When Rishi Sunak sat down after delivering the first of his three budgets of the last nine days Jeremy Vine asked me live on Radio 2 what I thought of it, and I said it was a disaster because it showed absolutely no awareness of the scale of the crisis that was about to hit the UK. I was wrong, and I apologise for that: I understated my case.
His second budget statement, earlier this week, offered loans that the vast majority of businesses will not be able to access, and which will be provided on terms that ensure that almost no bank will want to supply them to any business actually impacted by coronavirus (which we might add well assume to be all if them for these purposes). I explained why here.
So now he's had a third attempt, and with regret I have to report that rhe effort made is still staggeringly insufficient. I forecast that within a very short period of time Sunak will be back making further announcements because what he has proposed now is wholly inadequate.
Let me deal with the one good thing he did. In principle paying 80% of the wages of those who are furloughed by their employers during this crisis is useful.
I think it's fair to only pay 80% of normal wages because peoples discretionary spending is going to be massively reduced at present.
But, thereafter, as is so often the case with announcements from recent Chancellors, everything begins to unravel.
Firstly, creating a pay limit of £30,000 per annum might seem like a good idea. It almost looks equitable to set the rate at around median pay. But, what this guarantees is a massive banking crisis. Those who still owe a mortgage based upon much higher earnings (and a large part of the population do have high earnings, and many will be laid off) will now be unable to pay all their debts, as surely as night follows day. Many of these people will then, completely unavoidably, go into mortgage default. And, as a result, what Sunak has prescribed is a full blown banking crisis that will emerge within months. Our banking system cannot survive his pay restraint. That is a simple, straightforward, statement of fact. Something will have to give and it cannot be people.
Second, and utterly bizarrely, the only people to whom payment will be made all those who are laid off by their employer and told not to work. Now it is, of course, vital that these people get support, but this is completely perverse. That is because many companies could usefully still use the services of people who might otherwise be laid off, and who will now be paid, but they will not be allowed to make use of them to keep essential parts of their business or service going even though that may be vital if there are to be jobs to return to in due course. So, for example, charities will not be able to use people who are laid off because of the collapse in charities' incomes, even though these people might be paid. As a result charities will be paying people not to provide services, which is ridiculous. And, companies that need to keep essential services going (including their payroll operations to ensure that other staff can be paid) cannot claim for the costs of keeping those essential staff on board to ensure that there will be an operation for people to return to when lockdown is over. However hard you tried you could not create a more perverse situation than this if your aim is to preserve the supply side of the economy.
Third, matters will get worse if the government does not cover the employer's national insurance contributions on these wage payments as well: if that is not included then many companies will not be able to afford to make these payments to their laid off staff. At present there is no word on this.
These points being noted, it is then fair to say that the best of Sunak is still very poor.
As to the rest of his performance, it is dire. So, for example, there is still very little real help for renters. Although they cannot now be removed from the tenancies and there are minor changes to benefit rules vast numbers will be overwhelmed by rent arrears as this lockdown continues.
And the situation for the self-employed is dire. Although laid off employees will, effectively, get 80% of their income irrespective of their other circumstances e.g. their savings, the self-employed will get about £5,000 per annum at most, and then only if they have savings of less than £16,000. The contrast between the two situations is utterly incomprehensible, most especially when it has been put in place by a government that has been celebrating the rise in self-employment in this country, where more than one and five people now have this status. To presume, as the government appears to do, that these people have some form of financial resilience that employees do not is completely perverse when so many self-employed people have undertaken this activity in desperation to keep some income going despite the terrible economic environment of the last decade. As a matter of fact most self-employed people have seen their earnings steadily decline over that period, whilst employees have only seen their incomes stagnate. The scale of the financial crisis about to erupt in this sector is almost unimaginable, and will, again, lead to major knock-on affects, including impact for banks.
