Friday, 19 February 2010
Did the UK national debt increase in 2009?
Ostensibly the debt increased in 2009 by about £200bn. But the entire lot was quantitatively eased. That is, arguably, there was NO increase in the debt at all. All that happened was that the government central bank machine printed an extra £200bn.
Do you regard the £20 notes in your wallet as a “debt owed by the government to you”? That’s not the way I see the £20 notes in my wallet.
Money, or more accurately, the monetary base appears on the liabilities side of a central bank’s balance sheet. But as former Bank of England Monetary Policy Committee member Willem Buiter put it, “These monetary base ‘liabilities’ of the central bank are not in any meaningful sense liabilities, because they are irredeemable.”
As to the interest paid on this “debt”, this is paid by the Treasury to the Bank of England. But the Bank of England sends all profits it makes at the end of the year back to the Treasury!
This charade does have SOME purpose: it helps maintain a distinction between the Treasury and the central bank. Other than that, it’s a charade. So will everyone please stop worrying about the so called interest paid on the 2009 national debt increase?