The rich aren't spending enough.
This is another view on that idea, which I promoted here not long ago. It's a few years old now, but the sentiment is, in many ways, quite right. People spending their income is what the economy needs.
Those with a dislike of swearing may not like this. For everyone else the message is clear: wealthy savers really do not help:
Hat tip to Jenni Rose.
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Ha ha ha…………………it might be funnier if it were not true!!
Wealth does gravitate to the rich in this economy who seem to install it in things that drag up inflation or the money finds its way into the political system somehow or offshore.
But if we accept that wealth is based on a transfer of spending power from one group to another that leaves one group with so little and another with too much – what would you expect? As Nick Hanauer has said, just because he is rich does not mean he buys more jeans or pillow cases than an average person (he is a wealthy entrepreneur).
By allow wealth accumulation like this, an economy is robbing itself basically.
“You’re paralysed from the neck down. There’s a farm out there looking for a scarecrow. Get tae work”
He’s right. The wrong people are being blamed by cruel politicians who are making an ever worsening mess of the UK. It’s a failing state with no one, whether LINO, Tories or the incoming Reform government (!) who has the vision, or will, to change the downwards trajectory.
We’ve left the biggest trading bloc in the world and no country of any great size, and wealth, is interested in trading with us To cap it all, Trump’s made it clear that whatever’s coming our way from the USA is just going to make our situation a whole lot worse.
It’s not going to be a lot of fun, is it.
Why create money and release it as bonds (Steph Keaton couldn’t answer this) and hence only the wealthy gain because only they can pay it back. If you can create money (mmt/qe) then who benefits exactly ? You might say everyone as things could be worse – 2008 and 2019 but you state everyone benefitted but only the wealthy gain!!
Where is the redistribution of wealth when bankers create money for the wealthy but politicians then won’t tax it out of existence.
Why are house prices so unaffordable for the many but fine for the few- mmt again? Why have wages stagnated etc
Economically and politically the west is becoming wealth stratified ! What’s the reasons for it
Yoru question makes no sense.
Bonds do not create money: they withdraw it from use.
I have answered questions about the usefulness of bonds on this blog serval times. Might you do a Google search?
Bonds are not always used to withdraw money from use*. 25% of the Treasury’s funding of Slavery Abolition in 1833, was not done through a conventional Bond issue. 75% was achieved through a Rothshild sysndicate in the conventional way; the money raised was gifted to slave owners for emancipation. The last 25% was raised by issuing Bonds directly to the slave owners – as a free gift; technically, the slave owners could then, either keep the bods, or cash them ion the secondary market. No money changed hands between the Treasury, BoE and slave owners, for the Bonds.
*the evidence is there from FOI responses I have seen from the Treasury, and BoE working papers.
Bonds can also be issued for nationalised assets, of course.
It is an unusual proposition that the slaves manumission rendered them a “nationalised asset”. The manumitted slaves were not owned by the State. It seems to me that the Bonds can only be seen as a gift to the slave owners.
You may wish to argue that since the slaves were not consulted about the terms of emancipation, and were committed by government to an ‘apprenticeship’ that turned them back into the hands of the plantation owners, under no adequate term of supervision; they were indeed nationalised slaves. The ‘apprenticeship’ was, however dysfunctional from the beginning, and did not last. You proposition is an interesting one, but I suspect very hazardous. If the slaves became nationalised assets, the State never formally relinquished the nationalised ownership you claim they acquired; in which case, the thesis opens a far bigger ‘Windrush’ style compensation case than we have aver seen.
It seems to me more realistic to view this as it was certainly implied at the time; a free gift to the slave owners, that was a huge injection of new credit in the Britain. And we can see that playing out in the big investment in industrialisation in Britain (not in the West Indies) that followed Emancipation – notably in railway investment from the later 1830s (and the audit trail can be seen in the investment by major absentee slaveowners who received compensation).
John
I was not saying nationalisation was the issue in the 1830s.
I am saying bonds can be issued now without cash involvement for nationalisation purposes.
Your conclusion is correct though.
Richard
Thanks, Richard.
There is a wider point, about the Treasury injecting credit into the economy, by exceptional means to solve a problem. The ‘25%’ Bond issue was a free gift to slave owners; but it had two extraordinary effects. It fixed the real problem the the Government feared in the West Indies; a disaster that ended in war and conflagration that they did not believe could end well, and would probably be lost, one way or another.
Second, the very large credit injection into the private sector led the big absentee slave owners investing in Britain’s industrial revolution, and a change in the dynamics of the British economy.
This was an unheard of funding precedent that has been overlooked and forgotten (a free gift, no strings attached on an unprecedented scale). It was forged by the fear of Government in any other option, that demanded a decisive and immediate fix in the West Indies; but it was a funding precedent for Government that had enormous economic benefits for Britain and its industrial development (not the West Indies, which was over-mortgaged, and remained under-funded). It shows just what Governments can do.
Hang on , John.
QE was a gift of simuilar scale. It has not solved anything beyond the immediate problem.
I wish to make two points.
First, I have encountered little acknowledgement from historians or economists about the unprecedented innovation of that ‘25%’ Bond issue of 1833. I asked a monetary economist about what kind of injection of credit into the economy this represented and received a reply the Oracle at Delphi would have envied. The 1833 Bond issue only accidentally funded industrial development in the UK (that was not its purpose); but it was not paid to financial intermediaries, like QE either; and therefore the opportunity for expansion was not confounded. In that sense it was not similar to QE; indeed the financial intermediaries in 1833 were by-passed to pay the gift to the owners directly (the reasons this happened economic historians have failed to address, because they have missed the whole issue altogether; I have my own thesis about that but it is too long and peripheral for this thread – suffice to say the financial intermediaries failed to finance the whole amount Government required at the time). And, incidentally, Government saved big money in underwriting fees (which took some of the bond issue money raised for the ‘75%’, ‘off the top’) with the direct bond funding.