Sunak has, then, failed again. Whilst some employees are, thankfully, supported by this program, and I welcome that, it is wholly insufficient to supply the support that is required by the economy, to keep business is going, and to prevent a knock on banking crisis which will require vastly bigger bailouts in due course. This is a failure to exercise foresight on a staggering scale and we will all pay the price for it.
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It’s very easy to sit and write a blog. It’s slightly more difficult to mobilise ideas into the real world. Each time he makes an announcement you act like its the end of his policy announcements. It isn’t it evolves and evolves quickly and each time he makes an announcement he has to ensure it is 100% deliverable and has 100% support from the various parties which make its delivery possible. Can you imagine the level of planning and negotiation which needs to happen before an announcement is made? For example It is easy to say (and indeed right to say) that only company workers are covered and the self employed also need to be protected. I guarantee, and i am sure you understand this, that there will be procedures currently being put in place before an announcement on this is made. But it will soon.
There is nothing wrong of course with “armchair” political and economic commentary like yours..it is akin to every Spurs fan offering Mourinho “advice” about to shore up his leaky defence and at the same time play expansive attacking football when his main goalscorer are on the treatment table..But as i say it is easy to write a blog and it takes a few minutes. Putting policy into effect is a bit more difficult. I have actually been pleasantly surprised with the measures and the speed that they have been adopted. And i sense the gaps that need to be filled will be. This is unprecedented although i know the country has been planning for a pandemic of some kind since 2010 nothing you can do can prepare you for this completely.
James
With respect, what is clear is that Sunak ios not holding back. What is clear is that he and the government are behind the curve. And with respect I’d say that so far I have been ahead of it.
I am completely aware of the difficulties of putting policy into action and have been discussing i8t with some parties involved – and dismiss ideas that could not be delivered as a result.
But being behind the thinking curve is simply inexcusable
And I reserve the right to say so
As I would of Labour if they’d done the same thing
And for the record, they have not been planning for a pandemic of this type since 2010: this is not flu
In a narrow sense you are right (of course) to say this coronavirus is not a strain of the influenza virus. It is perhaps more analogous to the common cold, which describes a range of viral infections of the respiratory tract, caused by rhinoviruses, coronaviruses, influenza viruses, and others, but its symptoms are certainly more like the flu than a cold.
But for the record, the UK Influenza Pandemic Preparedness Strategy 2011 – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/213717/dh_131040.pdf – explicitly states that “A pandemic is most likely to be caused by a new subtype of the Influenza A virus but the plans could be adapted and deployed for scenarios such as an outbreak of another infectious disease, eg Severe Acute Respiratory Syndrome (SARS) in health care settings, with an altogether different pattern of infectivity.”
SARS was a coronavirus – this pandemic is sometimes called SARS2. So it is clear that they had in mind other infectious respiratory viruses causing flu-like symptoms.
I was pleasantly surprised at the scale of the financial measures announced yesterday, given how inadequate the previous ones were (I was saying as much myself on budget day, to a smaller audience). There will need to be more. Three to six months.
The financial sector is already moving to put in place the infrastructure to extend (and business are already asking for) debt funding under the CBILS guarantee, with its 12 month interest holiday. We shall see.
Whilst not underestimating the scale of the challenge that those in government have been landed with in very short order, plenty of other countries are dealing with it with a better holistic and long-term view. The problem with the UK government is not the nature of the difficulty per se, but that their fixed ideology prevents them from thinking through the consequences of their interventions. That’s not good enough.
Well, my thoughts yesterday were: I suppose he’s going in the right direction. Thanks Richard, this clarfies a lot of why it’s nowhere near enough. I don’t understand why Sunak is unable to just put proper measures in place, needed measures, in the first place and stop p*ssing about. It’s like a purposeful dragging out of the uncertainty and stress for the whole population, which does not help anyone’s health!
