Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday, 5 December 2013

Two observations on the Autumn Statement

I may come back to some of the detailed measures announced in the 2013 Autumn Statement at a later stage, but here I just want to make two points about the overall strategy. The first comes from the OBR’s accompanying forecast. They calculate that government plans imply that “government consumption of goods and services falls from 23.2 per cent of nominal GDP in 2009 to 16.1 per cent by the end of the forecast period, its lowest on record in data back to 1948.” The document mentions this at least three times, perhaps because they find it a little unbelievable. Yet it certainly indicates the scale of George Osborne’s ambitions to shrink the size of the UK state.

This reduction in government spending could allow immediate and large reductions in taxes. However the government wants to bring down debt fast. Here is a nice chart from the Autumn Statement document.

The government’s preferred strategy is to go for something like 1% surpluses, bringing debt back to pre-recession levels by 2034/5. As Chris Dillow also notes, small budget deficits would still bring down debt, but more slowly.

Now let’s imagine that at some stage in the not too distant future the UK recovers much of the enormous amount of ground it has lost since 2007, and interest rates are no longer at their lower bound. At that point aggregate fiscal policy should be all about choosing between paths like these (or, of course, something in between). I think this is a very important debate to have. It would be a tremendous advance if we could have this debate without confusing it with the issue of how large the state should eventually be.

Yet neither this Autumn Statement, nor the speed of the recovery, alters in any way my view that this is not what should govern fiscal decisions today. UK GDP per capita is over 15% below the trend that it has followed since the 1950s. The more fiscal tightening we have, the longer it will take to recoup this lost ground. 


  1. Simon,

    I’m not sure about your claim that “aggregate fiscal policy should be all about choosing between paths like these”. (That’s presumably the two debt paths shown in the chart.)

    That seems to imply agreement with the government’s simple minded idea that national debt is equivalent to the debt of a household or firm: something to be minimised whenever possible.

    That clashes with the view of national debt put by Keynes (a view endorsed by MMTers) namely, “Look after unemployment and the budget looks after itself”. In other words the central objective should be to keep unemployment as low as possible, while ignoring the deficit and debt: they’re just numbers that come out in the wash.

    I.e. and contrary to your chart, if there was a big increase in private sector confidence in five years time, then the debt would come crashing down. In contrast, if the private sector goes into cautious mode, the debt (or monetary base) would need to rise. We should attach very little importance to which of those two actually transpires.

  2. Ralph, you say "the government’s simple minded idea that national debt is equivalent to the debt of a household or firm".

    I'm wondering why you think the government holds this idea?

    1. Because that's the way their argument is always framed - although whether they actually believe it or not is another question.

      Unfortunately it's a framing that is easily understandable by the general population, which is why Labour is finding it difficult in escaping from it. As has been notice by Aditya Chakrabortty in the Guardian:

      "The danger here for Labour is that, just as they let Cameron and Osborne define the crisis (as being all Gordon Brown's fault), so they will also allow No 10 to frame the rebound."

      Not wanting to go too far off-topic, but the media coverage of Osborne's statement brought to mind Simon's recent post on attacks on mainstream economics. The coverage has been absolutely dominated by discussion of austerity, debt and deficit - entirely accepting the Government's framing. So where are the mainstream economists in the media stating that austerity might not be such a good idea? Because this is the public's main view of the economic discussion.

      gastro george

    2. I agree with Anonymous / Gastro George: i.e. government certainly APPEARS to believe in the household analogy, though it's very difficult to know whether they really do believe in it, or whether they're exploiting the analogy so as to push a political agenda. A bit of both, I'd guess.

    3. Ralph,

      I believe the household analogy originated back in 1978 with Mrs T.

      It has become an ineradicable mental construct in the public psyche over the past four decades. It also heavily tinged with a moral, rather puritan attitude about the nefariousness of those have indulged in debt.

      The government do not believe in this and merely use it as a tool for their political agenda.

      Debt reduction and austerity all have the self-flagellatory (and expiatory, comforting) flavour of sack-cloth and ashes that plays well to a public needing to assuage collective guilt about the boom years of the noughties.

      'Austerity good, debt bad.'

    4. So why isn't the national debt the equivalent of the debt of a firm? (I know, I know: "You weren't paying attention in Economics 101")

      Debt matters equally to a household, firm or government because you have to pay it back or face reputational costs of default or devaluation which are uncertain and could be more than the cost of repayment. Whether you call this morality (which begs the question of the origin of morality), business, or physics is immaterial.

