Rishi Sunak and the Conservative Party.

[birchesgreen]

Interesting graphs, seems the only sure fire way to boost the birth rate is have a World War.

 

[nw1]

Interesting graphs, seems the only sure fire way to boost the birth rate is have a World War.

Let's not give anyone any ideas.

 

[LateThanNever]

Be very careful what you wish for.

Population isn't just about the total: what matters particularly is, as the statisticians say, how it is broken down by age and sex.

I have said before, and I'll say it again. If you only ever look at one graph in your life it needs to be figure 4 here from the 2021 UK census:

Population and household estimates, England and Wales - Office for National Statistics

Census 2021 rounded population and household estimates for local authorities in England and Wales, by sex and five-year age group.

www.ons.gov.uk

The UK has an unfunded state pension system, and a bulge of people in the 50-59 age group, approaching retirement (the "baby boomers"). Without a birth rate above replacement rate, and/or some inward migration, the ratio of economically active population to economically inactive population will plummet. Allow that ratio to fall too much and the UK state pension system and all of UK public finances will become unsustainable.

Unless you would like to work until you are 75?


And with a declining population, who do you think is going to do this? I suggest that you take a look at what is happening in Japan and South Korea, where population is already declining.

What the graph shows is that the UK does not have enough people in two age groups: the under 5s and 15-24 year olds. Now is the time to rectify that with a higher birth rate and a bit of net inward migration, migrants predominantly being young adults. The UK population will start to decline naturally once the "baby boomer" generation starts to die in large numbers.

Figure 4 is usually called the population pyramid, and it needs to be shaped like that, with more people at the bottom than the top. When it starts to look more like a tree it is bad news.

The UK has an unfunded state pension system, and a bulge of people in the 50-59 age group, approaching retirement (the "baby boomers"). Without a birth rate above replacement rate, and/or some inward migration, the ratio of economically active population to economically inactive population will plummet. Allow that ratio to fall too much and the UK state pension system and all of UK public finances will become unsustainable.

The UK is not a corner shop. It owns a bank which creates money out of thin air. It then taxes to prevent inflation. The economic problem is simply austerity, which is a religion of the rich based on deceiving the poor.

 

[takno]

The UK is not a corner shop. It owns a bank which creates money out of thin air. It then taxes to prevent inflation. The economic problem is simply austerity, which is a religion of the rich based on deceiving the poor.

That works to an extent, but you just can't print enough money to pay for the upcoming pension deficit - the UK is not a corner shop, but equally the entire population's pensions aren't a single tiny little pension. If you try this approach for a massive long term cost like the coming pension deficit then you rapidly reach a situation where nobody will buy UK government debt, shortly followed by nobody being willing to buy the pound.

We arguably could have funded our pensions by investing 20 years ago in economies where there isn't an impending demographic crisis (if there are any), but we didn't do that. Now our only credible option is to increase the productive segment of the population relative to the post-productive segment, so that there are more taxpayers per pension. That can be achieved in three ways - you can change the demographics by importing or breeding more younger people, you can make people work much longer and have shorter much retirements than we have become used to, or you can cut pensions back to poverty levels and stop supporting healthcare needs in the elderly such that they die earlier and more cheaply.

Given that people aren't about to start breeding on a massive scale only likely way to achieve the first option is through immigration. I think we need a sensible national conversation on whether we accept immigration or accept the second option. Sadly it's probably politically impossible to own up to the scale of the problem, so what's actually going to happen is the third option.

 

[birchesgreen]

Plus as well even if people did start breeding on a massive scale you would not get any net gains to the economy for nearly 20 years (and indeed a lot of increased costs beforehand).

 

[Busaholic]

Only since 2011. Remember Brown's 10p increase?

The 2022 increase was well below the rate of inflation, so this year's increase was from a lower base. We have one of the lowest pension rates in the Western world, compounded by so many of us being stuck on the 'old' pension rate with no ability to switch to the 'new' higher rate.

 

[JamesT]

The 2022 increase was well below the rate of inflation, so this year's increase was from a lower base. We have one of the lowest pension rates in the Western world, compounded by so many of us being stuck on the 'old' pension rate with no ability to switch to the 'new' higher rate.

The claim about the UK's pension being the lowest is a bit iffy. It's only including the mandatory state pension, when most UK people will have occupational pensions as well. Whereas other countries pension systems run the equivalent through their government system so it appears in the compared figure. It's also not including any additional benefits like Pension Credit.
If you're on the old system, don't you also get Additional State Pension from SERPS or similar? Which pensioners on the new system don't get. You could easily be getting more than if you were shifted to the new system even though the headline rate appears higher.

