https://neweconomics.org/2024/09/ba...-cost-treasury-over-96bn-over-next-four-years
I was just listening to BBC R4 and they were saying how Rachel Reeves might be unable to fund what she was hoping to whilst sticking to the fiscal rules she set herself. They said the reason was because long term borrowing costs have increased so much for the government (highest since 1998).
What I don't understand is why the BBC never seems to mention the extent to which the cost of government borrowing is a discretionary policy choice made by the Bank of England. During Covid, the BoE bought essentially all of the debt issued by the government. They bought bonds at eg £1.60 that they are now selling off at £0.40. The government covers those losses for them. Back then they set long term borrowing costs to 1% and they now are setting them to 5%, fixed for >50years in some cases.
This is a huge discretionary redistribution of our money. I appreciate that it is just shifting money around, taking it from the government and handing it to bond holders. But it is changing what the government choses to do, and that has huge consequences.
Yes I know the BoE buys bonds in the secondary market as that supposedly lets the market participate in price setting. But that is just a façade since the BoE can be the overwhelming participant. It has the added effect of the trading loses from the QE then QT cycle that gift bondholders at our expense.
Hands up, I'm a sceptic about BoE independence and the reliance on monetary policy. At the very least I wish instead of doing QE, the BoE had done what it did in WWII and WWI and simply said it would buy any bonds selling below a certain price. That sets long term borrowing rates without the colossal transfers of money to bondholders we get with the current system of QE followed by QT.
I also think there ought to be more public debate as to whether QT setting high long term borrowing costs really is in our interests. I know the BoE is supposed to be free to do whatever it sees fit. However, it seems to me so political to decide that Covid or the 2008 banking crisis warrant low borrowing costs but the NHS crisis and climate change don't.
I was just listening to BBC R4 and they were saying how Rachel Reeves might be unable to fund what she was hoping to whilst sticking to the fiscal rules she set herself. They said the reason was because long term borrowing costs have increased so much for the government (highest since 1998).
What I don't understand is why the BBC never seems to mention the extent to which the cost of government borrowing is a discretionary policy choice made by the Bank of England. During Covid, the BoE bought essentially all of the debt issued by the government. They bought bonds at eg £1.60 that they are now selling off at £0.40. The government covers those losses for them. Back then they set long term borrowing costs to 1% and they now are setting them to 5%, fixed for >50years in some cases.
This is a huge discretionary redistribution of our money. I appreciate that it is just shifting money around, taking it from the government and handing it to bond holders. But it is changing what the government choses to do, and that has huge consequences.
Yes I know the BoE buys bonds in the secondary market as that supposedly lets the market participate in price setting. But that is just a façade since the BoE can be the overwhelming participant. It has the added effect of the trading loses from the QE then QT cycle that gift bondholders at our expense.
Hands up, I'm a sceptic about BoE independence and the reliance on monetary policy. At the very least I wish instead of doing QE, the BoE had done what it did in WWII and WWI and simply said it would buy any bonds selling below a certain price. That sets long term borrowing rates without the colossal transfers of money to bondholders we get with the current system of QE followed by QT.
I also think there ought to be more public debate as to whether QT setting high long term borrowing costs really is in our interests. I know the BoE is supposed to be free to do whatever it sees fit. However, it seems to me so political to decide that Covid or the 2008 banking crisis warrant low borrowing costs but the NHS crisis and climate change don't.
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