      This is not necessarily a right wing point of view - my choice would be to introduce a wealth tax to reduce the national debt.

    5. But Tim Young - debt does not matter equally to a household and a firm. There's plenty of evidence of this. Most notably that resilient households largely only take on debt for a major capital investment (the house, a mortgage) there's a whole array of uses of debt by even SME firms.

    6. The link (below) should help clarify the household and government debt fallacy. Reading through it further exposes the astonishing deception and intellectual dishonesty of the current government - Osborne in particular. But unfortunately they are currently 'winning' the argument with their false analogy- given its apparent plausability, simplicity and the understandable lack of knowledge in the general population of macroeconomic theory, history and principles - such as those described in the link.

    7. The deception in that article is from Randall Wray. In most developed countries, governments do not issue state money; they have an independent central bank which they can only gainsay at great political cost, and, as I said, even then states which devalue their debts tend to pay for it in the long run anyway (though not of course the government in office when the devaluation is actually engineered, which is one reason why they do it). I grant that the fact that a state can levy taxes to cover its debt service payments seems likely to make it a more robust borrower than a firm (though it would be interesting to test whether this is true by looking at government versus firms' debt to income ratios), but that is subject to limits set by tax evasion, outward migration and civil disobedience, and of course the later pain of repayment may be more than that of up-front austerity.

    8. Tim Young,

      Having read this article, which seems cogent, can you explain how this line:

      'The federal government is the issuer of our currency.' squares with your comment that governments do not control independent central banks in developed countries?

      Also: 'I don’t know any household that is able to spend by crediting bank deposits and reserves, or by issuing currency. ' I.e. we are not fortunate enough to have a printing press at home.

      How would you say this doesn't work in the context of the Bank of England and HMG?

    9. That is why I said the article was misleading. But Randall Wray often asserts that the government is the issuer of the currency, because that it is a vital tenet of his "modern monetary theory".

      In the UK, the law is very clear on this matter. With the 1998 amendment, the Bank of England Act says "The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest EXCEPT IN RELATION TO MONETARY POLICY." (my emphasis), albeit with some "reserve powers" for "extreme economic circumstances", requiring a parliamentary order. And the BoE Act makes the maintenance of price stability the BoE's primary objective, such that only "subject to that" primary objective being met is the BoE expected to "support the economic policy of HMG".

      Now, in recent years, the BoE has not asserted this independence as much as I would like, but the law has I think been sufficient restraint on the BoE that, even though the MPC seems to have been sympathetic to HMG, they have only been able to depreciate sterling by a percent or so per year faster than the official inflation target.

    10. "In most developed countries, governments do not issue state money; they have an independent central bank ..."

      So what do you think happens when a government spends money? Do you think they have to look at how many pennies that they have in their savings account? Even Greenspan has stated this publicly (sorry, can't find the link) - that a sovereign government can issue any amount of currency that it requires.

      gastro george

    11. Hi Tim

      Yes, the central bank actually issue money - physically making notes and coins - but is assigned by government to do so. But this is not directly what the author was referring to if you note that in his brief explanation (point 4) he refers to IOUs, treasury bonds and crediting bank deposits and reserves. Ie. Is referring to the interaction of the (government) treasury and central bank, OMOs and the debt monetization process.
      When you state with regard to the central bank that "they (the government) can only gainsay at great political cost", are you suggesting that the central bank may not comply in the issuance of currency or purchase of government debt (purchase made by increasing the monetary base through the money creation process)?

    12. @gasto george, yes, when a government with an independent central bank spends it generally has to have or raise the money first, although precise arrangements vary from country to country (in the UK, "cash management" is done by the Debt Management Office). That governments do not have to do this is one of the fallacies spread by MMTists, because that is key to the rest of their agenda. MMTists often claim that only they "understand how the modern money system works", but as far as I have been able to ascertain, they have not a single advocate who has actually worked in the operations department of a central bank.

      Of course, governments generally have reserve powers in extremis like wartime to direct the central bank to fund its expenditure, which is probably what Greenspan meant, but an attempt to do this just because a government wanted to spend without raising taxes or paying high interest rates would probably be resisted by the central bank and provoke a constitutional crisis.

