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thecrashingisles

You Don't Grow Richer By Ordering Another Chequebook From The Bank

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Let us never forget this fundamental truth - the state has no source of money other than the money people earn themselves.

If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more.

And it's no good thinking that someone else will pay - that someone else is you. There is no such thing as public money; there is only taxpayers money.

Prosperity won't come by inventing more and more lavish public expenditure programmes. You don't grow richer by ordering another chequebook from the bank.

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It can borrow other people's savings.

As we know that's been a significant part of the problem 'cause the surplus countries would rather lend to us for next to nothing than spend it themselves and see their exports become less competitive and their currency pegs fall apart.

We hadn't long removed capital controls when she said that (they may in fact have still been in place, can't quite remember).

By the late 1970s, as part of the displacement of Keynesianism in favor of free market orientated policies and theories, countries began abolishing their capital controls, starting between 1973 - 1974 with the U.S., Canada, Germany and Switzerland and followed by Great Britain in 1979

Well Wiki says 1979 but I'm sure there were still restrictions on currency exchange a little later than that. Still, Thatcher had no inkling of what was being unleashed at the time she was mouthing off.

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

Edited by Red Karma

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...you can write a cheque on a banana skin or anything else and the bank is legally bound to honor it. ;)

Knickers / t-shirts / pants / bras / condoms / crisp packets / carrier bags etc work well too.

The whole cheque clearing system grinds to a halt whenever this happens as everyone stands around trying to work out the circumstances under which it happened. Banks often earn money on the float between the dates on which a cheque is written and it clears and they make money from this.

There has been a lot of chatter recently about ways to bring the banking system to its knees. An easy way might be to eschew traditional, encoded cheques and write legally binding instructions to banks to pay others on knickers / t-shirts / pants / bras / condoms / crisp packets / carrier bags etc to reduce the float in the banking system which is very profitable for banks.

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Yep. The bank creates the cheque books. In this analogy the public sector is the bank. No?

The private sector is merely allowed to use that public sector created money and to leverage it up - but they only do so up to the extent the public sector with its rate policy lets them.

Private sector wealth is the mirror image of public sector deficits - I thought everyone knew that.

EDIT: Just before anyone picks me up on the fine details of this, I've ignored the role of exports. ;)

Can you help me understand that please?

I always thought that net wealth was the present value of future productive capacity less the present value of future claims against that productive capacity.

I am not sure how to get from my understanding of net wealth to your definition.

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Private sector wealth is the mirror image of public sector deficits - I thought everyone knew that.

Don’t you just love it when someone says something really misleading and contentious, and then says: "I thought everyone knew that". :)

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I have been trying to find an article by Martin Wolf at the FT that goes into this nicely - but have only found this one. It's not the one I wanted but it does have a sample graphic that shows you what I mean by that:

http://www.ft.com/cm...l#axzz1CdDtd0Ya

It's the one top left I am referring to:

105b2gk.jpg

EDIT: Just found this quote too:

http://www.ft.com/cms/s/0/9beff08a-475d-11df-b253-00144feab49a.html#axzz1CdDtd0Ya

Does the top left graph not just show us that we have had massive deficit spending and that QE has been mis-labelled as private sector wealth?

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somebody will be along in a minute to give you the full transcript. Just stay there.

What that graph says is that GDP is a sham.

you can have a growing GDP easily...as you point out, you deficit spend more to match any losses in the private sector.

It doesnt mean anything real...it means that as the private sector wealth generator has started to die off, that taxes increase and borrowing increases to PROVE to the World that UK is growing....well it is...debt is wealth.

Edited by Bloo Loo

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If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more.

They can also increase takings by increasing immigration , something Brown , Blair and Cameroon have a hard on for.

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They can also increase takings by increasing immigration , something Brown , Blair and Cameroon have a hard on for.

Or by printing money .....

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It's a shame you took that explanation down - because I thought it was a good one.

An alternative way I think about it is that if the government spends money it doesn't have into the economy, the 'wealth' part of that creation process (with the debt residing with the government) accumulates in the private economy.

Some of that leaks externally if we have a trade deficit or we accumulate savings if we have trade surplus.

So public sector 'indebtedness' becomes mirrored by a rise in private sector surpluses. This is counter intuitive to most who feel the government is stealing their money and wasting it (also true).

Now - what part of that is contentious pray tell me? :)

There are a few questions that I have :

- Does your theory hold if the new debt is financed externally?

- Does your theory hold if all that is happening is that already existing savings are being withdrawn from other pools and being allocated to government debt instead? It appears to me that the assumption underlying your theory is that new savings are somehow created by new government debt.

- What happens if the additional debt is purchased by the Treasury with money that they have printed rather than by the private sector from savings?

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There are a few questions that I have :

- Does your theory hold if the new debt is financed externally?

- Does your theory hold if all that is happening is that already existing savings are being withdrawn from other pools and being allocated to government debt instead? It appears to me that the assumption underlying your theory is that new savings are somehow created by new government debt.

- What happens if the additional debt is purchased by the Treasury with money that they have printed rather than by the private sector from savings?

this is a chicken and egg theory...which comes first?

true monetising means an entity lends something it has against some form of promise back, secured on a thing the borrower has.

money comes from this simple concept...AKA the Goldsmith Theory of money.

but, If the Goldsmith has no gold, or lets say the Government has no cash? then from where does it get it?

it can print it, but it has no value unless it represents something...

and who accept bits of paper that rely on the factory producing something that needs paying for in the same bits of paper so the Government can collect the bits of paper?

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this is a chicken and egg theory...which comes first?

true monetising means an entity lends something it has against some form of promise back, secured on a thing the borrower has.

money comes from this simple concept...AKA the Goldsmith Theory of money.

but, If the Goldsmith has no gold, or lets say the Government has no cash? then from where does it get it?

it can print it, but it has no value unless it represents something...

and who accept bits of paper that rely on the factory producing something that needs paying for in the same bits of paper so the Government can collect the bits of paper?

Almost from the beginning of human existence, there have been groups dipping into the pockets of individuals who have produced something in exchange for some sort of promise that it is good for them. The groups include the church, the mafia, highwaymen, the state, landlords, the aristocracy etc.

The development of issuing securities as promise to dip into the pockets of those who produce something in the future is a more recent phenomenon.

icamefirst.jpg

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Almost from the beginning of human existence, there have been groups dipping into the pockets of individuals who have produced something in exchange for some sort of promise that it is good for them. The groups include the church, the mafia, highwaymen, the state, landlords, the aristocracy etc.

The development of issuing securities as promise to dip into the pockets of those who produce something in the future is a more recent phenomenon.

icamefirst.jpg

having trouble distinguishing between those groups you mention

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having trouble distinguishing between those groups you mention

There is no difference between the groups that I mention. Their influence just waxes and wanes over time and geography.

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  • 294 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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