Governments don’t borrow from financial markets

[@andielines]

THANK YOU, finally an answer to my question! Now all I have to do is digest it.

[@issigonis975]

A good explanation. There was a leader who saw the economy like balancing a budget as if they were running their Dad's corner shop and look where that person got us in the 80's. Austerity crushes spending which crushes industry, infrastructure and business which reduces taxes which feeds more austerity. Those who like the idea of not putting money into an economy need to come up with a way to grow and increase tax revenue but they don't their economic ability stops right there and we end up with the 80's. Selling borrowing at election time to the public who see it as they see money is an uphill task after all i still hear the daft phase magic money tree used. If ever there was an empty void of a phrase there you have it.

[@Aircooledflat4bug]

Brilliant video Richard that explains in simple language exactly how the financial system works and not the main stream media nonsense we are brain washed with every single day.

[@gavinlucas22]

This is utterly daft nonsense. Government bonds are bought only because the buyers (eg the city and intl investors) have confidence that the bond will hold its value and that they will be repaid in a currency worth a similar value to the one they invested. If they lose that confidence, they dump the bonds, yields increase, and even more money has to be printed to pay it, creating a downward spiral. They might also dump the currency if they are holding it for trade. MMT leads to Zimbabwean Dollars and Venezuelan Bolivars. The government must always maintain the confidence of the markets because money is not wealth; it is merely a token to trade wealth with. Printing money cannot create prosperity any more than printing diplomas can teach economics!

[@thedukeofbreakfast]

Thank you. After watching this video, I did think to myself, "Am I going to have to comment to explain why this analysis is abject charlatanry? Am I going to have to point out that printing money is not analogous to creating value; that there are enormously compelling social reasons why institutional investors like pension funds need to expect a return of like value on the deposits they invest with the government, and that millions of people's income and financial security rely on that promise being upheld; and that any video which claims to explain this topic without even once mentioning inflation should set alarm bells ringing at max volume?" But I didn't have to, because you'd already said it much better & more concisely. Sadly I think you might get a bit of negative attention from motivated dogmatists who want to believe that currency inflation is the path to riches for all, and that because money and debt are fictions then the useful promises that underpin them are also fictitious and can just as easily be rewritten. But their shouting won't change the fact that you spoke out against a snake oil salesman, which is always the right thing to do.

[@gavinlucas22]

@@thedukeofbreakfast I actually am centre left, so by no means am I defending Thatcherism, but this video is crazy even to me. I have zero issue with UK gov buying a stake in BP, or even creating a wealth fund ala Norway. There is a middle way. But these crackpot ideas about printing to oblivion are nuts. Nothing wrong with printing to invest where there's likely to be a return, eg in more efficient infrastructure, but money for moneys' sake has no value.

[@thedukeofbreakfast]

@gavinlucas22 100%. We are coming at this from the same position. Partly that's why this stuff is so frustrating - because we could achieve a progressive agenda, with far greater public investment and a more equitable redistribution of wealth, without resorting to wacky theories. It's just unnecessary, and it detracts credibility from the whole platform.

[@zedlock1]

Glad I found this comment thread

[@terrygibson7143]

Probably your best one yet, Richard!

[@ChrisLivingInYork]

I can’t thank you enough for making these videos so we can all learn without doing an economics degree😊

[@subliminal_donkey]

Accounting

[@ChrisLivingInYork]

@@subliminal_donkey your correct

[@joebhed1]

News Flash. Either way you will have a lifetime of "un-learning" what you've been taught to get to the truth. Please do not take Richard's overt confidence to equal knowledge of things money. Public Debt is a legal obligation on the part of the BORROWER for repayment of Principal and Interest, in the Coin of the realm to the LENDER. All of it. And those payments MUST BE MADE per the Amort. SCHEDULE. How is Public Debt anything else than that ?

[@charliemoore2551]

Be assured that you would learn nothing useful on a modern economics course in most UK or US universities. Most of them are just regurgitations of neoliberal dogma.

[@arazchelsea7]

If you did an economics degree you wouldn't have been taught any of this

[@piccalillipit9211]

*LITERALLY HAD THIS CONVERSATION* with my sister yesterday.

[@ice010]

keep spreading the word

[@hugolindum7728]

Did you mention inflation?

[@koltoncrane3099]

Some people claim well we need government debt for retirees to save their money in. That’s BS. We have something better. It’s called a MINT. Retirees or social security literally could buy and own actual gold or silver money coins. If you own the gold you own it and the government doesn’t have to pay you. But with social security buying tons of government bonds you gotta think that helped drive down rates to some extent and the government has to pay those bonds back. If it’s a matter of saving why isn’t the government having people save in MONEY FROM THEIR MINTS?

[@AndrewWainwrightPA]

Ooh. Now would be a REALLY good time to discuss Liz Truss! 💚💚💚

[@philipoakley5498]

reading the blurb gives sufficient understanding to give it a like! 'government alone can always guarantee to repay funds saved with it. ...that’s not borrowing. That’s the government offering savings facilities as a favour to the City.'!

[@josdesouza]

I wish this video of yours were translated into Portuguese and broadcast 24/7 on all media outlets of my country, Brazil.

[@davidcann8788]

This series is a refreshingly honest explanation of macroeconomic truths!

[@rocketpig1914]

Incomplete truths. Funding government expenditure in through printing money will simply lead to inflation, as more pounds are chasing the same goods and services. And inflation leads to the rich getting richer (as their non-cash assets go up in value) and the poor getting poorer (whose wage increases always lag inflation). If it spirals out of control it can lead to the impoverishment seen in Russia in the 90's, Zimbabwe, Venezuela, Argentina, Weimar Germany and more. Governments already do this far too much, benefiting the asset-owning classes. This can be seen in how wages have consistently lagged economic growth since the 70's when developed nations left the Bretton-Woods system and could print money in this way: the rich have consistently gotten richer. You are being told fairy stories.

[@pondeify]

@@rocketpig1914 this guy subscribes to the magic money tree school of economics.

[@freedomutopuia]

​@@rocketpig1914Exactly. It never fails to surprise me just how many people feel they "know" and can come online and make "explainer videos" like this just filled with the most basic nonsense propaganda about the economy that gets fed to young students and has no bearing on reality

[@hugolindum7728]

@@rocketpig1914 Correct. He avoided INFLATION.

[@twhelostl61]

I really appreciate Richard. Wish he was around when I attended HS. The AI boom underway will certainly redefine our relationship with "Money" Robots have to be taught what it is also.

[@danielpercival2671]

I rarely comment on these things but I wanted to say Thankyou for using your channel to highlight the MMT analysis of government money. Sometimes I think I'm going mad when the UK is consumed with balancing the budget while the entire global financial sector knows it is all based on made up ideas that sound similar to how the average citizen thinks about their own finances. Not a government spending its own money. Much appreciated. Many of the MMT proponents are very bad at explaining themselves or are too often associated with left leaning politics so the conversation becomes political rather than simply a matter of objective fact.

[@MałgorzataAgnieszka]

Fantastic video! I have incurred so much losses trading on my own....I trade well on demo but I think the real market is manipulated.... Can anyone help me out or at least tell me what I'm doing wrong??

