In this morning's short video, I argue that the City of London, the Financial Times and the Establishment all pretend that the government of this country is dependent upon the City of London to provide it with the money it needs. But that's total nonsense, because the government created that money in the first place.
You can view the video here.
The transcript is:
We don't need the City of London, by which I mean the government doesn't need the City of London to fund its activities.
Why? Because the government creates all our money.
Literally, you try making it and see where you end up. I suspect it will be on the inside of a prison wall.
So, in that case, why does it need to borrow money from the City of London when it can create its own?
It doesn't. The quantitative easing programmes proved that. £900 billion of money was created by the government to fund its own spending.
So, the government need never be in hock to the city.
It need never pretend it has to listen to them, or have policy dictated by them. Let's not pretend otherwise.
The government does the City a favour by letting it save with the government.
There's no favour the other way round.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Almost 100 years ago Churchill put the pound back on the gold standard at 1914 prices. This was against the advice of industry as it would make exports relatively more expensive. Coal exports fell and a General strike followed. Yet only six years later the gold standard was abandoned.
There was an alternative model, that of John Maynard Keynes. He was adopted some years later.
Post war the City insisted on not devaluing the pound and to attract foreign deposits and keep foreign deposits here we had periodic rises in the interest rate with an adverse effect on investment until we were forced into doing so four years before the fixed exchange rates of Bretton Woods were abandoned.
I don’t know how far they backed the ERM fiasco of the early.
As with Alan Greenspan, the Bank of England seemed quite unaware of the looming 2008 crisis.
Since then the City seems to have backed austerity and the hike in interest rates in the last few years even though they had minimal effect on imported inflation.
It is not as though we don’t have different models to choose from.
How long before it is realised the Emperor has no clothes?
“How long before it is realised the Emperor has no clothes?”
A very long time I’d argue. The starting premise for anybody with the ability to think for themselves is – a Scam World = a Harm World
Major ideological scams are currently being foisted on us. The most obvious one is that there is no Fiat Money Reality. This scam is all about pretending money cannot be created from nothing (Accompanying the pretence no effort is made to explain its creation and how it needs to be regulated). The second major accompanying scam is that free market capitalism causes no harm and it’s the only human endeavour of value in its usefulness.
In a Scamland like the UK the ideological scams are run by all its political parties, all the mainstream media, the financial sector and the vast majority of all the supposedly independent research organisations.
(Note I include the Green Party because it nonsensically tries to pretend that the amount of money created by both government and licenced banks can be decided by a so called “independent” and “wise” committee!)
Agree 100%. The question is – how to kill the scam?
And I guess I do my mortgage company a favour by letting them lend me money?
You’re deluded!
Politely, of course you do. How else can they make a profit? What a very weird comment from a typical troll perspective.
As far as I know, a bank needs nothing to create a mortgage loan, it has a licence to create (print) the money it lends to people. The repayments are deleted as the money is repaid.
But the bank is also due interest payments on the original loan, which the bank has not created, and is the responsibility of the debtor to find. Money is filtered from the less well-off to the bank. The bank has produced nothing.
At any point while the mortgage is being repaid, the bank can chose to increase the interest rates and repayments to it. The debtor has no choice. The bank has no obligation to increase interest rates, even if the Bank of England increases the base interest rates.
This all seems like a win win for the bank, and the passive income something we would all like a share of.
Thanks
Precisely Ian – the closest thing a financial perpetual motion machine. Pure rentier capitalism. No wonder they don’t want us to understand it.
Ok. So what happens when the government just starts printing all the money it needs to fund it’s massive spending and large budget deficits?
Did I say they’d do that?
You did, though. You assumed the City must fund deficits. I didn’t even mention deficits.
All I said they don’t need to borrow fr9m the City because there are alternatives.
Stop trolling, I suggest.
Well the deficit is over £100bn a year and you mentioned QE. So how else are you suggesting this deficit is financed?
You seem to be saying that the government can just keep extending QE, which would be seen as monetising the debt.
So I think it’s a very reasonable question to ask – what do you think would happen if that were the case?
1) we could tax note. I gave shown how. I it us you assuming a deficit.
2) I have demonstrated how £100 billion a year could be saved by changing ISA and pension rules.
3) The US and Japanese hear perpetual QE. It works.
Now, try a counter argument or give up. If you don’t succeed I will delete your comment for tone wasting.
1. I’m not assuming a deficit. We have a fairly large one so it needs to be funded somehow.
We could also as you say tax more but there is a limit to that. To clear the deficit total tax receipts (which are just over £800bn) would need to rise by about 10%. Which isn’t realistic.
