Steve
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Post by Steve on Sept 17, 2024 20:05:05 GMT
It's not about creating money per se, it's about creating GDP which a healthy money supply then follows. Try it the other way round and you get inflation problems. And the concern in that report is not that government debt will increase but that the Debt:GDP ratio will treble making that debt unserviceable leading to economic collapse with the inevitable societal collapse following. That's one very big step Steve. To quote from the source report: 'Net interest spending quadruples from 2.8 to 11.3 per cent of GDP as the stock of debt rises.'OK not absolutely unserviceable but very difficult to have ~1/4 of your tax revenues paying the interest
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Post by Zany on Sept 17, 2024 20:37:03 GMT
That's one very big step Steve. To quote from the source report: 'Net interest spending quadruples from 2.8 to 11.3 per cent of GDP as the stock of debt rises.'OK not absolutely unserviceable but very difficult to have ~1/4 of your tax revenues paying the interest Don't understand Steve. UK government's net debt interest spending was £102 billion, which is 3.8% of GDP and 8.4% of government spending. How does this equate to 25% of tax revenue.
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Steve
Hero Protagonist
Posts: 2,596
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Post by Steve on Sept 17, 2024 21:11:06 GMT
They say it rises to 11.3% of GDP. Currently our tax take is ~40% of GDP. Hence my ~1/4 figure.
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Post by brownlow on Sept 17, 2024 21:17:34 GMT
Govt spending infinitely more than tax revenues isn't realistic, and no one's suggesting it.
Govt continuously spending, on average, more than tax revenues is a necessity - as is ramping up net spending in crises. Plenty rich countries, including this one, have been doing it for centuries.
Countries with trade surpluses can maintain govt surpluses (and even they mostly don't); countries with trade deficits cannot.
Tax payers cannot create money - not even Bill Gates. If you buy something for £100, you're down £100 and the vendor is up £100. All the transactions in the economy sum to zero. For a money economy to grow, there must be a source of additional money (otherwise you have deflation) and the only legal sources are net ("deficit") govt spending and commercial bank credit licensed by govt:
The only real way to create more money in a country (Unless you have assets to sell to other countries) is to increase the population, more people buying and selling. But this just increases costs as well. Hmm.. population increase, per se, doesn't create any money. Immigrants might bring money with them, but they didn't create it. They might obtain bank credit, putting additional money into circulation, but so might anyone else. They might create the goods and services which give the money value, but the money itself will have originated either as licensed bank credit, or govt "deficit" spending*. Newborns obviously arrive without any money. Whatever they go on to earn and pay as taxes will have originated as above. Buying and selling doesn't create any money either, but the production of goods and services for sale adds to GDP (basically is GDP). That's why you need a growing money supply to maintain GDP growth. (*Central bank asset purchases - QE - are arguably another form of money creation, but the assets they purchase are overwhelmingly the bonds issued via govt "deficit" spending).
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Post by MrBenn on Sept 17, 2024 21:22:28 GMT
The problem with our economy is that many millions of workers are struggling to make ends meet as it is and simply cannot afford to pay extra taxes. Many are already struggling with debt. Low pay and/or not enough guaranteed hours is a part of the problem, but a much bigger part of the problem is the high cost of living in this country. By far the largest component of the latter for many millions is excessive housing costs, both in terms of prices for buyers and rents for tenants. Thus only the relatively better off can actually afford higher taxes right now. Danish levels of services do indeed require Danish levels of taxation, but for that to be affordable more widely we also need Danish levels of pay and Danish levels of living costs. Probably greater security of tenure with meaningful rent control in the private sector, increased levels of social housing construction, and more genuinely affordable housing to buy being constructed all need to be part of the solution. I would also suggest that excessive profits of the fossil fuel and energy companies should be windfall taxed and the proceeds rebated back to customers. Council tax being made much less regressive would also help. Planning needs to be simplified and made easier, and land banking to keep prices artificially high needs to be clamped down on, either by stiff taxes on such undeveloped land, or even compulsorily purchased at below market levels to sell to someone who will build on it. Either of those suggestions if sufficiently punishing enough would deter land banking and encourage building anyway
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Post by brownlow on Sept 17, 2024 21:26:45 GMT
Money when you try to think about it is an extraordinarily difficult subject to fully comprehend. If the argument is that governments can’t run at a surplus or balance but have to run a deficit but the deficit can not be unlimited, the obvious question is what level should that deficit be? A level which the real economy can absorb with a stable rate of inflation. Only knowable through trial and error. Chronic low growth, like the UKs, indicates underinvestment.
Good questions without good answers, but cutting essential public spending is one of the not good answers.