 

[LateThanNever]

That works to an extent, but you just can't print enough money to pay for the upcoming pension deficit - the UK is not a corner shop, but equally the entire population's pensions aren't a single tiny little pension. If you try this approach for a massive long term cost like the coming pension deficit then you rapidly reach a situation where nobody will buy UK government debt, shortly followed by nobody being willing to buy the pound.

We arguably could have funded our pensions by investing 20 years ago in economies where there isn't an impending demographic crisis (if there are any), but we didn't do that. Now our only credible option is to increase the productive segment of the population relative to the post-productive segment, so that there are more taxpayers per pension. That can be achieved in three ways - you can change the demographics by importing or breeding more younger people, you can make people work much longer and have shorter much retirements than we have become used to, or you can cut pensions back to poverty levels and stop supporting healthcare needs in the elderly such that they die earlier and more cheaply.

Given that people aren't about to start breeding on a massive scale only likely way to achieve the first option is through immigration. I think we need a sensible national conversation on whether we accept immigration or accept the second option. Sadly it's probably politically impossible to own up to the scale of the problem, so what's actually going to happen is the third option.

Government debt is actually our savings. Government owns a bank - it has debt so that people can save securely - secure because government prints its own currency and so can never ever run out of it. People who want to trade with the UK will always be willing to buy the pound, I think!

 

[takno]

Government debt is actually our savings. Government owns a bank - it has debt so that people can save securely - secure because government prints its own currency and so can never ever run out of it. People who want to trade with the UK will always be willing to buy the pound, I think!

It the "people who want to trade with the UK" bit where you hit the problem. People trust the pound because it's backed by the government, and ultimately by the country's GDP. The GDP is produced by people working. If you don't have enough working age people then you don't have the GDP, which immediately affects the government's ability to borrow, and over the longer term impacts the pound.

You can tie yourself up in economics as much as you want, but it's actually a really simple and fundamental problem - if we don't produce as much stuff as we need or want then we have to get that stuff from other countries. Other countries don't give us the stuff out of the goodness of their hearts - they want paying for it, and we either pay by trading some of the stuff we produced, or by falling back on income from our investments abroad.

There's quite a lot of clever economics that mean you can get away with being bankrupt on a certain scale or for a certain time, but for a problem on the scale of our possible pension deficit they're not going to hold. At that point something will happen which will bring things back into balance - the specific mechanism that does that doesn't matter - it could be hyper-inflation, massive scale bankruptcies in pension providers, government being forced to backtrack on policy commitments or some combination of all of them.

 

[Magdalia]

Government debt is actually our savings.

Only a small part of it. The much bigger parts are savings of people outside the UK, and in recent times, the Bank of England, which effectively printed money to buy UK government debt as part of quantitative easing. That's why the confidence of the International bond markets matters so much: look at what happened a year ago with the Truss/Kwarteng mini-budget. The International bond markets need confidence that we are going to pay up when our bonds mature, and that we are not going to shrink their value by inflation or currency depreciation.

People who want to trade with the UK will always be willing to buy the pound, I think!

But you aren't sure! They weren't very willing to buy the pound a year ago.

 

[Busaholic]

The claim about the UK's pension being the lowest is a bit iffy. It's only including the mandatory state pension, when most UK people will have occupational pensions as well. Whereas other countries pension systems run the equivalent through their government system so it appears in the compared figure. It's also not including any additional benefits like Pension Credit.
If you're on the old system, don't you also get Additional State Pension from SERPS or similar? Which pensioners on the new system don't get. You could easily be getting more than if you were shifted to the new system even though the headline rate appears higher.

Pension Credit is only paid to a single person with an income lower than £201.05 per week. Your last sentence is factually incorrect, I believe, because you appear to be unaware that any SERPS payment is not upgraded under the Triple Lock system but is only increased by 1% per annum. I have three elements to my state pension, and only the basic one gets increased by more than 1%.

 

[LateThanNever]

Only a small part of it. The much bigger parts are savings of people outside the UK, and in recent times, the Bank of England, which effectively printed money to buy UK government debt as part of quantitative easing. That's why the confidence of the International bond markets matters so much: look at what happened a year ago with the Truss/Kwarteng mini-budget. The International bond markets need confidence that we are going to pay up when our bonds mature, and that we are not going to shrink their value by inflation or currency depreciation.