[@MiloHazel-r2o]

Same here, My portfolio has been going down the drain while I try trading,l just don't know what I do wrong. .

[@kiararobyn]

​Investing with an expert is the best strategy for beginners and busy investors, as most failures and losses in investment usually happen when you invest without proper guidance. I'm speaking from experience.

[@AhmadAdler-o3l]

I think l'm blessed if not I wouldn't have met someone who is as spectacular as expert mrs Janet.. Highly recommended🙌

[@HugoEmerson-b3o]

​Wow, I'm surprised to see Janet mentioned here as well. I didn't know she had been kind to so many people

[@CalistaMADALENA]

​I'm also a huge beneficiary of her.. I thought myself and my family were the only ones enjoying Janet trade benefits​

[@RichardBergson]

Richard - I think you will need to address the global nature of the economy and some of the constraints that that places on governments other than in the US. MMT is just that - a theory. It may have more validity than current text book theories but in practice there are other factors that limit the creation of money for fiat currencies.

[@helenheenan3447]

" MMT is just that - a theory". It's understandable that you say this, because the T in MMT = Theory. However, it's a misnomer, because MMT descrbes what actually happens in the economy. It is not a theory.

[@RichardBergson]

@@helenheenan3447I don’t disagree in terms of its relationship with reality and I am more interested in the practice but even a set of observations that is codified into a particular view of a system is a theory. It still relies on one or more assumptions about why what is observed is happening. I know this sounds a bit pedantic but any assumption can be challenged.

[@richyphillips]

This is why MMT focuses on what is available to buy rather than the money instrument. MMT is just as valid in the global economy as the local economy and it doesn't suggest buying everything or 'printing' vast amounts of money. It says that the financial constraints that are spoken about in the orthodoxy are mostly arbitrary.

[@RichardBergson]

@@richyphillipsThanks - that’s something that doesn’t get a lot of airtime when MMT is talked about.

[@homeeconomics4419]

Thanks, Richard. Love your videos. This one runs up against the logic of your other videos though. You previously pointed to the 2014 Bank of England paper that rightly says that 97% of money in the economy is created by banks through loans. Are you saying that the government ALSO spends money into the economy but that the selling of bonds simultaneously destroys an equal amount of money or that the government can, as we saw during Covid, spend more money into the economy than it takes out (by "monetising the debt")? If it's the latter, didn't the monetisation of £900 billion have massive inflationary effects and a shocking knock-on effect on wealth inequality as Gary Stevens argues? It's a particularly powerful argument because he predicted it would happen in mid-2020! The other critique I'd have is that we are not America. Stephanie Kelton's take that governments can spend all the money they want is oblivious to the reality of the American dollar empire. They can do that. We cannot. Truss's government demonstrated that unfunded spending can spook markets and tank the pound. Such a devaluing could spiral out of control if a government constantly monetised their budget deficit. They only got away with it during covid because every major economy was doing the same thing. Also, your take on currencies would be interesting. We run a trade deficit and have done so for years. Therefore, there's always downward pressure on the pound (ie, we need to buy dollars to buy things on international markets). Is the only reason that the pound has stayed relatively valuable when compared with other currencies that foreigners buy pounds to buy assets in the UK? And might that be why we don't own anything in this country any more? Presumably, there will come a time when the firesale of UK assets must end because there will be nothing left? What then?

[@downshift4503]

Commercial banks create bank deposits by lending. They don't create bank reserves, they come from the government (and its central bank). It is the bank reserves that are drained when the government sells bonds.

[@downshift4503]

@@Vroomfondle1066 If commercial banks are short of reserves they can borrow them from the central bank. Depends if you prefer a floor or ceiling system. I tend to hold the view that the risk is deflation over time and recent inflation is an anomaly, time will tell.

[@downshift4503]

@@Vroomfondle1066 I suspect inequality is just a feature of the system (as its effectively the pareto phenomenon). Not sure it does destroy the buying power of the 99% as the government is free to distribute its money however it sees fit (we are not at ransom for money itself from the wealthy) and buying power increases in a deflationary environment.

[@philipnorthfield]

​@@downshift4503money is merely a medium of exchange and a sort of store of wealth real world asset and resource allocation is the determinate of wealth in society it is this that has tipped rapidly towards concentration in the hands of a smaller and smaller section of society the monetary denomination is merely the numerical representation of this asset and resource allocation.

[@jimjohnson530]

Private banks have destroyed national sovereignty, perverted justice and bred degeneracy. It is to theses banks and bankers that the people and its institutions belong including their own governments. For this reason, the West is being taken apart and its policies are baneful to liberty, decency and human happiness.

[@guyvert49]

very simplistic! There is no mention here of foreign exchange or trade & cross border bankng or competition with foreign economies, let alone the confidence needed to make this system function. Moreover, money is not a repository of wealth, but a measure of that confidence. No one trades or holds foreign currency, if they have no confidence in the government, especially if they create too much money [commensurate with confidence] & leave it in circulation. What do you think is happening in Russia right now? Inflation is a function of confidence & mercantlism is not dead in Russia either.

[@petebest8422]

at least you said it was created and we can get beyond the term borrow and the hosuehold budget analogy type stuff (credit card maxed out)

[@MartinSmith-i4e]

Then why did the Uk government majke Interest payments on central government debt totalling £111.5 billion for the fiscal year 2022-2023???

[@philipoakley5498]

It didn't (if you are following along), it simply paid back some of the savings the city had made with it. And 'the city' was grateful for that guaranteed return. ;-)

[@albertross252]

The behaviour of the markets are the only facts. You are advocating for educating ‘the markets’ to see things differently such as during the Greek debt crisis and the Truss Mini-budget. Fighting these crisis situations with an economics lecture is a brave strategy

[@billB101]

This is fascinating thanks. So where do the national debt figures actually come from then?

[@davidstevan1]

My state pension got credited to my bank account yesterday. I assume it was paid to me via a commercial bank ( ie not the BoE). What’s the debit entry for the bank? How does the government supply funds to the commercial bank to cancel down the debit entry that shows the government being a debtor to the bank? Hope that makes sense!

[@downshift4503]

The government spends bank reserves into your commercial bank with an instruction to increase your deposit account by an equal number to the reserve.

[@davidstevan1]

@@downshift4503 thanks. So for the commercial bank it’s credit my account and debit ‘central bank reserves’ (central bank is a debtor of the commercial bank). In the books of the central bank it’s credit commercial bank and debit HM Govt?

[@downshift4503]

@@davidstevan1 Your bank gets an increase in bank reserves on its BoE account. The Treasury gets a decrease in bank reserves on its BoE account.

