I have published this video this morning. In it, I argue that many on the political right-wing obsess about interest paid on government debt as if it disappears into some black hole. It doesn't. It's just interest paid on savings deposited with the government and there's been nothing excessive about its overall cost of late.
The audio version of this video is here:
The transcript is:
Interest paid on government debt increases private wealth.
From all the comments that you hear on the media, from politicians and from everybody else, you would think that that statement of the glaringly obvious is not known to almost anyone. What I hear all the time about interest paid on the national debt is that this is a burden, and an unaffordable cost that is creating the crisis in government spending. Well, that's not true and I'll explain why in a minute, but let's just deal with this problem that people seem to have with interest being paid on what they like to call the national debt and which I call national savings.
Let's be clear what people do when they deposit money with the government in the form of savings, which is exactly what they do when they put money in National Savings and Investments, or they buy Premium Bonds, or they buy government bonds or gilts as they're called in the UK. Those are all savings mechanisms. And people put money into those various forms of savings mechanism because they want two things.
One is a safe place to deposit their money, and no one is safer than the government when it comes to depositing your money because the government is the one and only organisation in the UK that can always guarantee to repay you because it can create the cash to make the repayment.
Secondly, people deposit money with the government because they want a return for doing so, and that return is interest. There's nothing desperately novel about that idea, let's be clear. If you put money in the bank, you expect a guarantee from the government to ensure you get a repayment, much the same as you get directly from the government in the case of depositing it with them, and you expect to get paid interest.
The relationship is remarkably similar. So similar that it's obvious that the government is, in fact, running a savings scheme and not borrowing as such.
So, why do people get so upset about interest being paid by the government when it runs a savings scheme, when a bank which runs a savings scheme does not attract their opprobrium? I simply don't know why. There is no obvious answer to that.
So, let's move on from the fact that they can't explain why they're so upset about the government paying interest on the deposits that it takes and instead look at the total sums that it is paying. Because these attract as much attention and as much bile from these commentators as does the fact that interest is paid at all.
The claim is that the government is paying more than a hundred billion pounds a year in interest. It isn't. That's not true. The fact is that the government has been accruing an interest liability of around £100 billion a year for the last couple of years with regard to interest. But it has not been paying that sum. Why is that?
Well, that's because a significant part of that total cost, something like £40 billion of it a year, has actually been due on what are called index-linked bonds or ‘linkers' as the market calls them. Index-linked bonds are quite complicated instruments, which tend to be bought only by specialist funds, like pensions, and the purpose of them is to guarantee that a person gets a very low rate of interest on the bond that they save with the government, very often in real terms negative, i.e. they get less money back in terms of interest, compared to inflation, than they could by putting their money elsewhere. But, when they get to the end of the bond period, they get the sum that they deposited at the beginning of the period inflated by the rate of inflation over that period of time. In other words, the money that they save is inflation-proofed.
What the government has done over the last couple of years, when we've had significant inflation, is add into the potential interest liability that it has recorded in its accounts the cost of that increase in the price of redemption of those bonds even though many of those bonds may not be repaid for many years to come. In fact, on average, index-linked bonds have a life in excess of 15 years, meaning that much of this money that has been recorded over the last couple of years as being payable won't be due for up to 15 years, by which time we won't even notice the cost.
So, the true cost of interest is nothing like the amount that everyone talks about. The actual cost cash outflow cost of paying interest over the last couple of years has been maybe only 60 percent of the total sum recorded. So those making complaint are anyway talking a lot of nonsense about the burden that it creates and that it is putting a cash flow strain on the government which is preventing it spending on other things when that is not the case, and the government has up to 15 years to save up the £40 odd billion - make it £80 billion for two years - that it's got to pay because of the recent bout of inflation.
And that suddenly makes that excess burden seem really rather trifling in the overall scheme of things as far as the government is concerned.
So, when we're talking about interest costs, they haven't risen anything like as much as those who are complaining about them would like to pretend. They are, in fact, frankly, very low. Hardly out of control, because the government's cost of interest over the last couple of years has overall been lower than the rate of inflation, and therefore, in fact, the cost of its debt has been going down, even though the amount of payment to private wealth holders, who have received interest, will eventually be going up.
So, is that a problem for the government? No, not at all. If you are actually borrowing money, and overall net, are not paying for it because inflation exceeds the interest rate that you're having to pay to those who've deposited with you, your financial position is improving by borrowing instead of getting worse, which is what all these commentators are suggesting.