The tories are fighting ideology that is why there is a slow drag. To them spending vase amounts of money the state has created make them puke. To them it cannot stand – it only will only end in the feckless and the poor to sit around doing nothing or cause revolution. I might add the people who they regard as poor are not just benefits people – to the tories they are not just poor but the untouchables, the scum of the earth. The poor in the tories’ world view is any one who is not a millionaire X times over. So ideology says to them do not do it, it is the work of the devil -hence the knuckle dragging.
Nothing in the announcements about stopping bill payments for everything, nothing in the proposals to stop companies from claiming back all none bills paid over the crisis period. So you get a situation where people will just pay their bills for fear of mounting up debts, the fear of the courts, the fear of mass disconnection by Gas and Electricity companies. Internet services are not giving assurances people who who have not paid their bills will have their internet cut off and taken to court for non payment etc.
Richard i suspect people will pay their mortgages no matter what. as having a home is the most important thing other than food, of course health is important and comes first but i am sure you get the point. LIkewise i have to pay bedroom tax, no help there on that, no announcements about people have to stop paying it. So i will pay the tax even if means not much food, same with all of the above.
The tories are clearly being dragged screaming and kicking to stop them being bitten into “socialists”, they cry no no no, it cannot be so. Meaning there is a god after all and vampires do exist. Yes they will make more announcements over the next weeks or so but i suspect they think things will change for them, a corner will turn and circumstance will be so much better. After all they are British and God is an Englishman…!
If he does that, he undermines his own authority. He’d completely destroy any credibility attached to austerity, and it’s at least in part the belief in that policy which has helped his party retain their grip on power. I imagine he knows he has to do this anyway and rails furiously against it but, alas, events (dear boy) are forcing him to it nonetheless.
Sorry, but slightly off topic already! At the daily Boris show with his experts,why doesn’t the media ask two important questions, although I’m sure there are many more.
1. How many tests were carried out the previous day?
2. How many ventilators were ordered / delivered the previous day.
Hold the government to account. It seems that the media ask a question and no matter how dubious the answer they are quick to move on. No one says you didn’t answer the question. They are quick to move on to something newer hence the media fawning over Budget (1), Budget (2) and now Budget (3) until they fall apart. with no desire to criticise.
I have heard Channel 4 correspondents that they cannot get answers to any such questions
I’d also like them to ask about the lag time. Our MP was one of the last people to be tested in the community and got his result – +ve six days later. When was he added to the case load stats?
The question I would like them to ask/answer is where is the money coming from?
QE
The question for the government to answer is if they can do QE in this way, why didn’t they do it for the last 10 years?
No one is questioning them on austerity.
Not the right time perhaps. I hope that it does get asked when/if we get out the other side.
It hasn’t helped this particular brand of Tory government is especially in the grip of Libertarian values that hark back to Malthus and Social Darwinism where there’s the many and the few and the many are regarded as largely undeserving because they don’t work hard enough. This kind of misanthropy got revived by Thatcher. There was a brief interlude after the end of the Second World War where Tory and Labour prime-ministers vied with each over the annual number of council houses they built. Now look at the situation where MP’s see nothing wrong in being involved in Buy2Let businesses despite the enormous shortage in social housing!
As usual i start writing and it becomes over long so am going make two posts. First this:
I want to see McDonnell put out a clear simple response of what measures are actually needed – i listed them a few posts ago in haste but they still hold:
1. All self employed / free lancers etc ought to be paid at least 60% of their last years submitted accounts on a monthly basis directly by HMRC – they have their bank details and these figures at hand a simple database query can be constructed and tested within hours – There can be a max limit to that based on numbers of children.
2. All others without such records ought to be allowed the full and increased benefit amount.
3. The 80% for employees is smoke and mirrors – that also should be 60% and no charges or NI / pensions/ student loans etc to complicate matters.
4. All rent private and social to be suspended. All interest on mortgages, creditcards, loans and overdrafts to be cancelled permanently until normal service is resumed (not accumulated aa debt).
5. All capital payments to be suspended.
6. All council tax collections suspended.
7. BBC licence fee cancelled and direct funding by the HMRC introduced to provide pybluc service broadcasting only.
8. All credit ratings and any such nonsense to be suspended on individuals records – nothing should be added for failing to keep up payments since beginning of March.