    13. @Simon, I suppose the way that such a crisis would theoretically unfold is that the central bank would continue to create money to maintain the interest rate it set to meet its inflation objective, but, assuming that the government held its transaction account at the central bank, it would bounce the government's cheques if they would overdraw that account. Remember that a central bank does not necessarily have to purchase government debt to create money - in the UK and Eurozone, the central bank normally creates money by lending to private sector banks. More realistically, the issue would be settled politically, with the government requiring parliamentary approval to direct the central bank to directly lend to the government (and the central bank would comply if the government won that approval).

    14. Hi Tim,
      With respect, I don't think the kind of crisis you describe is either possible theoretically or in practice - though I'm happy to stand corrected if you can direct me to something which illustrates it, or examples of it happening.
      Linked to this and relating to Gastro's Greenspan comment regarding government spending and debt, the "government's reserve powers in extremis" you mention has nothing to do with it:

      “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” Alan Greenspan

      “In the case of governments boasting monetary sovereignty and debt denominated in its own currency, like the United States (but also Japan and the UK), it is technically impossible to fall into debt default.” Erwan Mahe, European asset allocation and options strategies adviser

      “There is never a risk of default for a sovereign nation that issues its own free-floating currency and where its debts are denominated in that currency.” Mike Norman, Chief Economist for John Thomas Financial

      “There is no inherent limit on federal expenses and therefore on federal spending…When the U.S. government decides to spend fiat money, it adds to its banking reserve system and when it taxes or borrows (issues Treasury securities) it drains reserves from its banking system. These reserve operations are done solely to maintain the target Federal Funds rate.” Monty Agarwal , managing partner and chief investment officer of MA Managed Futures Fund

      “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.” Federal Reserve Bank of St. Louis

    15. ...and besides the correct reasoning made by Randall Wray in the link provided, the fallacy relating household and government debts perpetuated by Cameron/Osborne is simply wrong since they emphasise the need to reduce government debt in the same way as an over-indebted household would need to - the "we all need to tighten our belts" mantra.
      The advice is sound at the level of the household, but not at the complex, multi-entity level of a national economy, simply because 'one person's spending is another person's income".
      Hence if we were to follow the Chancellor's advice and all entities in the economy pay down the debts simultaneously - both private and public sector - you simply end up with depressed AD, recession(s), and the flatlining economy of the past 3 years - until the recent return to growth (which the IFS and OBR throw a more realistic and revealing light on, despite Osborne's claims last week).
      Unfortunately the governments claims and general debt alarm (the soaring debt/GDP ratio) commonly used as a rationale for austerity (why don't they just say its the pursuit of a much smaller state?) is put into focus by the fact that the UKs current debt/GDP ratio is well BELOW the historical average of the past 100 years, having been so much higher previously - even during the most stable, prolonged periods of economic growth.

      Similarly, alarmist claims of the burden of interest payments on the national debt are put into context by the following graph -

      This is not to say that debt doesn't matter of shouldn't be dealt with - it should, but the timing is all important. Rather, don't the British people deserve both a lot more respect and accurate discourse from not only politicians, but the mainstream UK media also?

    16. Sorry, link to the previous post with the quotations:

    17. I agree that, when a country can issue its own money, it has no need to default, and I dare say that an imminent default would be construed as the kind of "extreme economic circumstances" in which the central bank would agree to fund the government, but the importance of this is small, because at this extreme point, you are just talking about two different varieties of grave national crisis. The practical point is that whichever national crisis your money system precipitates, you don't want to go there, and so state finances should be managed equally prudently in either case. As for accurate discourse from politicians and media, I hardly think that the British public would be reassured if Ed Balls and Martin Wolf said "there is no need to worry about default, because if we run out of money, we can always print more"!

    18. Simon,

      Thanks this is the clear answer: gov't is the issuer and producer of money; therefore household budget is not national gov't.

      DC/GO use this analogy merely to mislead the public and justify austerity policies.

      Businesses are a different class again but share common feature with households that although they can raise capital in ways unavailable to households, they cannot print money and will therefore suffer similarly to households if they let debt increase and lead to insolvency. This is pretty obvious.

      Anyway the thread that runs through the whole of this blog and comment is not so much this point but rather that the Austerians are using an array of false and misleading assertions in order to 'win' the argument as they see it.