I’ve also had a brief look at what you wrote and I don’t think your numbers stack up. It looks like you have just taken the existing take take and added the increased tax rate without any sort of further analysis. Tax substitution is an important thing. It is hard to tell what you have done though because your numerical analysis is very thin – you tend to just make an assertion that a certain amount would be raised without analysis.
2. No, you’ve claimed that without evidence. You haven’t shown it through any kind of analysis. Nor have you done any work on the negative effects on savings, investment and growth your policies would have.
3. The US has done significantly less QE than the UK in proportion to GDP and is reversing what they have done. Even then it has not come without cost.
Japan has done a lot of QE but that has come with dramatic costs. Fiscal dominance has left Japan and the BOJ in a truly terrible situation.
At the end of the day you seem to either advocate massive tax rises which are politically hard to do as well as potentially being very bad for growth, or some form of money printing.
If it is the latter, which given you mentioned more QE in your post, what effect do you think that would have on the economy, rates and the pound? And do you think markets would not react to it?
Politely I wrtote 126,000 and you say you have given it a cursory glance
Please don’t waste my time with wholly false accusations.
“Geoff says:
June 26 2024 at 8:36 am
Ok. So what happens when the government just starts printing all the money it needs to fund it’s massive spending and large budget deficits?”
Well Geoff, as an example, the Govt. created (printed?) £70 billion for the Corona Virus Job retention scheme.
What happened?
People who would have been made redundant, were not.
Companies who could not trade for that period, did not close.
Inflation did not rise.
So there you go, if the Government creates money to fund it’s spending (provided it is done wisely), nothing but good comes of it.
Regards
In the UK it’s the Bank of England that created that money.
In the two years following core inflation rose to just over 7%.
It’s consequence of double entry really – you do something in one part of the economy, then it will have an effect on something else.
@ William McGonagall
Government owns the bank of England.
Inflation later on was due to rising energy prices and BoE interest rate rises.
Regards
Energy prices are not included in core inflation.
Err.. no……utter rubbish.. …. data accuracy malfunction
The Bank of Japan is in a great situation. It is stable.
It has a fiat currency so runs the show, and has not kowtowed to the finance sector.
They haven’t been blackmailed into paying interest on reserves.
As for the Japanese people….
Japan CPI May 2024 2.2%
Japan short term interest rates 0.1%
Median Mortgage rates 3.54%
Unemployment 2.6%
GDP 2024 growth (IMF est.) 0.9% (UK 0.5%)
🙂
Richard, you seem to have hit a nerve – two trolls – who don’t want to see the reality before them.
“Geoff” failing (flailing?) to understand that “massive spending” will lead to much of it coming straight back as… taxes. Oh dear, you must have the patience of Job.
I agree that the government create money through the Bank of England.
Elsewhere, however, other commentators, yourself included if I recall correctly, also say that most money in circulation is created by commercial banks through extending loans.
Whilst I can quite understand what is being said in both contexts, there seems to be an inconsistency, which is confusing.
My perspective is that commercial banks create “temporary” money. Bank loans are for a limited period at the end of which they are repaid with interest, thereby transferring wealth from those without money to those who have money to spare.
So, as far as I can see commercial bank created money is temporary and not the same thing as government created money, which is permanent (optionally destroyed by taxation). It is through the creation of government money that there are now trillions in various denominations of money, whereas, for example, in the middle ages there was much less money.
Anyway, whether you consider my views correct or not, it would be useful to disambiguate government and commercial bank created money.
You are describing the difference between base money and commercially created money.
See the glossary
We need and use both but they are not the same thing
Well, yes.
Base money is mainly central bank reserves, which cannot directly be spent. But it represents consummer bank deposits, which can be spent.
There wouldn’t be much point in government creating base money if it couldn’t be spent. To create money they simply direct the BoE to credit someone/ some entity’s account. And money flows into the economy.
Both government and commercial bank money creation feed into the real economy. To a bear of little brain this looks very similar.
So, I’m still uncertain whether commercial banks create most of the money, or whether the government does. I guess it varies over time and on the political completion of the government/BoE. I suppose the question is where should money be created. For democratic accountability it would seem it should be the government, not banks.
Not in a million years do CBRAs represent consumer bank deposits.
They are used to transfer such deposits, bit do not represent them. Consumer bank deposits are bank created money.
Please read https://www.taxresearch.org.uk/Blog/2022/06/17/how-are-the-central-bank-reserve-accounts-created/
And the glossary on these issues
1. You’re tax proposals increase the already significant inequality between public and private sector workers
2. Your proposals assume that people’s behaviour don’t change, but clearly it will, thus the realisable amount is much less than £100bn
3. The required shortfalls is more than £200bn, so you still haven’t been able to explain how this gap is closed without the majority being funded by the City
4. Why are you always so abusive?
Trevor, ;et me ask you a different question.
