{"id":16383,"date":"2012-07-13T09:52:54","date_gmt":"2012-07-13T08:52:54","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=16383"},"modified":"2012-07-13T09:52:54","modified_gmt":"2012-07-13T08:52:54","slug":"the-untold-truth-about-quantitative-easing-is-it-simply-cancels-debt-and-that-means-national-debt-is-now-just-45-1-of-gdp","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/07\/13\/the-untold-truth-about-quantitative-easing-is-it-simply-cancels-debt-and-that-means-national-debt-is-now-just-45-1-of-gdp\/","title":{"rendered":"The untold truth about quantitative easing is it simply cancels debt – and that means national debt is now just 45.1% of GDP"},"content":{"rendered":"

Simon Jenkins says in the\u00a0Guardian\u00a0<\/a>this morning:<\/p>\n

It must be the biggest confidence trick of all time. It is a cheat, a scam, a fiddle, a bankers' ramp, a revenge of big money against an ungrateful world. It is called quantitative easing, and\u00a0nobody has a clue what it means<\/a>.\u00a0According to the Bank of England<\/a>, the past four years have seen \u00a3325bn pumped into the British economy to kickstart growth, with another \u00a350bn now on the way. This enormous sum does not exist and never has. It is not \"printed\" money or funny money. It is no money. The one silver bullet on which the coalition relies to pull Britain out of recession is a fiction.<\/p><\/blockquote>\n

His argument is that no one knows what the \u00a3375 billion in question has done, so let me tell you. My data sources for\u00a0what\u00a0follows are the Bank of England<\/a> and HM Treasury<\/a>. I've\u00a0prepared\u00a0the\u00a0following\u00a0table from their data:<\/p>\n

\"\"<\/a><\/p>\n

The first line is new debt issued in the year. For this purpose I exclude debt in privatised banks.<\/p>\n

The second line shows\u00a0quantitative easing issued. Remember what QE is: the Bank of England says:<\/p>\n

Between March and November 2009, the MPC authorised the purchase of \u00a3200 billion worth of assets, mostly UK Government debt or \u201cgilts\u201d.<\/p><\/blockquote>\n

\"Mostly\" is a loose term hee: more than \u00a3199 billion was gilts. It has been in the subsequent purchases.<\/p>\n

Now what that means is that the Bank of England, which is owned by the government, has paid HM Treasury, which is part of the machinery of\u00a0government,\u00a0\u00a3325 billion to buy debt issued by the\u00a0government. I agree that it is true that the nominal value of the debt purchased may not have been the same as sum paid for it: I have not got a statistic on that. But although that point is important it does not change the substance of the matter. The reality is, as I have explained before, this means that in any proper accounting system that\u00a0produced\u00a0a single set of accounts for the\u00a0government\u00a0that debt that was repurchased would have been considered to be\u00a0cancelled. That's because you can't meaningfully owe yourself money, and yet that is precisely what is\u00a0happening\u00a0here. The Treasury owes the Bank of England money but as it in effect owns the Bank of England it therefore owes itself the money and as such the debt has simply been cancelled.<\/p>\n

Now there are some who might say that\u00a0this\u00a0is the language\u00a0of\u00a0the Mad Hatter's Tea Party - that I am\u00a0talking\u00a0in riddles to go round in circles. But that's not what I am doing. I am saying that the arrangements used in QE hide this\u00a0economic\u00a0reality and that is all the mumbo jumbo is cleared away what is happening in QE is that\u00a0money\u00a0is being printed to clear the\u00a0government's\u00a0deficit and that debt is not really being issued at all. Precisely because we are in a slump - not just a recession - that money can be printed without major fear of inflation, and indeed without inflation risk at all if the banks could be kept out of the loop.<\/p>\n

But that also means that, as a I show in the table above, we haven't giot national debt of just over a trillion now, it's just under \u00a3700 billion. Now that's a lot, but it's only 45% of GDP and that was so commonplace during, for example, the Thatcher years that no one noticed it.<\/p>\n

That though has ramifications. First, it means the whole debt paranoia is wrong. Debt is not rising at the level\u00a0claimed\u00a0by the\u00a0government. Secondly, \u00a0the\u00a0focus\u00a0can then move onto paying for services. That kicks in the tax gap debate. Third, it means Labour can honestly say it is not\u00a0constrained\u00a0by having to repay debt to future generations - because well over half of all debt issued since 2008 has already been repaid.<\/p>\n

That doesn't mean we're not still in crisis. All this can happen simply\u00a0because\u00a0we're in a slump. But what it does\u00a0mean\u00a0is that the slump\u00a0and\u00a0not the debt should be the\u00a0focus\u00a0for debate precisely\u00a0because\u00a0it is the real issue.<\/p>\n

So can we do that now, please?<\/p>\n","protected":false},"excerpt":{"rendered":"

Simon Jenkins says in the\u00a0Guardian\u00a0this morning: It must be the biggest confidence trick of all time. It is a cheat, a scam, a fiddle, a
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,1],"tags":[],"class_list":["post-16383","post","type-post","status-publish","format-standard","hentry","category-economics","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/16383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=16383"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/16383\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=16383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=16383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=16383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}