Proportion Of Uk Gov't Spending Funded By Seigniorage

[InternationalRockSuperstar]

http://www.globalresearch.ca/index.php?con...a&aid=13673

...

In an investment newsletter called Money Morning on April 9, Martin Hutchinson pointed to disturbing parallels between current government monetary policy and Weimar Germany’s, when 50% of government spending was being funded by seigniorage – merely printing money

...

In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts [the British equivalent of U.S. Treasury bonds] over three months. That’s 300 billion pounds per annum, 65% of British government spending of 454 billion pounds.

...

[Lone_Twin]

Pretty c@ppy logic.

If you give me a pound coin in one second does it mean I am earning £31 556 926 pa?

[Mr Nice]

Pretty c@ppy logic.

If you give me a pound coin in one second does it mean I am earning £31 556 926 pa?

no, but if I pay you 30k over the course of 3 months, it is entirely reasonable for you to calculate your salary as 120k pa.

their money creation is 75 billion over 3 months.

annualised that is 300 billion.

there is nothing crappy about that logic as far as I can see.

[sikejsudjek]

The crunch comes if they are still doing this in a couple of years time. At some point either we get finances back under control or we run into inflation and a gilt strike.

[Lone_Twin]

no, but if I pay you 30k over the course of 3 months, it is entirely reasonable for you to calculate your salary as 120k pa.

their money creation is 75 billion over 3 months.

annualised that is 300 billion.

there is nothing crappy about that logic as far as I can see.

Only if I have a salaried monthly/quarterly contract or I perform a specific ammount of work monthly for a known or estimated award which we can project on past patterns.

This is a specific individual event.

Its like saying that if I spend £100 on an i-pod this month I will spend £1200 on i-pods this year. The logic is b0llx0x.

[Injin]

Only if I have a salaried monthly/quarterly contract or I perform a specific ammount of work monthly for a known or estimated award which we can project on past patterns.

This is a specific individual event.

Its like saying that if I spend £100 on an i-pod this month I will spend £1200 on i-pods this year. The logic is b0llx0x.

More like spending on food than something discretionary like that.

The logic is sound IF the spending must continue for the state to survive as it is.

[bogbrush]

I love the way printing money still gets discussed as a serious strategy by intelligent people.

HELLO!!! It's blank paper, then I put ink on it, and suddenly you could buy half of London with it. Anyone spot the flaw in this?

Edited May 20, 2009 by bogbrush

[domo]

Its not printing money in the sense of Wiemar, they are issuing bonds. Someone has to be there to buy bonds, when you print cash there is no such worry.

[huw]

British government spending of 454 billion pounds.

If only...

[Jin]

Its not printing money in the sense of Wiemar, they are issuing bonds. Someone has to be there to buy bonds, when you print cash there is no such worry.

I think you'll find that the BOE "printing" to buy UK Gov bonds and thereby keep interest rates down.

[bogbrush]

In honour of this thread I have changed my avatar.

[Mr Nice]

Only if I have a salaried monthly/quarterly contract or I perform a specific ammount of work monthly for a known or estimated award which we can project on past patterns.

This is a specific individual event.

Its like saying that if I spend £100 on an i-pod this month I will spend £1200 on i-pods this year. The logic is b0llx0x.

it's only ******** if it truly is a one time event.

from their own discussions this isn;t likely to be a one time thing, and in fact is likely to be repeated several times over the coming years.

if you are spending 100 pounds a month on electronics over a fairly large period of time, it is silly to say that it is a one time event because you only are going to buy 1 ipod.

companies have been trying to use your logic a lot lately and announcing "one time events/charges" against earnings.

unfortunately there are different one time events each and every year.

[interestrateripoff]

Difference is we have Ponzi Brown in charge, nothing can possible go wrong.