9. Any government funds into banks, corporations, pfi’s to be accompanied by equity stakes in these and retained until all such balance sheet investment has been returned.
Hard to disagree with any of those right now
Some checks on self-employed claiming and then making profit might be required, but otherwise I agree
And those checks are retrospective, not for now
This post relates to wtf is going on & why we are here:
It almost seems that the dog-dinner response has been planned!
There is ZERO chance that both the aggressive nature of spread of n-cov and its decimating effects on elderly and vulnerable was not fully known by February.
The actions by China in Hubei/Wuhan were public and rolling public announcements in ENGLISH were made and still are by the Chinese.
It is obvious to me that this crises has been engineered – by not testing early and isolating spreaders; by not testing NOW to determine how many have already had it and can be in public environ without risk.
The lies of the narrative being sold are egregious – yet with the whole msm propaganda machine being deployed everyone believes it as usual.
As leaks emerging from US show how the senior politicians have used that available information from early February for Insider Dealing purposes for personal benefit and for their political financial backers – there is no way it hasn’t also happened here and across the world.
It is also used as a cover for the bursting of the sockmarket bubble and gfc2 which should be bringing down governments and financiers.
This is not just Bozo’s long awaited Social Care policy – ‘kill them all quickly, no more problem!’ – This is certainly yet another handout to the bankers balance sheets without taking their assets in return until they have paid back.
Football and a health crisis shared across the globe couldn’t be as far apart from each other’s situation if they tried. The well thought out decision to play YNWA on every radio station at a precise moment was astonishing. Necessity at its finest. We needed something big, something multi lingual, something so popular around the world that once you heard the first note played you instantly knew exactly what was being played and what you was listening to. As much as it kills me to say that Liverpool’s legendary YNWA song is probably the most iconic anthem In football history. A fitting tribute to every person who have been affected or Is about to be affected by this virus that wile u mite feel like you are alone or wile you self isolated that we are all in this together. One purpose one moment one outcome.
I agree with your blog – to come at it 3 times is a bit poor really unless of course they are using some sort of emergent project management model but that would be a bit far fetched (mind you, look at the AGILE method they used in the roll out of Universal Credit which to me was all about ignoring hardship and other problems until they arose – even though everyone told the DWP and the Government that what happened would happen).
It’s as if they do not know how the real micro economy works.
I think what this reveals is the other issues we have talked about related to the depleted infrastructures we have in country after 10 years of totally unnecessary austerity. Sunak either has no idea because the feedback mechanisms into fiscal policy (what fiscal policy?!!) are no longer there or because he has no real experience of central banking or both. So what we have is a decoupling between policy and the reality of economic life. This is now going to be severely tested with this virus. Sunak’s previous would be about being really good at manipulating markets for individual gain; working in a way to benefit the many might be harder for him to get his head around.
This is what happens when you vote a bunch of ideological idiots into Government who do not believe in Government. Tory voters please note.
I’m going to raise the same issue that I have raised before however: when all this is over, questions will and should be asked about how Johnson and his cronies had dealt with it. My worry is that we will be given something else to worry about when the day of reckoning comes to throw us of the scent. And I foresee austerity rearing its ugly head again.
Let’s keep our eyes open wide a we get through this.
PSR, what you described there is not Agile, but a bastardisation known in the industry as Scrumfall. It goes like this. Management decide what the outcome and timescales are going to be just like in the good ole waterfall days and then bring in a bunch of fancy consultants in to deliver the project in small chunks – often using the Scrum (Agile) method. The disaster is, therefore, buzzword compliant but they can still blame the teams and the consultants.
True Agile is feedback driven. If UC had been an Agile project, the advice of the experts would have discovered in early iterations and the project would have taken a dramatic change in direction based on their feedback.
Still, you can be forgiven for thinking Agile is something it’s not given the way the way it’s been abused by consultants and bent out of shape by politics.
