[stone]

I heard Peter Hitchens on Radio 4 claiming that we need to weigh up tackling COVID19 against the deaths that supposedly have to come from having a debt depression whilst we "pay off" the COVID19 response.

I just want to lay it down that if Peter Hitchens et al want to "pay off" the response with a debt depression, those lives consequently lost are 100% his political choice and are to be added to the tally of deaths caused by the shambolic COVID19 response we've been let down by.

The only inevitable economic cost of the COVID19 response is the lack of goods and services and real fixed investment (ie built structures, new machines etc) that we have already forgone.

The "government debt mountain" has come about because people have been paid and have not had opportunities to spend that money and so it has not circulated around being gathered back as tax as it does so. That doesn't matter. The people holding that government debt are happy to hold it. After this crisis is over, we need to go back to providing whatever people need and making the most of everyone's talents. The "debt mountain" has locked in interest rates of 0.5% for the next 30years. Our normal 2.5% inflation rate will just erode it away fine whilst we all get on with what matters.

If anyone is saying otherwise, put them on the spot. Make them spell out how any purported issues will actually manifest.

[mrjonathanr]

Are you still doing your blog?

[stone]

Are you still doing your blog?

No and I was now hoping no one had seen it .

[andy popp]

https://www.theguardian.com/commentisfree/2020/apr/27/economy-recover-coronavirus-debt-austerity

[Nigel]

From the Guardian live blog, Gideon Osborne is still a thing and has been seeding his garbage on radio 4. I had hoped we were rid of him:

The former Tory chancellor George Osborne told BBC Radio 4’s PM he thought tax rises were inevitable amid reports Rishi Sunak is working on plans to “wean” Britain off the furlough scheme.

He said that as the crisis has made Britain poorer, the government would be forced into a choice between reducing public services or increasing taxes, adding:

Yes, you can borrow in the short term and of course, we’re borrowing vast amounts, now. That is not sustainable in the medium term. It’s not a problem for now and it’s not necessarily problem for this year. But ultimately, the government will have to set out a credible fiscal path to try and get the deficit down to stop the debt rising so quickly. And that will have elements of spending constraints and tax increases.

[stone]

From the Guardian live blog, Gideon Osborne is still a thing and has been seeding his garbage on radio 4. I had hoped we were rid of him:

The former Tory chancellor George Osborne told BBC Radio 4’s PM he thought tax rises were inevitable amid reports Rishi Sunak is working on plans to “wean” Britain off the furlough scheme.

He said that as the crisis has made Britain poorer, the government would be forced into a choice between reducing public services or increasing taxes, adding:

Yes, you can borrow in the short term and of course, we’re borrowing vast amounts, now. That is not sustainable in the medium term. It’s not a problem for now and it’s not necessarily problem for this year. But ultimately, the government will have to set out a credible fiscal path to try and get the deficit down to stop the debt rising so quickly. And that will have elements of spending constraints and tax increases.

The core falsehood at the heart of that is the notion that reducing the deficit depends on cutting public services or setting higher taxes. If there is more economic activity, then the same tax rates will gather more tax and so reduce the deficit. A deficit depends on people choosing to save in the form of government securities (eg government bonds or bills or cash/bank-reserves). That's an inviolable accounting identity. Recessions and depressions create deficits.

The other thing that journalists need to be doing is getting him to spell out how the deficit is supposedly going to cause us problems. If he can describe a plausible problematic scenario (which he can't), then we could make a judgement whether that is a cost/risk worth taking given the alternative. Instead journalists let him just plant it as a supposed self evident truth.

[shark]

There’s a blog I follow by a veteran investor (Paul Scott) and I was shocked to see him write this yesterday

Unlimited QE?
I think Trump in particular is not likely to stop at anything to get the US economy running again. What about if the Fed is instructed to aggressively buy equities? It's possible.