[@evangiles4403]

The money is cleared by the bank of England or the exchequer Each day all over the world the public and private banks total all the money they owe or are going to give out to customers the next day and total all they have received if there is a shortfall between what each bank collected and what it will pay out the next day then the bank of England will authorise the exchequer to issue more money the next day so each bank doesn't run out money and because this is now done electronically it is done overnight between midnight and 3am They don't send bank clerk's to the state treasury office anymore because it's done overnight electronically My mother worked as a ledger clerk for the ANZ and that was what she did all day - Write into the ledger each day each withdrawal and deposit made to the bank and then at the end of the day tally what was received and what was paid out That's why back in 1970's it took 7 days for your check to clear because it had to go to the state treasury who then sent it to the federal reserve which then authorised the actual payment in cash and then had to send that cash physically from the state treasury to the individual bank

[@keithalfred5308]

Great videos. I've same question as phosferrax. Commercial banks don't sell bonds to cover credit they issue so why does the BOE? And why are governments worried about bond sales failing to find customers?

[@NelsonGuedes]

Why should the government pay interest at all when it is guaranteed and the government doesn't need the money? Where does this money to pay interest come from? It ends up amounting to a significant unnecessary expense.

[@mattgilbert7347]

It's basic income for people who already have money, indexed to how much they have. Rates should be 0.

[@MargaretDeakin-d6m]

It seems that some leading Economists are claiming that we do borrow from Pension funds and the BOE. If there is no pressure to pay loans back, why wont our government slow down re payment?

[@dividenconquer2996]

This is the most clear explanation of MMT.

[@Bluntry1]

Question: Under what circumstances, then, does government borrow from the World Bank and other outside international sources of capital? Thanks.

[@msbealo]

Could we include how this is related to foreign exchange rates and inflation? These are key.

[@willyhill7509]

Pension funds hold about 1 trillion in Government securities, the same for overseas buyers. It was only after the 2008 crash that the BofE started buying gilts.

[@chaunceybutler3814]

Whats with central bank independence then if the BOE has no choice in extending overdraft.

[@downshift4503]

It has operational independence, but that is purely a choice by the government.

[@BernardMcCarty]

Very interesting, thank you. I have a question, what is the effect of money created by fractional reserve banking being deposited in government bonds? Roughly 90% of this money wasn't created by the BOE but by private banks, yet presumably can be lent to the government by investing in bonds. As it wasn't originally money issued directly from a central bank, but loaned into existence, what complications does this bring? Does it mean that a proportion of the government's "deficit" is also loaned into existence? I can't get my head round it...

[@andielines]

YES!! THIS!! imho, this is why we are where we are.

[@BernardMcCarty]

@@andielines ... and then I get more confused... if some of the government's "deficit" is the result of re-deposits from private banks, i.e. from money loaned into existence, and the government turns round and uses this deposited money for more spending into, and to grow, the economy, wouldn't this the allow private banks to further issue yet more fractional reserve loans, the results of which may then eventually end up being lent back to the government as bond purchases which again increases the size of the available "deficit"for spending and so on...? I'd like to know how big an effect this is? What proportion of the so called "deficit" actually comes from fractional reserve banking deposits (in the form of bond purchases) as the result of money creation by from private banks? And is that a problem? Or is this kind of deposit a way of "cancelling" money created by private banks? If so, then why pay interest on the bond? Can anyone explain? To be clear, I don't have a problem with the idea of issuing government bonds for public spending, that seems a good idea...

[@andielines]

@@BernardMcCarty tbh, it seems to me that most current mainstream explanations of economic theory are just post hoc rationalisation of a deeply flawed and perverse system, created to bring obscene profits to a relatively small number of people. Whoever you believe, an underlying truth remains. That the public has been told they have to pick up the bill for any costs involved.

[@downshift4503]

Government spending creates new reserves in the banking system. Bond sales drain existing reserves out of the banking system. When a commercial bank lends it creates deposits (the banks liability) and an asset (the banks loan). If you use the deposit to purchase a government bond your bank will transfer existing bank reserves not the bank loan. The bank loan stays with the bank. The point is, commercial banks are creating bank loans, not bank reserves.

[@andielines]

@@downshift4503 that just sounds like semantics and post hoc rationalisation to me. A financial system that moves around money created from nothing to benefit the tiny minority of people that controls that system. Cui bono?

[@martinhambleton5076]

Debt is always created by borrowing of some description. No matter how you interpret it. When national debt is described as such. The word debt, means that someone else is owed.

[@robertwilson214]

Why doesnt the government just ask BOE to print more money so there's no cuts in health,education,defence?Why are bonds auctioned? I can assure you theres a crisis in property and homelessness.

[@johugra1]

One huge thing you missed is inflation. Over the last 5 years it has been about 30%. That means that those "safe" deposits just rot. You mostly do not even cover inflation with interest. Indeed taxing interest in these circumstances is a wealth tax. Think about it.

[@Michael-yq2ut]

If this is true, and I don't doubt you at all, why on earth does the government say they are borrowing, taxing or cutting services/benefits (ie winter fuel allowance) to be able to afford to do things like fund the NHS?

Because there’s still a balance in the table. If there’s too much money put into the economy inflation goes up. That’s why everybody is crazy about inflation rates and interest rates. They’re just trying to control inflation. The balance doesn’t need to be zero, only inflation needs to be kept at bay.

[@Michael-yq2ut]

Not only inflation goes up with money being added to the economy, but also prices and economic inequality

@ prices going up is exactly what inflation is…

[@Michael-yq2ut]

Lol yes, obviously I wasn't thinking

[@peterjessop1878]

It’s because it’s not true.

[@nickclarke2599]

The general public thinks that the national economy is like your household budget, but it's not, and it's very hard to get this conception across to people, for want of better explanation, it's just to mind blowing for them , thats the problem!, and the MSM uses this as smoke & mirrors, frightening us with things like "ooh wheres the money gonna come from", " the national debt is higher than its ever been", "we max the credit card out, Britain's broke" etc, etc

[@cfalvl2380]

The national economy is not like a household budget? Interesting So as a household I can create new assets or have a pitch for creating assets and get a bank to use them as collateral for a loan. If the government doesn't use assets to value their money, then where is the value of my asset coming from? What country would accept the Pound in return for trade if there is no value to get in return? Contrary to the MMT narrative, the Government does run like a household budget. If a country sends goods/services here, they want an equal amount of goods/services in return. If the citizens of this country creates assets, they want the value of those assets to be properly appraised to trade for an equal amount in return. If the government wants to create a deficit that isn't bound(bonded) to asset values increasing, or creating new assets, then the value of their money will now be spread to all existing assets. That would be devaluing the money...better known as inflation. If you continue to create deficits that are not accompanied by asset(wealth) creation, no one will trade with you, without demanding an increased amount in return to finance the trade. Basic risk management. Keep down that path and you will end in financial ruin as you'll reach a point that repayment is not possible. Households are no different. Governments can monetise assets, so can you through asset creation. The balance of payments system needs to be balanced. If your current account and capital account don't balance, the IMF will be taking actions in short order.

[@downshift4503]

@@cfalvl2380 The government may behave like a household but it is imposing that upon itself. If a country sends goods / services here it gets pounds sterling in return that sits in an account. Obviously the value of that money is related to the goods and services being produced here, or the expectation they will be produced later - hence the importance of growing GDP. MMT does account for the potential of inflation.

[@richyphillips]

​@@cfalvl2380a household needs to have an income and is constrained by that income. A household is time limited. A household cannot impose and enforce taxation in the same way a gov't can. But a gov't must facilitate productive activity and use the real resources available to it efficiently and for public good. So part of your story is valid but not all.