Why is this at least the tenth identity that you have used here?
Yesterday and today you were also Richard Prowse, but you have been many others and are decidedly gender fluid.
Why should I tolerate your behaviour?
Geoff it’s clear to me you are the victim of an ideological scam!
What you call a “debt” is simply the UK government creating money and putting it into circulation. This is what the licenced banks do but you don’t fret about them creating this so called “debt” do you? Why not?
Are you stupid enough to believe, for example, our society should operate on a fixed amount of money that should never change despite an increase in population and new goods and services being developed?
Are you indeed stupid enough to believe that government can never deliver any goods or services of value to society and therefore shouldn’t create its own money to do so like the licenced banks do for what is called the “consumer market”?
Do you even recognise that a consequence of government and licenced banks creating money is an automatic need to regulate it to ensure neither inflation or deflation becomes a problem?
Do you recognise this has to be the job of government to do the regulating whilst also ensuring high levels of productivity which offsets inflationary pressures?
You need to supply some answers. If you can’t provided any coherent answers then it’s very clear you’ve been ideologically scammed!
In relation to this post I stumbled across this item which shows a decline in the use of the word “fiat”:-
https://books.google.com/ngrams/graph?year_start=1800&year_end=2019&corpus=26&smoothing=7&case_insensitive=on&content=fiat
An essential understanding of this Latin word is “let it be made”!
An essential ideological scam for the greedy rich is to continuously denigrate and undermine the power of government to defend the majority against their predations.
I was actually a student of Finance in the seventies when the debate was taking place on the nationalisation of the banks, and the role of financial services.
At the time the size of financial services was about the same as Tourism as part of GDP . I argued that a low interest rate policy and a low currency rate would boost industrial exporters and Tourism ; and that technology would erode the advantage of the location of financial services in London over time. There was no intellectual property involved in credit creation.
Funny thing is that Financial services and Tourism still represent the same contributions to GDP approximately. But the UK has deindustrialised and professional services prosper on feeding on selling off the uk to the highest bidders and privatising evermore of the public sector assets and contracts .
We do not have much to show for forty years plus of Thatcherism .
I cannot understand Rachel Reeves enthusiasm for Thatchers ideas.
“Thatchers ideas” erm… they weren’t – they were Hayek’s. Thatcher swallowed Hayek’s “Road to Smurfdom” hook-line & sinker – uncritically to boot. & thus it came to pass: small state & sell off everything movable or otherwise …. and the slo-mo disaster that is now the UK.
Moving to Reeves, like Thatcher she does not have an original thought in her noggin & goes with the flow – the same flow that has got the Uk to the current pass.
If it was less pathetic it wouldn’t be funny….as is, I have reached the point where I just laugh at the utter imbecility on public display. There was a guy in the 1990s that used to wander up & down Rue Joseph II in Bx with a polybag on his head asking for “change” (I’m not making this up) – he was less mad than the current crew.
The initial monetarist experiment was guided by Chicago Chief Milton Friedman’s muddled doctrine, though the Hayekian ethos underpinned that failure.
Wasn’t 3m unemployed a price worth paying ?
Yes, Thatcherism was a mishmash of Austrian and Chicago school thinking.
Reeves is almost more worrying.
She is utterly in thrall to the City and Bailey’s bumblers.
She learned absolutely nothing about fiat currency management from her 9yrs in the BoE specialising in Japan, then going through a very tough stagnant period which the BoJ managed very well, which points to utter mediocrity.
She is still parroting her 2013 speech about the pursuit of growth, which suggests a lack of adaptability and clear thinking, let alone problem solving.
I suspect she will be one of the worst Chancellors since Anthony Barber.
Once upon a time, the UK was half the population than it is now.
The National Debt was half of what it is now.
Inflation was about the same.
Clearly the government must have doubled the money supply, and it can do so without increasing inflation, if you know how to spend it wisely to make the economy run efficiently for everyone.
We don’t need the City of London, BUT our govts seem determined to maintain a synthetic dependency via self-imposed rules which have become political sacred cows. Specifically, the full funding rule (govt must match its deficit with bond issuance) and central bank “independence” (govt will not instruct the central bank to buy its bonds).
Money is a creature of law and government. While these rules pertain, we are effectively – if unnecessarily – somewhat beholden to the whims of the bond market.
Much to agree with
“Money is a creature of law and government”. I like that, although I would propose a slight amendment.
Money is the defining characteristic of sovereignty.
Agreed