The Chairman of the Bank of England, Mr Mervyn King told the TUC (Trades Union Council) at their annual conference today, that cuts to public spending were unavoidable, and strikes to oppose them were unwise because, the country had to have a “credible” plan in place for reducing national debt.
Fine. I happen to agree with his analysis of the dangers of the Bond Market sensing that we are vulnerable. If they think we cannot service our debt and/or that the debt is growing out of control then Bond buyers will increase the interest they demand.
BUT where I get somewhat angry at Mr King, is the way that, when he thinks of lowering debts, his imagination does not seem to be able to stretch beyond making cuts to public services. He, more than anyone in the country, is aware that there are other viable and obvious ways of reducing the debt.
First among which is the BoE’s bond buying. Mr King himself was party to deciding that the BoE would maintain its bond purchasing at £200 billion. This means as a bond matures the BoE has decided the money received , will be ploughed back into buying another bond. These bonds are from banks mainly. This bond buying maintains £200 billion in cash in the economy and assures that the BoE is there regularly in the bond market, to help keep the sales of bonds buoyant.
But it is perfectly possible that the BoE could say, we are going to allow 2.5 billion pounds worth of bonds to mature and we are NOT going to buy more bonds with that. That money, that debt, will be retired. Or if you prefer, use that money to buy back from some bond holder out there, 2.5 billion pounds worth of our national debt.
Either way we, as a nation, would have ‘reduced’ our debt load by 2.5 billion pounds. The banks would have 2.5 billion pounds less ‘liquidity’, that’s all. Would that itself cause a hike in the rate we pay to sell our debt? Very unlikely.
What it would do is negate the need for the 2.5 billion pounds worth of welfare cuts. We could still make cuts and savings but we could be more considered about it, having made the bulk of the savings deemed necessary already.
But this brings us to the real nub of it. Are the members of the government seeking to make the cuts to public services because they deem it necessary to achieve saving of £2.5 billion or because they WANT to cut public services and this provides an excuse? If it’s the former, just the need for another $2.5 billion, then cut it from what we spend supporting the banks. It would be a tiny cut to the over all amount we are spending supporting them. If it is the latter, then it is nothing to do with credible plans or the bond market. It is solely party political and ideological desire.
So then the question becomes, why has such an easy and entirely feasible option NOT been mentioned in public by Mr King or the government? Why has it been ONLY cuts to public spending which have been mentioned as the ONLY way of reducing national debt?
It seems rather clear that the reason IS everything to do with political choice and preference and nothing to do with what is possible financially. We are getting political and ideological desires rammed through under the guise of being financial and economic necessity.
Cutting our debt is necessary in my opinion. Or at least it is a desirable goal. I do not agree with those who think we can go on and on borrowing or printing money without suffering grave consequences for our currency and borrowing costs. I think those who talk as if we could, are being dishonest. A few are perhaps stupid enough, and we should credit them with being honestly stupid. But most are not that thick. They are intelligent liars.
What makes me angry is that the ONLY ways of saving money being talked about are those which would fall upon ordinary people, and disproportionately so upon the less well-off, but never things which would fall upon the financial class and banks.
Mr King is right, the government must have a credible plan for reducing our national debt level. At the moment their plan is not credible, it is unjust. The reasons people have for supporting it are, it seems to me, depressingly, familiarly ideological and party political. Driven by the party political and class urge to punish those sections of society that ‘well to do” Tory’s and LibDems have least fellow feeling for and /or fear and are above all, easiest to demonise.
Mervyn King is an absolute tool.
The bank bailouts were a total disgrace and in all seriousness we should be ashamed of ourselves that we haven't marched on the Palace of Westminster and The Old Lady of Threadneedle Street and burnt those fuckers to the ground.
(When I say "we" I don't just mean me and you, I mean the whole fucking country)
That said, we have a welfare system that often pays more than low paid work. I mean, what the…? The fact that reform is needed isn't changed by the evil of the bailouts. The opportune time though was at the height of the boom, when there were actually jobs for people on welfare to move to (albeit false non jobs based on cheap credit malinvestment, but hey).
Regarding your bond idea, the idea of the BoE getting still further involved in the economy just scares me. Don't you think they've done enough damage already?
(sorry about the swearing, feels good though)
Hello FTG,
I understand the feeling.
The BoE has indeed been complicit with the damage done. If those with power and wealth do close off all avenues of peaceful and democratic dialogue and change then there will be no alternative but civil unrest and disobedience.
I do not think this will be solved by our present system and choice of parties. Nor do I think the Unions are any less wedded to the over all design of the system than those they opose. They would like a more equitable division of the spoils from the system. But I do not hear from them any radical ideas of changing a system which is intrinsically devoted to growth at all costs.
I personally feel we at a moment where more profound change and re-evaluation is required.
Hi FTG
Your comments about the welfare system got me thinking about Basic Income again. What do you think about a society supported by Basic Income?
Hi RichGBI'd been aware of the idea of Basic Income for twenty-odd years, but not concentrating on it . I agree that we should start pushing it too . I'll have a chat to the Untrusted gang before suggesting to Jessica at Gdn waddya .frog2
Hi RichGB,
I don't think it's a good idea. Let's say you set it at, say £100 a week. Not a fortune by any means. Yet, to give to every UK adult, that will cost (approx) 4.5 billion pounds a week! So you then need to fund that with higher taxes/inflation/borrowing, a further burden on the workforce, making lower paid jobs even less atractive.
Wouldn't it be better to lower benefits and use the money saved to raise the income tax threshold, thus making work more financially attractive from two directions? Then you've got a virtuous circle of lower unemployment and lower tax? It's bonkers that people are presented with a choice of welfare that provides a higher income than wages, then labelled "lazy" for making that choice!