[interestrateripoff]

http://www.johnredwoodsdiary.com/2009/05/2...the-money-gone/

We are now well into the Bank’s programme of quantitative easing. They have announced they will buy up to £125,000,000,000 of government bonds, with a few corporate bonds as part of the programme. The Bank’s own balance sheet, around £40,000,000,000 when the Rock crisis struck, was last seen at £215,000,000,000.

The Bank’s last report on inflation admitted it was still above target, but commented that given the large amounts of spare capacity in the economy and the downward pressure on wages and salaries, they expect it to go below target later this year. They did, however, go on to say:

“There is considerable economic stimulus stemming from the easing in monetary and fiscal policy, at home and abroad, the substantial depreciation in sterling, past falls in commodity prices and actions by authorities internationally”

There indeed is. The government hoped that the low interest rates and printing of money would push up government bond prices and make raising the borrowing easier. Instead, there has been an uneasy truce in the government bond market, with some worrying already about what will happen to prices once the stimulus is withdrawn. If the Bank started to sell the bonds it has bought in at the same time as the government is trying to sell more than £200,000,000,000 a year of debt, there could be a lot of indigestion in the market. In such conditions interest rates may be forced up.

It appears that a lot of the money being injected on both sides of the Atlantic is flowing more readily into shares and into commodities. That helps build a bit of confidence. It also helps raise the substantial sums some companies need to obtain from shareholders to repair their own damaged balance sheets. It is also inflationary, as oil moves from $35 to $60 a barrel.

Redwood seems to think it's gone into shares etc...

[interestrateripoff]

http://blogsandwikis.bentley.edu/themoneyillusion/?p=1171

Paul Krugman says yes, and when I first read his post I thought he was right. Now I’m not so sure.

Here is Krugman’s argument:

The big policy news this week has been the Fed’s decision to buy $1 trillion of long-term bonds, going beyond the normal policy of buying only short-term debt. Good move — but it’s probably worth pointing out that yes, this does expose the Fed, and indirectly the taxpayer, to some risks. . . .

The Fed is, however, creating a new liability: the monetary base it creates to buy these bonds. In effect, it’s printing $1 trillion of money, and using those funds to buy bonds. Is this inflationary? We hope so! The whole reason for quantitative easing is that normal monetary expansion, printing money to buy short-term debt, has no traction thanks to near-zero rates. Gaining some traction — in effect, having some inflationary effect — is what the policy is all about.

The problem may come when the economy recovers, and inflation starts to become a problem rather than a hoped-for outcome. Basically, there will come a time when the Fed wants to withdraw that extra $1 trillion of money it created. It will presumably do this by selling the bonds it bought back to the private sector.

But here’s the rub: if and when the economy recovers, it’s likely that long-term interest rates will rise, especially if the Fed’s current policy is successful in bringing them down. Suppose that the Fed has bought a bunch of 10-year bonds at 2.5% interest, and that by the time the Fed wants to shrink the money supply again the interest rate has risen to 5 or 6 percent, where it was before the crisis. Then the price of those bonds will have dropped significantly.

And this also means that selling the bonds at market prices won’t be enough to withdraw all the money now being created. So the Fed will have to sell additional assets; if the rise in interest rates is at all significant, it will have to get those assets from the Treasury. So the Fed is, implicitly, engaged in a deficit spending policy right now.

My back of the envelope calculation looks like this: if the Fed buys $1 trillion of 10-year bonds at 2.5%, and has to sell those bonds in an environment where the market demands a yield to maturity of more than 5%, it will take around a $200 billion loss.

I’m not complaining; I think quantitative easing (it’s really qualitative easing, but I give up on trying to fix the terminology) is the right way to go. But we should go into it with our eyes open.

Just thinking out loud, but doesn’t this policy actually reduce risk to taxpayers? The Federal government has something like $8 trillion in outstanding Treasury debt. The taxpayers face a huge risk that the real value of this debt could rise through deflationary monetary policies. Indeed that is exactly what has happened recently, as tight money has caused deflation, reducing nominal interest rates and sharply raising bond prices. If the Fed bought $1 trillion of the T-bonds held by the public, doesn’t that reduce risk for the consolidated government balance sheet? If the Fed does succeed in reflating the economy, and long term yields rise back to normal, then the Fed may lose $200 billion (although I doubt it will be that much) but the Treasury would gain much more. Hence taxpayers would still be better of with an expansionary policy by the Fed.

