What's really happening with this new Labour government

[Laughing]

You are going round in circles and you keep coming back to QE, but we're not talking about that. The government can create money to spend without the permission of the BOE. .

High street banks create money every day. When you go in for a mortgage or a loan to buy a car, your bank literally conjures the money up out of nowhere. The money doesn't exist, and then it does, no questions asked, no permission sought.

When the government does this, it owes the money to the bank which it owns.

Come on Bbg you know better than this. A few posts ago you criticised the government for comparing the economy with home finance, yet here we are!

The government would need to borrow money to fund most thing suggested earlier. It does this through selling bonds or quantative easing (if the boe buy the bonds) not through a mortgage or bank loan. You know this as I am sure most posters do.

We got here because a poster suggested the government can create as much money as it likes. It cannot do that without consequences and it can't demand that the boe initiated qe to buy government bonds as a mechanism to raise funds. It can ask. The bank can say no if it believes the dumping of government bonds will adversely effect inflation.

I hear the arguments around a fiat economy over and over again on this board from posters who, by and large, don't understand it beyond watching a YouTube video.

 

[Laughing]

You are simply being obtuse because you have lost the argument.

You think so? And I am being obtuse. That's really interesting.

 

[redrobbo]

L

Come on Bbg you know better than this. A few posts ago you criticised the government for comparing the economy with home finance, yet here we are!

The government would need to borrow money to fund most thing suggested earlier. It does this through selling bonds or quantative easing (if the boe buy the bonds) not through a mortgage or bank loan. You know this as I am sure most posters do.

We got here because a poster suggested the government can create as much money as it likes. It cannot do that without consequences and it can't demand that the boe initiated qe to buy government bonds as a mechanism to raise funds. It can ask. The bank can say no if it believes the dumping of government bonds will adversely effect inflation.

I hear the arguments around a fiat economy over and over again on this board from posters who, by and large, don't understand it beyond watching a YouTube video.

The government doesn't need to borrow, it's a choice. Maybe this will help you understand.

Why do governments issue bonds when they don’t need to?

In this morning's video I note that government bonds do not fund government spending any more than tax does. So, I ask, why do governments keep issuing bonds when there is no obvious need for them to do so? https://www.youtube.com/watch?v=j55Ft7rtaHY The audio version is here. The...

www.taxresearch.org.uk

 

[redrobbo]

This is also helpful

Funding government spending: an explanation

This is the third in my audio series on money. It explains how government spending is funded - and how this always involves the creation of new government-backed money. A transcript is to be found below the audio link. https://soundcloud.com/user-371490417/funding-government-spending...

www.taxresearch.org.uk

 

[Billy Horner]

L

The government doesn't need to borrow, it's a choice. Maybe this will help you understand.

Why do governments issue bonds when they don’t need to?

In this morning's video I note that government bonds do not fund government spending any more than tax does. So, I ask, why do governments keep issuing bonds when there is no obvious need for them to do so? https://www.youtube.com/watch?v=j55Ft7rtaHY The audio version is here. The...

www.taxresearch.org.uk

You realise that you're staring to sound like one of those climate deniers who post stuff by Piers Corbyn alongside messages such as "do your own research", "open your eyes" or "maybe this will explain it to you"?

I'm pretty sure that most people commenting on this thread have a decent understanding of at least the main points behind Modern Monetary Theory. They don't need videos to help them understand it, they've already checked it out and have either rejected it or, as a minimum, are extremely skeptical about it. That puts them in the same position as around 95% of economists.

Most proponents of MMT seem to spend their time explaining how fiat currency works and the fact that a sovereign country can choose to print more money if it wishes, as if that is some major revelation to the rest of us. They choose to ignore the examples of where excessive growth in the money supply has led to hyperinflation and completely ignore how devaluation of the currency (which is inevitable if you print more) would lead to much higher import prices, especially for commodities, raw materials and food, which tends to cause the stickiest of sticky inflation.

Proponents also, then, argue that taxation of the rich can limit this inflation, by taking some of the excess money supply out of the system. But they completely ignore the fact that not only is taxation recognised as being a very poor tool for doing this (time lags, loopholes, etc.), but it would also certainly lead to capital flight (rich people leaving the country and taking their money with them), further devaluing the currency and putting even greater inflationary pressure on import prices.

