The FT has reported that:
A new Labour government could raise extra money for investment from bond markets without causing a Liz Truss-style gilts crisis, according to fund managers.
They added:
Bond investors said the market could be forgiving if a new government decided to boost borrowing and amend its debt rules, provided funds were channelled towards measures to stimulate the economy.
At least five thoughts follow.
First, governments do not need to borrow. They can always create their own money to fund their investment plans, if they so wish. The suggestion that Labour is beholden to markets is, as a result, entirely false.
Second, governments need not borrow from bond markets. They can borrow from the British public. They already do to the tune of well over £200 billion a year through NS&I. As I have long pointed out, that sum could be increased considerably by offering hypothecated savings opportunities in the NHS, education and the UK's regions, plus in climate change. The City could be entirely cut out of this loop.
Third, the money saved with the government is created by government spending. Government spending is not enabled by the saving. This article, and those commenting, clearly do not understand the economic reality of that.
Fourth, no politician likes to be patronised by the City, although Reeves might be an exception.
Fifth, the City needs safe places to save money. Of course it will always fund the government - because it is the only certain bet it has got. They should stop talking nonsense when that is the reality.
However looked at, this article really does very badly miss the point.
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“governments need not borrow from bond markets. They can borrow from the British public. They already do to the tune of well over £200 billion a year through NS&I”.
This is the same problem with the use of financial intermediaries to execute monetary policy in the case of QE, that ends with paying interest on CBRAs. The City itself, and its commercial banks and dealers privileged with special priority and preference (acting in their own interest) executing BoE (and therefore Treasury and Government) policy, are all mere financial intermediaries: in which case, why are mere middle men running the whole economic show without let or hindrance, including that of government – and dictating economic policy?
Richard, you have said many times before that retail banks don’t lend your savings out to other borrowers. Your second point above then mentions borrowing money from savings/investors. Which is it?
Shouldn’t the wording be more along the lines of “removing money from the economy to mitigate inflationary impacts of govt money creation”?
I am arguing that savings be used as capital
That is something fundamentally different
The complaint by “the city” is that creating money, rather than borrowing, WILL, lead to inflation, which is not necessarily true.
However, “borrowing” doesn’t avoid the issue of potential inflation. Any money borrowed is savings. As you, Richard, pointed out, savings are not productive. So if government borrows money and spends it, that money starts to circulate in the economy. This runs the same inflation risk as had the money simply been created. The risk of inflation is spending, not where the money comes from. Consequently, just as much care is needed to avoid inflation if the government borrows as if it creates money.
Much of this thinking, by “the city”, seems to stem from a category error, thinking that money IS the economy. Money is the accounting, it’s not the substantive economy.
“this article really does very badly miss the point.”
No it doesn’t – it is a useful piece of propaganda for the imbeciles in LINO: tax n spend, corner shop accounting, “spare a penny for the gov’ guv” etc.
It is the FT sticking to the neo-libist party line – the only money is gov bonds or tax. I am certain that those who wrote it know it’s a lie & if they don’t then they are too stupid to have a job in the FT. The article fullfills the same purpose as the nonesense letter written by a bunch of economists & published in the G’ – performative/propaganda.
Isn’t the real FT intention here just to promote the finance sector and promulgate the myth of government dependency on the City ?
The key phrase seems to be “the market could be forgiving”, which implies that the private sector absolutely controls the BoE, and hence drives monetary policy.
It’s a different version of the notion of ‘manufactured consent’.
There’s also a recent Bill Mitchell piece which pushes back strongly against the assumption that a Labour government ought to allow itself to be driven by the City
https://billmitchell.org/blog/?p=61760
Aren’t there a few countries like Japan where the central bank just does its thing and calls the bluff of the private sector in setting interest rates and monetary policy ?
It understands its own autonomy.
Of course, the bond market also facilitates those low risk long term investments that the pensions sector needs, and these do represent the public interest too.
So that dependency concept actually works in reverse too.
At least they’re not still pushing the ‘we can’t afford it’ line.
You need to check your numbers..NS&I delivered £10.0 billion of Net Financing to the Government in 2022-23… that is derisory
Oh dear, another charlatan when it comes to numbers
The flows are limited by choice
And I referred to the balances
1. The government DOES need to borrow – to pretend that they can just print as much money as they like is just nonsense. The consequences of doing so should be obvious.
2. The government do NOT borrow from the general public to the tune of £200bn per annum, the real number is just £10bn p.a. Which makes your contention that the private sector can be used to fund the government total nonsense.
3. The third point is just a play on words and has zero meaning in the real world that you claim you like to live in – the fact is that the government needs to borrow in excess of £200bn p.a. and in order to do so, it needs the City.
4. Not a relevant point
5. The City will lend to the UK government, but only if the yield on offer reflects the risk being taken – in this case it’s primarily inflation risk, not default risk. To pretend that they will borrow at any level is just nonsense, given risk-free options available elsewhere.
Except the government dies ni5 need to borrow, as QE proved.
Thereafter every other claim yo7 made is wrong.
Why come here to make a fool of yourself?