    19. Hi Tim

      Agree that 'state finances should be managed prudently", but this means that means that we shouldn't be pursuing austerity right now (the timing aspect) given that it has been proved to be self-defeating (as shown by governments own missed targets for reducing budget deficits) and: it depresses AD, causes unemployment, falling incomes and stagnant/declining growth, which as a policy alone the OBR recently calculated has cost the UK economy approximately £100bn, compared to had we not pursued austerity.
      Regarding accurate discourse, the point is that the debt 'crisis' portrayed by Osborne is massively exaggerated and highly misleading - simply a false justification for shrinking the state.
      I don't know about you but I don't gain any reassurance from being wrongly told that their is a potentially catastrophic debt crisis which must be addressed right now (it doesn't), and that we must endure a further 10 years of austerity which disproportionately hit middle/lower income groups and the most vulnerable in the our society hardest, largely in the form of huge reductions in essential public services.
      Ed Balls and M Wolf would not need to give the public the message you stated (despite it being true), rather they can simply focus on the facts about the 'debt crisis' outlined above and shown in the previous graphs etc.
      Surely accurate discourse backed up by substantiated facts and data is much more preferable to the misleading, alarmist rhetoric currently being used by government (and certain parts of the media), and that the public deserve to know what the current policies are really all about?
      Last March the fabled 90% debt/GDP threshold by Reinhart & Rogoff was proved to be completely false. It was their work which was used directly by Osborne in his 2010 speech as a (the?) principle empirical justification for the proposed austerity measures. But despite it proving to be false, and as the previous graph on debt/gdp shows, not only do they not waiver in their pursuit of austerity, he reveals in last weeks austumn statement that austerity is to be increased even more than planned.

    20. "we shouldn't be pursuing austerity right now (the timing aspect) given that it has been proved to be self-defeating". No! I dealt with this "self-defeating" myth a couple of posts ago:

      No matter how many times these Keynesian false reassurances about debt are dismantled, they keep coming back like zombies! (I'll let the "Britain has been in more debt in the past and got out of it" and "R&R's disproven 90% threshold" ones pass for now). Why can't economists be more like scientists?

      I do agree with you though that the conservatives are using austerity as an excuse to cut the size of the state and are putting the burden on the relatively poor. I would like to see a wealth tax introduced to get the debt burden down, as the boom that led to the bust and the QE which has attempted to mitigate it has disproportionately increased the values of the kind of assets held by the richest people. But in my opinion, no politicians, the left included, are doing themselves any favours by using unrigorous arguments (like state debt is fundamentally different from household debt) to support their views - the public may not fully understand the issues, but they are suspicious of what they are being told, and increasingly losing respect for politicians generally.

    21. So Tim, what's do you think the fact that the BoE is currently the owner of 30% of UK government "debt" actually means? If we can simultaneously issue debt and buy it back ...

      gastro george

    22. I am not sure how much further we can take this discussion.

      Simon's point seems clear enough and I am convinced.

      But what of the huge 15% gap of below trend? This weighs heavily on the majority in terms of unemployment, declining wages and general despondency.

      What measures are needed to reverse this?

      I would be interested to hear Simon's further (promised) thoughts on the other areas of the Autumn Statement in detail.

    23. @gastro george, the pedantic answer to your question is that the BoE does not own 30% of UK debt; the BoE Asset Purchase Facility Ltd does, which is indemnified by HMT and pays any net income over to HMT.

      A more meaningful answer is that the BoE is happy to conduct QE for monetary policy reasons, and buys gilts in the secondary market (as do the Fed and BoJ) so no conflict arises.

    24. Hi Tim (again!)
      Regarding 'self-defeating' austerity and your comments in previous post:
      "The purpose of austerity is to reduce the fiscal deficit to at least slow the progress towards, if not move back from, a debt trap, and I have never seen any evidence that austerity does not reduce the deficit".
      - What 'debt trap' for the uk? - subsequent discussion on this post has debunked this...
      - here's an example/ evidence from previously (2012), focussing on the more relevant deficit ,so ignoring cyclical movements but giving a truer picture of the government's financial management:
      Or from August 2012 (opening paragraph):

      "No matter how many times these Keynesian false reassurances about debt are dismantled"
      - Where/when? Both points I raised are true - UK has had much greater debt and prospered, without implementing austerity, and I'm not sure what you are suggesting about R&Rs completely debunked 90% 'cliff''? There is and never was one - rather there is (on aggregate, but differs for different countries) a very gradual/shallow downward sloping curve for growth as debt rises, but no 90% cut-off/danger zone as they and then Osborne claimed.

