Who lends the government money? | economics | The New Statesman

[@evolassunglasses4673]

"It is well enough the people of the nation do not understand our banking and monetary system, because if they did I believe there would be a revolution before the morning". ~ Henry Ford

[@robicjedi]

Is this why the expert needs to obfuscate?

[@andrewwebb9426]

@evolassunglasses4673 I checked this and it seems Ford may never have said it in so many words BUT in his book he outlined the idea that the normal public is far more conservative about money than financiers. We (the ordinary public) simply never have understood how money really works, if indeed it exists at all! We are suckers to Thatcher's naive view of public money being like running her father's grocery store .... So...Ford probably didn't say exactly that quote; if he did he was probably talking about 'sound money.' In his book My Life and Work 179: "The people are naturally conservative. They are more conservative than the financiers. Those who believe that the people are so easily led that they would permit the printing presses to run off money like milk tickets do not understand them. It is the innate conservation of the people that has kept our money good in spite of the fantastic tricks which financiers play-and which they cover up with high technical terms. The people are on the side of sound money. They are so unalterably on the side of sound money that it is a serious question how they would regard the system under which they live, if they once knew what the initiate can do with it. "

[@JGS2295]

This is a pretty bad video. It's not their fault, but neither of them understand how the monetary system actually works. The UK government does not and can not "borrow" its own currency credit prior to spending it. The UK government spends G by crediting accounts and taxes T by debiting accounts in a period. G-T is the net spend or gov deficit. This is also the non-gov surplus. It's at *this* point where gilts are issued to drain this G-T net deposit back out of the economy. But this operation is 1) clearly not borrowing, the spend has already happened, and 2) not required macroeconomically. It's a political throwback to a gold standard long since rendered irrelevant.

[@ThomasVWorm]

Especially not in the UK, the government cannot borrow money before injecting it, because of the huge trade deficit, where the UK loses money of about £200 billion per year.

[@gio-oz8gf]

Pension funds don't buy bonds to lend money to the government; they buy them as a rock-solid safe haven for the money under their management. If you open a savings account at a bank, you don't view it as lending money to the bank; you view it as saving money. It's exactly the same.

[@ThomasVWorm]

When you open a bank account you do not have any money jn the account. You need it to receive the money, the bank creates, when giving loans. Savings start with borrowing money. When you borrow money, the bank creates as much savings into your account as you borrow. When the money is spent, the savings are only moved around until they return to the debtor, who then pays back the debt, which means the bank destroys the money from his account. Savings are somebody elses debt.

[@williampatrickfagan7590]

I notice today that the UK is paying 2% more than Ireland to borrow money on the 10 year bond market.

[@richardbanner9050]

He should have spoken more of the 30% that is borrowed from the Bank of England. The 'borrowing' by letting people invest in the NSI (premium bonds etc) and selling Gilts is a choice. The Government wants individuals, pension funds and insurance companies etc. to hold sufficient cash to meet any liabilities that may arise for them, so they provide them with 100% safe places to store this cash (the Government will never default). 100% of money the Government needs for spending not 30% 'could' be 'borrowed' from the Bank of England. In a similar way to how a commercial bank lends by putting two matching entries in ledgers, +ve in someone's current account and -ve one in a loan account the Bank of England puts a +ve figure in the Governments current account and 'buys' a Government bond to hold as the matching -ve amount. The difference with the Government (which owns the Bank of England) is because this spending is effectively newly created money, in order to avoid too much money building up in the economy and causing inflation it has to tax it back to cancel it out. Spend then tax is how it works.

[@andrewwebb9426]

This sounds like Modern Monetary Theory and, as such, needs a lot of unpacking so mere mortals like me can understand it. As I get older I’m more and more sceptical that money really exists at all except as a convenient fiction of people’s imagination. You want money as an individual or company and we’ll lend you some and put it down as an asset whilst you go off and do some wild property or currency speculation and hopefully make even more. The amount of ‘money’ just gets bigger and bigger once the pump is primed by that initial loan. You want money as a government with its own currency and central bank and we’ll lend it to you apparently without limit when the chips are down: wartimes and 2008 financial crisis come to mind as examples. This might or might not ever be repaid! Will the £billions of QE ever be paid? Does it even matter?