It kind of makes everything look rather confusing, doesn't it?
Everything is as usual when it comes to economic truths, just about the opposite of what people claim it to be.
The government hasn't had a disaster with regard to interest costs. The one thing that was a bit out of control, and I accept that it was, was this cost on index-linked bonds, which I don't believe in, by the way, but which won't be paid for another 15 years.
And with regard to ordinary interest costs, everything was pretty much okay, or in fact, improving the government's financial position.
Now that could change. The reason why it could change is that the Bank of England is now working very hard to ensure that we have positive real interest rates in the UK. In other words, interest rates that exceed the ongoing rate of inflation. And that is what is happening in financial markets at present. And that is, of course, having a consequence for government borrowing.
Overall, it looks likely that it will settle on a situation where the government will pay a positive one per cent real interest rate when markets return to what we might call normal.
What does a positive one per cent real interest rate mean? The rate of interest will be one per cent above the inflation rate. So, if the inflation rate is two per cent expect, eventually, interest rates to settle on government bonds at around three per cent or so. So, is a one per cent interest cost excessive, not least when you control the money supply? There's no great burden in that.
And when you look at the proportion of the real cost of interest to overall government spending, and you looked at it in the context of its balance sheet, which would be improving over the last few years, because inflation has curiously reduced the value of government debt more than interest costs have risen, then you would have to say, there is no problem at all with what has arisen with regard to interest payments.
So, please, let's have a calm debate on this issue. Interest rates should not be preventing our government doing anything. What interest rates are doing is allowing the government, as usual, to provide depositors who want a safe place to put their money with somewhere to put it, so that our banking system can operate properly, those in the pension funds and the life assurance sectors who need long-term deposits can have them, and overseas governments can save in UK sterling, which is of enormous benefit to our economy because it facilitates trade and our balance of payments.
So, let's stop making a fuss about something that isn't real. Interest rates in the UK are not an impediment to our government doing anything with regard to what should be its core objectives, like relieving poverty, investing for the future, dealing with climate change, improving the quality of housing, and so much else. There is no interest rate problem that our government has to deal with.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Pretty good explanation of quite a tricky topic…. particularly the wrong treatment of uplift on I/L bonds.
Interest, like all other government spending adds to private wealth…. my concern is that this should be taxed fairly (ie at the same rate as wages).
But I think there is already a video on that one.
So what you are saying is that, because the payment of interest on these bonds takes place at some point in the future, we can pretend that the cost doesn’t exist and ignore it?
For company accounting, companies have to accrue similar costs to ensure the accounts are not misleading, why should the government not do the same?
Why but accrue it over the period until payment is due?
And, the government does not accrue pension liabilities
Of course the government should be showing the accrued pensions liabilities too.
Around £5Tn+ for state pensions and a further £2Tn+ for public sector pensions.
This is money that has to be paid from somewhere in the future.
Would you recognise futures revenues at the same time? You would need to.
Mr Broom,
I am keen on accounting transparency from government; whatever it shows. That would include national consolidated accounts (a bit tricky, because Government doesn’t seem to be keen on double-entry), including the National Debt (oops!). If we are going to have the publication of the currently hidden (yes, please); could we have the GERS accounts for England, Wales and NI, and the consolidation (that should be a hoot), instead of just (gratuitously) Scotland?
People struggle with this and perhaps the easiest way to understand it is to imagine you are an investor…. ie. The mirror image of the government. What, as an investor, do you care about?
I would suggest the change in market value of your portfolio and the income it has delivered over the period.
Change in market value is a result of yield moves and inflation uplift on IL gilts. Income is just the cash coupons paid. Simple.
Of course, for government, we need to know this … and add in net issuance of new gilts (roughly the budget deficit).
No need to tie ourselves in knots about accruals etc.. Market Value does all that for you.
Thanks
Mr Brooks,
Think amortization rather than accrual.
If the Government owns the bank of England, how can it impose interest on itself? That sounds like a choice to me. A bad one.
We see a lot of this in local government where the council cannot impose what it imposes on external users on its self.
It is to me – once again – simply a denial of sovereignty.
It can’t on consolidation
But I am not discussing that
I am discussing deposits from third parties
Ah!
My apologies – thank you for the clarification and the patience.