[@richyphillips]

​@@cfalvl2380but also, the MMT narrative has a lot more to it. 25yrs + of research, articles and papers that examine all aspects of global economics through an MMT lens. What Richard (and indeed Kelton) talks about just scratches the surface of the theory.

[@nickclarke2599]

@@cfalvl2380 don't tell me, tell Richard the host of this channel. And i would say countries in the global North do behave in this manner, getting away with it, it's the global south that gets penalised by the financial institutions, look at the USA, the eye watering debt thier in, and they still call the shots, and thiers no reckoning yet for them, made you think though 😃

[@frankhayes1135]

I'll have to play this video back a few times to digest its content. I'm nearly there but not quite. 😀 I have for quite some time never understood why the government doesn't create money directly into the NHS bypassing the banks. I've always thought that using banks solely as the means to distribute 'new money' is an undeserved 'bung' to overpaid bankers. The NHS, for example, will then distribute these funds into the economy through the purchase of equipment, services and labour. Am I missing something?

[@dennismccarthy7032]

Brilliant ❤

[@Alberto-k6t]

In Italy Is not as such. the Treasury auctions short (Bot) or long term (BTP) bonds monthly , if there Is a larger amount of governament bonds demanded than the monthly issuing, the ones Who request the lower interest( E.g. o.98 to the unitary face value instead of 0,975) are satisfied instead if bonds offer surpasses demand, the BOT are issued at the average requested "price"

[@MargaretDeakin-d6m]

During covid all that printed money created far more innequality. The surplus of cash collected by the already wealthy are now buying up all the assets and inflating asset prices way beyond what ordinary folk can afford. How do we fix the misery this causes, if wealth taxes are not implemented?

[@ContactDailyKaizen]

Also they spend with or through multi national corporations that does not help your local economy as much spending in your local high street shops, specifically the shops that are owned and operated by locals…

[@dadsbarmy254]

love the ending of the video "it's the truth" which is in short supply.

[@garyeaton7271]

Brilliant didn't realise 👏 😊

[@syproductions456]

Taxes exist to give fiat value. If you or I decided to make up a new money, nobody would use it, it would be worthless. The government on the other hand, demands you must pay taxes in it's money and nothing else, if you do not pay you are punished, this gives the money value, it is essentially a violence backed currency, 'use our money to pay tax or go to jail!'. This is why, despite the government having unlimited capacity to print money, taxes must still exist.

[@jimjohnson530]

Good observation

[@syproductions456]

@@GhostOnTheHalfShell agreed that taxes existed before fiat money was common place, even when commodity money was most common. However I still think that if governments did not require tax to be paid in their own currency, people would slowly move away from using state issued currency and shift to either commodity money or even something like bitcoin. State issued currency is guaranteed to lose purchaing power over time, if it were not required for payment of tax, people would prefer to trade with something that has a fixed or limited supply, something they know will not be debased over time.

[@syproductions456]

@@GhostOnTheHalfShell the state usually creates new currency either through debt or by printing it to pay for public services and works beyond what it can afford from taxes alone. There isn't an example of a state that hasn't done this. The creation of new currency is the primary driver of inflation. The dollar for example has lost 99 percent of it's purchasing power since it's inception. All fiat currencies fail eventually, there have been over a 1000 of them, all are gone and largely forgotten. Commodity money, i.e gold, whilst not the preferred medium of exchange, is still used even after thousands of years and has held it's value. An ounce of gold 100 years ago still buys you roughly the same goods now as it did back then, 1 dollar on the other hand, buys you a fraction of what it did 100 years ago.

[@ThomasstevenSlater]

@@syproductions456 The small amount of gold in world means that that is very vulnerable to changes in supply, such a the pilgrimage of mansa Munsa. I do not want the entire economy to be but at risk because someone decided to get a million ton golden meteor from space, or china decided to dump their gold for some reason.

[@Daisyworld743]

Exactly. And why Bitcoin has no intrinsic value and never will, because you can't pay taxes with Bitcoin.

[@markburton5318]

That would be true if the UK was the world. When the government creates money, it devalues the currency (inflation). A crisis can arise if no one outside the UK wants sterling. We then have to raise minimum lending rates which impacts UK businesses and consumers, reducing growth and potentially causing recession. Truss / Kwateng thought they could spend £40bn extra but this threat of creation of money or borrowing. Bond prices are sensitive to inflation causing a crisis in pension funds, several of which were within hours of going in administration. So the bank had to buy bonds to drive up the price while the government wanted the bank to sell bonds. Sure, the government and bank cannot run out of sterling, but sterling can become worthless.

[@MrDodgedollar]

Absolutely; A system designed to keep the majority on the employment treadmill till almost death! Government taking back 60% plus of your gross earnings!Just look at the state of UK towns and Cities and what a Pound is worth. Gold is not anymore expensive.. It’s just that the pound is on the skids

[@Basta11]

The way I look at it is that printing money is taxation. If a company issues more shares and just giving it away to somebody without something that increases the value of that company in return, that redistributes ownership. Those that received new shares have more of the company while those that didn't receive will have less. Same goes with money. Those that gets those newly printed currency will have more in terms of real wealth, while those that didn't receive will have their purchasing power lessened. The question is a political one. Governments should make wise decisions, of which spending and taxing is part of it, in such a way that benefits the society ideally in an equitable way.

[@CuriousCrow-mp4cx]

Money is not a proxy. It is money. A share is a proxy for money which you buy with money. But it is not a one-to-one equivalent. Try buying a coffee in Starbucks with a share certificate. A government is not a corporation. Corporations can't issue their own money that can be used by everyone. So your a ology is misleading. I understand that you are trying to look at the situation in terms of *credo*, or credit as faith or belief, which is the basis of money. But market sentiment is about profit that is denominated in money. And you are right, in that if people lose faith in money, the less people will use it. But, as a shareholder, I am very unlikely to try and buy anything with my share certificate, because I will fail. Money is not a share. And corporations never tax their shares. Governments do tax what extra money you get from your shares. And the credibility of a Governments money is its value that others will use it as a medium of exchange for goods and services. The difference lies in the power behind the currency. Taxation is a tool to control the amount of money in circulation, that isn't being productively used. But speculators don't like that. And the battle between governments and speculators about taxation has its own black propaganda about taxation. Because for speculators it's a numbers game. Bigger number in their bank account is everything. The government can't afford to see everything that way, because the consequences on the welfare of everyone and not just the rentierists, is their priority. It's not just about individuals. Human nature can be a danger to humanity, because it can be blind to consequences in pursuit of a goal. And none more so in matters of power and wealth. In americal, ever since 1917, the Debt Ceiling has climbed in real terms. And now the new administration wants to increase it. And to cut taxes. And implement more tariffs, and these are by nature, are inflationary policies. But are you worried about the value of USD? If not, why not? I answering that question, you'll have to look at money as money, and why price inflation is important. Corporations worry about that as it could kill their business. But price inflation doesn't kill governments. it kills those who don't have enough money. Governments have as much money as the people controlling them want. That's why the debt ceiling is not a ceiling; it's an elevator.