[@archie7218]

What is the point if the money gets taxed back? They may as well have just used the tax money in the first place.

[@chrisFg818]

Another explanation ation is: kzbin.info/www/bejne/Z5DZf3SPZ7Olo5Isi=24LIMeVUfnCNiNYO

[@joskowal3711]

@@chrisFg818 This guy had an embarrassing debate on Sky with the farmers. He insisted that APR and BPR each had a £1mn threshold and yelled at the farming rep when she correctly said otherwise.

[@joskowal3711]

@@chrisFg818 Christ he was also a key contributor to Corbynomics. The shadow chancellor at the time was forced to distance themselves from him saying: "He is actually excellent on tax evasion and tax avoidance, but he leaves a lot to be desired on macroeconomic policy".

[@TurielD]

This whole segment is talking about how governments get money through bonds. That's an entirely different process from how government 'borrows' money, which it does by creating it. The bond issuance is a mechanism to cause the government to *not* end up in the red. Governments do not financially need to do this, they *can* create as much money as needed. But we have laws that say that governments should not do that. There are reasons for that - some good, some bad; just be aware that it's not a matter of 'government borrows by issuing bonds'.

[@blackbulldog4897]

Govt doesn't "get money" through bonds. Bonds are issued ex-post of spending by political choice. There's no law to stop the UK govt going into the red.

[@glassmuxxic]

Still banging that MMT drum, eh? 😂

[@blackbulldog4897]

@glassmuxxic what is about MMT, which accurately describes how fiat money systems work and explains the capacity of our currency issuing govt, you find particularly amusing?

[@davidthompson797]

Its completely misleading to talk of government "borrowing". It should be obvious that if the government can pay the coupon plus interest with a tap of a computer keyboard it has no need to "borrow" in the first place, it creates new money by the act of spending. There are reasons to sell gilts but it is not necessary to do so and merely convention to sell gilts to match the amount of deficit. This really needs to be understood or else the political debate is stuck at the inane "how are you going to pay for it?" which in a modern fiat currency makes no sense whatsoever.

[@Baxwell.]

Answer: anyone that wants a 100% guaranteed return on their investment. If it's paid for in Pound Sterling, which gilts interest is, then the Government can always afford it.

[@KenDickson-k4f]

Agreed this is fair enough if the lenders (pension funds on our behalf) are freely deciding to invest in government bonds. What is really scandalous is where regulators (the government) direct investment companies/pension funds etc etc to not in invest in some things and force them to invest in other things.

[@johnsnelgrove7874]

Ludovic Kennedy did a very good program called the Midas touch back in 1980 which showed that then 1/7 of the money in the money markets was being used to make goods. The rest of it was used to make money. That gearing ratio increase to 1 to 60 at the worst point It would be very interesting to know what that gearing ratio is now

[@ScepticalBrit]

Who really lends them money......"The Iron Bank"

[@randomtravel1489]

Excellent.

[@Pstep75]

In a nutshell, the more debt we have the richer some people or companies get. When you look at it this way it sheds a light on why the government does what it does.

[@garylake1676]

Is that not like a household, the more debt you have, the more other people benefit from your looseness with money?

[@joskowal3711]

Then why is the deficit set to even out by 2029?

[@garylake1676]

@@joskowal3711 Only a fool would set their stall out for an economic forecast that is five year out, after all, if you could predict with accuracy that far ahead, you would be a currency trader.

[@harlsmusic]

There's a magic money tree in the bank of England

[@jaisriram295]

New statesmen just ignoring all the negative news for their darling Labour party 😂😂😂

[@MacksCurley]

What portion of GDP is government spending?

[@alexshawwest]

The debt management office DO NOT set the interest rate, the market does (buyers). If there is no demand then the interest rate moves up until there is.