Advocates of MMT need to answer the following questions: Why do the vast, vast majority of economists either reject MMT or express significant skepticism about it? Why has no country in the world implemented MMT?

Incidentally, the guy you keep posting videos of is called Richard Murphy. He's an accountant by profession not an economist and he used to be an informal adviser to Jeremy Corbyn. Here's what John McDonnell (that well known neo-liberal) had to say about him, "He is not an economic adviser and never has been. He is a tax accountant. Richard is excellent on tax evasion and avoidance, but he leaves a lot to be desired on macroeconomic policy".

 

[Scrote]

Why has no country in the world implemented MMT?

We do implement MMT. That's the whole point. The UK monetary system is better described by MMT than it is by the 'Household Debt' analogy. Politicians understand that - otherwise we wouldn't have had the QE as a fallout from 2008 and the whole PPE £Billions disappearing through Covid. They choose not to speak in MMT terms as it suits policy decisions and ideology.

it would also certainly lead to capital flight

The only serious study that I know of comes to completely the opposite conclusion:

Taxation and Migration by the Super Rich

Richard Murphy. He's an accountant by profession not an economist

Einstein was patent filing clerk - I'm not sure what your point is..?

 

[redrobbo]

You realise that you're staring to sound like one of those climate deniers who post stuff by Piers Corbyn alongside messages such as "do your own research", "open your eyes" or "maybe this will explain it to you"?

I'm pretty sure that most people commenting on this thread have a decent understanding of at least the main points behind Modern Monetary Theory. They don't need videos to help them understand it, they've already checked it out and have either rejected it or, as a minimum, are extremely skeptical about it. That puts them in the same position as around 95% of economists.

Most proponents of MMT seem to spend their time explaining how fiat currency works and the fact that a sovereign country can choose to print more money if it wishes, as if that is some major revelation to the rest of us. They choose to ignore the examples of where excessive growth in the money supply has led to hyperinflation and completely ignore how devaluation of the currency (which is inevitable if you print more) would lead to much higher import prices, especially for commodities, raw materials and food, which tends to cause the stickiest of sticky inflation.

Proponents also, then, argue that taxation of the rich can limit this inflation, by taking some of the excess money supply out of the system. But they completely ignore the fact that not only is taxation recognised as being a very poor tool for doing this (time lags, loopholes, etc.), but it would also certainly lead to capital flight (rich people leaving the country and taking their money with them), further devaluing the currency and putting even greater inflationary pressure on import prices.

Advocates of MMT need to answer the following questions: Why do the vast, vast majority of economists either reject MMT or express significant skepticism about it? Why has no country in the world implemented MMT?

Incidentally, the guy you keep posting videos of is called Richard Murphy. He's an accountant by profession not an economist and he used to be an informal adviser to Jeremy Corbyn. Here's what John McDonnell (that well known neo-liberal) had to say about him, "He is not an economic adviser and never has been. He is a tax accountant. Richard is excellent on tax evasion and avoidance, but he leaves a lot to be desired on macroeconomic policy".

I was not trying to promote MMT in my posts. The issue was simply one of whether the government had the power to create new money to fund its objectives. You say that most people on this board understand that "a sovereign country can choose to print more money if it wishes", but the impression given by Laughing was that he did not understand it (I actually thought that he did understand it, but was being deliberately obtuse).

In answer to my post saying: "The clear implication in your response was that the government did not have the power to create new money only the boe. The reality is that since the government owns the boe it can order the boe to create new money and this is what happens every time the government spends money"

Laughing said:

"There was no implication. It's a fact."

He then subsequently said:

"The government would need to borrow money to fund most thing suggested earlier. It does this through selling bonds or quantitative easing"

I posted the explanations by Richard Murphy somewhat tongue in cheek, as I am sure Laughing really does know that the boe creates new money to the government's order.

 

[BlindBoyGrunt]

You realise that you're staring to sound like one of those climate deniers who post stuff by Piers Corbyn alongside messages such as "do your own research", "open your eyes" or "maybe this will explain it to you"?

