Government Pays Down £11.4Bn Of Debt As Raids Money Printing Fund

[interestrateripoff]

http://www.telegraph.co.uk/finance/economics/9885167/Public-finances-Government-pays-down-11.4bn-of-debt-as-raids-money-printing-fund.html

Official figures showed that the Government paid down £5bn more debt last month than in January 2012, largely as a result of seizing the £3.8bn of excess cash in QE. An increase VAT and income tax receipts offset a £1.2bn fall in corporation tax income for the month.

The surplus was the second largest for the month since records began in 1993 and, even excluding the QE cash, was better than last year – at £7.6bn. It was also marginally better than economists had expected.

However, the receipts were not expected to spare the Chancellor his blushes at next month’s Budget, when the Office of Budget Responsibility (OBR) is expected to say that borrowing in 2012/2013 will rise despite a £28bn austerity round – excluding one-off impacts.

Martin Beck, UK economist at Capital Economics, said: “Underlying borrowing is still likely to come in £3bn-£5bn above the OBR’s forecast of £119.9bn.”

Rejoice at last we are paying down the debt and not the deficit....

[Bloo Loo]

so, next year, the picture is?

Seizure of another pension fund, more stealing from the BoE.....

VAT rises.

Income tax rises

Corporations making even less....just wondering why the stockmarket was rising when the actual earnings of Corporates was falling.

[Dorkins]

The Positive Money lot will be pleased, isn't this basically what they want? A Chancellor of the Exchequer able to access freshly printed cash without the need to issue Gilts.

[Sledgehead]

And for those mystified by the QE windfall, here's PIMCO's Bill Gross spelling it out:

... the Fed and other central banks such as the Bank of England (BOE) actually rebate the interest they earn on the Treasuries and Gilts that they buy. They give the interest back to the government, and in so doing, the Treasury issues debt for free. Theoretically it’s the profits of the Fed that are returned to the Treasury, but the profits are the interest on the $2.5 trillion worth of Treasuries and mortgages that they have purchased from the market. The current annual remit amounts to nearly $100 billion, an amount that permits the Treasury to reduce its deficit by a like amount. When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.

The reason this occurs is because the central banks, in agreeing QE, had governments indemnify them against losses on the bonds they purchased. Of course, even developed nation governments aren't gonna let central banks keep profits whilst indemnifying losses (that's just for banks in the private sector you understand), so the quid pro quo for the indemnity was that central banks hand back any profits (coupons included).

If this is leaving you wondering exactly what might happen to the deficit if gilts weaken, you aren't alone. The government will be forced under the agreement to pay the BoE for any declines on the portfolio. So far the BoE has purchased £375bn of gilts. Until recently these have only appreciated in value. Let's hope it stays that way: if the knives are out when 4gee fetches £1bn less than expected, what will it look like if the recent gilt declines become entrenched hitting the bonds held by the BoE in its APF?

Edited February 21, 2013 by Sledgehead

[zugzwang]

so, next year, the picture is?

Seizure of another pension fund, more stealing from the BoE.....

VAT rises.

Income tax rises

Corporations making even less....just wondering why the stockmarket was rising when the actual earnings of Corporates was falling.

Surprisingly, there's little to connect them - in fact the correlation may even be negative. Markets are driven by liquidity first, sentiment second, fundamentals a distant third.

Forbes did an international study of economic performance vs stock indices between 1993 and 2010:

[Bloo Loo]

Surprisingly, there's little to connect them - in fact the correlation may even be negative. Markets are driven by liquidity first, sentiment second, fundamentals a distant third.

Forbes did an international study of economic performance vs stock indices between 1993 and 2010:

that explains a lot...liquidity and the threat of withdrawal by the FED....sort of confirms the unreality of it all...Baby with no candy springs to mind.

[JaneTracy]

It seems that once you take out all the fiddling of the numbers we are doing worse than last year! Who would have thought it?

The analysis below wonders to what depths we will stoop to fiddle the numbers.

Today’s numbers

Let us first have the numbers with the spin and the spin today is worthy of Shane Warne and Murali.

Public sector net borrowing was -£11.4 billion (a repayment) in January 2013; this is a £5.0 billion higher net repayment than in January 2012, when net borrowing was -£6.4 billion (a repayment

Wow that’s good we are turning for the better,hooray! Er well not quite as there is a shark in the water.