[@Basta11]

@ analogy is not misleading. It’s an analogy. Analogies don’t have to be one to one equivalent, that’s kind of how they work. The point is that deficit spending is printing money and is taxation. It redistribute real purchasing power from current holders of currency (bank deposit or physical cash), to the recipients of the spending. It’s essentially a wealth tax. Also it’s a tax on fixed income assets since they will now be receiving less in purchasing power from those assets. There doesn’t necessarily have to be inflation for the tax to have happened. Simply that the money is worth a bit less than it would otherwise. For example, there could have been deflation if not for deficit spending.

[@CuriousCrow-mp4cx]

It quite true. Sterling is still a reserve currency, mainly because it owns so many tax havens, whose clients rely on Gilts to fund their financing, along with US Treasuries, and German Bunds. It wasn't the fear of inflation. It was that she didn't tell them beforehand. Truss was paranoid, and it destroyed her credibility, especially as the Tories under Johnson was so much of a circus. Most policies are are quietly outlined to the people that need to support it beforehand. But Truss did not insert herself into such groups not did she share any information with them. It didn't matter that the people who nixed her plan, were the people who would have benefitted from it the most. They had to teach her who's boss. Why? no rules along. Truss didn't understand that key to power. So, by making a god almighty fuss, they killed one to warn a thousand. She was shredded because she didn't understand the rules. Whether we like to believe or not, no budget is a total surprise to the City. Donors don't give their money people they don't trust to deliver, and the City of London were the largest donors to the Tories by industrial sector. But Truss, naively sidelined them, and got rid of people the City liked, because they weren't yes men. The relationship between the Square Mile and the British Government is incestuous. No other chartered corporation has one of their number sit in the chamber in the House of Commons not in the Guest Gallery, but in a seat placed behind the chair of the Speaker. That right is written in the Royal Charter of the Corporation of the City of London. Moreover, the Foreign Office runs the Mayor of the City of London's calender. He goes off on many trips abroad to fly the flag for the City and the UK. Again, no other Royal Chartered Corporation gets that service from the government. And really, the Tory Party choosing Truss over Sunak would have irritated the City as well, as Sunak was a City insider, and an alumni of RBS and JP Morgan. She gave them the bullet with her name in it, by ignoring them. So, they ensured she would fail, by overreacting to her "unfunded expenditure", even though almost all government expenditure is unfunded, especially after Brexit. Second, Milton Friedman assertion that Inflation "is, and everywhere, a monetary phenomenon" isn't borne out by the evidence. Two things: Wage Price Spirals and the Kenyan Random-controlled Trial of helicopter money prove that not only did Friedman overgeneralised his axiom, but that wage Price spirals are rare, and are not persistent. Money & Macro channel reported the findings of the ongoing helicopter money trial that there was zero inflation in the first 2.5 years after the money - $10 million - was given to households chosen at random in a North Kenyan county. And the economic impact was tracked individually as well as regionally. Then, the IMF staff wrote up desk research study on Wage Price Spirals in 2022,where their evidences-based conclusion was that Wage Price Sprials were significant, but short-lived in their impact on the greater economy. Both these studies are a available online, and Money & Macro talks specifically to the reasons why Inflation did not appear. So, the orthodox models you relate are not to be consumed unquestioningly, because the evidence isn't there to support Friedman and no-one has contradicted the IMF paper punished in November 2021.

[@michaelhensley8203]

All true, but did not discuss it can, and often does lead to inflation. That needs to discussed in the same videos.

[@robhussell]

A unique view Why charge interest on the money created out of thin air? Why not just give it directly after the creation

[@ef7480]

I would add and argue that a government bond is sold at a bond auction and 'bought' by primary banks and actually monetised through the commercial banking system when the primary bank has the bond as an asset on it's balance sheet/account at the BoE. The owner of that bond takes the interest through tax revenue. Great work if you can get it.

[@downshift4503]

it's nothing more than moving money from a current account to a savings account.

[@ef7480]

@@downshift4503 you shouldn't confuse the monetary system with your household system. look at where the funds come from and how they are created.

[@downshift4503]

@@ef7480 It's just an analogy to help understand the difference between bonds and bank reserves. If you want it to be clearer then bank reserves are first created by the BoE, spent by the government and become assets of commercial banks. The commercial bank can exchange their existing bank reserve assets into government bonds. Both bank reserves and government bonds represent prior government spending. The interest for government bonds is paid from - new bank reserves created by the central bank and spent by the government. The ratio of bonds to bank reserves is decided through monetary policy. The source for both though is the BoE and the government. All tax achieves in this process is to extinguish previous government spending from the system.

[@zaelu]

All good with one exception... if your money get to outside players like US or China they can play against the system and even force turmoil. Basically... everything works just like that in a closed system. We don't have one so there are external risks.

[@mrmensa1096]

It is a Debt based system - money is created as debt. With now private banks creating the money out of thin air, and then loaning it to our government or us via mortgages, with added interest - is totally unjust and unsustainable longterm.

[@jimjohnson530]

Correct

[@Aircooledflat4bug]

Almost. Private Banks issuing mortgages create money out of thin air. However, if private banks buy government bonds, they have to buy them using 'cash', which is actually the money they have on deposit at the Bank of England (Base money) which the government has created previously. So they are 'loaning' the government its own money. If that sounds crazy, your right, it is!

[@terrywilliams8864]

Just watched Gary’s economics, i know you both have reasoned arguments, I am somewhat perturbed. Can you both share your thoughts in a podcast?

[@campbellmorrison8540]

OK Im no economist and Im not in the UK and I personally believe a lot of the financing we are presented are smoke and mirrors However if what you say is true then one has to assume this applies to all countries with reserve banks and if that is so the the US is the same as the UK. If the US is the same then they don't need to borrow either they can just print what they need and if this has no implications how come the US interest payments are nearing the Tax income of the US, who are they paying this interest too? What I am told is if countries just print more money then the value of their currency drops in relation to other countries and hence unless the UK is totally self sufficient and doesn't have any international trading then imports will increase in cost and it is the threat of inflation that restricts reserve banks from simply printing what ever they want. As far as I can see what you are saying is gobbledygook with no basis in reality.

[@robm5358]

Do the commerical banks not create around 95% of the money in circulation by giving loans, mortgages etc?

[@Ghengiskhansmum]

Banks create debt.

[@OneAndOnlyMe]

@@Ghengiskhansmum Yes, which is money to someone.

[@downshift4503]

Yes but they do not create bank reserves. Government bonds function as a reserve drain.

[@Pmor75]

The constraint to print more and more money are the resources in the economy. Too much of it would lead to inflation...Also the bond holders have the possibility to invest in other productive activities but don't do so due to risk/ reward trade off...

[@clivefrear1784]

But surely when government expenditure exceeds revenue, it needs to borrow against bonds to bridge the gap. These bonds have to be repaid according to the terms they were issued for and if the country’s expenditure continues to exceed revenue income, the debt just escalates. It doesn’t go away. Businesses that spend more than they earn - continuously - eventually go bust.

[@poklaso9393]

Sorry for being think, but can I ask, if government doesn’t borrow money from the market, who owns government’s debt?