I’m not sure if Krugman understood this point when he wrote the post (I certainly didn’t when I first read it.) It is possible that Krugman is using the term “risk” in a very loose sense, more akin to how ordinary people use the term. Average people think of risk asymmetrically, as risk of loss, but not risk of gain. Krugman might argue that if the Fed engaged in QE, and was successful, there is a risk the Federal Government might not gain as much from reflation as they would have without the QE.

Consider two possibilities. One is that the Fed has inside information about its intention to reflate, and should use that information to its advantage. Krugman’s column occasionally hints at this perspective, but he also doubts about whether QE will work. Even if the Fed has inside information, and knows QE will work, QE might be worth doing if it is the only way to reflate. In that case the only question is which type of bond purchases will minimize the losses to the Fed. (BTW, if this was Krugman’s view, so far he has been right.)

In other posts I have expressed skepticism that the Fed really has inside information. I have argued that although common sense suggests they should have inside information, they are actually a big lumbering bureaucracy and the financial markets are just as able to predict the Fed’s future actions as the Fed itself is. I argued here that in December 2007 the financial markets out-forecast the Fed regarding the future path of the fed funds rate. If the EMH holds, the Fed is just as likely to gain as to lose from its bond purchases. And this means that QE will reduce aggregate risk to the taxpayer, under any definition of ‘risk.’

BTW, Krugman’s argument is just one more reason to do QE by charging an interest penalty on excess reserves. That would allow for $800 billion in QE without buying one more bond.

P.S. Now that school’s out I am starting to catch up with other blogs. I was embarrassed to notice that Krugman also had a “Being There” post, and even quoted the same passage. Now I understand why famous people get caught plagiarizing so often—it’s easy to do without even realizing it.

Edited May 20, 2009 by interestrateripoff

[aliveandkicking]

I repeat.

Anyone answer this?

Boe are undertaking a 75B UK Government and UK Corporate asset purchase program. If the gilts or Telecom bonds are held by a NZ bank then pounds will go to NZ and assets will go to the BOE

Since most of these assets are probably owned by foreigners this means most of the pounds will go to NZ etc who in turn have surplus pounds they want to lend out as excess reserves or exchange so that somebody else has excess reserves or somebody spends the pounds in the British economy.

http://www.bankofengland.co.uk/monetarypol...etpurchases.htm

Quantitative Easing

The Monetary Policy Committee announced on 5 March 2009 that, in addition to setting Bank Rate at 0.5%, it would start to inject money directly into the economy in order to meet the inflation target.

This means that the instrument of monetary policy shifts towards the quantity of money provided rather than its price (Bank Rate). But the objective of policy is unchanged – to meet the inflation target of 2 per cent on the CPI measure of consumer prices. Influencing the quantity of money directly is essentially a different means of reaching the same end.

It boosts the supply of money by purchasing assets like Government and corporate bonds – a policy often known as 'Quantitative Easing'.

Edited May 20, 2009 by aliveandkicking

[57percent]

I repeat.

Anyone answer this?

My understanding is that they're not buying direct from the government, but they are buying government bonds from the secondary market with newly created narrow money.

The seller could then replace the bonds they've sold by buying new bonds from the govt (in which case the difference between printing directly for the govt becomes blurred).

The idea of QE, is that these bonds will eventually be sold by the BoE and the money destroyed, so it's a temporary increase in the money supply to counter the decrease in the banks deleverage.

Problem is that once the money is destroyed it could create another recession (just as this one is about to end). If it's not destroyed, then inflation will do the same.

Also, the extra money can go abroad, but I'm not sure how they can count this. Money is shifting away from the UK at the moment, QE or not.