But you aren't sure! They weren't very willing to buy the pound a year ago.

UK debt held by foreign investors - Economics Help

One of the most common questions asked is, who owns UK National Debt? Often people assume that UK government debt is owned by foreign investors. However, foreign investors only hold about 25-30% of UK government debt. The rest is held by the UK private sector (pension funds, insurance companies...

www.economicshelp.org

So actually the 'small part' is held by overseas investors. The banks including the Bank of England itself and insurance/pension cos are the majority. Sterling bonds will always be honoured by UK government as it is the sole world creator of the money they are repayable in!

It the "people who want to trade with the UK" bit where you hit the problem. People trust the pound because it's backed by the government, and ultimately by the country's GDP. The GDP is produced by people working. If you don't have enough working age people then you don't have the GDP, which immediately affects the government's ability to borrow, and over the longer term impacts the pound.

You can tie yourself up in economics as much as you want, but it's actually a really simple and fundamental problem - if we don't produce as much stuff as we need or want then we have to get that stuff from other countries. Other countries don't give us the stuff out of the goodness of their hearts - they want paying for it, and we either pay by trading some of the stuff we produced, or by falling back on income from our investments abroad.

There's quite a lot of clever economics that mean you can get away with being bankrupt on a certain scale or for a certain time, but for a problem on the scale of our possible pension deficit they're not going to hold. At that point something will happen which will bring things back into balance - the specific mechanism that does that doesn't matter - it could be hyper-inflation, massive scale bankruptcies in pension providers, government being forced to backtrack on policy commitments or some combination of all of them.

The UK government can never ever be bankrupt in Sterling as it is the sole and monopoly creator of the stuff. The state could provide proper pensions instead of private pension providers - the UK is unusual in Europe in not doing this and relying on the instabilities of the private market instead.

 

[JamesT]

Pension Credit is only paid to a single person with an income lower than £201.05 per week. Your last sentence is factually incorrect, I believe, because you appear to be unaware that any SERPS payment is not upgraded under the Triple Lock system but is only increased by 1% per annum. I have three elements to my state pension, and only the basic one gets increased by more than 1%.

I was reading articles such as https://www.which.co.uk/money/pensi...n/state-second-pension-and-serps-aBlEx9M8XXWY

The maximum additional state pension you can get in 2023-24 is £204.68 a week

A full basic state pension under the old system is £156.20/week. Adding on maximum SERPS gives £360.88/week

Maximum new state pension is £203.85/week.

It's going to take a while even at the current rates of the triple lock to overtake that figure, so I stand by my statement that you can be potentially better off under the old system.

 

[Magdalia]

So actually the 'small part' is held by overseas investors.

Overseas investors hold nearly half of the outstanding UK government debt that's traded in the secondary markets, once the Bank of England holdings are excluded. With UK government debt at 100% of annual GDP, or about 2500bn, overseas investors hold about £750 bn of UK government debt.

The UK government can never ever be bankrupt in Sterling as it is the sole and monopoly creator of the stuff.

That only works in a closed economy. If foreign investors don't want sterling then the UK has nothing to buy imports with, apart from the foreign currency earned from exports. The government debt owned by overseas investors is a huge part of the funding of the UK's very large balance of payments deficit. Yes the UK could run its economy like that but it would have to bring the huge balance of payments deficit down to nothing with a huge deterioration in living standards. It is not a cost free option.

 

[LateThanNever]

Overseas investors hold nearly half of the outstanding UK government debt that's traded in the secondary markets, once the Bank of England holdings are excluded. With UK government debt at 100% of annual GDP, or about 2500bn, overseas investors hold about £750 bn of UK government debt.


That only works in a closed economy. If foreign investors don't want sterling then the UK has nothing to buy imports with, apart from the foreign currency earned from exports. The government debt owned by overseas investors is a huge part of the funding of the UK's very large balance of payments deficit. Yes the UK could run its economy like that but it would have to bring the huge balance of payments deficit down to nothing with a huge deterioration in living standards. It is not a cost free option.

Why do you exclude the Bank of England holdings?
Their holdings precisely indicate why government debt is in fact better seen as 'our' savings.
There is no practical evidence that foreign investors fight shy of UK investment. The transport sector is awash with it - for example.
Theoretically you should be right but people and countries want to trade - look at Germany and China whose people's prosperity is based on exports - they don't look at the UK's balance of payments - they look at the UK market potential.
And I hope you do realise that forex is a gambler's charter?
Three day's trading would cover actual international trade. The rest is gambling!
Exporters are merely outsoucing their country's money creation...