[@downshift4503]

What we call the government "debt" is just a combination of cash, bank reserves and government bonds. It is all the liability of the government and an asset of whoever holds them. The UK government (and its central bank which is in effect part of the government) is the source of its own currency.

[@helenheenan3447]

Premium Bonds are counted in the national debt. Billions of £££ owned by you and me, and in effect., saved with the government. It is only debt in the sense that it will be paid back to you and me at some point. So not debt in the sense of a liability that is problematic. Also government bonds, as Richard has explained.

[@charlierob4377]

Love your VTs, what does an accountant do?

[@safirahmed]

It's been reported that most money from Quantitative Easing has gone to institutional investors. It's time Quantitative Easing was used to stop austerity, end poverty, end economic equality and improve living standards for the people and debts cancellation for those on low incomes, means tested benefits, student loans and public services.

[@downshift4503]

QE swaps bonds for bank reserves within the banking system. It is functionally similar to moving existing money from a savings account to a current account. However it doesn't create bank deposits (the "money" that you and I can use) that you can just hand out to people.

[@Phil_D_Waller]

QE is effectivley an asset swap of bonds for reserves (GEMMS) or bonds for deposits (Non GEMMS / investors)

[@downshift4503]

@@Phil_D_Waller The investor in your example had the bond to start with and the resulting deposit is matched with a corresponding reserve. My point is, the QE didn't result in cash handouts as such.

[@WarrenPeaceOG]

Sounds like you are talking about People's QE. "Professor Steve Keen, a prominent economist formerly at Kingston University, London, has been a vocal advocate for "People's QE" (Quantitative Easing for the People) as a solution to economic crises. Keen's proposal differs significantly from traditional QE, which primarily involves the central bank purchasing financial assets to inject liquidity into the banking system. Instead, People's QE would direct money creation towards the real economy, either through public spending or direct cash transfers to citizens. Keen argues that traditional QE is ineffective because it does not increase the money supply in a way that stimulates demand. Banks do not lend out reserves as commonly believed; instead, they create money through lending, which means that QE aimed at banks often fails to translate into increased lending and spending in the broader economy. People's QE, on the other hand, would bypass banks and directly boost consumer spending and public investment, thereby stimulating economic activity more effectively." ~ chatbot search

[@philipnorthfield]

​@@downshift4503no it resulted in an increase of cash on the balance sheets of banks who then lent it out to customers at increasingly reduced rates in order to obtain a return on it as supply and demand dictates increased the supply of funds to loan the returns to that asset reduce.

[@ToothbrushMan]

The money markets buy government issued bonds. Those bonds have to be redeemed at maturity, with interest. How is that not borrowing from the money markets?

[@Aircooledflat4bug]

Because if private banks buy the bonds they have to buy them using money they have on deposit at the Bank of England (base money), but the government creates the base money. So they are buying the bonds with the government's own money. If a pension fund buys the government bonds, they have to buy them using money which the government has created previously through its own spending, because pension funds cannot create their own money, unlike the government. Its the chicken and egg. Without the government creating the money first, there is no money to buy government bonds, and there is no money to pay taxes. The money has to be created by someone.

[@ChrisRaeAdmin]

Long time since I did economics but couple of questions 1. What happens to money that leaves the country eg Oil purchases, all that stuff China makes for us? 2. Why does the IMF exist if no country can go bust? 3. What was going on with the Weimar Republic in 1936? There seems to be no world economy in your economic model.. If everybody else thinks something and you don't you are probably wrong.

[@blakemcalevey-scurr1454]

You didn't debunk that the government borrows money from private institutions, you literally explained that they do. Accepting savings and promising to pay back with interest later is precisely what borrowing is, regardless of whether it can be repaid by creating new money supply. Also, clearly the government prefers to take on debt rather than simply creating money because they don't want to drastically debase the money. Tax, debt, and debasement are all slightly different forms of revenue collection, which the government largely chooses between for political expediency.

[@gedbyrne8482]

With this model, can you explain how inflation works? My understanding is that inflation indicates that there is a fixed, real level of value in the economy. If supply of money exceeds that value the prices will rise. The goal of the government is to match the supply of currency with that real value, and this is achieved by keeping inflation in the goldilocks zone. Is this wrong?

[@tetrixdog]

Another MMT rant. Yes, the govt can print or digitally conjure up all the money it wants in the short term, but for it to retain anything like it's value in the medium to long term the currency must be limited in supply, either by borrowing through the bond market or fixed in relation to a scarce asset.

[@thesefran1286]

truth it may be in some sense that transcending all noise and even crises this is ‘right’, but now you must explain Why, even if this is ‘right’, Things take place (ie the financial crisis in Greece)

[@James-m8x3b]

I have a question. Maybe someone can help me get to the bottom of this mystery. The government spends 10 billion into the economy. Govt > Non-govt. 7 billion is taken back as taxes. Non-govt > govt. 3 billion is taken back by selling treasuries. Non-govt > govt. 10 - 7 - 3 = 0. All the money the govt spent is now back in the hands of the govt, i.e., out of circulation, i.e., either taxed away or tied up in treasury securities. So how does the non-government sector have any money left to spend on anything?

[@Aircooledflat4bug]

As I understand it, when private banks buy bonds they have to buy them using money on deposit at the BoE (base money), so that would not take money out of the economy, but if pension funds buy them it would come out the economy. What your example shows is the importance of the government running a deficit, otherwise there is no economic growth.

[@James-m8x3b]

@@Aircooledflat4bug Hmm. Good point. I had to think about this for some time, but after mulling it over, it struck me that buying a bond moves money from a deposit account to a bond account. Deposit accounts are considered money in circulation; bond accounts are not considered money in circulation. So any purchase of bonds takes money out of the economy regardless of where the money comes from.

[@ThomasVWorm]

Spending does not come first. Demanding the tax comes first. On 1st of January you already know how much taxes you must pay. If we would have the simplest form of tax, the head tax, you would precisely know to the penny, how much tax you must pay until the end of the year. So from the beginning of the year all citizens are in debt and owe to the state the money, the state intends to spend. The second step is creating the money the state will spend. The third step is spending. The fourth step is recollecting the money. The fifth step is the destruction of money. Money is a bookkeeping system of debt.

[@OneAndOnlyMe]

Richard, could you do a follow up video please to answer the obvious question this begs: So, then why doesn't the government just print £1,000,000,000,000,000,000,000,000,000 and give it to everyone?

[@sllabres1]

he actually explains this in the video. The government injects money into the economy and can do as much as it wants. It then uses taxes to destroy money. There are many forms of taxes and a few ways in which money can be circulated. For the reasons you allude the government can't sensibly dump money into the economy in such a manner, like it did during COVID.. However, it could use money in a targeted way such as infrastructure or other projects to develop the nation. In my view money is just a tool to mobilise the resources of a country I think? We need to stop seeing money in the context of a household budget. It's not the same for a government like in the UK.

[@richyphillips]

Although the UK gov't faces no purely financial constraint, it faces a real resource constraint. There has to be stuff available to buy in the currency it issues.

[@evangiles4403]

And you get hyperinflation

[@KarlBraveman]

So how come the debt interest is nearly as much as the entire education budget??