[@TurielD]

The BoE changes the amount of supply by holding bonds on the books and effectively 'rationing' them... or just holding them forever. That's why 1/3 of all government debt is owed to... the government, through its bank.

[@blackbulldog4897]

No, sorry. Gemms are obliged to buy bonds at issue.

[@alexshawwest]

@@TurielD well why don't we just pay a zero percent rate? Because the mkt wouldn't buy them. Could the central bank buy all the gilts??

[@Vroomfondle1066]

@@alexshawwest The market would still buy them as they need them as risk free collateral. And yes, the Central bank could buy all the gilts. They've been doing something similar in Japan for decades.

[@ThomasVWorm]

​​@@TurielDwhen the BOE holds bonds, it was just an exchange of IOUs when it gave money for it. So it isn't that the government owes to itself since the BOE is only an intermediate between the government and those, who have the money the BOE gave for the bonds.

[@aleksandarsmiljanic571]

I already like this guy with his Prince reference 👍

[@noname-vc2ll]

4:36 Hannah, maybe read section 1.1 of the ‘Philosophy of Money and Finance’ entry in the Stanford encyclopaedia of philosophy. It’s a good place to start if you’re curious about the nature of money.

[@ThomasVWorm]

The nature of money is simple: it is a bookkeeping system and the bookkeeping is about debt. Debt is not created when borrowing money - this is a net zero operation - but when spending it. After spending the debtor has to sell for the money too and as much, as he has got. So the buyer owes to the seller, because paying with money is not barter. Public debt works about the same except that the government does not owe to the private sector, when it spends. The private sector owes the money, the government spends, to the government. This is because the government indebts the population first by demanding taxes from the population first. This brings the population into the same situation as if it would have borrowed money and has spend it: it must earn the money to return it to the bank/tax office. So the state acts like a bank when the government "borrows" money, because this borrowing creates the money which the population owes to the state because of the demanded tax.

[@dsmith657]

This person does not understand how the system actually works. The correct answer to who lends pounds sterling to the government is the government. Yes the government issues bonds, gilts, but the reserve increase in the banking system as a result of government spending more than it taxes back are used by the primary bank gilt dealers to purchase the bonds. From an system accounting perspective it is therfore an asset swap on the asset side of the bank ledger. Primary gilt dealers then sell the gilts into the secondary market and this is when pension funds ,for example, purchase the gilts, giving the illusion of lending. In other words yesterday's deficit spending by the government is used to purchase today's gilt issue. If I or you were lending to the government then we would have a printing press for pound sterling, that is not allowed. Only the UK government has the legal power to issue the currency. Therefore all pound sterling in existence must have at some point have come from the U K government and its agents.

[@ArghMuffinMan]

That's not true though is it? Private banks generate new money via loans to customers. Or am I misunderstanding that?

[@davidthompson797]

@@ArghMuffinMan They do, but under licence from the government. Also that money is always, at some point, paid back, which is how it differs from government money creation.

[@ArghMuffinMan]

​@@davidthompson797 but Government debt is paid back via bonds. In fact government debt is much more likely to be paid back than a loan. Either way it's still money creation, just via different mechanisms.

[@davidthompson797]

@@ArghMuffinMan Government spending is not dependant on bond sales. A portion of government money spent into the economy is taxed out again but not all, clearly, otherwise the economy would grind to a halt and we'd all be skint.

[@ArghMuffinMan]

​​@@davidthompson797It's not dependent on the bond sale, but the bonds are created to cover Governments fiscal expenditure which is not covered by taxes (even if these bonds are created after the spending has taken place). But that's besides the point, all I was saying is that all Government debt is paid back.

[@michaels8638]

And in QE it issues new money to your bank on the strength of your house as an asset, you then borrow back that same money from the bank as a mortgage.

[@ThomasVWorm]

The banks create the money you borrow as a mortgage. QE is a policy of the BOE to inject money in the economy, since it cannot lower the interest rate below zero. QE shows that the BOE is in a helpless situation when trying to spur the economy. The government does not need QE, since it can spend and tax.

