistic and paranoid anti-government jingoism of the right wing, creates situations where austerity is always the answer to every known question - which austerity is quite rightly what the people of this country fear most of all when they have witnessed its impact on them for the last 15 or more years.
Modern monetary theory does, of course, explain why all the claims noted in the Telegraph article are nonsense. We do, however, live in a country where politicians of all the major and most other political parties actively seek to deny the power they have to control, manage and proactively run the economy of this country for the benefit of the people living in it.
And that is the real crisis we face, which is why what I write about on this blog is so important. There are economic alternatives available to the UK. But first, we have to find politicians who might embrace them.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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Much of the effort people make in this country is rewarded with money. If you have true respect for people you would recognise this and therefore make the additional effort of understanding the country’s money mechanics. Instead we allow the rich, many of whom have low respect for others, to broadcast lies about money mechanics mainly to avoid paying an equitable share of taxes, or in the case of bankers to maximise their ability to create money in ways they find most profitable. This is low respect Soft-Fascism.
Wasn’t the 1976 “bailout” proven to have been unnecessary and actually repaid in full in less than 18 months?
Yes
Did the UK need the IMF loan in 1976? Only half of it was drawn, and it was repaid quickly. I think there is a fair amount of evidence that it was unnecessary, and pushed upon the government by the Treasury.
Chadha’s background is UCL, LSE, Bank of England. He seems to specialise in monetary theory, but he opposes QE. Does he reject the in sights is MMT? Does he think the UK is a household with a credit card?
It was quickly appreciated that such things belonged to history in the case of countries like the UK.
Chadha is, as I described in the piece, a person who has remarkably little understanding of money. That makes him akin to maybe 90+% of all macroeconomists and nearly 100% of microeconomists.
If anyone is trying to study economics in the UK, how would you encounter MMT etc at all? Slim odds!
True.
I’m going to take issue with you here, Richard, and say that Chada knows exactly what he’s talking about. He’s ideologically bound to what he promotes. Consequently, he ignores what he knows to be true about money, and says (and practices) what he knows people who share his ideological persuasion want to hear. And in Liam Halligan (who once upon a time graced C4 News and appeared a bit of a progressive, but decided many years ago that taking the “right” fork in the road was more profitable) he knew he’d found a fellow traveler.
No doubt as an economist Chada would dispute that and claim that he’s neutral – “just following the facts” – a bit like that other stunning economist, now key adviser to Trump – Peter Navaro (the person who made up quotes in his book from a person whose name was, strangely enough, an anagram of his surname). Bullshit! Values and/or bias free economics is an oxymoron.
So, personally, I’d say, let’s stop cutting people like Chada any slack, and tell it like it is. They know fact from fiction but they chose to say what they say because they have an agenda. And then they attempt to hide their bias under their status as an “expert” or their “profession”, when in truth they are as political as the you or I. Except neither of us – as with almost all who comment in your blog – claim otherwise.
I like your style.
As you say the financial elite get the big lie out first to justify their privilege. Then it’s very difficult to counter it especially when the right wing press are determined to promote the far right as the only way forward is with a “strong man” in charge.
Expect no steer and Rachel to keep going with ” austerity”. Cementing the mantra ” we can’t afford it”.
But slowly the UK is learning that economically this is utter crap and the UK can afford it.
Keep spreading the word.
We are already spending £150bn MORE than the Country is earning – so much for ‘austerity’.
If we did not spend that the country would be earning much more than £150bn less.
Is that what you want?
@Vanessa
With respect, I don’t think you know what you are talking about. You are using the Household analogy which Richard has worked so hard to debunk. So, perhaps, start by reading some previous posts.
But, if you want it all in one hit, if you want to actually know what you are talking about, may I suggest reading “The Deficit Myth” by Professor Stephanie Kelton. 🙂
Only this week I sent an e-mail to my M.P concerning the National Debt, poverty and the high proportion of our children suffering from chronic underfeeding/semi-starvation.
Using your appreciated insights, it suggested disproving powerful socio-economic “myths” which obstruct the citizenry from understanding socio-economics more accurately and so communicating more accurately with H. M. G thus enabling H. M. G to better lead our national society to be socio-economically run more effectively/efficiently, equitably and so more sustainably.
