Tuesday, 13 October 2009

£200bn off the National Debt at a stroke!!!

Gordon Brown recently announced a £16bn sale of public assets to reduce the National Debt. Pathetic !! It would be easy to wipe ten times that much (or even more) off the ND at a stroke. Here's how.

The total amount that has been quantitatively eased in 2009 is about £200bn (a bit under that figure, actually). And 99% of what has been quantitatively eased is government debt, i.e. gilts rather than private sector bonds.

We are thus now in the strange position where the “government” (an entity owned by the people) owes the Bank of England (another entity owned by the people) around £200bn. This is as nonsensical as saying I am in debt because my right hand pocket owes my left hand pocket some money.

This means there is a very simple way of knocking £200bn off the National Debt: tell the Bank of England to shred all the gilts in its possession. Yep, it’s that easy. It’s a bit like saying “I’m abandoning this silly business of right hand pocket owing money to right hand pocket, and instead I’ll go for a more rational book keeping system”.

Once the governor of the Bank of England has been forced (at gunpoint if necessary) to shred his gilts, there remains the £200bn or so of monetary base added to the economy in 2009 which of course is potentially inflationary. It would certainly be wise to rein in this money by means of increased taxation (and/or other deflationary measures). But there is yet more good news to come on this tax front. Indeed, this news is as miraculous as the £200bn wiped off the national debt, and it is thus.

There is no point in reining in the above money until it looks like causing inflation. Thus the tax needed to do this is not a tax in the normal sense of the word, i.e. something that makes one worse off. The “reining in tax” simply takes money away from people which, were they to keep it, would actually make them WORSE OFF because it would cause inflation.

So there you have it. £200bn wiped off the national debt with the outstanding problems solved by means of a tax which isn’t really a tax.

I could patent this idea and demand a 1% commission from government for using the idea, which would make me £2bn better off. But I haven’t got time to get down to the patent office.

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