I'm pretty sure that most people commenting on this thread have a decent understanding of at least the main points behind Modern Monetary Theory. They don't need videos to help them understand it, they've already checked it out and have either rejected it or, as a minimum, are extremely skeptical about it. That puts them in the same position as around 95% of economists.

Most proponents of MMT seem to spend their time explaining how fiat currency works and the fact that a sovereign country can choose to print more money if it wishes, as if that is some major revelation to the rest of us. They choose to ignore the examples of where excessive growth in the money supply has led to hyperinflation and completely ignore how devaluation of the currency (which is inevitable if you print more) would lead to much higher import prices, especially for commodities, raw materials and food, which tends to cause the stickiest of sticky inflation.

Proponents also, then, argue that taxation of the rich can limit this inflation, by taking some of the excess money supply out of the system. But they completely ignore the fact that not only is taxation recognised as being a very poor tool for doing this (time lags, loopholes, etc.), but it would also certainly lead to capital flight (rich people leaving the country and taking their money with them), further devaluing the currency and putting even greater inflationary pressure on import prices.

Advocates of MMT need to answer the following questions: Why do the vast, vast majority of economists either reject MMT or express significant skepticism about it? Why has no country in the world implemented MMT?

Incidentally, the guy you keep posting videos of is called Richard Murphy. He's an accountant by profession not an economist and he used to be an informal adviser to Jeremy Corbyn. Here's what John McDonnell (that well known neo-liberal) had to say about him, "He is not an economic adviser and never has been. He is a tax accountant. Richard is excellent on tax evasion and avoidance, but he leaves a lot to be desired on macroeconomic policy".

Now you're starting to sound a bit patronising which isn't a good thing if you are wrong. You seem to be under the impression that MMT is some shiny new toy that can be adopted or rejected whereas in reality MMT is merely a framework for explaining how economics works right now in fiat economies.

If as you say "most people commenting on this thread have a decent understanding of at least the main points behind Modern Monetary Theory" then why do they keep resorting to arguments around tax and spend etc?

You yourself make a similar mistake when you say "Proponents also, then, argue that taxation of the rich can limit this inflation, by taking some of the excess money supply out of the system. MMT proponents argue that taxing in general can control inflation, not specifically "taxing the rich." The idea is about reducing aggregate demand - taking money out of circulation when the economy’s overheating - rather than targeting a specific group for ideological reasons.

Also when you say "they completely ignore the fact that not only is taxation recognised as being a very poor tool for doing this (time lags, loopholes, etc.)" you are treating it as something new which is waiting to be introduced rather than what it is ie. the system that we already use.

 

[FabioPorkpie]

No words

 

[RavsFan]

Those that say it is a political choice are correct. A choice not to spook the markets increase costs of debt interest and to stabilise an economy that was brought to its knees by the tories and a desire not to crash and trash our economy in such a volatile globalworld. The OBR feel the growth can come from much needed housebuilding policy to help reduce debt a little by 2030. I do think there are some board members pretending they know more about the economy and how to run it than those who are broadly understanding of the approach. If they like an economy to keep printing money, then I’d suggest they move to Venezuela and let the government get on with what they need to do. Nobody is saying they are happy on welfare cuts, but the alternative party would be far stricter lets not forget.

Those that can work should, those that absolutely can’t have been told they will be rightly helped. We can’t keep growing welfare expecting those in work to pay more and more each year. Some people on here with wealth should perhaps give their spare cash to local charities that help instead of having trips away or boozing down the local if they feel so strongly. I’m happy to pay a couple more pence in the pound in tax but I’d want to ensure productivity and outcomes for users vastly improved.

 

[BlindBoyGrunt]

Those that say it is a political choice are correct.

Those that say that what is a political choice?