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Post by Zany on Sept 17, 2024 21:37:52 GMT
The only real way to create more money in a country (Unless you have assets to sell to other countries) is to increase the population, more people buying and selling. But this just increases costs as well. Hmm.. population increase, per se, doesn't create any money. Immigrants might bring money with them, but they didn't create it. They might obtain bank credit, putting additional money into circulation, but so might anyone else. They might create the goods and services which give the money value, but the money itself will have originated either as licensed bank credit, or govt "deficit" spending*. Newborns obviously arrive without any money. Whatever they go on to earn and pay as taxes will have originated as above. Buying and selling doesn't create any money either, but the production of goods and services for sale adds to GDP (basically is GDP). That's why you need a growing money supply to maintain GDP growth. (*Central bank asset purchases - QE - are arguably another form of money creation, but the assets they purchase are overwhelmingly the bonds issued via govt "deficit" spending). What I meant was they enable the production of more money (bits of paper denoting value)
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Post by brownlow on Sept 17, 2024 21:44:43 GMT
Govt spending infinitely more than tax revenues isn't realistic, and no one's suggesting it.
Govt continuously spending, on average, more than tax revenues is a necessity - as is ramping up net spending in crises. Plenty rich countries, including this one, have been doing it for centuries.
Countries with trade surpluses can maintain govt surpluses (and even they mostly don't); countries with trade deficits cannot.
Tax payers cannot create money - not even Bill Gates. If you buy something for £100, you're down £100 and the vendor is up £100. All the transactions in the economy sum to zero. For a money economy to grow, there must be a source of additional money (otherwise you have deflation) and the only legal sources are net ("deficit") govt spending and commercial bank credit licensed by govt:
I understood because of the way central bank reserves are dealt with when, say, insurance companies or pensions funds buy government bonds, deficit spending 'financed' through domestic bonds does not increase the money supply. I guessed that on the sectoral balance model the trade deficit (subject to currency fluctuations) was balanced in the round through government bonds issued to foreign investors and ignoring other BoP entries.
Am I missing something obvious?
You're not missing anything obvious. The monetary and banking system is layer upon layer of obfuscation - and not by accident. Non-bank financial institutions buying bonds swap regular £s for interest-bearing £s, i.e. bonds (regular £s are zero interest treasury bonds). The bonds aren't counted in broad money aggregates since they're ostensibly savings vehicles which take regular £s out of circulation until maturity, offsetting the £s govt has spent in. That might have been true back in the day, but financial institutions by now use the bonds as money, in preference to regular £s, as easily as you or I buy stuff on Amazon. Not sure what you mean by the foreign investors part.
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Post by brownlow on Sept 17, 2024 21:47:43 GMT
Hmm.. population increase, per se, doesn't create any money. Immigrants might bring money with them, but they didn't create it. They might obtain bank credit, putting additional money into circulation, but so might anyone else. They might create the goods and services which give the money value, but the money itself will have originated either as licensed bank credit, or govt "deficit" spending*. Newborns obviously arrive without any money. Whatever they go on to earn and pay as taxes will have originated as above. Buying and selling doesn't create any money either, but the production of goods and services for sale adds to GDP (basically is GDP). That's why you need a growing money supply to maintain GDP growth. (*Central bank asset purchases - QE - are arguably another form of money creation, but the assets they purchase are overwhelmingly the bonds issued via govt "deficit" spending). What I meant was they enable the production of more money (bits of paper denoting value) Then I agree, but it's not "the only way".
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Steve
Hero Protagonist
Posts: 2,596
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Post by Steve on Sept 17, 2024 21:48:58 GMT
Hmm.. population increase, per se, doesn't create any money. Immigrants might bring money with them, but they didn't create it. They might obtain bank credit, putting additional money into circulation, but so might anyone else. They might create the goods and services which give the money value, but the money itself will have originated either as licensed bank credit, or govt "deficit" spending*. Newborns obviously arrive without any money. Whatever they go on to earn and pay as taxes will have originated as above. Buying and selling doesn't create any money either, but the production of goods and services for sale adds to GDP (basically is GDP). That's why you need a growing money supply to maintain GDP growth. (*Central bank asset purchases - QE - are arguably another form of money creation, but the assets they purchase are overwhelmingly the bonds issued via govt "deficit" spending). What I meant was they enable the production of more money ( bits of paper denoting value) That money (aka M0) is a fraction of the money supply.
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Post by brownlow on Sept 17, 2024 21:59:44 GMT
Govt spending infinitely more than tax revenues isn't realistic, and no one's suggesting it.
Govt continuously spending, on average, more than tax revenues is a necessity - as is ramping up net spending in crises. Plenty rich countries, including this one, have been doing it for centuries.