[@piranhafish]

If it is not a debt why does it cost so much to service it

[@mountainman9145]

This video does not explain why the Government cannot print to infinity. Otherwise they would as its their own money. Is it not true (and I am just punter off the street with no economics background) that there are constraints as to how big the "debt" can grow. At a certain point other countries start to believe that your currency is becoming worthless because you have printed too much of it?

[@Aircooledflat4bug]

The constraint to 'printing' is the productive capacity of the economy. If there is space capacity (labour and resources) then in theory spending more money into existence is not inflationary. But if there is no spare capacity, then yes, printing more money would lead to inflation and devalue the currency.

[@phosferrax]

Why offer bonds at all anymore? The first bond was offered around 330 years ago, but the monetary system is different now, so what purpose do they fulfill?

[@Phil_D_Waller]

Monetary policy before interest on reserves. Excess liquidity drives down the rate at which banks lend reserves, bond sales drain excess liquidity to meet the banks targeted short term int rate. Now that the boe /state pays int on reserves effectively creating a floor system there is now no longer any need to issue debt

[@downshift4503]

In part potentially a hangover from gold standard. Reserves were convertible to gold (a risk for the bank), but bonds were not - but you were paid interest by holding bonds rather than reserves. Today it's a fiat system so its not convertible to gold.

[@Phil_D_Waller]

@@downshift4503 thats true , it was but it was still monetary policy up until just around the GFC before excess reserve balances. Bond sales were a requirement to prevent the states spending impacting short term int rates , but since IOR is now in place its now rendered obsolete

[@downshift4503]

@@Phil_D_Waller They also act as collateral in the wider system, so there is a demand for them. I can't hold reserves but I can hold bonds.

[@DavidGreenwood-nu6dd]

This man is very interesting!

[@grantbeerling4396]

Superb.

[@bernieburrows3731]

So how did Truss cause such a disaster with her mini budget? Millions of pensioners/households lost out, yet, the banks still got their bonuses.

[@IshtarNike]

Specifically because of how quickly and recklessly she operated. Yes, the pension funds are important. Yes they can affect the wider economy. But no the government doesn't owe them money in the way a normal person owes a bank money because of the specific differences outlined in the video. It's not that hard to understand. Two things can be true at once. His videos are all addressing the ways that these truths are twisted or extended further than is actually true. The point is that the system is interdependent. But the government is much more powerful than they pretend to be. In a normal situation, with reasonable time frames and logical adjustments in policy the government can do quite a lot of spending if it wants to. The Liz Truss situation is a complete outlier because they came in so hard and fast with their changes. That's not to say their changes were reasonable, but they certainly wouldn't have been as bad if they'd taken more time and briefed more people giving them time to make arrangements and see the weaknesses in the system and adjusted accordingly.

[@richyphillips]

The truss affair had more to do with how pension funds hedge their interest income using LDIs (liability driven investments). The BoE threatened to raise rates quickly to 6.5% after the Truss announcement. This caused margin calls because the yields on existing gilts dropped or were predicted to drop. Pension companies needed liquidity fast to meet the margin calls or loose a lot of money. The dumping of gilts on the market caused a even bigger drop in yields which could have spiralled. The BoE stepped in as buyer of last resort to stabilise the prices. They stepped in too late to stop big pension devaluations. IMO the BoE failed on two counts. #1 telling the market that it would increase rates that quickly when it didn't need to do that at all #2 delaying stepping in as buyer of last resort causing price instability. Truss's budget was a 'bit-part' in that debacle.

[@schumiisking]

she didn't cause a "disaster". It was easily fixed by the bank of England when they had had enough of watching and stepped in to intervene, which they could have done immediately. She announced her plans without effectively telling anyone, whilst at the same time the Bank of england were doing reverse QE. The markets 'panicked' and started selling bonds. This caused the price of bonds to drop. THe pension funds holding these bonds were using them as collateral to borrow more money to invest in higher yielding assets (which in itself should be discussed as whether thats right to do). When the bond price dropped, the collateral value fell below the loan conditions requirements. So bank of england stepped in to buy up bonds and raise the price to ensure the pension funds could meet their current liabilities and remain solvent. It had nothing to do with Truss trying to run 'unfunded' tax cuts, which she could have done if there had been more coordination with the Bank of england.

[@julianclover1663]

Isn't it just !​@@Vroomfondle1066

[@philipnorthfield]

Don't private banks account for the vast majority of money creation through lending? When quantitative easing is carried out to create money to purchase assets on the open market it still effectively devalues currency reative to assets untill it is taxed back out of the system. The government or us the tax payer are still paying interest on this debt currently £115 billion per annum to the private debt holders.

[@BillBeeby]

So are you saying that the government ( actually tax payers ) does not pay interest on the money the BOE puts into circulation ?

[@albasasrobertmitchell5682]

Liz Truss might as a 'matter of fact' beg to differ here? Nothing she did as PM was passed into law but somehow external 'market forces' ended her government in just 45 days. If only it was so easy?

[@doubledigital_]

thats because she wanted to use there money and not pay em back via tax lol ie.. they was never getting the money back! lol

[@OneAndOnlyMe]

@@doubledigital_ But a question remains still, why does any of it need to be claimed back if we can just make as much money as we need? Why not simply make every Brit a billionaire?

[@albasasrobertmitchell5682]

@@doubledigital_ But...Richard already claimed only yesterday on another vid that there's "no such thing as taxpayer's money". Confusing isn't it? 🤨🙄

[@WarrenPeaceOG]

@@OneAndOnlyMe Tax money is money destroyed. The accounts are balanced out and it no longer exists. The opposite process to when govt creates money, ie. adds numbers to an account it is paying to build a teleport or whatever. Taxes are required to create demand for the currency. You have to pay taxes in British pound sterling. So you need to work and get paid in British pound sterling. Like 33 million other people. By removing money from the economy, taxes also reduce inflation, ie. the reduction in what you can buy with £1, which would happen if everyone was a billionaire

[@richyphillips]

​@@OneAndOnlyMeas Ben bernake said, there is nothing to stop the US government marking up the accounts of every pensioner in the country, but there must be stuff available for them to buy. Essentially, it's the availability of labour and real resources are the constraint of money creation in a fiat money system. What, and how much the gov't buys with their money sets the price level which all other prices are based upon.

[@RustyOrange71]

If the government creates money, who is it that creates the markets? Money without a market is nothing at all. And more to the point, where are these markets?

[@Dc-uf1ln]

Well we all know the Government could just print money..whats new there? Venezuela have been doing it for years, Zimbabwe too..what could possibly go wrong?

[@SEANPOL203]

😄

[@helenheenan3447]

Trolling again. Nobody buys this discredited nonsense about Venezuela and Zimbabwe any more.

[@markwelch3564]

It's almost like you didn't watch the video before commenting 🤔

[@gio-oz8gf]

I know you believe you're being clever, but you're only highlighting your gaps in knowledge and understanding.

[@downshift4503]

In a fiat system all money is just "printed".