A suggestion was that such could be promptly achieved by changing the National Curriculum to disprove such myths with accurate soci-economic truths and “advertising” such.
These “myths” were:
1) The National economy is the same as a domestic economy
2) H.M.G needs to borrow
3) Taxation precedes H. M. G. Spending
4) H. M. G money creation is a debt
5) Our taxation set up is. equitabe
The letter closed with a request for comments, answers and refutations.
Good luck.
IMF Loans?
The old scams are the best ones.
The politics of fear and deception.
Presumably the grifter ex-City metal trader will claim he can “fix it”.
So – how to scupper this deceptive sinister lying garbage? Tell the simple truth about money (and the politics of fear and deception).
And do not be afraid.
I wondered where Halligan had ended up. His parents must be very proud.
It’s awful how Fartrage and (very)-Badenoch have seized on the ghost of ’76. The CBRA – which I see as the next bailout already paid for (we hope!) – proves that the government can create their own money and don’t need anyone else’s.
Having studied and majored in Knowledge Management on my MBA, ignorance is as destructive as ever and remains a constant problem in life.
The Telegraph (particularly) and the other right wing press are full of doom and gloom and imminent collapse and catastrophe. I guess their readers must like it (weird).
The talk media pick up on this nonsense (why?).
What is never explained is what will happen when the economy collapses or “goes into administration” (a ludicrous quote from this morning). Will the shops empty of food, the lights go out, the petrol stations run dry, people starving on the streets (sadly were close to that one already)? Of course not. What utter tosh.
The last couple of times there was a crisis, great financial crisis and the pandemic, the government simply created more money. Something it should be doing much more often.
For the pandemic, the government reactivated the dormant Ways and Means account at the Bank of England. By borrowing via the W&M account the government created money because, since it owns the bank, it can’t, in any meaningful sense, owe money to itself.
So, when there is next a crisis, and given the ineptitude and incompetence of the current government that’s entirely plausible, it will do what it’s done before (and what Dennis Healy should have done 59 years ago) and create more money.
The more interesting question is why the media pick up on this derp and repeated fail to call it out for the nonsense that it is.
Britain’s 1976 IMF crisis, triggered when the Eurodollar market could no longer fund sterling, ended its reserve-currency pretensions, redirected policy towards financial liberalisation, and laid the foundations both for London’s global dominance after the 1986 Big Bang and for the systemic fragility exposed in 2008. In other words, that period resulted in a global shortage of US Dollars, because of the Great Inflation of the 70s, the collapse of Bretton Woods, and the untenable attachment to Sterling having reserve-currency status by British politicians who then relied on the Eurodollar money market to support it. Britain had balance if payments and current account deficits, but it wasn’t, and could never be “bankrupt.” Repeated waves of inflation were caused by the Eurodollar markets blithely lending out the newly created flood of petrodollars to South and central American countries who all spent it at once and created a demand- led global tsunami of inflation. Britain got hit hard because it had been borrowing from the same markets to protect Sterling’s reserve currency status. And because the Eurodollar lenders had finally woken up to the danger of those outstanding Latin American loans defaulting, they suddenly stopped lending to everyone, including Britain. The only place left to go and get USD was the IMF. As it was run by proto Chicago School economists, they insisted on reduced deficits and cutting public spending as conditions for the loan. But Britain only needed it for 6 months, and repaid it then, when Britain was no longer throwing money at Sterling. A taste for curbing public spending developed because, there was a need to spend the money to relieve inflationary pressures. This would in turn give succour to the Hayekian Neoliberal ideologues on the right. So don’t listen to The Telegraph. That Hayekian Austerity love fest was the vampirisation of the welfare state, the Big Band, and the Big Imposion of 2080 to boot.
The trouble with your analysis is it is wrong.
We went to the IMF because no one realised the BoE could create currency and float the pound if it wished.
The crisis was of understanding, and not one that existed in reality. None of your excuses are required. They were irrelevant or non-existent.
Absolutely right Richard – Dennis Healey spoke about this, telling a story of panic in the Treasury and Whitehall at the time so that Labour were bounced into going to the IMF with the not inconsiderable help from establishment media. It also begs the question about Whitehall, the Treasury and civil service in general – did they not know their jobs or how things work? Whose side are they on? I still think Whitehall needs a really thorough clear out of people there who hate government for the people.