 

[david1212]

How on the one hand to ensure we have the resources to both care for an ever increasing elderly population and fund their state pension but on the other not further increase our population from the combination of births and immigration and hence not require even more resources / facilities e.g. housing, utilities, food supply, heathcare is an interesting discussion.

One factor I have not seen discussed is the relative loss of what once were classed as semi-skilled manufacturing jobs and administration jobs e.g. banking front-of-house and back room which paid in real terms a better wage and hence generated more tax and NI income to the state than the jobs we now have more of e.g. warehousing and picking/packing, 'white-van-man' drivers, care workers ( who really do deserve rather more than near minimum wage ).

 

[LateThanNever]

How on the one hand to ensure we have the resources to both care for an ever increasing elderly population and fund their state pension but on the other not further increase our population from the combination of births and immigration and hence not require even more resources / facilities e.g. housing, utilities, food supply, heathcare is an interesting discussion.

One factor I have not seen discussed is the relative loss of what once were classed as semi-skilled manufacturing jobs and administration jobs e.g. banking front-of-house and back room which paid in real terms a better wage and hence generated more tax and NI income to the state than the jobs we now have more of e.g. warehousing and picking/packing, 'white-van-man' drivers, care workers ( who really do deserve rather more than near minimum wage ).

The private sector doesn't earn the money 'we' require. Government creates it. Tax prevents inflation. What government needs is resources. In my view public health and stopping the food industry form making us unwell would be a good start (see Ultra Processed People by Chris van Tulleken)

 

[Magdalia]

Why do you exclude the Bank of England holdings?

Because the Bank of England can't sell except as part of its management of monetary policy. If the Bank of England sells then it floods the secondary market, lowers the price and increases the yield. That makes it much more expensive to roll over existing debt when it matures, or to issue new debt. That would be "quantitative tightening", the opposite of quantitative easing, when the Bank of England mopped up bonds that nobody wanted, putting a floor under the price and keeping the yield low. It is extremely unlikely that the bonds held by the Bank of England will ever be traded while the government continues to add to the debt. Overseas investors hold nearly half of the bonds that are actively traded, and that's what matters.

There is no practical evidence that foreign investors fight shy of UK investment.

I refer you back to the aftermath of the Truss/Kwarteng mini-budget, when foreign investors did exactly that.

Germany and China whose people's prosperity is based on exports

And the corollary of that is that countries with a balance of payments surplus hold foreign currency assets in the currencies of the countries with which they trade, mostly using financial intermediaries. They won't trade if they are only going to be paid in a currency that they expect to decline in value, or they will demand punitive interest rates on the bonds, or they will demand to be paid in their own currency.

And I hope you do realise that forex is a gambler's charter?

Yes there is a lot of trading in the forex markets that is basically gambling, but that doesn't negate the economic fundamentals of structural balance of payments and public sector deficits.

 

[takno]

The UK government can never ever be bankrupt in Sterling as it is the sole and monopoly creator of the stuff. The state could provide proper pensions instead of private pension providers - the UK is unusual in Europe in not doing this and relying on the instabilities of the private market instead.

No, agreed. The Bank of England can keep printing Sterling on the government's behalf until each precious pound is worth a fraction of a rouble, and the government can use its newly-minted trillions to pay a million pound pension to everybody in Britain. Unfortunately that won't actually get any of us very far because the exchange rate will mean that it'll cost 100k to buy a tin of beans.

George Osborne's comparison between the government and a household/corner shop was fatuous because the government is much larger and more able to control the domestic economy than an individual household,. The government is not omnipotent though - Britain's GDP is currently around 3% of global GDP, and the other 97% of the global economy isn't necessarily that interested in what the UK government thinks, wants or demands.

 

[LateThanNever]

Because the Bank of England can't sell except as part of its management of monetary policy. If the Bank of England sells then it floods the secondary market, lowers the price and increases the yield. That makes it much more expensive to roll over existing debt when it matures, or to issue new debt. That would be "quantitative tightening", the opposite of quantitative easing, when the Bank of England mopped up bonds that nobody wanted, putting a floor under the price and keeping the yield low. It is extremely unlikely that the bonds held by the Bank of England will ever be traded while the government continues to add to the debt. Overseas investors hold nearly half of the bonds that are actively traded, and that's what matters.


I refer you back to the aftermath of the Truss/Kwarteng mini-budget, when foreign investors did exactly that.