[@alejandro_mery]

It's pretty clear that there are not enough jobs for everyone and technology will make that worse, so radical thinking is needed. UBI allows everyone to have decent living but most importantly it removes FEAR from those who want to build new ideas to take the leap and create new small businesses, improve their skills, employ people, create new economic and cultural activities, etc. We have to break the 19th-century mindset.

[@witlesswonderthe2nd883]

So why bring well over 10 million people to live here then, we’re told constantly we need the workers yet the jobs market is shrinking and will decrease rapidly in the next few years.

[@alejandro_mery]

@witlesswonderthe2nd883 not everyone is qualified to do every job. that mismatch is always present. if you don't want to import pre-trained workforce or cheap-labour willing to live below the "minimum acceptable standard of living", you have to invest in growing and training your own. and pay them enough to fund a decent life

[@alejandro_mery]

@witlesswonderthe2nd883 for some reason my reply is always getting deleted so I can't answer

[@ThomasVWorm]

A UBI does not work. It is a inflation machine. Money is somebody elses debt. When you give to each and everybody a UBI, there is nobody left to be the debtor, which is why the money is worthless.

[@jacksparrowinthesavoy]

“we don’t have any say over it” - this is incorrect, you do. You can pick your pension manager or self manage your pension.

[@andrewwebb9426]

As regards govt money, it seems it can create it at the drop of a hat when needed to bail banks out or go to war. It would be nice to know what stops it borrowing another £22 billion (and maybe more) to help pensioners and businesses. My vestigial understanding of MMT seems to suggest it could without any bad effect provide there is still some slack in the economy and the government takes it all back as additional taxes. But obviously there’s a limit somewhere as Weimar Germany and 1920s America found out. But where is the limit, exactly?

[@blackbulldog4897]

The limit is availability of resources at a price govt is willing to pay, and politics.

[@andrewwebb9426]

@@blackbulldog4897 Thank you. I'm genuinely interested in this. I understand about the politics, of course! MMT turns conventional neoliberal economic thinking upside down. But if the government was willing to 'borrow' more couldn't it provide the resources? I did mention that MMT says there must still be slack in the economy, i.e. more ability to manufacture or provide. I think this is what happens in wartime when everything moves up a cog.

[@blackbulldog4897]

@@andrewwebb9426 You are welcome. Firstly, and just as a couple of simple fundamentals, it's important to understand the only borrowing the UK undertakes is on it's own terms and via it's own bank, the BofE ... and when we talk about resources we are mainly talking about people. Maybe try to think of things this way; if the government wants to do something (enact some policy or other) it only has certain options (or combinations of those options) available to it so the questions are always the same: What do we, as a government, want to do? What people do we need to do it? Are the people we need to do it available? What are they doing now? How do we stop them doing what they are doing now and start doing what we want them to do? Policy choices are around the public/private involvement. Again, same choices as always: Pay/coerce/wait for the private sector to do it Take the resources from the private sector into the public sector via taxation and or legislation Combination of the two Does that make sense?

[@garyh1572]

Surely the people who are "economically inactive " or actually active because they are spending money,even though they aren't working ??

[@karlarcher8773]

We 'give' money to the government? I didn't realise it was voluntary, good to know before the self assessment.

[@gordonholding5621]

When are you going to,explain Modern Monetary Theory. This is crucial to understand the so called government deficit.

[@blackbulldog4897]

They aren't.

[@arcamz]

The 30% of debt owned by the BOE is provided by printing money which in turn reduces the purchasing power of money. Around £300-£400 billion was printed under the tories to pay for covid hence the 30 to 40% increase in cost for goods and services. UK, US and Euroland printed trillions. There is no free money we pay with inflation or tax.

[@ThomasVWorm]

Nonsense. Since the people hoard money, you do more have a lack of money in the economy. Then the UK has a huge trade deficit, which causes a loss of money of more than £200 per year. And of course the government taxes the money back it spend - you owe the money it spends to the government. But it taxes less than it spends to keep the economy going. Otherwise a part of the private sector, which is in debt, goes bust because of the lack of money due to net imports and money being saved. As a consequence millions would lose their jobs and income.