January 2013 public sector net borrowing and public sector current budget figures include the first cash transfer from the Bank of England Asset Purchase Facility Fund to Government of £3.8 billion, which took place on 7 January 2013

So the £5 billion presented has shrunk alarmingly already and let me add something else. Last year the deficit was originally presented as £7.75 billion and if we add the QE money to that we find that on a pure like for like basis we are in fact worse off!

Since then there have been revisions to last year’s number and we do find we are better off by £1.2 billion on them.

If we look for some perspective we see that in the fiscal year so far our apparent improvement soon fades. As this.

If this one-off effect is removed then PSNB ex for April 2012 to January 2013 is actually £1.5 billion higher than in the same period in the previous year

Becomes this.

If these two additional effects are removed then PSNB ex for April 2012 to January 2013 is £7.5 billion higher than in the same period in the previous year.

The QE “profits” and the SLS account for the difference here and an outstanding monthly improvement vanishes into the ether.

http://www.mindfulmoney.co.uk/wp/shaun-richards/todays-uk-public-finance-bulletin-is-51-pages-of-spin-obfuscation-and-misrepresentation/

I note that we also get an update that some of the changes to the numbers have been blocked by Eurostat so George Osborne must be fuming!

[Quicken]

The Chancellor has been able to reduce headline borrowing through a series of one-off items – the £3.8bn QE cash, which will rise to £6.4bn for the full year; a £28bn gain from taking over the Royal Mail pension scheme; and a £2.3bn dividend from the closure of the special liquidity scheme for Britain’s stricken banks.

These are just accounting fiddles. The following is from a 2012 budget article

Mr Osborne told MPs: “The transfer of the £28 billion of assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new private sector investment.”

A further £37.5 billion of liabilities will be absorbed into the rest of the state pension system and so will not immediately show on the Government books as debt.

The £9.5billion deficit – the difference between the two figures – is the same as adding £365 of debt to every British household.

The deal was formally cleared by the European Commission on Wednesday morning and will be recorded in Government accounts for the financial year 2012/13.

It could see public borrowing dip below the £100 billion mark for the first time in four years, according to analysts.

The analysts were spot on again.

[RufflesTheGuineaPig]

Rejoice at last we are paying down the debt and not the deficit....

No, that's not it at all. We still borrowed a load on money this year.

It's just that for one month when everyone had to submit their tax returns with a big fat check we took in more than we spent.

[plummet expert]

http://www.telegraph.co.uk/finance/economics/9885167/Public-finances-Government-pays-down-11.4bn-of-debt-as-raids-money-printing-fund.html

Rejoice at last we are paying down the debt and not the deficit....

It's only the 6 monthly January& July self employed /partners/Co tax payments that cause the up blip. I should not get excited atall. The Feb borrowing will carry on adding to our immense national debt, nearing £1.2TRILLION.

[@contradevian]

I think Mervo should set up a new website. MoneyPrintingExpert.co.uk

[sossij]

I just don't get this.

Why bother with productive enterprise, business, going out to work and paying taxes if you can use this QE malarky to pay off the debt... without seeming to do anything? Couldn't we just let the BoE and Treasury carry on with their little scheme while we all go down the pub instead?

It makes my head spin.. can someone please explain how this works?!

[SuperChimp]

I just don't get this.

Why bother with productive enterprise, business, going out to work and paying taxes if you can use this QE malarky to pay off the debt... without seeming to do anything? Couldn't we just let the BoE and Treasury carry on with their little scheme while we all go down the pub instead?

It makes my head spin.. can someone please explain how this works?!

As far as I understand it:

They are not using QE to pay down the debt. National debt never decreases.

QE is used, primarily, to buy government gilts and lower their price. They do this to lower the interest the government pays on its debt.

http://www.dmo.gov.uk/index.aspx?page=gilts/about_gilts

[sossij]

As far as I understand it:

They are not using QE to pay down the debt. National debt never decreases.

QE is used, primarily, to buy government gilts and lower their price. They do this to lower the interest the government pays on its debt.

http://www.dmo.gov.uk/index.aspx?page=gilts/about_gilts

Thank you 98% Chimp for taking the time to reply. How does what you have stated square with this from the Telegraph article IRRO posted in the OP?