And the corollary of that is that countries with a balance of payments surplus hold foreign currency assets in the currencies of the countries with which they trade, mostly using financial intermediaries. They won't trade if they are only going to be paid in a currency that they expect to decline in value, or they will demand punitive interest rates on the bonds, or they will demand to be paid in their own currency.


Yes there is a lot of trading in the forex markets that is basically gambling, but that doesn't negate the economic fundamentals of structural balance of payments and public sector deficits.

Why does the Bank of England want to sell? It doesn't need to.
It could continue with QE for a very long time as the Bank of Japan has.
I'm unaware that it was foreign investors that were the problem for Truss and Kwarteng. If they had better explained what they were doing then they would have had no problem but their 'Britannia Unhinged' arrogance prevented them. The City just saw an opportunity to make money.
There is no evidence that either Germany or China or indeed anyone else - is refusing to trade with the UK!
Do you think that the people should be working for the economy?
I'm of the view that the economy should be working for the people...

No, agreed. The Bank of England can keep printing Sterling on the government's behalf until each precious pound is worth a fraction of a rouble, and the government can use its newly-minted trillions to pay a million pound pension to everybody in Britain. Unfortunately that won't actually get any of us very far because the exchange rate will mean that it'll cost 100k to buy a tin of beans.

George Osborne's comparison between the government and a household/corner shop was fatuous because the government is much larger and more able to control the domestic economy than an individual household,. The government is not omnipotent though - Britain's GDP is currently around 3% of global GDP, and the other 97% of the global economy isn't necessarily that interested in what the UK government thinks, wants or demands.

Government owns a bank.
All banks create money out of thin air.
No need for inflation - you prevent inflation through taxation.

 

[JamesT]

Because the Bank of England can't sell except as part of its management of monetary policy. If the Bank of England sells then it floods the secondary market, lowers the price and increases the yield. That makes it much more expensive to roll over existing debt when it matures, or to issue new debt. That would be "quantitative tightening", the opposite of quantitative easing, when the Bank of England mopped up bonds that nobody wanted, putting a floor under the price and keeping the yield low. It is extremely unlikely that the bonds held by the Bank of England will ever be traded while the government continues to add to the debt. Overseas investors hold nearly half of the bonds that are actively traded, and that's what matters.

The Bank of England has been doing some QT for the last year or so. https://www.bankofengland.co.uk/spe...ng-chaired-by-money-macro-and-finance-society

Since then, those principles have been put into practice with QT commencing in February 2022, initially through maturities and augmented last autumn with a programme of gilt sales.

It’s not a complete reversal of the QE that’s been occurring over the last couple of decades. Though hopefully it should be assisting with inflation as it’s the opposite of pumping money into the economy.

 

[The Ham]

Ultimately the UK can't just let it's working population go into free fall.

The issues with housing and the NHS has more to do with an aging population than people moving here from overseas.

First of the NHS, how often on average do people in their 20's to 50's go to the doctor compared to those in their 60's to 90's? It's generally the case that the older someone is the more they will see a doctor or other health professional (women when they are pregnant vs when they're in their 70's often buck this trend, however they are fairly easy to manage and is a fairly short amount of time for most women). Yes, there's going to be other outliers, however the more people were have over 65 as a percentage of our population the more interactions there will be for the NHS to deal with.

As such whilst an extra 2.5 million people of working age is going to increase the number of NHS interactions, that's going to be tiny compared to an extra 1.5 million (or more) people being over 80, plus all those extra being 65-80.

We'd probably have been fine if health workers were treated well, unfortunately they are not so quite a lot of British people who train to be doctors have left to be doctors in Australia and New Zealand as they are treated better.

As for homes, there's a lot of 4+ bedroom homes which have a retired couple in, there's also a lot of homes with just one person as they have lost their other half. This means (and coupled with a fairly high number of people who are separated but both need space for their kids) the average number of people per house has been falling.

Therefore, even with a static population there would be a significant number of additional dwellings being added to the housing stock each year. This is often difficult to achieve as there's often a strong objection to more housing being built (often from those who are retired or at least have a good house and don't want their nice town/village to get bigger).

Unless we can reduce our need for more staff by automation, then there's also a fair chance that those who are retired won't be able to have the services that they want if there is also no partial replacement (note; not 1:1 but maybe 0.75:1) of our working population for those who are retiring (and there's going to be a LOT over the next 10 years and no where near enough young people replacing them, even in a gradual reducing basis).