Countries with trade surpluses can maintain govt surpluses (and even they mostly don't); countries with trade deficits cannot.
Tax payers cannot create money - not even Bill Gates. If you buy something for £100, you're down £100 and the vendor is up £100. All the transactions in the economy sum to zero. For a money economy to grow, there must be a source of additional money (otherwise you have deflation) and the only legal sources are net ("deficit") govt spending and commercial bank credit licensed by govt:
It's not about creating money per se, it's about creating GDP which a healthy money supply then follows. Try it the other way round and you get inflation problems. It's routinely done "the other way round" without "inflation problems".
GDP is the monetary value of all the final goods and services produced in a country over some period. If that expands while the money supply does not, there will be unsold inventory or deflation, and for-profit firms will scale back production accordingly.
Indeed it is, re which I refer you back to post 41 in this thread.
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Steve
Hero Protagonist
Posts: 2,596
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Post by Steve on Sept 17, 2024 22:45:18 GMT
Pro Boards doesn't do post numbers
The last two times we significantly increased the money supply ahead of GDP (2016 and 2020-22) guess what we then got: problematic inflation.
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Post by equivocal on Sept 18, 2024 7:27:41 GMT
I understood because of the way central bank reserves are dealt with when, say, insurance companies or pensions funds buy government bonds, deficit spending 'financed' through domestic bonds does not increase the money supply. I guessed that on the sectoral balance model the trade deficit (subject to currency fluctuations) was balanced in the round through government bonds issued to foreign investors and ignoring other BoP entries.
Am I missing something obvious?
You're not missing anything obvious. The monetary and banking system is layer upon layer of obfuscation - and not by accident. Non-bank financial institutions buying bonds swap regular £s for interest-bearing £s, i.e. bonds (regular £s are zero interest treasury bonds). The bonds aren't counted in broad money aggregates since they're ostensibly savings vehicles which take regular £s out of circulation until maturity, offsetting the £s govt has spent in. That might have been true back in the day, but financial institutions by now use the bonds as money, in preference to regular £s, as easily as you or I buy stuff on Amazon. Not sure what you mean by the foreign investors part. Are you saying that, in fact, gilts should be included as part of the money supply and that, in reality, there is no transfer from private sector to the public sector when new gilts (to finance deficit spending) are issued in the domestic market? If that were the case (no net transfer), then how can deficit spending balance the reduction in money supply caused by the trade deficit without the issue of gilts to foreign investors?
I presume I've misinterpreted your reply?
EDIT: As you were, if gilts are considered as equivalent to central bank reserves, which I guess they can if used by financial institutions to settle liabilities, then I can see how deficit spending could balance trade deficits and 'nominally' increase the money supply.
Is that the theory?
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Steve
Hero Protagonist
Posts: 2,596
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Post by Steve on Sept 18, 2024 8:53:13 GMT
Defining money (what can be used to buy products or services) is complex. M3 is probably the measure most easily comparable across nations but annoyingly the USA doesn't use it and the Bank of England says it prefers to use a range of so called M4 measures Happy reading: www.bankofengland.co.uk/statistics/details/further-details-about-m3-estimate-of-european-monetary-union-aggregate-for-the-uk 'Euro-area M3 is made up of monetary liabilities of euro-area monetary financial institutions (MFIs) and central government (Debt Management Office) vis-à-vis non-MFI euro-area residents excluding central government, in all currencies:
currency in circulation (M1) overnight deposits (M1) deposits with agreed maturity up to two years (M2) deposits redeemable at notice up to three months (M2) repurchase agreements money market fund shares/units and money market paper debt securities up to two years. The estimate of M3 we compile for the UK is made up of monetary liabilities of MFIs in the UK vis-à-vis non-MFI UK residents excluding central government, in all currencies. The UK reporting system does not currently identify the maturity breakdowns used in the euro-area definition. These are therefore estimated.
The euro-area aggregate does not include the adjustments for transit items and the inter-MFI reporting difference, which are made for UK M4Opens in a new window. '
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Post by equivocal on Sept 18, 2024 9:24:03 GMT
What I am trying to understand is the proposition that increasing the number of gilts in issue to finance deficit spending increases money supply.
Traditionally, the theory goes that when governments issue gilts in the normal way (to the market), licensed banks have their central bank reserves reduced by the price of the gilts (reducing the money supply) and when government spends that into the economy the reduction is cancelled. That is to say, gilt issuance does not affect the total money supply in the round.
brownlow says that deficit spending financed as above, increases the money supply. I am guessing that because he says gilts are used by financial institutions as money, the theory is that gilts can be considered as qua bank reserves and therefore an increase in the value of gilts is the same as an increase in money supply.
I await his advice.
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