The government is going to do £450bn of quantitative easing (QE) this year. That should more than cover its total borrowing fir the year, meaning the actual sum owed to third parties will fall, and so will real national debt as well as a result. 1/-
Saying this, I know that much of the new money created by the Bank of England to fund QE ends up back on central bank reserve accounts held by U.K. High Street banks and building societies with the Bank of England. And that interest is paid on their balances 2/-
The interest paid in those balances is 0.1%. That rate is controlled by the Bank of England, and will not be changing for a long time to come. In effect then the government is paying banks and building societies 0.1% to make them hold new money that cancels the national debt 3/-
But, although this provides funding for the government at almost no cost, with any threat of instability from financial markets largely neutered, what this does not do is provide meaningful additional money for the economy. The QE money simply sits on bank balance sheets. 4/-
In effect, QE is getting bank bailouts in place before a crash happens this time. But what little extra lending these deposits might encourage banks to think about are largely unproductive e.e, mortgages funding the current mimi-housing boom 5/-
If we’re to have a recovery we need two things. One is for the government to stop issuing debt figures that are wrong. Debt has been replaced by money as a result of QE, and that is never going to be reversed. The claim that austerity will be required is, then, wrong 6/-
And we need to ensure that QE created money is not just used for pre-emptive bank bail outs and wasteful asset based lending, but is instead used to fund the economic transformation this country needs. 7/-
If QE funds were used to buy bonds issued by a national investment bank that would invest in the green transformation we require QE could be out to good use - and High Street banks could be cut out if the QE loop. Then we might see real wins from QE 8/-
There is more on this here… /end

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More from @RichardJMurphy

29 Oct
In the summer of 2015 Jeremy Corbyn used a pile of my ideas to help him become Labour leader. By spring 2016 his team were telling me they were sitting out Brexit as it was just a Tory fight. 1/
At that moment I knew this was a man who played politics, and not political leadership, and I walked away from any association. I did not regret it. Whatever he said, or was said for him, he was always posturing 2/
Politics is about tough decisions. About finding the way to real answers. There is a lot Labour is still getting very wrong, on Covid, the economy, electoral reform and more. But Corbyn was never the answer on any of those issues either 3/
Read 6 tweets
24 Sep
The government is thought likely to offer a replacement for furlough today that will make employers pay a significant part of the cost of keeping employees on when there is no work for them. This will not solve unemployment. It will encourage it.
Let me offer a simple example. Assume an employer has 10 employees, all on £2,000 a month. The employer has enough work for five people. They could sack 5 people and save £10,000 a month. Or Sunak offers a scheme where all ten are kept.
Under this scheme the company pays for the work the employees do, i.e. £10,000. Then it pays 1/3 of the wages for the time they’re not working i.e, £3,333. The government then pays 1/3 of their wages when not working i.e. £3,333. And the employees lose £3,333 in wages in total.
Read 7 tweets
13 Sep
We have to face the possibility that our government is planning economic destruction for its own political ends – which are the demise of the state as we know it… Does the government actually want mass unemployment and is setting out to achieve it?
Before our government chose to become a pariah state, and before it was clear it planned to fail on Covid testing I expected UK unemployment to exceed five million next year. But now it may be very much worse. And I beginning to fear that is exactly what the government wants.
We find it very hard to comprehend a government that chooses to create unemployment. But remember Thatcher did just that. She created unemployment to destroy unions and manufacturing so she could create a different type of society. Is Cummings now planning something similar?
Read 20 tweets
4 Sep
Rishi Sunak’s gov’t backed loan schemes mean that more than 1.2 million U.K. businesses - which may be more than 80% of all businesses - are laden with debt and tax bills they have to start repaying next year. That’s when they begin to fail and the recession gets very much worse.
Piling debt burdens on companies to get them through a crisis is one thing. To then think they’ll invest in new employment, products or sustainability when struggling to repay that debt is another. They can’t and won’t. Sunak has built a debt time bomb that will drive recession.
The Office for Budget Responsibility has suggested £33bn of the £53bn of government backed loans to businesses may not be repaid. The gov’t says it expects banks to take failing companies to court to recover the money. They’re literally planning to drive the UK out of business.
Read 9 tweets
26 Aug
It’s GERS day again in Scotland. That’s the day when we go through the annual fiasco of Unionist gloating about accounting that literally does not add up that delivers economic data that makes no attempt to record the reality of what happens in Scotland. Let me explain why....
First, let’s remember that GERS was intended to be divisive from the moment it was named, which name was not, I am sure, chosen by chance.
And let’s also remember that GERS was originally a Tory 1990s creation designed to suggest that Scotland could never be financially viable. It was never intended to actually show a true picture of Scottish financial affairs.
Read 9 tweets
23 Aug
@afneil posted a series of comments on Twitter yesterday, all aimed at taunting the SNP on which currency it might use after independence. He hit a target by doing so. This thread explores that issue.
Andrew Neil is right to raise this. He knows that without its own currency an independent Scotland would not be an independent state. It couldn’t control interest rates, borrow without substantial risk, or have real control of its fiscal policy. That would be intensely harmful.
Despite this the SNP leadership say they are committed to ‘sterlingisation’ as a policy post independence. That is the use of sterling for a considerable period post independence.
Read 19 tweets

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