If you look at the population pyramids for the UK there a noticeable bulge in the 50-60 population, which isn't matched by the numbers in the 10-20 year olds. Even in the 10-20 Vs 55-65 the percentage of the population in the 20-65 range will reduce by 1% of the total population over the next decade, as a rough idea that's half a million fewer people working in a decades time than currently if we have zero net migration (it would be far worse with zero immigration).

If you track it forwards another 5 years you'll lose another 0.5% of the total population from the working aged population (those currently in their 70's probably don't need to be overly worried, but those younger may find there's a lack of care staff when they need it).

One final point, if it wasn't for immigration the number of children would be noticeable lower and we'd be in a whole lot of a worse situation going forwards.

 

[Magdalia]

Why does the Bank of England want to sell? It doesn't need to.
It could continue with QE for a very long time as the Bank of Japan has.

But the Bank of England can't buy either, because more quantitative easing would make inflation worse.

So when the government is a net issuer of debt, but the Bank of England isn't buying, the government and the Bank are relying on almost half of new debt being bought by foreigners.

If they had better explained what they were doing then they would have had no problem

No, unfunded tax cuts when inflation was rising was unhinged from economic reality.

Do you think that the people should be working for the economy?
I'm of the view that the economy should be working for the people...

The economy could be working for the people. But given the amounts of debt that the UK government already has, and the amounts that it wants to continue to add to that debt, it has to recognise that it can only borrow to the extent that its creditors are willing to lend, and at the interest rates that they demand. Since the start of 2022, 30 year gilt yields have risen from about 1 per cent to about 5 per cent, reflecting a decreased willingness of creditors to lend to the UK.

 

[takno]

Government owns a bank.
All banks create money out of thin air.
No need for inflation - you prevent inflation through taxation.

It's nice that you'ce accepted that at some point it actually turns from printing money to tax rises, but that's the whole problem in a nutshell There's a practical limit on the tax you can levy, which is somewhere below 100% of GDP. We aren't talking about increasing or decreasing government spending by a cheeky 10 or 20% here, we're talking about getting to the point where we're transferring the majority of the country's output from the economically active to the economically inactive, and doing so continuously for a period of at least 20 years

 

[LateThanNever]

No, agreed. The Bank of England can keep printing Sterling on the government's behalf until each precious pound is worth a fraction of a rouble, and the government can use its newly-minted trillions to pay a million pound pension to everybody in Britain. Unfortunately that won't actually get any of us very far because the exchange rate will mean that it'll cost 100k to buy a tin of beans.

George Osborne's comparison between the government and a household/corner shop was fatuous because the government is much larger and more able to control the domestic economy than an individual household,. The government is not omnipotent though - Britain's GDP is currently around 3% of global GDP, and the other 97% of the global economy isn't necessarily that interested in what the UK government thinks, wants or demands.

Government owns a bank.
All banks create money out of thin air.
No need for inflation - you prevent inflation through taxation.

It's nice that you'ce accepted that at some point it actually turns from printing money to tax rises, but that's the whole problem in a nutshell There's a practical limit on the tax you can levy, which is somewhere below 100% of GDP. We aren't talking about increasing or decreasing government spending by a cheeky 10 or 20% here, we're talking about getting to the point where we're transferring the majority of the country's output from the economically active to the economically inactive, and doing so continuously for a period of at least 20 years

Except that government creates money as it spends:

Exchequer and Audit Departments Act 1866

An Act to consolidate the Duties of the Exchequer and Audit Departments, to regulate the Receipt, Custody, and Issue of Public Moneys, and to provide for the Audit of the Accounts thereof.

www.legislation.gov.uk

It cancels the created money through taxation.

GDP was always a flawed measure (as its creators acknowledged) so I'm really not sure what is meant by 'output'. It could just mean we care for each other. Why is it 'unaffordable' to do that if there are people available to do it?

But the Bank of England can't buy either, because more quantitative easing would make inflation worse.

So when the government is a net issuer of debt, but the Bank of England isn't buying, the government and the Bank are relying on almost half of new debt being bought by foreigners.


No, unfunded tax cuts when inflation was rising was unhinged from economic reality.


The economy could be working for the people. But given the amounts of debt that the UK government already has, and the amounts that it wants to continue to add to that debt, it has to recognise that it can only borrow to the extent that its creditors are willing to lend, and at the interest rates that they demand. Since the start of 2022, 30 year gilt yields have risen from about 1 per cent to about 5 per cent, reflecting a decreased willingness of creditors to lend to the UK.