 

[redrobbo]

Those that say it is a political choice are correct. A choice not to spook the markets increase costs of debt interest and to stabilise an economy that was brought to its knees by the tories and a desire not to crash and trash our economy in such a volatile globalworld. The OBR feel the growth can come from much needed housebuilding policy to help reduce debt a little by 2030. I do think there are some board members pretending they know more about the economy and how to run it than those who are broadly understanding of the approach. If they like an economy to keep printing money, then I’d suggest they move to Venezuela and let the government get on with what they need to do. Nobody is saying they are happy on welfare cuts, but the alternative party would be far stricter lets not forget.

Those that can work should, those that absolutely can’t have been told they will be rightly helped. We can’t keep growing welfare expecting those in work to pay more and more each year. Some people on here with wealth should perhaps give their spare cash to local charities that help instead of having trips away or boozing down the local if they feel so strongly. I’m happy to pay a couple more pence in the pound in tax but I’d want to ensure productivity and outcomes for users vastly improved.

The Venezuelan economy has been trashed by the West. The US strangles it with sanctions, prevents it from raising capital on the international markets and the UK chips in by refusing to give back its gold. Its problems are not caused by spending too much.

 

[Laughing]

I was not trying to promote MMT in my posts. The issue was simply one of whether the government had the power to create new money to fund its objectives. You say that most people on this board understand that "a sovereign country can choose to print more money if it wishes", but the impression given by Laughing was that he did not understand it (I actually thought that he did understand it, but was being deliberately obtuse).

In answer to my post saying: "The clear implication in your response was that the government did not have the power to create new money only the boe. The reality is that since the government owns the boe it can order the boe to create new money and this is what happens every time the government spends money"

Laughing said:

"There was no implication. It's a fact."

He then subsequently said:

"The government would need to borrow money to fund most thing suggested earlier. It does this through selling bonds or quantitative easing"

I posted the explanations by Richard Murphy somewhat tongue in cheek, as I am sure Laughing really does know that the boe creates new money to the government's order.

I'll say it once more for you. The government cannot demand the boe print more money.

Go look at the boe Web site.

They, the boe, may agree to do it but are under no obligation to do so.

This has nothing to do with mmt, it's to do with how the boe is structured and the powers it has.

What other central banks do and what the government could do pre 1997 are not necessarily the same.

Again the government can ask for qe, the boe, within their remit can say no and there isn't a thing the government could do about it other than target inflation upwards causing qe.

 

[RavsFan]

Those that say that what is a political choice?

I suggest you read all the comments then

 

[RavsFan]

The Venezuelan economy has been trashed by the West. The US strangles it with sanctions, prevents it from raising capital on the international markets and the UK chips in by refusing to give back its gold. Its problems are not caused by spending too much.

Enjoy the read, the period between the 90’s and 2013, the bit about printing money is interesting

Venezuela economy article

 

[1finny]

Those that say it is a political choice are correct. A choice not to spook the markets increase costs of debt interest and to stabilise an economy that was brought to its knees by the tories and a desire not to crash and trash our economy in such a volatile globalworld. The OBR feel the growth can come from much needed housebuilding policy to help reduce debt a little by 2030. I do think there are some board members pretending they know more about the economy and how to run it than those who are broadly understanding of the approach. If they like an economy to keep printing money, then I’d suggest they move to Venezuela and let the government get on with what they need to do. Nobody is saying they are happy on welfare cuts, but the alternative party would be far stricter lets not forget.

Those that can work should, those that absolutely can’t have been told they will be rightly helped. We can’t keep growing welfare expecting those in work to pay more and more each year. Some people on here with wealth should perhaps give their spare cash to local charities that help instead of having trips away or boozing down the local if they feel so strongly. I’m happy to pay a couple more pence in the pound in tax but I’d want to ensure productivity and outcomes for users vastly improved.

Rav
I believe it is a political choice.

There is at least one wealthy individual who has publically called for a 2% income tax increase on those earning over £250k a year.
I know another one (he is chair of 2 massive companies) who took the opportunity to repeat this in a ‘briefing’ of the great and the good with Reeves.

She has chosen not to do this and put 50k kids (now seen as a conservative estimate btw) into poverty.
The extra tax income may not cover the £5bn but would have meant the rich paying for less kids going into poverty.

Her choice - because she has imposed her own red lines on income tax and thinks it will cost her ‘politically’ if she goes back on that.
Not my words (although I agree with them) just the conclusion of the guy who was at the briefing.