They did not know.
It is not clear they have learned now.
A bit of clarification.
The sterling exchange rate was floating from 1972 onwards. The Treasury’s concern in 1976 was not defending a fixed rate, but that a loss of foreign confidence was driving the exchange rate down very fast. This in itself threatened much faster domestic inflation.
Even if inflation could be ‘lived with’, elimination of foreigners’ previous willingness to hold sterling assets over a sustained period would mean a sustained lower real exchange rate and sustained lower UK living standards.
In this context the willingness of the IMF to make the loan was a signal to the foreign investors, a Certificate of Good Housekeeping. Confidence was restored, the pound rallied, and the loan itself wasn’t needed.
Also it’s wrong to think that people at the time ‘didn’t know the truth’ as put forward in some interpretations of MMT. The Labour Cabinet debate about the conditions around the loan was extremely divisive. Tony Benn and others made the case to go on printing the money, and taking the hit on inflation and the exchange rate (and/or introducing a surge economy).
So the majority did not know.
Certainly, it was unknown in economics at the time, so I a, nit at all sure I agree with you.
People do not fear neoliberalism in fact 99.5% of the population haven’t heard of it. They do fear a rapidly rising population increasing through migration, much of it illegal, putting pressure on the Country’s infrastructure and the crime that follows. They also fear incompetent politicians spaffing away billions at a time when the tax take is the highest ever and likely to increase. You need to remove yourself from your left wing crew and open your eyes and ears to what normal people are saying. The evidence is there with the momentum of Reform and the deep unpopularity of this Labour Government,
948,000 people arrived in the UK last year.
517,000 left.
Of those arriving fewer than 5% did not have visas. Most of them secured asylum, wholly legally. The issue you are referring to involved fewer than 15,000 people in all likelihood. Many have gone.
Tell me how you think they really change our fortunes?
And why do you outright lie?
If people are voting for Reform with those concerns, it’s likely due to them being misinformed. This is Richard’s mission.
The last sentence should say “find” not “fund” politicians
Corrected, thanks.
Andrew Sentance’s tweet says he’s really proud he’s been quoted in the Telegraph piece, and that we are heading for an IMF bailout.
As you say Richard ‘austerity is the answer to every known question’..
‘
But darlings – its 14 years of austerity that have got us here – will more of it get us somewhere else?’
I quit Cambridge Econometrics when they asked me to work with Sentance.
The 1976 IMF loan was borrowing dollars. From the War onwards the UK had a persistent dollar shortage. Partly because we had to repay the US war loans (which were only finally paid off quite recently), but mostly because the pound was overvalued in the Bretton Woods fixed exchange rate system. That forced us to use dollars to buy pounds in the FX market to maintain the exchange rate. That could have been solved (and ultimately was) by moving to a floating exchange rate. However, in 1976 after 120 years of fixed rates, then floating was still seen as ‘radical’. Hence the Treasury demanding dollar reserves ‘in case’. So far as today’s Telegraph story is concerned then the IMF can’t lend us pounds because it does not have any. Borrowing dollars would be irrelevant as you can’t spend them in the UK.
All agreed.
And as you agree, and I noted, floating was the answer.
And what happens to our exchange rate (and hence inflation and the cost of all those essentials that we purchase from overseas), in your weird version of MMT where we just spend as much money as we want?
There is a video coming on this.
Spoiler alert: the exchange rate rises because growth will.
But let’s be clear: not once has MMT ever said we can spend with it limit. You just made that up – so whatever you are arguing with, it is not MMT.
Wow, the UK government creating money will make that money worth more?
This is an absolutely mid blowing claim, not supported by any known economics, logic, or even common sense. Have you not heard of the basics of supply and demand?
Yes, and without credit both supply and demand are restricted, and more money provides the credit to liberate it. What is it about that claim that you cannot understand?