The existence of index-linked bonds is, in one sense, paradoxical. It defeats one important Government advantage of a national debt (savings). Given that the advantage to Government is a function of the very long-term advantage the time value of money plays in postponing the redemption until its financial significance has been eroded. The advantage is cancelled by indexing. There are no longer perpetuals, but that is replaced by rolling over debt continually. Indexing is a significant cost to government. I thought that was the job of the private enterprise pension industry? They claim they are smart people. They are supposed to do better than investing in Gilts. Is the only way they can do that by a) investing in special index-linked government bonds; and b) investing in LDIs? Is that it? It doesn’t look very smart to me for all the fees they earn.
Presumably the Government supplies this lavish support to the Pension Industry, because its lavishly overpaid management (since the end of mutuals) is constitutionally incapable of producing a viable return to pensioners, without special subsidy by Government.
I will be interested to hear what is wrong with this assessment.
Index linked bonds should never have happened
It was not the job of the state to guarantee the value of money over time to pension funds
As you say, if they could not have taken risk to deliver that then they should gave been open and honest about that fact
“Index linked bonds should never have happened”.
I confess that it has always seemed to me inexplicable, from the perspective of wise Government and the interests of the British people.
The official calculation of cash flows on index-linked gilts is here: https://www.dmo.gov.uk/media/0ltegugd/igcalc.pdf
This is cashflows, not accrual accounting. I know we have had long Blogs and threads here debating this issue before, but I remain unclear about some of the implications; especially over the accrual (or not) of redemption indexing.
It seems to me that redemption index adjustments, mutatis mutandis should be expensed off the life of the bond if it is accounted for at all (and I am extremely sceptical); but whatever the opinion of that matter, it seems to me any redemption adjustment accrued would require to be discounted to provide a present value. To ignore the time value is wrong, but the problem with that over even a few years becomes very, very unstable an I would suggest untenable.
Furthermore, we may not think DCF methodology applicable to interest payments; but take the last two years, with inflation running at 11%, with six month coupon payments, and a three month lag. That is I speculate, is potentially material. Not to discount, however would be quite wrong (especially given the quantum). I have not been able to find any DMO papers on discounted cash flows.
I won’t be looking this weekend John
I have promised to be a low key blogger for the weekend
Maybe someone else here can find the DMO DCF calculation rules, among the remarkable contributors of this Blog. I confess my trawl was very hasty.
Not sure I agree.
As you state, National Debt is savings for the private sector. Having inflation linked saving is important and valuable to pension funds…. so I think it’s entirely reasonable to issue IL Gilts- at a Price,.
Don’t forget that taxes are IL,too.
In short, a mixture is appropriate.
We’ll have to disagree
Few countries used them as we did. There may be a reason for that.
“Having inflation linked saving is important and valuable to pension funds”.
Of course it is; but then you don’t need an expensive private sector pension industry to operate it. Set it all up as a NS&I pension facility, and charge a fee.
Worse, index-linking that which is National Debt, defeats the advantage of the National Debt, from the government’s perspective. It is self-defeating. It robs Government of the possibility of major investment to transform lives by using deferral and the time value of money to national interest advantage. You are dissipating it. If you believe in private enterprise, it is for the individual to better what government can do, not feed of the Government carcass, and pretend that is personal self-sufficiency.
A great deal to deal with
A government inflation-proofed pension scheme? That would sell
Most large countries issue inflation linked debt. US, France, Italy, Canada and more.
The benefit is that it allows savers to protect themselves against inflation and there are very few places that can offer that protection. Government can and should.
Of course, IL gilts carry far lower coupons than regular gilts and over the last 40 years cut the cost of borrowing for the UK. Now, the last 3 years have cost the government more…. but this is very rare. Typically, break even inflation rates on IL gilts are substantially above the inflation target (and outcome) meaning government saves money.
I don’t understand your objections.
In two words, contingent risk.
Link that to poor compression and accounting (both obviously evident) and we get the outcome of the last couple of years. Austerity is not a price worth paying for ILBs
Bit harsh to blame austerity on IL gilts….. they are at most a small impact.
Offering a safe place to save, safe from bank credit risk, safe from inflation is important.
Better understanding is the key rather than scrapping them. Also, I still like the idea of the government offering forward starting inflation protected annuities…. which carry all the ‘economics’ of IL gilts.
£40bn of falsely represented cost pa had a massive indict on austerity, imo
“Typically, break even inflation rates on IL gilts are substantially above the inflation target (and outcome) meaning government saves money”.
That is so so condensed it is verging on the obtuse. I think you need to parse that gem.