QE did not make inflation worse - unless you count asset prices which are not measured in inflation figures!

Japan has been doing QE for decades and inflation is rock bottom.

Government doesn't need to issue 'debt' tho' it can choose to do so. Then government 'debt' is our asset or savings. In any case when you issue 'debt' in a currency only you have the right to create how is it proper 'debt'? Every fiver issued is 'debt'. Perhaps we should stop issuing them....

And where does all this £ sterling money that is 'lent' to us come from? Are there a few chaps lurking round a corner with a couple of billion in their back pockets refusing to lend to us till we put interest rates up to 5%?

 

[Magdalia]

QE did not make inflation worse - unless you count asset prices which are not measured in inflation figures!

Times change. just because QE didn't cause inflation in in the immediate aftermath of the 2008 financial crisis doesn't mean that it won't cause inflation now, when inflation is already high because of supply side shocks.

Japan has been doing QE for decades and inflation is rock bottom.

Japan is very different from the UK in that it has a balance of payments surplus, and can fund its government debt from domestic savings.

If the UK had a balance of payments surplus then it could do what Japan is doing, but because the UK has a large balance of payments deficit, that has to be funded from overseas, it can't.

Then government 'debt' is our asset or savings

As I've pointed out already, much of the UK government debt is the assets of overseas investors, it is not "our" savings. Japan can say that but the UK cannot.

And where does all this £ sterling money that is 'lent' to us come from?

It is the money that we have used to pay for imports.

Are there a few chaps lurking round a corner with a couple of billion in their back pockets refusing to lend to us till we put interest rates up to 5%?

Yes. They are the forex traders, acting on behalf of the commercial banks, in New York, Frankfurt, Shanghai and Tokyo. And it is a lot more than a couple of billion, it is hundreds of billions.

 

[LateThanNever]

Times change. just because QE didn't cause inflation in in the immediate aftermath of the 2008 financial crisis doesn't mean that it won't cause inflation now, when inflation is already high because of supply side shocks.

Japan is very different from the UK in that it has a balance of payments surplus, and can fund its government debt from domestic savings.

If the UK had a balance of payments surplus then it could do what Japan is doing, but because the UK has a large balance of payments deficit, that has to be funded from overseas, it can't.


As I've pointed out already, much of the UK government debt is the assets of overseas investors, it is not "our" savings. Japan can say that but the UK cannot.


It is the money that we have used to pay for imports.


Yes. They are the forex traders, acting on behalf of the commercial banks, in New York, Frankfurt, Shanghai and Tokyo. And it is a lot more than a couple of billion, it is hundreds of billions.

A fascinating point of view!

But there is zero evidence that QE causes inflation. So quite why that should suddenly change I cannot fathom. Indeed if your assertion is that the UK should get exporting then Green QE could do just that.

Japan has in fact mostly been running trade deficits I'm afraid:

Japan Balance of Trade

Japan recorded a trade surplus of 366.47 JPY Billion in March of 2024. This page provides - Japan Balance of Trade - actual values, historical data, forecast, chart, statistics, economic calendar and news.

tradingeconomics.com

When only a small proportion of UK 'debt' is held by foreigners and all of that is denominated in Sterling, which the UK has the monopoly on creating, the idea that the UK is financed by forex traders is one I have not previously encountered - so where did they get their money then? Were they born with bulging back pockets?!

 

[takno]

A fascinating point of view!

But there is zero evidence that QE causes inflation. So quite why that should suddenly change I cannot fathom. Indeed if your assertion is that the UK should get exporting then Green QE could do just that.

Japan has in fact mostly been running trade deficits I'm afraid:

Japan Balance of Trade

Japan recorded a trade surplus of 366.47 JPY Billion in March of 2024. This page provides - Japan Balance of Trade - actual values, historical data, forecast, chart, statistics, economic calendar and news.

tradingeconomics.com

When only a small proportion of UK 'debt' is held by foreigners and all of that is denominated in Sterling, which the UK has the monopoly on creating, the idea that the UK is financed by forex traders is one I have not previously encountered - so where did they get their money then? Were they born with bulging back pockets?!

QE arguably has been inflationary over the past 10 years, but it's been acting against negative inflation. It's also been done by most of the large economies at the same time. You can't just confidently massively extend QE as a one-country solution in a different financial environment and hope for the best.

You appear to be taking a green/Marxian viewpoint that distribution is all that matters here, and that growing absolute production is a bad thing. In general I can get behind that, but the problem with that you haven't got any large-scale buy-in for that as a policy, and the shape of the demographics makes it highly unlikely that what the UK is able to produce as a society dominated by non-productive pensioners is likely to meet most peoples expectations of their needs.

Ignoring the economics for a second, think about how that society looks to you as a working person. If its a society where everybody is working hard and sharing the outputs equitably, but we were all poor and this is the best we could do, then I might be okay with that. If's a society where the minority of people are working, and most of my output is going to a group of pensioners who are still capable of work but are instead sitting in their owner-occupied houses treating their pensions like some kind of golden ticket, I'm not going to be okay with that. Not being okay with that suggests two options - emigrate to a country with a different system, thus worsening the problem in the UK, and further reinforcing the superiority of the country which has gone the different route, or work to change the situation in the UK.

I'm not particularly trying to make an argument for the inevitability of revolution, but I am pointing out that there are some pretty fundamental political forces at work which your touching faith in the non-inflationary nature of QE really won't be able to stand up to.

 

[JamesT]

QE arguably has been inflationary over the past 10 years, but it's been acting against negative inflation. It's also been done by most of the large economies at the same time. You can't just confidently massively extend QE as a one-country solution in a different financial environment and hope for the best.

You appear to be taking a green/Marxian viewpoint that distribution is all that matters here, and that growing absolute production is a bad thing. In general I can get behind that, but the problem with that you haven't got any large-scale buy-in for that as a policy, and the shape of the demographics makes it highly unlikely that what the UK is able to produce as a society dominated by non-productive pensioners is likely to meet most peoples expectations of their needs.

Ignoring the economics for a second, think about how that society looks to you as a working person. If its a society where everybody is working hard and sharing the outputs equitably, but we were all poor and this is the best we could do, then I might be okay with that. If's a society where the minority of people are working, and most of my output is going to a group of pensioners who are still capable of work but are instead sitting in their owner-occupied houses treating their pensions like some kind of golden ticket, I'm not going to be okay with that. Not being okay with that suggests two options - emigrate to a country with a different system, thus worsening the problem in the UK, and further reinforcing the superiority of the country which has gone the different route, or work to change the situation in the UK.

I'm not particularly trying to make an argument for the inevitability of revolution, but I am pointing out that there are some pretty fundamental political forces at work which your touching faith in the non-inflationary nature of QE really won't be able to stand up to.

https://www.bankofengland.co.uk/qua...spective-on-its-functioning-and-effectiveness is an examination the effect of QE. It includes the statement:

Averaging across 16 studies by academic and central bank researchers, the Bank‘s QE1 was estimated to have increased UK inflation and annual GDP growth by up to 1.8pp and 1.6pp at its peak, respectively.

 

[Magdalia]

But there is zero evidence that QE causes inflation. So quite why that should suddenly change I cannot fathom.

It has changed because the UK already has inflation triggered by supply side shocks. Of these the most important is the least recognised: tightening of the labour market due to the demographic changes that brought us here in the first place. In particular, during the last 2 years, QE would have reduced the impact on inflation of the UK's 14 interest rate rises.

Japan has in fact mostly been running trade deficits

Balance of payments is not just about trade. Japan benefits from a big surplus on overseas investment earnings, for example the profits from its factories in the UK making cars and trains. 40 years ago the UK was like that, but not now.

When only a small proportion of UK 'debt' is held by foreigners and all of that is denominated in Sterling, which the UK has the monopoly on creating, the idea that the UK is financed by forex traders is one I have not previously encountered - so where did they get their money then? Were they born with bulging back pockets?!

The forex traders are not using their own money. It belongs to commercial banks, deposited by the companies from which the UK has purchased its imports. And as I've already explained, the proportion held by foreigners is not small, particularly in the context of the market for issuing yet more debt.

Indeed if your assertion is that the UK should get exporting then Green QE could do just that.

I haven't asserted that, but you are right that the UK should get exporting, and green industries are one area where the UK has opportunities to do that. But, from my perspective here in the Fens, the best opportunity for high productivity growth and exports is what is already happening in Cambridge and Oxford in things like the life sciences. The government doesn't need borrowing or QE for that: it just needs to make sure that growth is not strangled. That means building houses and infrastructure, which can be privately financed.

I'm definitely not advocating more QE, which in the UK mainly fed through into inflation in asset prices. The UK GDP data since 2008 shows that QE didn't do much for real economic activity.