tag:blogger.com,1999:blog-2277215496195926573.post3042178933147054895..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Let’s abolish the national debt.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2277215496195926573.post-83291585437099038802010-01-28T22:50:59.767-08:002010-01-28T22:50:59.767-08:00Duh – I made a mistake: the above “abolish the nat...Duh – I made a mistake: the above “abolish the national debt” argument is stronger than I thought. Here’s why.<br /><br />I assumed that the entire debt owned by UK nationals was quantitatively eased and that this would leave too much money sloshing around, which in turn would require the central bank to raise interest rates and attract some of such money back (which effectively would be “national debt” of a sort). <br /><br />However there is better way: repay owners of national debt with money SOME OF WHICH is printed and SOME OF WHICH is collected via tax. The former has a reflationary effect and the latter a deflationary effect. Get the proportions right, and there’d be no deflationary or reflationary effect.<br /><br />The only thing left would be book keeping entries at the central bank corresponding to the increased monetary base. It is traditional to classify these book keeping entries (or “gilts in the hands of the Bank of England”) as national debt. But this is a nonsense. This is not debt in any normal meaning of the word.<br /><br />Hope I’ve got that right at last.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-55415692044237379022010-01-12T05:57:44.312-08:002010-01-12T05:57:44.312-08:00Economics student:
First, my post is a bit of an ...Economics student:<br /><br />First, my post is a bit of an “extremist kite flying” exercise. I like doing this, because it often gives one an angle on how ideas work in more conventional circumstances. Aircraft manufacturers do exactly the same: do deliberately silly things with new aircraft (with ultra experienced pilots at the controls) during test flights, to see what happens.<br /><br />Re your question “Would the BoE simply print the money needed...”, my answer is yes, it could be done that way. (Though for a variety of reasons the £200bn or so of new money that the UK printed in 2009 was done in a more roundabout way than this).<br /><br />Re your suggestion “hand it over to the Treasury”. There is no need to do this. The BoE could just enter the market and buy up gilts: exactly what it did in 2009 (but on a smaller scale than I am suggesting).<br /><br />Re your last para, you make a good point. My only way out of this is to engage in what you might call a semantic quibble (though it’s a bit more than a quibble, I think). The phrase “government borrowing” normally refers to people loaning money to government with a view to government spending same. Indeed, the word “borrow” normally means “taking possession of someone else’s money with a view to spending same, and eventually repaying same”.<br /><br />However, the “borrowing” referred to in your last para is not really of this nature. The objective, and to some extent the actual effect, is simply to confiscate funds from the private sector. I.e. I do not envisage government actually spending the sums borrowed, as in the conventional use of the word borrow.<br /><br />I am submitting a paper in the next few days which deals with this point in more detail to an online journal: http://www.economics-ejournal.org/ They claim to reject or publish papers within a few weeks, so look out there, if you are interested.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-73140594386101372412010-01-11T09:39:52.426-08:002010-01-11T09:39:52.426-08:00Hi Ralph
Very interesting post. I have a couple o...Hi Ralph<br /><br />Very interesting post. I have a couple of questions. <br /><br />As regards to buying back internal debt through QE. How would that work? Would the BoE simply print the money needed and "hand it over" to the treasury so that they can buy back the gilts? I thought the way the BoE funds the treasury IS by buying gilts (or by lending against them). <br /><br />Also further down you mention that if rates had to be raised to contain inflation then the government would have to raise taxes to pay said higher interest payments. However, your argument starts with abolishing national debt so which interest payments are you reffering to?<br /><br />Kind RegardsEconomics Studentnoreply@blogger.com