The story goes that if Britain were to adopt modern monetary theory, the bond market would revolt. The truth is the opposite. In this video, I explain why the UK government's ability to create money, to invest in real assets, and to build a stronger economy, all of which would be enabled by modern monetary theory thinking, would make British investors in the UK more secure, not less.
This is the audio version:
This is the transcript:
People keep saying to me, if the UK invested as modern monetary theory makes clear is possible, then the bond markets will panic. Interest rates will rise. The value of the pound will collapse, and we will be in deep financial trouble, all because the government has tried to do what MMT - modern monetary theory - says is possible, which is to go for full employment. And what I say is that is nonsense.
Now I accept that there is a neoliberal framing of markets at present. Theirs is an argument that says that markets are in charge, the government is like a household and has terms dictated to it, and investors will gang up on the government if they think that the government does something they don't like. This narrative is built on fear and not evidence. It's built on mythology and not fact. And the truth is just about everything about it is wrong.
Governments do, as a matter of fact, create money before they tax in the UK. And they can spend before they borrow. And that, as modern monetary theory explains, is simply because the UK government has its own central bank, which creates our currency, the pound, on command from the government.
So the government can spend to drive growth and productivity if it wants to, and as the basic calculation of GDP proves, if it can increase either investment or consumption and government spending on things like the redistribution of income and wealth, then there will be consequences for growth, all of which are positive.
Investment creates real assets and services. People are better off. The whole economy's resilience improves.
So the question to ask is, why would bond markets panic if they knew that the government was trying to achieve this outcome?
If they also knew that the government had identified those resources that it could put to use, and if they knew that the government was spending to increase productivity, as would be the outcome if they spent more on health and education, then what is the point of the bond market panicking when, in fact, everything that the government is going to do is going to increase prosperity in the UK? That is the consequence of the policy which people are saying would lead to investor flight from the UK, when in fact the consequence would be growth, and that should lead to capital flowing into the UK.
And that's my point here. Traders might play short-term games in the financial markets, but real investors look at fundamentals. They know that investment turns into a stronger economy and turns into better returns.
And that turns into an economy where the rate of return on bonds is likely to be better guaranteed, more stable and logical, and therefore, to sell bonds would be entirely irrational.
And we know that people need bonds. Let's not beat around the bush here. The markets need safe liquid assets in which to save, and that's why the UK government bond market is worth well over £2 trillion. UK government bonds are desirable assets which the wealthy wish to hold, whether they be pension fund managers, insurance companies, bankers, or individuals. All of them want assets which, on occasion, match safety with scale, and the only thing that can really do that is UK government bonds.
So the chance that there will be a real rout in the bond markets if the government did decide to increase investment is in itself very low. In other words, the effect would be very transitory. But if the government truly communicated what it was going to do, then I believe that, in fact, bond markets would get stronger as a consequence of the use of MMT, and all this nonsense about there being capital flight out of the UK because the government was going to spend more on services would be shown to be complete nonsense.
It is, in fact, confidence that builds capability, which the bond markets want, and they don't want austerity, which crushes the scale of activity in the UK economy, making it look more vulnerable meaning, as a consequence, that the price of government bonds looks too expensive to bear.
So what we need is investment that delivers higher employment. Higher employment, delivering higher income. Higher income, delivering more savings. And more savings, creating more demand for UK assets. And if we got that, there would be a virtuous cycle created by MMT, liberating investment, and all the neoliberal myths about there being a rout from the markets would be literally shown to be total nonsense and neoliberal scare stories. In fact, those neoliberal scare stories are the thing that is most likely to create a financial crisis in the UK by simply undermining our economic well-being.
So, markets don't and won't act against their long-term interests if MMT understanding is used to invest in the genuine growth of the UK.
We don't need the market's permission to do that. But what we do need is a government that understands what it is doing and communicates it. And that is perhaps the most fundamental thing that we are lacking at present, because we don't have a government that is able to do that.
The truth is, growth of the sort that I'm describing in a new future where people are better trained, where people are healthier, where there's climate change stability, where there is energy sustainability, and where transport systems are working for our well-being and so on; those create stability.
They don't feed false narratives.
They don't give rise to a crisis.
Instead, they make the UK government look more secure than ever, and that's what MMT would deliver for the UK.
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.
Comments
When commenting, please take note of this blog's comment policy, which is available here. Contravening this policy will result in comments being deleted before or after initial publication at the editor's sole discretion and without explanation being required or offered.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Excellent analysis. Should be required reading for every economics, social and political studies student and every aspiring politician. We live in a critical time facing combined ecological, economic, social and political melt downs. To prevent mass global poverty, resource depletion, irreversible global warming and major social unrest we must get to grips with alternative thinking that you advocate
Thank you for an article which combines analysis with increasing the tangible public good and which contrasts positively with the current flag fashion.