"Official figures showed that the Government paid down £5bn more debt last month than in January 2012, largely as a result of seizing the £3.8bn of excess cash in QE"

and this from Larry Elliott in the Guardian:

"Last month's deficit showed that the exchequer was in the black by £5bn more than in January 2012, although £3.8bn of the improvement was the result of the Bank of England's quantitative easing programme being paid to Hothe Treasury."

http://www.guardian.co.uk/business/2013/feb/21/january-government-borrowing-george-osborne

How has some extra money seemingly 'appeared' in the system to use to pay to the Treasury? I'm sorry for sounding thick.

Edited February 21, 2013 by sossij

[SuperChimp]

I'm sorry for sounding thick.

You do not sound thick. If these things are never explained to you at school or on the TV how are you supposed to know? I am no expert but I will try and help. Be very careful with links on-line. I try to be but I am not perfect.

Robert Peston wrote a decent article on this whole issue a while ago on the BBC website a while ago.

http://www.bbc.co.uk/news/business-20270002

Let's start with the national debt. You might find this website useful:

http://www.debtbombshell.com/

Every year the UK runs a large budget deficit. The Government spends more money than it can tax, so we plug the gap by selling bonds to investors at home and abroad. These bonds - known as gilts - have to be repaid in full, with interest. Added together, our unpaid loans make up the UK's national debt.

From wikipedia:

Due to the Government's significant budget deficit, which must be financed by borrowing, the national debt is increasing by approximately £121 billion per annum, or around £2.3 billion each week.

http://en.wikipedia.org/wiki/United_Kingdom_national_debt

The budget deficit this year is forecast to be £121 billion so they are not paying off anything from the overall debt just because they got a little extra money in January. The government would need to save another £121 billion before they can start cutting into the actual debt. Note that the budget for the WHOLE of the NHS last year was £100 billion so don't get your hopes up thinking the deficit will be erased any time soon.

How has some extra money seemingly 'appeared' in the system to use to pay to the Treasury? I'm sorry for sounding thick.

Now this is the interesting part. The Bank of England is a separate entity to the Treasury even though the Treasury owns it.

The Bank of England can 'create' electronic money at will, however this money does not directly circulate in the economy. It uses this electronic money to 'buy' gilts from the Treasury. The Treasury then pays the Bank of England interest for the gilts it holds. No money is actually exchanged, it is all just an accounting trick. When the gilts expire the Bank of England and Treasury can just erase them from existence and the interest can be paid back to the Treasury.

The Bank of England has a good video of this on You Tube:

From the Robert Peston article:

But - and this is important - what we are fundamentally looking at here is a timing benefit, rather than something more fundamental. Because all that surplus cash would have been returned to the Treasury at the point that quantitative easing came to an end and the APF was wound up.

So no more money has entered this closed system. The bonds are electronic and are manipulated in this way to uphold confidence in the system.

Remember that if the amount of money in the economy reduces we are straight into deflation territory as interest can no longer be paid.. Wide spread bankruptcies and foreclosures would occur and the currency , in my opinion, would be trashed. That is why all this talk of the government paying doesn't it's debt is absurd.

Once again I am no expert and if anyone else can contribute to this it would be much appreciated.

[sossij]

You do not sound thick. If these things are never explained to you at school or on the TV how are you supposed to know? I am no expert but I will try and help. Be very careful with links on-line. I try to be but I am not perfect.

Robert Peston wrote a decent article on this whole issue a while ago on the BBC website a while ago.

http://www.bbc.co.uk/news/business-20270002

Let's start with the national debt. You might find this website useful:

http://www.debtbombshell.com/

From wikipedia:

http://en.wikipedia.org/wiki/United_Kingdom_national_debt

The budget deficit this year is forecast to be £121 billion so they are not paying off anything from the overall debt just because they got a little extra money in January. The government would need to save another £121 billion before they can start cutting into the actual debt. Note that the budget for the WHOLE of the NHS last year was £100 billion so don't get your hopes up thinking the deficit will be erased any time soon.

Now this is the interesting part. The Bank of England is a separate entity to the Treasury even though the Treasury owns it.