My point is, rather, that when it needs to, Government can direct its use of funding, where it wants (or indeed, needs) to fund it; with a much better chance of that investment being constructive, than just handing to the wisdom of the financial intermediaries. THAT is my point. We knew that in 1833. Almost the last place to direct that investment is toward the banks and financial intermediaries, except when Government has to bail them out for their incompetence, irresponsibility, greed, recklessness, and stupidity; because they are so rotten they never learn. There is the lesson from QE.
Noted
“QE was a gift of simuilar scale. It has not solved anything beyond the immediate problem. ”
Which begs the question: why did the “slave money” drive massive railway expansion (circa 8000 miles in +/- 25 years) and recent QE did not?
Perhaps the country now lacks the capacity to use money in a way that leads to increased prosperity (for all). I leave it to others to define “increased properity for all”.
By contrast – it did seem to have that capacity in the 1830s – partly because of the Stevensons.
Perhaps a discussion on “if gov did inject money into the economy – what could it be productively spent on”?
My usual explanations are:
1) There is no really useful new tech, including AI unless that is seen as a mechanism for the extension of the power of capital, which it is.
2) We only do financial engineering now
3) Wew have so many wealthy people now they are terrified of losing their status, and so do not invest.
This is why the sgtate has to act – there is no private sector willingness to do so.
Mr Parr,
You can follow the flood of Government Acts of Parliament, opening specific new railway lines. And you can see the investments made (outside London, across the country); from the Slave Emancipation money.
In the 21st century there is an endless list of potential investments, from infrastructure: water and sewage, railways for example; public sector housing, schools, primary care, hospitals; prisons; to industries in sectors like renewable energy; both funding R&D (in tidal, for example) and industrial development in wind, solar and the national grid (including a complete reform of energy provision in the UK to secure adequate energy security); or setting up public sector, safe, unadventurous banking, or a public sector pensions provider not driven by LDIs, and pensions for those not able to benefit from corporate schemes; and a public sector bank on the lines, perhaps of Girobank. Basically, we have forgotten how to do anything, except to leave it to a private sector, financial markets and financial intermediaries that have completely failed us(they had years of near lower bound interest rates, and still didn’t invest).
Where does Corbyn’s idea of a QE for the people fit in to all this?
It was my idea
https://www.taxresearch.org.uk/Blog/2022/11/15/we-need-green-quantitative-easing/
Many a true word spoken in Jest
Oh and I have been to The Magnum Centre in Irvine which he occasionally refers to in his sets!
What could they buy?
“What could they buy?”
A political party?
A politician?
A government contract?
A supreme court?
A country?
A newspaper chain?
A TV company?
Space?
(All of these have already happened repeatedly)
I worked in industry for just over 40yrs. Over that time I contributed to my pension and yes I didn’t consume all I earned to “grow the economy” but I saved to provide an income for when I no longer have earning power and that time is now. So I now drawdown my pension and spend to “grow the economy” now and I continue to pay tax and will until the day I die in all probability. This makes perfect sense doesn’t it? I would add I have mainly owned equities over that time with significant oversea exposure, particularly America, and that has served me well to allow some degree of comfort in retirement. This is exactly what the vast majority of savers do. So your talk about forcing savers to hold some sort of State Securities or claiming that “savers are the problem” because they don’t spend all they have is just barmy.
Politely, you clearly do not have a clue about the macroeconomics of pensions , which are utterly unrelated to your veiw.
I suggest you start with this. https://www.taxresearch.org.uk/Blog/2019/08/28/getting-the-fundamental-pension-contract-right/
I am not barmy. Unlike you, I understand what is going on.
QE is the nuclear version of a “Reverse Repo” (a reverse repurchase agreement). In BoE terms it swaps a security (Gilt) back into the cash that bought it originally. No new money is created by the Treasury at this stage. The total stock of Sterling currency in the non-government sector does not change, it is just in a different more spendable form.
QT is the nuclear version of a “Repo” a repurchase agreement. It takes cash out of the non-government sector (NG) in exchange for a tradeable savings account that pays interest and reduces the spending power in NG. It substitutes for the more permanent fiscal policy of Taxation.
For reasons unknown, the BoE did not cancel its QE gilts stash when it cashed them. It held them as empty savings accounts that are still paying interest. That interest is supplied by the Treasury to the BoE; which the latter, turns round and sends back to the Treasury. Selling those empty Gilts back into the NG at less than it paid for them is a bonus for the NG sector, but of no consequence for the BoE. Neither the Treasury or its wholly owned BoE can never go broke in its own currency.
Your claim that no new money is created is only true in a very limited way.
QE does not create money, but it has only ever been used to disguise the loans from the BoE to the Treasury which did, so viewed as a whole the QE process does most definitely create new money – although we could drop the QE element and that would still be true.
It is not possible for the BoE to loan “money” to the Treasury In a fiat currency economy, the Treasury and its Central Bank are one and the same, indivisible. The BoE can only create “credit” not “money”, just like any other non-government sector high street Bank. The BoE has the advantage that its owner is the currency creator and issuer, so it can run an asset to liability ratio many times greater than a regular High Street Bank would be allowed; knowing its owner is never going to run out of Pounds Sterling.
In principle – and even in reality- this happens. But all governments have been dedicated to pretending it does not.
This seams to be that pensions and all other savings are government debt until it is spent back into the economy.
I admit I cannot follow that logic.
Note to self – do not click on video links when you work in the office of a school..
Oh well – the kids aren’t in yet today.
🙂