Sorry, John, that was a bit too concise.
Suppose a 30 year IL gilt is issued with a 1% coupon and, at the same time, a conventional gilt is issued with a 4% coupon. Which is cheapest for the government? Well, it depends on the path of inflation over the next 30 years. If inflation is below 3% then the the IL gilt will pay out less.
I’m sailing from Norway back to Scotland so can’t pull down detailed data… but I am sure that it has, over the last 40 years been cheaper for government. Why? Because inflation protection is so valuable for savers they will pay up for it. Since tax revenue is inflation linked it carries little risk for government.
I do accept that the general misunderstanding of IL gilts is being used as an excuse for austerity….. but the solution is to educate.
But what if politicians want an excuse for austerity, not adulation?
Well, with an IL 1% coupon, against a 4% coupon, and inflation below 3% your conclusion may be true (but are you assuming inflation below 3% for 30 years?), or it may not; but:
1) I would need to see the figures
2) It looks a little contrived
3) inflation is not a realistically predictable or forecastable variable over 30 years into the future – it really isn’t
4) Inflation is more likely to range over perhaps 1%-12% or more, up and down on a random walk depending on more variables, and unpredicted events than I have room to discuss
5) Try a 1% coupon, against a 4% coupon and inflation at 12% for 1.5 years, and consistently oscillating around 3-3.5%.
6) In short I could pick alternative scenarios, equally viable that probably produce the opposite result
7) Even if a detailed spreadsheet analysis proved it had worked, I suspect it would be a function of peculiarities of the post-crash decade that may never be repeated
8) What I would require are three critical factors:
8a) Statistical analysis of the complex range of combinations that identify the turning points between the advantages of the IL v. conventional gilts
8b) Comparison with actual inflation trends over the last 100 years
8c) Figure out how to judge the next 30 years inflation (Bayesian probabilities? Or finger in the air?)
All the reasons you state about future inflation being unknowable are the reasons IL gilts are in such demand from people who can’t take that risk. Consequently, they are very expensive to buy (ie. Cheap for government to issue).
They have been around for 40+ years during periods of high and low inflation and proved valuable for citizens and not onerous to government (because tax revenues rise with inflation).
From a practical perspective, you can’t go back… they exist. Austerians will use whatever stick is to hand to beat us so rebuttal is the only answer. Also, to stop issuance now would send a strong signal that government doesn’t care about inflation control and this would raise the yield on conventional gilts.
And finally, with inflation falling the erroneous analysis that hurt last year will now help and perhaps give wiggle room to Rachel Reeves.
I have never doubted that people want them, and will pay a high price. That is not the point. Perhaps they have been overpaying. If you are right, cut out the middle-man; offer them IL Gilts direct to the public through NS&I, as a pension savings vehicle. That eliminates much of the lavishly over-rewarded pensions industry (which requires responsible actuaries not overpaid salesmen, marketing executives and even risk takers); and reduces the cost to the public.
I do not deny that they have been around for a long time, and the finance sector may well use them as a canary in the coal mine, that still doesn’t supply the proof for your case. Your argument oscillates around arguing it is good for buyers, and good for Government. This is not a competitive market. Only Government can offer this. I suspect one of that binary choice is losing out. From a government perspective its power rests on its capacity to use the time value of money over time periods nobody else can achieve. This attempts to transfer that power to the individual. But you can’t, without destroying the most fundamental principle of government power; it is the thin edge of the wedge. There is a lot more at stake here than you are allowing.
My 8 points stand, because precisely for whom they are onerous remains unproved (and it can never be one snapshot over a short selected period, just because that is convenient); and I suspect that changes depending on the unpredictable pattern of actual inflation over decades, and the unintended consequences of pricing decisions will provide a very complex and fluctuating set of contradictory answers, dependent only on the time period selected. There is much more at stake here.
These are liabilities for which there are no assets, so should really be considered part of the government debt, making it debt to GDP ratio even more concerning.
But there is a decided asset which you are ignoring. It is the right to tax. You really do need to get things right.
What ratio do you find concerning? What is the cut-off point for concern? And what exactly are your specific reasons for concern?
Please do not follow the Reinhart-Rogoff red-herring; that has been thoroughly exploded. long ago. The literature is there to read.
“I argue that many on the political right-wing obsess about interest paid on government debt as if it disappears into some black hole. It doesn’t. It’s just interest paid on savings deposited with the government and there’s been nothing excessive about its overall cost of late.”