The Bank of England can 'create' electronic money at will, however this money does not directly circulate in the economy. It uses this electronic money to 'buy' gilts from the Treasury. The Treasury then pays the Bank of England interest for the gilts it holds. No money is actually exchanged, it is all just an accounting trick. When the gilts expire the Bank of England and Treasury can just erase them from existence and the interest can be paid back to the Treasury.

The Bank of England has a good video of this on You Tube:

From the Robert Peston article:

So no more money has entered this closed system. The bonds are electronic and are manipulated in this way to uphold confidence in the system.

Remember that if the amount of money in the economy reduces we are straight into deflation territory as interest can no longer be paid.. Wide spread bankruptcies and foreclosures would occur and the currency , in my opinion, would be trashed. That is why all this talk of the government paying doesn't it's debt is absurd.

Once again I am no expert and if anyone else can contribute to this it would be much appreciated.

Fantastic post 98% and thanks again for taking the time to post, very much appreciated.

There's a lot here so I need to go away and get my head round it. In the meantime, I just know I'm going to have a problem with the idea that if "no more money has entered this closed system" how has some money supposedly connected with QE profits been used to pay off some outstanding debt? But I'm getting ahead of myself, I shall go away and read your links.

Thanks again.

[Bloo Loo]

Fantastic post 98% and thanks again for taking the time to post, very much appreciated.

There's a lot here so I need to go away and get my head round it. In the meantime, I just know I'm going to have a problem with the idea that if "no more money has entered this closed system" how has some money supposedly connected with QE profits been used to pay off some outstanding debt? But I'm getting ahead of myself, I shall go away and read your links.

Thanks again.

hmm, no money has entered the system?

So, how does the government pay its bills?...with no money?

And, the Bank of England does not buy the Gilts from the Government...It buys them from banks, who have bought them.

[Bloo Loo]

Thank you 98% Chimp for taking the time to reply. How does what you have stated square with this from the Telegraph article IRRO posted in the OP?

"Official figures showed that the Government paid down £5bn more debt last month than in January 2012, largely as a result of seizing the £3.8bn of excess cash in QE"

and this from Larry Elliott in the Guardian:

"Last month's deficit showed that the exchequer was in the black by £5bn more than in January 2012, although £3.8bn of the improvement was the result of the Bank of England's quantitative easing programme being paid to Hothe Treasury."

http://www.guardian....-george-osborne

How has some extra money seemingly 'appeared' in the system to use to pay to the Treasury? I'm sorry for sounding thick.

obviously, a day, a month a year, all time periods, and if you take any of them individually, the state of your "business" could be different,

for example, every month, your overdraft gets bigger....sad

but, on the last Thursday in the month, you get paid...and look, your overdraft got smaller...THAT DAY....come the last day of the month, compared to last month, the overdraft is still bigger.

Thats one reason people have money at the weekend when they are paid on a friday...they havent spent it yet.

So yes, like Gordon Browns Golden Rules, you can say whatever you like dependent on the time frame you choose.

[RufflesTheGuineaPig]

Now this is the interesting part. The Bank of England is a separate entity to the Treasury even though the Treasury owns it.

The Bank of England can 'create' electronic money at will, however this money does not directly circulate in the economy. It uses this electronic money to 'buy' gilts from the Treasury. The Treasury then pays the Bank of England interest for the gilts it holds. No money is actually exchanged, it is all just an accounting trick. When the gilts expire the Bank of England and Treasury can just erase them from existence and the interest can be paid back to the Treasury.

I thought this was the interest the BoE had collected? In fact I'm 99% sure it is.

[Bloo Loo]

I thought this was the interest the BoE had collected? In fact I'm 99% sure it is.

It is. The article refers to the money creation as jut an accounting thing.

The point is, this is what the banking system does, deficit or not...It creates a receipt against something valuable it holds, physically or has a lein on...for example, your house, you pledge it for some cash....the cash represents the value of the house.

this process is called monetisation...

QE is different.

there is NO pledge against which the money( reciepts) is issued. The money is created and the asset removed from circulation. note this is the reverse of a loan....it is a purchase of the asset for money which has no pledge. It cant be defaulted. It therefore has no value.