      - Totally agree with your last big paragraph, particularly the wealth tax - even if it was a one-off tax, the figures are staggering. Eg. the top decile in the uk have 44% of UK net wealth (total £10 trillion). If they paid a one-off tax of 0.5%, this would raise £22bn for the treasury!! (No, it ain't going to happen...)

    25. @Tim. I'd suggest that the BoE is "happy to conduct" any activity that the government tells it to. That is the gist of the Greenspan statement - that the Fed will do what the US government tells it to. Indeed, you talk previously about constitutional crisis. I'd suggest that it would be more of a constitutional crisis for the BoE to refuse to do what the government dictates, no matter what conventions exist.

      gastro george

    26. I was being rhetorical about the zombies - following Krugman - but in brief:

      The UK got its post-war II (forget the Napoleonic Wars, Britain had an empire then) debt burden down with the aid of (1) rationing until 1954 - now that's austerity! (2) subsidised loans from patriotic British, the US, Canada and, in 1976, the IMF (3) Inflation, rising to about 30% in the 1970s with exchange control. Care to repeat that?

      The R&R 90% cusp was just a convenient focal point. The implications of it being false include a more rapid deterioration of output for debt levels below 90% as well as a less scary deterioration above.

      Of course, short of dealing with loan sharks, there is no such thing as a debt "trap", because a borrower can always repudiate their loan by default or devaluation, but the point is, in that event, unpleasant things happen which it would be good to avoid.

    27. Hi Tim
      For anyone interested in their macro history: an IFS essay on the UKs debt/GDP since WW2, highlighting reasons for the decline in the 3 post war decades:
      1. The massively reduced borrowing compared to the war years.
      2. Higher than expected (though not damagingly high) inflation in the 50s and 60s.
      3. The underlying strength of the economy with high real growth rates for the economy (the 'golden age') thanks to…take note Mr Osborne…a "government committed to expansion".
      No need to repeat the inflation of the 70s to get the debt down, as the debt had already been declining rapidly (for the real reasons above) for 25 years!

      Agree the media but most importantly Osborne himself seized upon the 90% 'tipping point'...but don't follow your line about the implications of it being false?
      Income/output actually grows (slowly) as the debt/gdp ratio rises, and declines very gradually also, but nothing 'scary' – indeed "the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim]… they are unable to find a breakpoint where growth falls quickly and significantly.”
      Notably the U.K. had “19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate”. And for periods when ratio’s were much lower (in the 30-60% range) the same growth rate!
      “short of dealing with loan sharks, there is no such thing as a debt trap" - Why ‘loan sharks’? – as already discussed at length, the central bank will buy as much debt as necessary…
      Don't think this discussion (which I've genuinely enjoyed and find myself agreeing with you on some points, though not others) can go much further…Just grateful that there are economics sites such as this one where people with differing views can maintain civilised discussions – a far cry from our leaders in Parliament!
      Wishing you a good xmas and happy new year...

    28. Implications of no tipping point: my point is purely geometric, the effect of rounding off a corner.

      Loan sharks: a civilised lender might accept that their sanctions in the event of default or devalued repayment are limited so that ultimately, the borrower has a way out; a loan shark won't let you get away with that!

      Although our parliamentary debates are a bit juvenile, what worries me more is that while the established parties bitterly debate policy changes worth a few £100mns or £bns, they actually seem to be tacitly agreeing to ignore the 500 pound gorilla in the room which is the £100bn annual fiscal deficit, because it is not in their interest to raise it as the scale of adjustment is so huge (something like 20% on the basic rate of income tax) that any party that even talks about measures to tackle it would be afraid of frightening the voters so much as to virtually hand the next general election to their opponents.

      Yes, good discussion, thanks. Regards,


    29. Yes, good point Tim - but you've already made a good suggestion to deal with this particular gorilla - a wealth tax on the super-rich. But this is unlikely to be enough. To deal with the 500lb gorilla we perhaps need to get hold of the 2000lb gorilla - the astronomical sums of money which could be gained if tax avoidance and evasion at both the individual and corporate level was dealt with effectively.
      An excellent, if not depressing book on this is 'Treasure Islands' by Nicholas Shaxton:

    30. Thanks for the suggested reading, Simon - I don't think I'd better buy it from Amazon though!

    31. Yes, Thanks for the discussion and enlightenment. I will buy the book.

    32. The issue I find with the household analogy is that it identifies government spending with needless luxuries. Comparisons to expensive holidays, flatscreen TVs etc are common. The proper critique of that position is that good government spending are *not* luxuries, that if a spending article is frivolous and wasteful, it should be eliminated under *any* level of debt. What is in fact being cut in austerity are the means by which the crisis might be resolved.