[@ssuwandi3240]

Easy. US Treasury @5.25%👍

[@andielines]

Yebbut, you missed the main point. Why does the government 'borrow money' when it can actually create it itself. After all, that is why bonds are considered 'copper bottomed' as the government will always be able to pay its debts for that reason.

[@ThomasVWorm]

The reason, why the government can always pay its debts is because it can accept being paid by its own bonds and can tax them out of circulation.

[@chrisgoog58]

Company pensions lends themselves money to invest in its self. When I worked for Airsprung Beds they did it via its own pension company's and different investment company's whom lent them moneys .. Also the gov go to middle East those who have billions of cash etc 😮

[@gio-oz8gf]

The government doesn't need to go any further than the Bank of England; they can get as many billions as they want from there.

[@TheCrimsonAvenger]

More relevant being , who instructs our politicians once they have pledged to King Charles ? They certainly don't wish to help those who voted . 65 percent pay increase for the Royals , but cannot afford pensioners winter fuel allowance

[@Beliefish]

terrible explanation... I know what he is talking about and even I am confused

[@RichardStephens-bt6or]

It doesn't really exist. Quote from Margin call " it's only money"

[@chrisFg818]

Another explanation ation is: kzbin.info/www/bejne/Z5DZf3SPZ7Olo5Isi=24LIMeVUfnCNiNYO

[@Jenks1]

"Who lends the government money? | economics | The New Statesman" - Literally no one. If these guys understood that money is govt debt, then what they are asking is, who lends govt debt to the govt to enable the govt to issue more govt debt...it doesn't make any sense. Govt creates money by spending it, it simply offers a savings facility to the private sector. This is basics.

[@ThomasVWorm]

The government creates money by demanding taxes, which turns the population into debtors, who owe to the state as much labour as much the government demands taxes. And in order to buy this labour the government must create money it can give to the population and the population uses this money to pay the taxes. So practically the government lends money to the population but instead of giving it to the population it puts the money straight onto its own bank account, because the population is already in debt and owing to the state what it wants to buy from the money. Money is a bookkeeping system of debt and debt does not mean owing money to a bank but to those, who were paid with the money. Only the government does not indebt itself but others, which is why those others don't see the money before they will pay it back. The confusion of money origins, because most economists do not understand money and what it is all about and because the system is much more complex because of detours. But even those, who understand the financial system do not understand, what it is about, which is why they don't see, that taxes are demanded first before being collected, which creates debtors and which is important to make the system work. Without the demanded tax, the government would compete for the same labour with the private sector, since first of all I would work for myself. Due to the demanded tax, I do only plan with my net income but not with my gross income. This avoids inflation, since this way I reserve some of my labour resources for the government.

[@robicjedi]

This is misleading. When governments spend they get the money printed by their central bank and when they tax, they cancel that money. In essence governments never borrow, they create money by spending and destroy money by taxing. Bond is a very different thing, that is a savings mechanism so that those who accumulated money can keep it for a rainy day without investing.

[@ThomasVWorm]

A bond is a credit contract being auctioned to banks rather than going to a bank and sign a credit contract. It can be paid by the banks borrowing money from the BOE or from savings. But since they can be sold, they are always another type of money. You can indirectly pay with them and at least your taxes. Money is created when someone signs a credit contract or issues a bond. Banks are just intermediates, who take those IOUs and give their IOUs, which they create: money. Money is a generalized and splittable IOU or a bookkeeping system of debt. The banks are intermediates, who hold as much IOUs as they create. This way they do the bookkeeping.

[@anthonyrybicki1000]

1m missing workers in Wetherspoons pubs or doing jobs in the cash only black economy?

[@leonardpattison2816]

None the Wiser

[@BMC-hl2uh]

Nonsense. #mmt.

[@qualisarphate681]

Governments don't borrow from financial markets!, kzbin.info/www/bejne/mqHZq5uPgc-chqM