That’s because real interest rates have been around and about negative for 15 years. And now they’re moving positive which changes that cost calculation…..
So the government has a duty to cut interest rates.
But as you note, I referred to real interest rates. What is your concern about a 1% real interest rate? Please explain, precisely.
I try to follow your posts carefully, and now I am confused. You have inveighed, quite recently, against paying high interest on bank moneys deposited with the BoE. This seemed to make sense, and I agreed with the idea that this high rate of interest shouldn’t be paid. And now I agree with this morning’s post, which says that interest paid to those owning bonds,etc is OK. Is the difference in approach because 1 lot is paid to banks and the other to non-bank investors? Please help.
Central bank money is not deposited with the BoE. It is created by the BoE and effectively gifted to the commercial banks that use it, so interest is not due.
I am now discussing money in the real economy deposited with the government, which is something quite different and akin to commercial bank deposit taking , albeit without risk.
So, these are quite different
And I agree, none of this is easy. .
Thank you. Now I get it.
So the argument goes that the government must ensure that savings (treasury bonds issued) are in place before it can spend otherwise it will cause inflation.
So why isn’t there the pressure to ensure that additional savings are in place to cover the amount of money the licenced banks propose to lend out to avoid the same?
Two obvious reasons stand out.
Firstly, government spending is not really seen as investment even though, for example, it can clearly be seen people will die or become sick without it.
Secondly, beyond a certain point too much saving (like too much debt) will be deflationary and can be seen as the Paradox of Thrift and Debt.
It would appear to be beyond the wits of Britain’s politicians to see that the country’s use of money is essentially one of both private and public sectors pumping money both in and out whilst constantly monitoring the effects for money value stability purposes. It’s not about pretending one form of money creation is evil and the other benign!
I disagree your first premise. The money creation has always to come first
You cannot successfully argue from a false premise
This is one of those [many] posts that makes me really glad I found your blog. Eye opening information. Keep it coming.
Richard wrote:
“………the government has up to 15 years to save up the £40 odd billion – make it £80 billion for two years – that it’s got to pay because of the recent bout of inflation.”
In earlier posts, the way in which the government spends was explained. The government, being the currency issuer just spends as and when necessary. It orders the BoE to spend the money by transferring the appropriate sum to the bond holders Bank, so that person receives the amount he is due.
ie. there isn’t any account at the Treasury where money is saved for any purpose.
So the above sentence leaves me confused….. sorry.
Also: The need is to cover the government deficit with bonds of an equivalent amount – the “full funding” rule.
This rule seems superfluous with a fully floating currency and how that system actually works. As I see it, QE is that rule being broken (as I see no point in the opposite process, QT). If the bank holds bought the bonds itself at the start it overcomes the need for large interest payments.
Where am I going wrong/misunderstanding?
I was talking perky about creating the double entry to record the liability over time. I was never talking about money. Sorry.
What future revenues?
These are liabilities, maybe you could offset for tax due on the pensions, but that wouldn’t apply to the state pension. However, in all your other work on pensions you ignore the tax payable on future pensions, so that offsetting approach wouldn’t be consistent.
Pensions are paid out of tax revenues at the time they are due. That is the deal. So no accrual is required, but if it were the anticipated tax take would also have to be recorded. It’s called the matching principle and that’s how it works in this case.
Whenever you talk about the ‘cost’ of tax relief on pensions, you always look at the gross number in any year and refused to acknowledge (or offset) the tax that is being paid when those pensions are received.
You use this ‘large’ number to justify cutting the relief, but it creates a very misleading picture (deliberately).
Now, you are suddenly keen to take account for these taxes in order to try and present a picture that shows a lower value of liabilities.
It is deliberately disengenuous – consistency of approach is essential.
I am entirely consistent
The tax paid is on past contributions
They cannot be matched with current contributions that are wholly unrelated
And current reliefs are vastly bigger than future tax to be paid in almost every case
I think your time up here is over. You really have no clue what you are talking about
That’s just a ponzi scheme, which never ends well.
But the other point is that, in your tax proposals, you highlight the cost of pension tax relief and argue that this is inappropriate and should be reduced.
But you don’t take account of the tax that is paid on pensions when they are in payment.
Where’s the matching principle in that case?
You know you gave changed your name, don’t you?
Can’t you even recall that you were James with the same email address not long ago?
You really are a charlatan
Says a man who cannot even match his own name…….
