OK, let's say I own a hypothetical £10million. In what form do I keep it, bundles of banknotes? No, in the short term I deposit it in a bank. To the bank it is now a £10million debt owed to me; and to me it is a £10million asset. In the longer term I might decide to invest it in gilts so I buy £10million worth of government bonds. To me the bonds are an asset; to the government the £10million is part of its debt. Now take a step backwards and look at the broader picture. Let's say some media article is published, which trumpets the fact that 'debt has increased by £10million' but omits to mention that assets have also increased by £10million. Is that article fair, balanced, and reasonable? Or is it distorted tendentious rubbish?
it's a fact that debt has been issued, therefore increased. Part of MMR2 was to buy bonds to provide the country with an income. If it's sensible to use those bonds to buy our debt, fair enough. I know this, because I was asked to help write the software to implement MMR2 for the BoE. An interesting project. So the BoE holds that debt, then sells it. Do we have to keep a ledger to work out how much we owe, or do we just record the bonds (debt) issued?
This is drifting far away from the topic, but never mind. The value assigned to a unit of currency at a moment in time is arbitrary, and values change over time. Sometimes values change slowly (e.g. 2% inflation per year), sometimes suddenly and drastically (e.g. Germany in 1923 and again in 1945). A UK pound in 2014 has no resemblance to a pound in 1900, or 1800 - except that it uses the same name. We can all remember the pound fluctuating up and down against other currencies (dollar, euro) repeatedly over the years. In the media, if the value of the pound goes down that is "bad news", but if the value of the pound goes up that is also "bad news" - which is quite funny really.
and most of the point of QE was to buy essentially junk bonds at the start of the economic crisis, in order to shore up our banks. I've said this before, but taking the crap off balance sheets made banks look better to investors, reducing the risk to our financial services. In fact, a lot of that debt is now performing nicely, adding money to the Treasury.
The pound going down against other currencies is good for our ability to retain jobs. The cost benefit of moving work overseas is reduced. Bad for people buying bikes from Italy, but good in that our jobs aren't off-shored.
Not really funny - much too simplistic. it would depend from whose perspective the "media' was reporting. Interesting word - perspective.......
"Non-existent money"? I am not sure in what sense you are saying it is non-existent, but the money created by the Quantitative Easing programme exists in the same sense that all the money created by all other methods exists. Money is, obviously, an artificial construct and the supply of it is created, increased or restricted for economic policy reasons. It would be folly to create money by QE at a time of high inflation, but it's surely sensible to use QE at a time of low inflation, risk of deflation, and insufficient growth (like now).
It is true my name is not Shirley, and it is true my name is not TT - is that more than one truth? Depends on your .... ummm.....whats the word,.. oh yes, perspective!
Perhaps you have in mind some mainly poor third-world countries where huge debts (huge in proportion to their GDP) are held in the country but the corresponding assets are held outside the country. That is indeed a great problem for those countries, but the situation of the UK is very different. Most UK government debt is held as assets within the UK, and UK institutions also hold lots of assets in other countries (where they constitute debts, of course). The notion that the UK is hugely indebted externally, without holding offsetting overseas assets, is not correct. Unless, of course, some evidence can be found to demonstrate otherwise ...
Interesting, Pete and I have learned something. Still, although the % of overseas holding of UK debt has remained constant at about 30%, this amount has grown from £50bn ten years ago, to £400bn today. Maybe it is irrelevant who has the debt, but interest has to be paid on it. Consequently, the % of tax which is used in interest payments must be rising. Looking at the figures here, I am struggling to make sense of them, as Pensions doesn't seem to be included in total spending. Your insight would be appreciated. And it would appear that interest payments are a tiny proportion of the budget, so maybe we shouldn't care about national debt after all. In which case, why the EU hoo-hah about the PIGS? Is their case much different, and if not, why has austerity been forced upon them, throwing so many out of work?
Glidd, the position with the PIIGS counrties is different because interest rates and money supply is controlled centrally. The EU is currently struggling with where to set its rates: too high risks growth, too low risks recovery. This is the problem with the euro: it is a 'one size fits all' currency for vastly different economies It is precisely because we can print more money and manage our exchange rate that we've cone out of the recession so quickly
And the problem now is.... how do we gradually wind down the QE process (so called "tapering") as we find ourselves in a time of rising inflation (we can't afford, yet again, to pretend that house price inflation is not a problem), no risk of deflation in the UK as far as I can see, and GDP growth that seems generally accepted to be better than expected. It could be a bit like trying to wean someone off a long period of pain control using opiates, once the injuries have started to heal.
You're right I've confused the US approach with the UK. It looks as if we stopped at £375 billion, whereas I think the US is ploughing on buying more bonds every month with a fear that any rapid "tapering" there will cause some sort of nosedive. I guess that bonds that the BoE owns will progressively mature and that will bring back cash that they may use to buy more.