Might our national society be being diminished by a combination of mainstream media bias, excessive corruption of our “democratic” set up, the power/influence of political donors/bribers and aims of post-politics wealth and status as well as current and present governments, whose unstated purpose is to weakn government and so strengthen a provate sector which seeks shorter term gain?
Might short term gain, irrespective of long term loss and the suffereing of most citizens and their children be part of Austerity/Neoliberalism?
Yes, in a word.
10 out of 10.
The denial of an alternative reality by our politicians can only explained by corruption – they are being bought and used by the rich to grab as much as they can at our expense because the rich believe that they have seen the future and it it all about them and anyone else who has a big wad.
Pilgrim is right about corruption. I’ve posted before about lobbying of MPs and parties, which is simply bribery and corruption in full view. Why do we put up with it and why is the MSM silent about it? There needs to be a widespread campaign to highlight and prevent this fraud in plain sight.
Memo to Scottish politicians: if you’re planning for an independent Scotland, get this out in the open as it’s vote winner and the public are scunnert with career politicians.
On the omnibus, when this is discussed, people tend to bring up Truss.
Now I’ve read your earlier explanations about her, and agreed with them (although I am hazy on the detail) but she is very entrenched in the collective popular memory as our most laughably incompetent PM, and the accompanying deeply entrenched myth of her brief but chaotic sojourn in No.10, is her “failure to balance the books”.
So I think the Truss myth needs to be included whenever “crashing the bond market” is discussed, because very regularly, the response will be, “but Truss…”.
The argument about her is simple.
She didn’t crash the markets
The Bank of England did.
Agreed. How do we know they wouldn’t do the same again?
Remove their right to act independently of the Treasury
Memo to Richard & tim Rideout: we’re all agreed that a future Scotland needs it’s own currency and needs to build its economy on mmt principles. The big issue is how is the education & convincing of politicians, the public and, if feasible, the Scottish MSM, to be achieved? The press BBC will be sceptical (if not downright aggressively negative) so reaching out to the public will be tricky. Maybe simple online videos?
Yes…
Does the short term legal requirement for the Government to balance the books on a daily basis get in the way of this at all?
There is no such legal requirement.
Democracy is on its knees in the UK there isn’t a single mainstream media outlet apart from the National in Scotland that isn’t flogging Neoliberal mumbo-jumbo money mechanics. Democracy was meant to be about having a forum for discussing important ideas of which understanding how the country’s monetary system works has to be top of the list because it affects growth or the lack thereof. Control of the mainstream media clearly needs changing. The country will underperform until it is! The Achilles Heel of market capitalism is it encourages Soft-Fascism unless well-regulated hence lax regulation and you get rigid control of the main-stream media.
I fear, Richard, that the government might use your reasoning to spend the nation’s wealth in ways which would horrify me.
I case in point is “Concern as MoD reportedly poised to hand £2bn training deal to Elbit, Israel’s largest arms firm” as reported by Iain Overton on behalf of ‘Action On Armed Violence’ (AOVN)on 20 Aug 2025 [oav.org.uk/2025/concern-as-mod-reportedly-poised-to-hand-2bn-training-deal-to-elbit-israels-largest arms firm AOAV …]
“The British Ministry of Defence (MoD) is reportedly close to awarding a £2bn contract to Elbit Systems UK, a subsidiary of Israel’s biggest arms company that is a central supplier to its military operations in Gaza, raising concerns over Britain’s deepening reliance on a firm accused of fuelling civilian harm.” The aim is to “deliver training for 60,000 British soldiers each year, ‘using advanced simulation, digitalisation and new industry partnerships’. It sets out to transform how and where the Army prepares for operations. The successful bidder will be designated the Army’s ‘Strategic Training Partner.’
Both the Elbit bid and another led by Omnia Training “were said to have received £2m to develop their bids during a 20-week design phase. The final decision is now expected imminently.”
“When Private Eye asked whether it was appropriate to award such a major UK contract to a company so closely tied to the Gaza war, the MoD did not respond.”
Private Eye revealed that [Elbit] has recently recruited two senior former MoD figures to its UK board: Sir Simon Bollom, the former head of Defence Equipment & Support, and Sir Mark Poffley, a former deputy chief of the defence staff.
To AOAV, such appointments exemplify the “revolving door” between government and the arms industry, raising questions about impartiality in procurement.