[aliveandkicking]

the extra money can go abroad, but I'm not sure how they can count this. Money is shifting away from the UK at the moment, QE or not.

It does not matter if pounds go abroad because pounds cannot be used abroad other than to give somebody else pounds who cannot use them. Their natural home is back in the UK where they can be lent into the british economy or spent into the british economy.

If UK banks accumulate the pounds as a result of deleverage then that is 'what is'. 'What is' in this case is that existing loan repayments are flowing from the british economy to the banks that lend into the british economy at something like 4% to 10% of the total UK loan book per annum, and the banks are not fully lending this amount back out again. So the banks are accumulating money from the world economy of currently existing pounds as they delever to protect themselves from loan losses.

The BOE can match pound for pound the money that is being held by the banks until the banks expand their local economies again as they feel happier to continue lending and meanwhile pounds will flow from around the world in an uninterrupted manner to buy british gear as before if there is demand for such gear without there being catastrophic problems about sourcing the required pounds as foreign exchange or uk companies saving foreign exchange instead of receiving pounds that then demands pounds from some place that tends to put demand on pounds and drive up interest rates.

[huw]

I think you'll find that the BOE "printing" to buy UK Gov bonds and thereby keep interest rates down.

Which is exactly what the Treasury/Central Bank of the Weimar Republic did.

However I think it's disingenuous to exclude all the bank bailout money from "government expenditure" when calculating the percentage.

[Where is my pen?]

Only if I have a salaried monthly/quarterly contract or I perform a specific ammount of work monthly for a known or estimated award which we can project on past patterns.

This is a specific individual event.

Its like saying that if I spend £100 on an i-pod this month I will spend £1200 on i-pods this year. The logic is b0llx0x.

you just keep collecting those numpty tokens teddy lol

Edited May 20, 2009 by Where is my pen?

[Injin]

Excellent answer. That is my understanding.

By treaty, the BoE cannot buy gilts from the Government to prop up spending. Full stop. That is a fail safe.

Next question. If the BoE pushes down yields by buying gilts on the secondary market (thereby keeping the value of the bonds up) - how does HMG manage to sell new gilts to the market? Why would anyone want them?

Because they are being paid to act as proxy.

[Where is my pen?]

look here, which ever way you try to defend this fraud it boils down to this.

the treasury creates the bonds

the bank of england creates the money

both these agencies are under the control of government. therefore, the government prints money and lends it to itself (by creating bonds and selling them to itself using newly created money)

the intermediaries are irrelevant really. there are no fail safes.

we will still be having this argument when 4 pints of milk goes to £2.00, £5.00, £10.00 etc... most people simply never accept the truth. of course they do not, otherwise governments would never be able to get away with it in the first place.

Edited May 20, 2009 by Where is my pen?

[aliveandkicking]

Excellent answer. That is my understanding.

By treaty, the BoE cannot buy gilts from the Government to prop up spending. Full stop. That is a fail safe.

Next question. If the BoE pushes down yields by buying gilts on the secondary market (thereby keeping the value of the bonds up) - how does HMG manage to sell new gilts to the market? Why would anyone want them?

If by treaty you mean article 101 of the Maastrict treaty even the germans are putting their bad loans in the deep freeze for the next 20 years

Buying and selling gilts is a profitable operation providing it can be believed that upon buying them cheaply you will be able to resell them.

The BOE acts as market maker for UK gilts. Gilts are interest paying pounds which can be bought at a discount to their face value. There is a natural demand for them from the banking sector which requires liquid assets convertible to pounds that can make them money while they even so hold easily available pounds.

Naturally if the BOE is going to be spending 75Billion buying gilts from the private sector the government will be able to find buyers for gilts at the appropriate discount at auction.

[R K]

It's like plaiting fog.

Why not simply allow people to be exposed to the consequences of their actions?

[Where is my pen?]

It's like plaiting fog.

Why not simply allow people to be exposed to the consequences of their actions?

libertarian SCUM!

lol