… which is a bit like the terms “debt”, “deficit” and “borrowing” when applied to government spending. For instance, I noted that the IFS is having a moan about the impact of all of this “extra debt” and Boris told some journalist or other that it would be funded “by borrowing”.
Technically, that must be what is happening (although I confess I still havn’t quite wrapped my head around the reationship between the BoE and the Tresury) but those terms create massive confusion in the eyes of the public.
I try to not use the word Agile in my software development practice for the reasons noted above – even though my team is very agile (small a) .
I wish there was an alternative language I could use to describe government finance? It would help me greatly if I could explain things to people without using words that have a diffent meaning to people who have a finite amount of money.
Hope that you now are on the mend. I have been reminded of the saying “to lie like a government bulletin”. Everything so far looks somewhat impressive, but once one opens the bonnet, the engine consists of disconnected old parts. Surely simplicity should be the key above all else, to ensure speed of uptake and psychological security of the population. But what do I know, having analysed businesses everywhere for 30 off years?
All that shines in a statement is not of use
“What is clear is that he and the government are behind the curve. And with respect I’d say that so far I have been ahead of it”
Ahead of it in writing a blog that takes a few minutes!!..do you think for arguments sake after yesterdays announcement they are now done and putting their feet up? We will almost certainly have a full lockdown and perhaps the military enforcing it. When that happens do you think that was thought up the night before without weeks of logistical planning?
I really don’t think you’re worth debating with
Please take your deeply unattractive cynicism elsewhere
Have you seen the IFS complaining about it costing “Tax payers money” ?
Idiots….
The IFS……………………OMG!! They are dumb, DUMB!
Always indispensable for pouring oil on a burning fire. Mind you, if anyone is going to start the ‘now we’ve got to pay for it’ trope it is them, BTW is ‘trope’ a posh word for ‘tripe’?
IFS =
Idiots
Forecasting
Shite
Agree with you, Richard. It seems to be being dragged out of them. France and Germany acted robustly from the off. We currently have a situation where a fortunate cohort are being looked after reasonably, and quite right too, whilst gross disparity is evident with the sick and the unemployed, this latter have next to no chance of getting into wort for the foreseeable future. These sort of divisions can drive the unrest that the emergency powers are preparing for.
As you say, three budgets in nine days. How many more will it take?
I do think that the government is trying to do the minimum it thinks it can get away with each time rather than really ‘doing everything it takes’.
I am fortunate, I can still work and get paid. I have friends who will be struggling.
Regards,
Craig
I too already know many in trouble
I am not, yet
The principal problem is not just three budgets in nine days. It is that the Chancellor started in the wrong place; the banks, when the problem, was people. In 2008 the banks were rescued and given a free pass that allowed them to by-pass the people altogether; leaving the poor, the disabled and our public services, including the NHS to pay through the nose for Austerity. Never have so few benefited so much from the financial sacrifice of so many. In the end it is people that matter. It always was. Start from there.
The Chancellor is now going to take at least four, perhaps five iterations to find his way to the location from which he should have begun. He has therefore misapplied the effort, constructed a Byzantine and probably inefficient, over-priced, sub-optimal, dysfunctional delivery system, because he simply did not understand what he was trying to do; and changed direction in the middle; twice.
Agreed
5 is the minimum number, I suspect
By the year end somewhat more than that…
I too am fortunate to be able to still work. Well I say fortunate but it is actually borne out of necessity, for I am one of the many workers who find themselves on zero hour contracts and are like the self employed omitted from the government’s job retention package.
I live alone in rented accommodation and welcome the news my landlord will be barred from evicting me for arrears caused by covid-19, but there’s no mention at what point this will cease to be the case? No work for me means no pay and no pay means the movement onto Universal Credits which, including a rent element, equates to £667.83 per month. From this amount I have to pay £435 rent, £72 Council tax, £80 utilities leaving the princely sum of £80 per month for food and all other expenses. I’m sure BoJo and his ilk spend more than that on dinner in the Parliament’s subsidised restaurants!
