Home > economics > Robbing Merv to pay George

Robbing Merv to pay George

A difficult one for Grauniad readers, this: Bank of England to hand over gilts interest payments to slash national debt, says Larry Elliott, the paper’s economics editor.

This is George Osborne’s idea, so it must obviously be a bad one. Cue a lot of conspiratorial stuff in the comments about how this will all end in ruin. Some even compared it to the creative accounting employed at Enron. Yikes!

But the Uneconomical blogger Britmouse has a more convincing theory:

The idea that we should be trying to hedge against “future losses” on the QE portfolio is totally crazy.   The only case where the Bank makes losses on QE is when gilt prices fall significantly, and long term interest rates rise.  The only case where long term interest rates rise is when nominal GDP is growing fast.  When nominal GDP is growing fast, tax revenues will be growing fast.  Getting to that point is (or should be) the sole aim of UK demand management policy.

You don’t hedge against winning.  You hedge against losing.  The government is already hedged against losing, having bought back a third of its own long term debt with zero-maturity liabilities, a.k.a printing money.  So we don’t need to hedge against winning by issuing more gilts than necessary and hoarding the cash.  We should instead instruct the Bank to try much harder to make massive losses on its investments; until they do, we’ll remain stuck with low growth.

Of course, conducting monetary easing and fiscal tightening at the same time is totally stupid. The bank is adding money to the economy through QE, as the government is removing it through austerity.

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

TheFinance.sg

words from oblivion

S-REIT Investment Blog

words from oblivion

Starfish SRS fund

words from oblivion

Scene Asia

words from oblivion

Singapore IPOs

words from oblivion

Patrick Chovanec

An American Perspective from China

Ninja Master Fund

words from oblivion

words from oblivion

Korea Real Time

Analysis and insight into what's making news on the Korean peninsula

Investing for your future

words from oblivion

words from oblivion

Mao Money, Mao Problems

words from oblivion

India Real Time

Unique analysis and insights from The Wall Street Journal and Dow Jones Newswires on the daily news in the world's largest democracy

IN PRAISE OF CHINA

words from oblivion

Hong Kong

words from oblivion

China Real Time Report

words from oblivion

Chinese Law Prof Blog

words from oblivion

Economics Malaysia

words from oblivion

%d bloggers like this: