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Orsino

Where Does The Money Come From?

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I've been discussing the banking crisis with friends and I simply don't have the knowledge to prove or disprove my point. Could anyone help me out here?

I've said that the government is creating the money that they are using to bail out the banks. My friends say the government is borrowing the money to bail out the banks. (One said they're getting the money from taxes but I think we can discount that). I know the government has been talking about quantitative easing but I also know that government borrowing has risen dramatically recently. Have we be bailing out the banks with borrowings so far? Borrowings from where? Are we now switching to creating/printing more money because people will increasingly no longer lend to our government. Has the bail out been a mixture of borrowings and money creation? Genuinely confused :unsure:

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Borrowing. They are borrowing massive, truly massive amounts of money to increase spending and maintain their existing spending which is higher than it ever should have been.

A new child born today has £17,000 before it even gets started in life. Your kids will still be paying back this current Gordon Brown borrowing for many decades to come.

Edited by KingBingo

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I've been discussing the banking crisis with friends and I simply don't have the knowledge to prove or disprove my point. Could anyone help me out here?

I've said that the government is creating the money that they are using to bail out the banks. My friends say the government is borrowing the money to bail out the banks. (One said they're getting the money from taxes but I think we can discount that). I know the government has been talking about quantitative easing but I also know that government borrowing has risen dramatically recently. Have we be bailing out the banks with borrowings so far? Borrowings from where? Are we now switching to creating/printing more money because people will increasingly no longer lend to our government. Has the bail out been a mixture of borrowings and money creation? Genuinely confused :unsure:

Right, pay attention 007:

Money, in the strictest sense of the word can only be "printed" by the central bank i.e. the Bank of England. The standard way of "printing" money is for the BoE to buy up some government bonds with money it has simply created out of nothing. This has the potential to be highly inflationary so in any sane economic environment the central bank will try to limit the amount of money it prints and the goverenment will try and limit the amount of money it borrows. Currently neither of these things are actually happening.

What is going on at the moment is that the government has had to issue a shit load of new bonds to cover things like multiple bank bailouts, falling tax revenues, VAT cuts, increased public spending, "stimulus" packages and so on. Every time it issues a bond, somebody has to buy it. Some bonds are being bought by the BoE and at the moment some are still being bought by foreign investors, for a number of reasons. The critical point is going to be when/if the bond markets decide they have already got enough of Gordon's IOUs and that anyway the return on them is complete crap and refuse to buy them. At this point the government can try and sell bonds for a discount (£100 of government debt for £90, say) or it can get the BoE to buy them. The BoE can buy as much stuff as it likes because it can quite literally print the money it needs to buy things but if it becomes the sole buyer of government bonds then we're heading off to Weimar Republic territory. This is because 1. if if the bond market collapses then the pound also collapses and 2. because the BoE buying up this many bonds is potentially highly inflationary. The economic ruin caused by this could mean that the government is unable to service its debt due to falling tax revenues and either gets the BoE to print more money or goes running to the IMF.

Given that the Germans of all people failed to get a bond issue away recently and given that the UK currently has a higher risk premium on its bonds than McDonnalds, then it's well worth keeping an eye on.

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Right, pay attention 007:

Thank you Q. Message received and understood.

[raises Roger Moore eyebrow]

I've always enjoyed getting to grips with the figures

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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