So I’m left with the dilemma of continuing to work, which I can’t do from home, amassing god knows how much debt through rent arrears etc by self isolating but at least eating and having contact with the world, imposing a very stringent diet and hoping no other bills are forthcoming or selling any possessions I have and hoping it will last me through!
To top it off I’m also in the vulnerable category having type 1 diabetes and heart failure. So do I think Sunak, Johnson and the rest of the Tories are doing the best they can? Absolutely not, the only people coming out of this crisis unscathed will be the billionaires, millionaires, bankers and fund managers who will be buying low when the markets are down only to profit substantially when things recover. For us plebs it’s either death or debt either way the Tories have us where they want us!
I have and will argue for increased UC
I get a bit fed up with those who say it’s easy sitting in an armchair, what do you know. Yourself and others have been writing for years on economic issues and more recently yourself and others have listed the kinds of actions that need to be taken to pull through with the minimum of damage to people, health, livelihoods and the economy (and all are interconnected). Even if Budget1 was just a first sticking-plaster attempt while he deliberated more fully he’s got an army of advisors who could have trawled TRUK and other blogs for the best ideas and at the very least put some of them into the next attempt, while taking on board the serious flaws in B1; and even after B2 with more serious flaws, again pointed out by many, it all could have been corrected yesterday.
Does he not have your phone number?
As several major commentators have pointed out, we have the worst possible people in charge at the worst possible time.
George Osborne was the last person to invite me to the Treasury
Given the massive efforts by the self employed to avoid paying any reasonable level of tax such as the IR35 campaign and the crocodile tears over EBTs I have very little sympathy with them.
As for the £31,000 limit it is already obscene but unavoidable that people will be paid far more to stay home than essential workers in health care, social care and food distribution are earning whilst working to keep society functioning risking their health and that of their family. Higher earners should have savings or can arrange payment holidays or loans.
The UK as a society has made a choice to follow a neoliberal model. This has largely been driven by older, affluent, asset owning voters. The idea that we can morph into Scandanvia overnight to protect those people is absurd.
Yesterday was a paradigm shift and will hopefully mean that debates around monetary policy now sit at the centre of our politics.
Monetary policy is dead. Hadn’t you noticed?
And whilst I note your commitment to a single pay grade for all, you entirely neglect the points I made on imposing it now
Your comments really do make no sense at all. Try harder or expect to be deleted
I am not for equal pay for all roles. I am for equal benefits though. A car salesman recieving 2.5 times the salary of a working social care worker to stay home is obscene.
Maybe you need to think that claim through
And with that ridiculous presumption that the self employed of any hue are serial tax-avoiders, you have revealed yourself to be ignorant, ill informed and prejudiced. Where is the back-up for this ludicrous assertion? Many of us are in the just about managing category, certainly not wealthy, and we pay our taxes out of a sense of fairness. Don’t dare insult us and confuse us with billionaire tax-dodging individuals and companies.
HMRC think more than 40% of the self-employed abuse the tax system
I am not alone
And I am most certainly not what you suggest
And now look at my blog this morning
They can’t say they weren’t warned …. 5 years ago! https://www.youtube.com/watch?v=6Af6b_wyiwI
Hope you’re feeling better by the day 🙂
Definitely better
And out of isolation….took the dog for a walk! It’s weird when just going out of the door feels good
The value of small things we take for granted.
Prof,
Just want to check that you chose not to post my comments, which is fine by me.