Let me give you a very simple example. Let’s just suppose that we did actually cut the money supply, which would appear to be what you want. In fact, let’s just eliminate it, which would remove any chance of monetary inflation, because that would be no money at all. Then, do you think that incomes would be what they are now? I think you would find it very difficult to argue that would be the case because it would be almost impossible for us to engage in effective trade. So, in other words, money is essential for trade to take place, and if there is not enough of it, then there won’t be as much trade as is necessary to deliver higher incomes.
I am arguing there is going to be insufficient money because of austerity, and that might be the case already. Therefore, increasing the money supply will in fact not create inflation, because I’m quite sure that there are unused resources within our economy at present, but that increasing the money supply will actually increase incomes.
You don’t have to agree with me, but you need to work very hard to find an alternative argument.
Hang on have i understood this correctly.. you believe that if the government prints lots of extra money then the value of our currency will strengthen due to the ‘growth’ that will be created?
That defies logic but you think you know best i suppose.
Wait and watch the video.
Your first two sentences contain two strawman arguments – “Let’s just suppose that we did actually cut the money supply, which would appear to be what you want. In fact, let’s just eliminate it…”
At no point did Joel Baker suggest that the money supply should be cut, let alone eliminated.
Perhaps you might want to address what was actually said, rather than something you’ve just made up?
I was using a normal social science technique.
I asked Liam Halligan on X about his thoughts on MMT. I’m still waiting for his response!
I’m still waiting to find a technical response from an “economist” as to why MMT is incorrect as a government spending mechanism.
It has often occurred to me that a lot of people, including experts, are not suppressing the truth as Ivan claims. They really don’t know despite the evidence that confronts them on a daily basis. No doubt some are making a nice living out of pretense, but I believe there are graduates and doctorates in economics who haven’t bothered to investigate MMT. Ignorance on such a scale is unforgiveable. They should be ashamed.
I’m back in the UK for the month of August (I live in Frankfurt am Main) visiting family and friends and I have been stunned by two things. 1. How diabolically stressed, angry and fearful everyone seems to be. And 2. How pretty much everyone, including friends that are brighter and better educated than me, just blindly accept that if a BBC, Telegraph or Guardian economist says the country can run out of money, it can. I can only put this down to 50 years of successful conditioning. I’ll never give up hope but it’s clear to me that we’ve got one hell of a mountain to climb
Agreed.
Why are so many “experts” getting this wrong? I can understand politicians not understanding certain concepts because many are not interested in becoming informed or are ideologically incapable. But why dont the MPC members, BOE hierarchy etc understand MMT and how the current situation could be better dealt with?
Because the status quo suits them very nicely,
Quick question.
Which countries have rejected old economic thinking and embraced MMT as a guiding principle?
Have any seen dramatic improvements for their populations as a result?
Genuinely curious if it has ever worked in practice?
MMT explains how money works.
It is not a policy.
It is a fact, as I have explaimned time and again, includimng in a video in the last week.
The UK does MMT now. It just refuses to accept it and its consequences.
I do understand MMT is not a policy, but belief and acceptance of MMT by those in charge (here in the UK or elsewhere) would surely be expected to have some obvious outcomes in terms of how a government conduct themselves w.r.t money creation, borrowing etc.
So can I simply ask which governments and treasuries, across the globe, through their actions, appear to accept MMT as the reality?
Pretty much none.
Neoliberalism has created a hegemony that seeks to destroy all alternatives.
There has been so many lies perpetrated by the Right about the 1970s. Oil prices quadrupled overnight -twice. Prices in the shops leapt. Naturally ,workers demanded wage increases. The media blew that up to ridiculous proportions. Headlines about people unable to bury the dead. Grave diggers went on strike in just 2 places countrywide. Labour government introduced a Prices and Incomes policy. The Unions worked with that. According to the Tories and their mates in the press presented that as the Unions running the country. The Tories used the lies to win the 1979 election . The beginning of neoliberalism .
One of the chief protagonists was Derek Jamieson ,editor of the Daily Express. In his memoirs he admitted the truth. He wrote ” we pulled every trick in the book. We made it look like it was general, universal and eternal. Whereas ,it was in reality , scattered here and there. And no great problem.”
So much has been written and said about the 1970s. Thatcher used the lies to break the influence of organised labour . Causing untold disaster continuing today.
Lies, damned lies and neoliberalism, then.