Now that Govts can create unlimited quantities of new money, then use it to buy their own newly issued debt, then they can keep interest rates at zero, and issue unlimited debt. What is to stop them, especially if other Govts are doing the same thing? Currency devaluation wouldn't happen, as there's nothing to devalue against if everyone is doing the same thing. This all makes my head spin, as conventional economics has gone out of the window. I can't shake off the feeling that it's all likely to end in disaster, but I'm not sure what the catalyst would be?

Theoretically, the Bank of England could just create £1.6tn in new money, and then buy up all of the UK's Govt debt that it doesn't already own. Then just agree with the Treasury to cancel the whole lot. Contra the Treasury's liabilities, against the Bank of England's assets, and the UK's entire National Debt simply vanishes. Let's have a discussion about this, as I cannot see why in theory, this could not be done, especially if other Govts agree to do the same thing, at the same time.

If done as a one-off in exceptional economic circumstances when inflation is unlikely to shoot the lights out maybe it’s a global solution. I’m sure there would be unintended consequences and I can’t but help feel that politicians would ruin it by misusing that money tree and forever after be claiming exceptional circumstances.

Otherwise sounds too good to be true. Dunno? Habrich?

[Oldmanmatt]

There’s a blog I follow by a veteran investor (Paul Scott) and I was shocked to see him write this yesterday

Unlimited QE?
I think Trump in particular is not likely to stop at anything to get the US economy running again. What about if the Fed is instructed to aggressively buy equities? It's possible.

Now that Govts can create unlimited quantities of new money, then use it to buy their own newly issued debt, then they can keep interest rates at zero, and issue unlimited debt. What is to stop them, especially if other Govts are doing the same thing? Currency devaluation wouldn't happen, as there's nothing to devalue against if everyone is doing the same thing. This all makes my head spin, as conventional economics has gone out of the window. I can't shake off the feeling that it's all likely to end in disaster, but I'm not sure what the catalyst would be?

Theoretically, the Bank of England could just create £1.6tn in new money, and then buy up all of the UK's Govt debt that it doesn't already own. Then just agree with the Treasury to cancel the whole lot. Contra the Treasury's liabilities, against the Bank of England's assets, and the UK's entire National Debt simply vanishes. Let's have a discussion about this, as I cannot see why in theory, this could not be done, especially if other Govts agree to do the same thing, at the same time.

If done as a one-off in exceptional economic circumstances when inflation is unlikely to shoot the lights out maybe it’s a global solution. I’m sure there would be unintended consequences and I can’t but help feel that politicians would ruin it by misusing that money tree and forever after be claiming exceptional circumstances.

Otherwise sounds too good to be true. Dunno? Habrich?

As far as this layman is aware, the only things stopping such in “normal” times are, fear of rampant inflation (seems unlikely in this environment) and international trade agreements (currently not a massive issue for the UK)? Is that right?

EU rules would have prevented it, possibly, but that’s not a direct issue anymore and since this is global, everyone will be looking for an out anyway. Ultimately the system is, largely, “imaginary” and, if given sufficiently global consent, open to reimagining.

[shark]

EU rules would have prevented it, possibly, but that’s not a direct issue anymore and since this is global, everyone will be looking for an out anyway. Ultimately the system is, largely, “imaginary” and, if given sufficiently global consent, open to reimagining.

The thing that keeps the show going is the belief that money is ‘real’ and not ‘imaginary’ and one consequence of this intervention is maybe it would forever damage the realness of money and consequently our behaviours in generating and using it. Maybe it would create a stampede into ‘real’ assets leading to the mother of all gold and property bubbles. Like Scott says - it makes your head spin

[teestub]

The thing that keeps the show going is the belief that money is ‘real’ and not ‘imaginary’ and one consequence of this intervention is maybe it would forever damage the realness of money and consequently our behaviours in generating and using it. Maybe it would create a stampede into ‘real’ assets leading to the mother of all gold and property bubbles. Like Scott says - it makes your head spin

Was going to say similar. When you’ve spent the last decade telling people that the govt need to manage their finances like a household, this would take some explaining!