My phone
No – really sorry – I have just realised that I have missed them
Will look now
Too much going on
[…] have already noted that I have major reservations about much of Rishi Sunaks coronavirus job retention scheme. As the […]
The problem for this government , or any government ( totalitarian or otherwise ) in any situation of potential societal collapse is how to put a floor under it. That in a nutshell is what all these attempts by our government are . The last time we experienced something even remotely comparable was the Second World War . That brought about the creation of a National Government and the takeover by government of key industries . Now that so much of our public infrastructure is in private or quasi private hands the layers of financial apparatus that would have to be cut through are vastly more complex in 2020 the they were in 1940 . And before someone says ‘ but we have powerful computers now ‘ ; they just add to the complexity. Having said that the government has the power ( with its big majority ) to pass any number of single clause Acts to deal with an emergency . This has already started and it already reveals that all the talk of ‘ government not having the power ‘ to do this, or that is simply not true. This is going to take ‘ whatever it takes ‘ but whatever that is the world won’t be the same in a week’s time let alone a month, or a year.
“Boswell: I told him I had been that morning at a meeting of the people called Quakers, where I had heard a woman preach. Johnson: “Sir, a woman’s preaching is like a dog’s walking on his hind legs. It is not done well; but you are surprised to find it done at all.””
It is a miracle to have a Tory chancellor who open to recognising that there is a problem. It may be asking too much to expect him to understand that the best solutions require completely alien thinking.
I see two reasons for faint optimism, we have a chancellor who is prepared to move outside his comfort zone, and because he is a Tory, we will not have the right wing press campaigning against him.
Thank you for setting out the case for the self employed to be given equal treatment. I’m a self employed music teacher, hoping to get my state pension in the autumn. So far, the Chancellor has offered me no support at all, despite the fact that as from last week, I have no income at all. At age 65 I’m self isolating, so cancelled all my teaching. I have rental income from a flat but my tenant is in difficulties as a result of CV, so I’ve cancelled her rent for the duration. Because I’m self employed, my finances are always precarious, so as a responsible citizen I keep an emergency pot. Because the state pension – my only pension – is £7k, my pot will help me survive. Because of this pot, I can’t claim Universal Credit as many politicians have told me to do. There are thousands like me, as a visit to the Musicians Virus Forum on fb will show. We are told there may be a change in the Chancellor’s approach but I’m not optimistic.
There is a lot of pressure being brought to bear – I promise you
I am involved in that
Now we have to hope we will be heard
A couple of days ago you reposted the information about how banks create loans; ie double entry book keeping, two accounts, a credit account for the borrower and a loan account for the bank, when its repaid everything reverts to zero. If this is so how can deferring loan repayments create a banking crisis? If the bank created the money in the first place out of nothing then deferring payments for three or more months just means they will still get repaid but it’ll take longer. If they had no real skin in the game in the first place what is the problem? Also to go back to that explanation, it referred to the bank making a loan by creating money out of thin air. If you repaid it right away the result is nothing, nada, everyone can go home. However most people do not repay a loan right away and they also repay it with real money taken from their bank accounts over time, you say the banks “destroy” that money? I just don’t get it sorry. I’m probably being thick but I need an explanation.
If the loan is deferred there is no problem – I have argued for organised deferral for that reason
If it is not paid there is because the double-entry fails
That’s the problem
You’re not being thick Liz. It’s because it’s so simple that is hard to get your head around. You’ve put your finger on it in your own query ‘ …..and they also repay it with ‘ real ‘ money taken from their bank accounts…..’ . They don’t repay it with ‘ real money ‘. They repay it with the same bank created money that is circulating throughout the vastness of the financial system as a whole over time, and as and when loans are repaid that ‘ destroys ‘ some of that money , but at the same time new loans aka ‘ new money ‘ is created. Your mental problem ( and I say this with all humility because it took me a long time and a lot of work to ‘ get it ‘ ) is that you think of money as a ‘ thing ‘ which it isn’t. I gave a talk on this a year or so ago to a little group of people and when I started talking and said ‘ money is created from nothing ‘ the lady on my right freaked out and said ‘ what about my wages ? ‘ because she had the same issue with the concept of money creation as you have ; she thought of her wages as ‘ real money ‘ no matter what any other money was . Its only ‘ realness ‘ is that you can buy stuff with it.
Thanks John