[@SwatantraNandanwar]

Anbsolute balls. Govts slways borrow. We only recently paid off the debt incurred by yhe Marshall plan

[@scobeyrowley5115]

Quantitive easing causes inflation but borrowing from the bond markets doesn't. How on Earth can you say these are the same?

[@erongi233]

The Govt does not have an entirely free hand. If Govt expenditure is far more that receipts the exchange rate suffers as per Liz Truss.

[@davidmcculloch8490]

Calling newly-created money part of the national debt is crazy for the reasons you have explained before: how can we borrow from ourselves? This is further exacerbated by allowing commercial banks to issue the money and charge interest on the balancing amount on their books. The Tories created new money to fill holes, and this ended up in banks for use by the wealthiest for asset ownership and rental. If we issued new money specifically for rebuilding our infrastructure, this would cut out the easy route to inequality where we are blackmailed by corporate interests and our politicians are subservient to them.

[@truthseeker5911]

Commercial banks hold the governments currency as reserves in their exchange settlement accounts at the central bank and they cannot lend this money out to the public. It can only be used to make payments to each other.

[@truthseeker5911]

@@martinsingfield Banks lend first and then look for the reserves later if they need them. They can increase their reserves by increasing the deposits that they borrow from the wholesale markets.

[@mikeedwards83]

Why does the government pay interest on the bond? Surely the money the BOE is paying to the service the interest has either been magically created or taken from taxation?

[@samsilver6530]

I thought the majority of money in circulation is created via commercial bank loans with the money the goverment creates representing only a tiny fraction of the total

[@martinbrennan578]

But what about the international dimension? You talk about our government and the City and the Bank of England but how do I pay for something from overseas? What about overseas bond buyers? If we print money our currency is worth less so the government cannot print money with impunity.

[@stuarthutchinson2477]

Hoe does VAT sit with the theory that taxation does not fund government expenditure? £200B a year approx. raked in on business and consumer spending. If taxation is designed to reclaim money it put into circulation, why would you use a method of economic activity to do so? Why not just tax savings and investments, company profits, PAYE, NI etc? Why do we need VAT?

[@downshift4503]

Why not just tax land, or tax smoking or drinking? Tax is used for a variety of reasons, principally as a form of coercion so that people are forced to become productive in some sense or change their behaviour or dampen demand. Most people given the option try avoid tax so I guess VAT is instrumental in that regard.... you need more of the governments money to buy stuff and hence need to be more productive.

[@richyphillips]

Vat is a regressive tax. It is meant to influence the spending decisions of the population. It should be better targeted. A blanket vat rate does not achieve what it is meant to achieve.

[@philipnorthfield]

VAT is also conveniently not progressive in any way every purchaser pays the same rate whether a billionaire or a pensioner their total may differ but the rate remains the same so it isn't a redistributive mechanism.

[@dewiwilliams4821]

There can be no crisis because we can always print more money? Isn't printing more and more money above the true level of creation of real wealth bound to lead to inflation? Isn't inflation effectively a tax on the public as our money is worth less and less?

[@evangiles4403]

No they sell bonds

[@supergustavus1503]

So can someone tell me why Reeves has targeted pensioners and has foreshadowed worse to come in her budget?

[@AegonCallery-ty6vy]

That's right. The government doesnt take taxpayer's money to fund their own borrowing, they simply tax them to level out the borrowings. Simple, innit!?😄

[@herbertvanlynden6629]

No, they don't actually. See the video

[@MargaretDeakin-d6m]

Or why not right it off alltogether?

[@12theotherandrew]

Truth!? That’ll destroy the government if it gets out !!

[@HighWealder]

The magic money tree😂

[@julianclover1663]

Does this mean I've been lied to for the past 50 years ? Is most economics complete mumbo jumbo ?

[@koltoncrane3099]

Taxes could in theory fund what the government spends. But he’s 100% right that taxes today don’t fund what the governments spends because it’s impossible with debt to gdp over 120% or higher then some years of the ww2 war. Here’s the question. It’s true governments tell the privately owned central banks what to do because a private central bank monopoly only exists cause the government allows it. But it’s also true there’s a revolving door between big business and government. If you’re a Keynesian working for the central bank or Wall Street and then you magically work in a high government job you’ll probably retain the beliefs and work networks you had that helped you get your government job.

[@koltoncrane3099]

He says if the government didn’t spend money into existence then there’d be no money to pay tax with. I don’t believe that’s entirely true.

[@koltoncrane3099]

Some people claim well we need government debt for retirees to save their money in. That’s BS. We have something better. It’s called a MINT. Retirees or social security literally could buy and own actual gold or silver money coins. If you own the gold you own it and the government doesn’t have to pay you. But with social security buying tons of government bonds you gotta think that helped drive down rates to some extent and the government has to pay those bonds back. If it’s a matter of saving why isn’t the government having people save in MONEY FROM THEIR MINTS?

[@koltoncrane3099]

Some people claim well we need government debt for retirees to save their money in. That’s bullshiz. We have something better. It’s called a mint. Retirees or social security literally could buy and own actual gold or silver money coins. If you own the gold you own it and the government doesn’t have to pay you. But with social security buying tons of government bonds you gotta think that helped drive down rates to some extent and the government has to pay those bonds back. If it’s a matter of saving why isn’t the government having people save in money from their mints?

[@koltoncrane3099]

Euro dollar university says two banks without dollars can and did make dollars out of thin air. Two banks lend one million to each other denominated in U.S. dollars. Magically from an accounting perspective it balances out as each bank now has a liability and also an asset lending to each other. Then those new dollars are lent into the real world. Banks create new currency all the time which is why it’s said we have an elastic currency supply. It’s not fixed. If our currency supply was fixed and 100% relied on the government spending then this professor would be right. Abraham Lincoln did modern monetary theory and literally had the government spend and print new money and issued ZERO BONDS. If there’s no debt nothing has to be paid back. @koltoncrane3099 2 minutes ago He says if the government didn’t spend money into existence then there’d be no money to pay tax with. I don’t believe that’s entirely true. For instance, after ww2 Uk had capital controls and couldn’t let capital leave the Uk but they let their banks issue US dollars in the UK. After the U.S. told the Uk let Egypt keep the canal it just took from the Uk the Uk retained power over its former colonies by switching into U.S. dollar banking according to the video called spiders web on KZbin

[@koltoncrane3099]

Some people claim well we need government debt for retirees to save their money in. That’s misleading. We have something better. It’s called a mint. Retirees or social security literally could buy and own actual gold or silver money coins. If you own the gold you own it and the government doesn’t have to pay you. But with social security buying tons of government bonds you gotta think that helped drive down rates to some extent and the government has to pay those bonds back. If it’s a matter of saving why isn’t the government having people save in money from their mints.

[@bigmo_4250]

Dumb question from me. If the government can create the money it needs, then why tax us. Couldn't the government ask the BofE to create all the money it need to run the country?

[@andielines]

I seriously think Prof. Richard Werner needs to have a look at this.

[@wendahe]

So as run away inflation

[@GooseHen25]

Daft. Talk to Russel Napier about impending financial repression when pension funds etc will have to be forced to hold govt bonds.

[@SonjaMorrison-i7j]

No. They just “guarantee” pensions and suck them dry.