    33. If government debt can be compared to the debt of a firm, it remains to ask: what type of firm is a government? The evidence seems clear that the government is a very contra-cyclical one. So, as with any firm that sees the profitability of its investment options rise, while its cost of borrowing reduces, the rational decision is to increase the size of its leverage. Certainly not to pretend that a low leverage is by itself desirable.

  3. On the Daily Politics on the BBC for the Autumn Statement, Andrew Neil said (around 12:38 or 12:39) that its good to see the Chancellor applying the "Laffer curve" to his tax policies.

    I think we know that the BBC economics department will pretty much do anything not to be shut down by the Tories, up to and beyond the point of having sold their neutrality (and perhaps their soul).

  4. The Government isn't simple minded: they are simultaneously ideological and cynical.

    Paul Krugman's recent blog on Very Serious Persons such as Osborne, sums it up well.

    'The sad and remarkable thing that we’ve learned over the past year or so is how little intellectual debate matters. On both fiscal austerity and monetary policy, the PREs [SWL et al] have completely blow the VSPs out of the water — the inflationistas, the expansionary austerians, the 90-percent threshold of doom people have all seen their claims collapse in the face of evidence. Yet policy barely changes, and the VSPs continue to talk as if they are in possession of The Truth'

    As for GO's chances of winning the next election by invoking the Confidence Fairy...

    'Quem deus vult perdere, dementat prius'

  5. This seemed an interesting contrast. Osborne: "thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working." OBR, very first paras: "we judge the positive growth surprise to have been cyclical, reducing the amount of spare capacity in the economy, rather than indicating stronger underlying growth potential. We do not expect the quarterly growth rates seen during 2013 to be sustained in 2014."

    Osborne sets up OBR. Osborne ignores it, picks own message.

  6. UK GDP per capita is over 15% below the trend that it has followed since the 1950s.

    I wonder when this is taken from. Also important to consider is the denominator. This could also be contributing to lower growth per capita - less has to be shared around more. Many have argued that these high migration levels since the expansion of the EU have had more substitution than income effect.

  7. I add a useful quote from Polly Toynbee's article in the Guardian today. This focussed on my earlier point that the argument is principally political, not economic, reinforcing Paul Krugman's view.

    'That's the future [bleak], unless and until people decide they want to stop all this. It's politics, not economics, stupid, that decides how we should live in the long run. Step back and look at the bigger picture. In 1930 Keynes wrote Economic Possibilities for Our Grandchildren in the depths of depression, decrying those who said progress was at an end, complaining: "We are suffering just now from a bad attack of economic pessimism." He predicted that in 100 years, national income would have risen eight times over. Indeed it has multiplied by over five times and is likely to keep rising.'

    I would be interested to know from Simon and others commenting here what their forecast would be on GDP growth, unemployment, wages and social stability etc in the very possible scenario that the current austerity programme will continue for another ten years.

    I doubt, for example, that, as confirmed in the OBR statement, the current modest improvement in growth can continue into 2014.

    Then what?

  8. Hi Simon,I assume the way that such a problems would hypothetically open up is that the main financial institution would continue to make cash to maintain the interest rate it set to meet its rising prices purpose, but, supposing that the govt organised its deal consideration at the main financial institution, it would jump the national cheques if they would overdraw that consideration. Remember that a main financial institution does not actually have to purchase govt debt to make cash - in the UK and Eurozone, the main financial institution normally makes cash by loaning to private industry financial institutions. More reasonably, the issue would be resolved politically, with the govt demanding parliamentary acceptance to direct the main financial institution to straight offer to the govt. Debt Management Company UK

  9. The deception in that article is from Randall Wray. In most developed countries, governments do not issue state money; they have an independent central bank, which they can only gainsay at great political cost, and, as I said, even then states which devalue their debts tend to pay for it in the long run anyway (though not of course the government office when the devaluation is actually engineered, which is one reason why they do it)


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