“And current reliefs are vastly bigger than future tax to be paid in almost every case”
So you previously claimed that this tax relief is being given to the wealthiest in society, but no you’re saying that these ‘wealthiest; in society won’t be paying income tax in retirement?!
That’s totally inconsistent.
Even if they are only paying basic rate tax when the pensions are being paid and were credit with higher relief when the contributions are made, that still halves the cost of the relief.
It’s a fundamental flaw in your ‘analysis’ that you need to accept.
You trolls really are dim.
This might come as a real shock to you, but most people have significantly lower income in retirement than they do at work. So the marginal tax rate is usually much lower then when tax relief is given. So of course not all relief is recovered.
There is also no NIC on pensions but there is NIC relief on many pension contributions. That cannot be ignored.
And then then there is corporation tax relief and relief within the fund itself.
So might you stop being stupid? Of course my claim is wholly justified.
Even if 50% of the tax was recovered (which is a more reasonable assumption than zero) it would make a massive difference to your figures.
But then you wouldn’t be able to lie about the costs and mislead the less well informed. Which is something that you rely on to try and remain relevant.
Politely, it would make no difference at all.
You can, equate past cost with current receipts.
And the wealthy would save anyway and they do most of pension saving. That creates the massive opportunity cost of this. Your logic is totally flawed.
Long before MMT Thatcher practised corner shop economics. A debt has to be payed off. ….Currently, pensioners and others are cheated because of frozen tax allowances and many other such as inheritence tax. Pure theft so as to pay off the debt..Yes it’s compensated by real inflation beating inceases currently but overall the state pension -nearlythe lowest in the civilised world- has been losing long term value.
Richard
Thank you for this post on debt interest. Please see my recent request that you address this important subject.
I wonder whether you might have misread my comment.
Martin
I genuinely don’t recall your comment. Sorry – remind me, please.
He isn’t comparing past costs with current receipts, he’s pointing out, as you have done, the focussing on the cost of the initial relief given is only half the story and you should acknowledge that at least half of this will be returned.
And once again you are focussing on the ‘wealthy’ who are the ones would be paying higher rate tax on the way out, thereby returning 100% of the relief given, not 50%. So there is no ‘opportunity cost’.
So there’s no justification for not acknowledging this unless you are trying to mislead. Which you now seem to have confirmed.
First much left than fair will return. Despite it being pointed out you ignore all other taxes.
Second you ignore the time value of money.
Third, I don’t argue against basic rate relief.
You have no argument left.
Richard this is the other part of my 28.5/30 on your positions. One is your position on Land Taxes, and the half is in this realm. …There is precedent that basically proves your position – In Canada and the United States the GDP doubled from 1939 to 45 using the same policies you prescribe including the money policies – with the exception of paying interest on reserves. However your exchange with Linda Evans ending with your conclusion that “none of this easy” is the problem. Politicians will not follow your prescription unless there is a crisis. They see a huge debt service burden and they practise the household fallacy. They ignore the fact that Japan has twice the debt burden.
I think the better solution is the Lincoln Greenback – constitutionally only the government should create money, and governments can use that power to provide interest free money which also increases the private wealth.
Post the civil war a party was based on it, and they won federal seats and 10% of the vote – that is ordinary people found that narrative much easier.
The Bradbury was as close as UK got to a greenback
https://www.mintageworld.com/blog/the-story-behind-bradbury-treasury-notes/
Both Friedman and Keynes wanted interest free money.
How would we do without a banking sector?
Or credit?
Richard Lincoln’s greenbacks were used only for funding government shortfalls to fight the Civil War. I propose we emulate that model of interest-free funding which would also make the private sector richer. Taxpayers would not have to pay interest on those funds and more taxes would be available to provide essential goods and services government needs to provide so that everyone has an equal opportunity to fulfill their potential.
There would be no need to change the private banking model for the private sector.
Sorry Joe, but there is a lot of that (including the idea that tax funds spending seemingly implicit in it) that I am not sure I can agree with. And I am not sure how this would not change banking.
Richard I would compare it to national bank notes being developed in many countries long ago. Adding that element left banking still issuing credit. That did not change when Lincoln issued greenbacks for interest free financing for government. The result was the kind of economic mobilization you advocate. The same would hold true if government issued digital notes.
It is a very simple easy narrative that would make possible your economic policies.
It is a narrative politicians can follow, and it has precedents. It is not theoretical.
I will muse on it