It is also worth noting there is no mention of the massive benefits, in the Spring Statement, available through closer relations with the EU.

They would dwarf the £5bn saved by pushing 250000 more people into poverty.

If you can explain how I’ve got this wrong I’m happy to listen.

 

[InglebyUTB]

Reeves is a total disaster. Labour are going to have to get rid of her before there election if they have any hope of winning it.

Labour had a once in a lifetime thumping majority to usher in pretty much anything they wanted unopposed. We could have had serious electoral reform, meaningful changes to the tax system, modest wealth taxes as part of redistribution of wealth, much needed infrastructure investment as part of re-balancing the countries north/south divide.

Instead we move been given Tory-lite, austerity 2.0, paid for by pensioners, the sick, the disabled, civil servants and tax rises on jobs.

All so she can satisfy her fiscal rules, which she pulled out her backside.

She hasn’t got a clue how to get growth, that much is clear. Middle class and working class families are being hammered with rising taxes and cost of living, many simply don’t have the money to spend in the economy. They need more money in their pockets.

She’s doing the opposite, she’s taking money out. While the rich keep on getting richer, but she refuses to tax them more. Because people who can’t dress themselves on a morning are easier target.

Labour are going to get hammered at the upcoming local elections, and they’ll learn absolutely nothing from it. They’ll just continue their neoliberal, managed decline policies and hand the keys to Downing Street over to Nigel Farage.

I don’t see any difference between her and Jeremy Hunt when it comes to being chancellor, in fact I’d struggle to say which was furthest to the right.

 

[BlindBoyGrunt]

I suggest you read all the comments then

This thread started off as a comment on a Full Facts report and has since covered many bases. I was merely asking what you were referring to so there's really no need to be @rsey

 

[viv_andersons_nana]

I may have missed something somewhere along the line but this thread has been an excellent read imo.

I’m very, very disappointed with what Reeves and Labour have done today. They have compounded last week’s announcements and somehow made a bad situation even worse. They had an absolutely stonking majority and a huge mandate to do whatever they liked it and they’ve decided to do this.

Labour is not the party that puts children, the elderly, the vulnerable and the disabled into poverty. They were not elected to do this and I think Reeves, Starmer, Kendall et al, and the ministers who are defending it on TV, radio, in newspapers, should be thoroughly ashamed of themselves.

 

[Billy Horner]

Having spent most of this thread trashing the concept of MMT and the idea that we can simply print our way out of the current fiscal constraints, I do want to make one thing clear. Even though I am a firm believer in overall fiscal prudence and sound money, I do think the government is making the wrong choices at the moment.

Targeting welfare recipients (again) is not just immoral but makes bad economic sense if you are trying to stimulate growth. As I mentioned earlier in this thread, the poorer you are the higher is your Marginal Propensity to Consume (the amount you spend out of each additional Pound). Taking money away from the poorest not only hits them personally, but removes money from the local economy, putting a further downward pressure on growth.

I genuinely believe that the time has come for some form of modest, targeted wealth tax, which would be a perfectly reasonable way to balance the books instead, and would target capital which is broadly unproductive for the economy at the moment (being locked away in illiquid assets). The cohort paying this tax would also be the ones with the lowest MPC, meaning that raising the same amount from a wealth tax as you would from cutting welfare payments would do less damage to the wider economy.

Yes, as I've also said previously, it would lead to some level of capital flight, which would depreciate the currency somewhat and risk some inflation, but it was the concept of doing that at the same time as printing large quantities of new money that I was warning against. Taken alone, the inflationary effects should be relatively modest.

Also, if the world has indeed changed and we're going to need to ramp up defence spending, I think it would be perfectly acceptable for the Chancellor to exempt the additional defence spending from her fiscal rules and simply borrow the amount needed (like Germany is doing). From what I've read elsewhere, most analysts think that the money markets would wear it, as it's a critical requirement for a stable economy in the first place and it's clearly additional government expenditure that can't really be avoided.

Just to be clear though, I'm arguing this as a Keynesian, not as some form of new age travelling MMT advocate.