Elbit already has a foothold inside the MoD. Since 2023 it has managed Project Vulcan, a £57m, ten-year programme for simulation-based training of tank crews. But the ACTS deal would represent a dramatic step up, both in value and in strategic significance. It would potentially make Elbit one of the British Army’s most important long-term training partners.
So, we have to also revive democracy.
Of course, higher ‘investment’ could lead to higher growth prospects, that was never in question.
Was is in question is the government’s ability to raise money for credible and appropriate investment, rather than simply increased spending on pet projects.
You only have to look at the increased costs of running the public sector (and the lack of productivity improvements compared to the private sector) to see that all that would happen would be increased debt, increased wastage, higher taxes, lower growth and a depreciating currency.
There is simply no evidence that the government has the right capabilities to ‘invest’ wisely, to make your claims reality. That is the issue and that is the concern about MMT- not the theory of how it could be used, by the likelihood of how it would be used.
If you have no faith in government why are you commenting here?
But let me ask anothjer question. Have you that ability?
Do you think business has given the massive faollure rates it suffers?
Please explain.
Thank you, Professor Murphy,
your videos are absolutely enlightening and easy to understand. I’ve been following MMT for 15 years; I try to spread this heterodox view of macroeconomics both through meetings and my YouTube channel. I personally hosted Warren Mosler to allow him to speak at meetings at universities, municipalities, and private events organized here in southern Italy from 2012 to 2019. Unfortunately, it was unsuccessful. I’m very discouraged. People in Italy, like the rest of Europe, can’t imagine a different future; they now seem resigned to losing most of the rights they’ve gained over the last 300 years.
The situation in the UK confirms that monetary sovereignty isn’t enough. We also need a vision and political will that are different from the ultra-liberal one.
Are there any glimmers of hope in your universities for understanding the economy, and therefore the true role of the state and modern money?
In reality, we have no choice but to continue spreading this Vision until we reach a sufficient number of people who understand and truly want change.
I would like to translate some of your videos on my channel; obviously, I will cite the source. Thank you.
I keep going in hope.
I know the world knows about what I am saying now.
That’s all I can say.
Bonjour Antonio
There is a international economics student group that promotes and helps students to understand heterodox economics… MMT, equilibrium fallacy, contradictions in mainstream neoliberal / neoclassical economics, etc.
Rethink Economics https://rethinkeconomics.org/
regards
John Daglish
Wouldn’t the BoE and Treasury have to be reformed? Both operate on neoliberal assumptions that full employment via govt fiscal input is inherently inflationary and ‘crowds out’ private investment.
And not just in this country. Any reforming govt that ‘goes first’ would be punished in ways which a weak govt like the current UK govt would be unlikely to survive.
Why?
How?
What is this punishment? Is that what banks shareholders, pension fund members and people with life assurance policies want these organisations to use their funds to do? And how do you think this could be sustained? Please explain.
Apart from contravening trade deals (cue penalties, ISDS claims etc), the things you mention in the vid. While I agree that currency/bond market/inflation fallout would probably be temporary; a crisis can be manufactured in public perception long enough to doom a weak govt. Substantially reversing neoliberalism would be a red flag to plutocrats and their media (and by extension the BBC), along with neoliberal institions elsewhere.
I think a determined and popular govt could survive it (and should do it), but the current govt is neither.
Have you come across a politician who understands and believes in MMT? All politicians I hear deny its existence (particularly those on the right). It seems to me that bond market investors having been making a living off a lie. If the uk government can be self funded and doesn’t need to “borrow” from the markets, then the treasury should be dictating the terms to the markets not the other way round. Can someone please explain this to Liam Halligan if they bump into him. I would love to see you have a live discussion with him over how government spending actually occurs.
I have only debated him once, curiously in the company of Stephanie Kelton. He ignored us.
If MMT is to be recognised as the way in which the economy works then universities need to start teaching economic degree courses through the lense of MMT rather than neoclassical thought. Most politicians study an element of economics at university and this is where they get their understanding and knowledge from. Therfore you can’t blame them for thinking that neoclassical thought is correct as they know no better.
Agreed
MMT won’t crash anything – it’s just a description of reality. It’s bad policy making that causes bond or currency markets to crash.
The Truss “crash” might have been exacerbated by the BoE’s insistence of carrying out QT without regard to any external factors… but let’s be clear, sacking your senior official, refusing to submit your policy proposals to “independent” scrutiny (and I am no fan of, nor defending Tom Scholar or the OBR) and promising tax cuts was the real cause of panic.
That didn’t help, but was not why QE was needed…
At some point would you help us understand the differences between Keynesian economics and MMT?
Sure..
I will