[Offwidth]

History indicates that printing money in that way is bound to cause inflation (or war). I don't see why we need to imagine too much of such risky exceptional ideas when good old fashioned Keynsian economics says borrow to invest during recessions. Despite modern capitalism being sniffy about Keynes (most preferring Hayek), QE looks and quacks like a Keynesian intervention. Part of the coalition con trick led by Gideon was covering up that Brown had made a good start on investing the UK out of the 2008 crisis in a Keynesian way. Even more spectacularly they convinced most Brits that austerity was all Brown's fault (rather than mostly due to a US led global crash based on an almost complete absence of regulation of the self destructive greed that was the sub prime market).

[shark]

Was going to say similar. When you’ve spent the last decade telling people that the govt need to manage their finances like a household, this would take some explaining!

Perhaps a bigger threat than personal financial behaviours by the public is the checks it removes on politicians financial discipline which is always shaky.

The public sector tends towards inefficiency at the best of times but with politicians unbound and able to throw money at problems rather than harder reform the public sector would grow further as a proportion of the economy vs private sector which would be a further unbalancing of income generation vs spending.

Or perhaps this is a first step to a brave new world where fiscal and monetary policy seamlessly merge and efficiency/productivity no longer counts.

[Nigel]

The thing that keeps the show going is the belief that money is ‘real’ and not ‘imaginary’....

The root of the matter though is that money is, indeed, "imaginary"! It is a human technology to facilitate our society. The only belief required is that of trust in the system. If that trust can be maintained then *for governments* deficits, debts etc are meaningless. It looks like we are witnessing a mass conversion to Modern Monetary Theory, or something like it. Right off for a walk!

[Nigel]

Just walking out and realised I should have been more specific - *for governments* who are the sovereign currency issuer e.g. UK. Much more problematic for those borrowing in other currencies.

[Davo]

Personally I agree with Stone here, there's is very little sense in what Hitchens or Osborne are saying and journalists need to challenge them on this.

Rather than worry about what will happen if we do as described just turn on the printing presses etc I think it"s wiser to accept that investing and basically printing money is the only "show in town" unless we want to see a depression that will make the 1930s look like the good times. Considering the hit that demand is likely to take I just don't think inflation is a worthwhile worry. Also every other (sensible) economy in the world is going to have to do the same or risk a massive depression.

Dave

[Murph]

Much more problematic for those borrowing in other currencies.

Eg Italy Spain Fance Greece Germany....

[Offwidth]

The public sector tends towards inefficiency at the best of times but with politicians unbound and able to throw money at problems rather than harder reform the public sector would grow further as a proportion of the economy vs private sector which would be a further unbalancing of income generation vs spending.

Or perhaps this is a first step to a brave new world where fiscal and monetary policy seamlessly merge and efficiency/productivity no longer counts.

I don't see much of a public private divide anymore after changes in the last decades and especially after austerity. Rail franchises and the failed attempts of private companies to run NHS hospitals showed that. Nearly everything outside Whitehall these days seems to be managed as a business and much operating in a 'psuedo market' with managers trained in pretty much the same ways and transfering pretty seamlessly across the divide.

Recovery from a recession isn't a  normal circumstance. If you don't apply emergency stimulus good ecomonic activity will be needlessly lost. The bank of England and the IFS effectively agreed on the lunchtime news. Money is pretty cheap presently to help any action in that direction. The worry for me is popularists like Boris could become addicted to handout solutions and do real damage once the economy is back to normal.

[Nigel]

Much more problematic for those borrowing in other currencies.

Eg Italy Spain Fance Greece Germany....

Yes, includes the eurozone. Italy have already recently kicked up a stink regarding Eurobonds.

[Nigel]

The public sector tends towards inefficiency at the best of times but with politicians unbound and able to throw money at problems rather than harder reform the public sector would grow further as a proportion of the economy vs private sector which would be a further unbalancing of income generation vs spending.

Politicians have always been "unbound and able to throw money at problems", they have just chosen not to do it.

Growing the public sector as a proportion of GDP is not necessarily a problem for the private sector, as long as overall GDP increases - the private sector will still experience growth. The two are not separate silos in a zero sum game. Really we should start by getting the public sector to the size it needs to be to provide all the public goods we agree we need (infrastructure, healthcare, education, defence etc.), then the private sector can take the rest of GDP share. That is the correct balance to consider.

Or perhaps this is a first step to a brave new world where fiscal and monetary policy seamlessly merge and efficiency/productivity no longer counts.

It looks like we might be entering a world where fiscal policy dominates over monetary policy - what monetary levers are left? Interest rates are nominally near zero, and effectively negative in real terms, and have been for some time. Increasing the money supply by printing money is a monetary measure, but it still needs spending somehow, so we are back to fiscal policy.

[petejh]

Just walking out and realised I should have been more specific - *for governments* who are the sovereign currency issuer e.g. UK. Much more problematic for those borrowing in other currencies.

Could digital currency play a role? For e.g. a large confederation of poorer countries could see an opportunity in this unprecedented time to switch to a digital currency system. With enough countries in the new club to create strong belief in the imaginary system. Problem avoided, new monetary system created? (It's probably clear I know close to fuck all about the subject!)
Also potential for individuals in the western economies to turn their backs on dollars and Stirling in favour of currencies away from control by central banks. Alternatively, central banks move towards digital currency.

[Johnny Brown]

Yep, anyone watching bitcoin long term has been waiting for something like this. Digital currencies aren't going anywhere, one of the main points is robustness against inflation.

Good primer here if you want to know more than fuck all: https://medium.com/@breedlove22/money-bitcoin-and-time-part-1-of-3-b4f6bb036c04

[SA Chris]

Just plant a few more magic money trees

[Nigel]

Also potential for individuals in the western economies to turn their backs on dollars and Stirling in favour of currencies away from control by central banks. Alternatively, central banks move towards digital currency.

Individuals that want to save and are worried about possible inflation will probably do that yes, or find some other store of value that won't get debased. But they can only ever do that with a portion of their wealth - there will always be a demand for sterling in the UK as people have to pay their taxes with it. That is one way in which governments enforce their monopoly issue of the currency. And if you don't pay your taxes then its a fine (more sterling) or jail (violence). Sneaky buggers aren't they?!

Central banks using digital currency - depends what you mean by "digital currency". If bitcoin then I doubt it as they are by design decentralised. Although I'll confess I know little about them and will defer to JB on that! PS thanks JB for the link, just skim read part 1, very interesting stuff  If you mean Sterling minus paper and coin, we are already halfway there. But that is just the functionally the existing system used in a different way.

RE poor countries pooling into a shared digital currency, again I will plead more ignorance! The system internationally becomes more complex than it would be confined within a single nation (see eurozone).

[Fultonius]

I said this on another thread, but it'd kind of  as it was on the main COVID thread, not the economics one. It was along the lines of:

• - We should not prop up any environmentally negative industries, without SIGNIFICANT environmental constraints attached. Not "strings", high tensile wound wire cable!
• - We should support any workers out of work (UBI), and fund re-skilling in cleaner technologies
• - We should borrow hard, borrow early and spend like fuck on the solutions to get us out of our current messes: energy, healthcare, education.

Anyone saying we need to raise tax, cut spending and support big oil/aviation does not have your, your kids and your grandkids futures in mind. Just short term greed and vested interests.

What is the point in sleepwalking into an environmental catastrophe with a good deficit?

[petejh]

Agree about the environmental constraints (and incentives).

With UBI, how would people on here incentivise working over not working, if UBI became a thing? Much like furlough now.