Options trading uk government debt

We can estimate how high the national debt is now based on the latest borrowing figures, and where the OBR believes it will be by the end of the current fiscal year. Very high Government debt can slow your economy right down. It can make doing business very difficult, as prices are constantly adjusting, and it also wipes out the value of savings. Other economists are less convinced. The UK is lucky in this regard; it means it can always avoid defaulting on its debts if necessary. As a share of GDP, the national debt is expected to fall from 83. While policymakers want to increase spending in order to stimulate the economy, investors may be unwilling to loan money if the Government is already burdened by poor finances. If they believed that the Government was in a bad position, with debts so great that it was likely to default on them or that there was a risk it would inflate them away, then the yields paid on UK sovereign bonds would be high. However, very high inflation has other costs.

Eurozone members are not so lucky. How can high government debts hamper economies? Is the national debt a problem? The deficit can be reduced by cutting Government spending, raising revenues, or both. Borrowing can crowd out other investment, as investors loan their funds to the Government, rather than to private sector borrowers. However, his plans have repeatedly come unstuck. At present, there seems to be little cause for alarm on this metric. How could the UK reduce its debt? It can in turn reduce private sector investment, economic growth, and employment.

Academic research looking at the US has found that raising the Federal deficit may have adverse effects for businesses and households. In the event of a crisis, high debts and deficits can also pose a problem. The yields demanded on the bonds of more imperiled nations are far higher, as often they cannot print the currencies they are issued in. We can also look at what investors think. While the outstanding size of the national debt in cash terms may appear alarming, the financial markets, and few economists, are likely to pay attention to this headline figure. George Osborne, the Chancellor, has made it his mission to reduce the size of this debt. Fiscal responsibility acts are instruments of the fiscally irresponsible to con the public. Government will in the future be bound not to run a deficit.

The outstanding public debt is an expression of the accumulated previous budget deficits which have added financial assets to the private sector, providing demand for goods and services. These are the dominant economic entities setting policies regarding public debt. Retrieved 29 October 2016. Its primary purpose was to raise and lend money to the State and in consideration of this service it received under its Charter and various Act of Parliament, certain privileges of issuing bank notes. Smaller jurisdictions, such as cities, are usually guaranteed by their regional or national levels of government. Retrieved 3 March 2010. Governments often borrow money in a currency in which the demand for debt securities is strong.

United States, and in many other countries, will be a smaller percentage of the population than it is now, for many years to come. Library of Economics and Liberty. Due to its role in setting policies for trade disputes, the World Trade Organization also has immense power to affect foreign exchange relations, as many nations are dependent on specific commodity markets for the balance of payments they require to repay debt. Greece to go back to issuing its own drachma. Its foundation in 1694 arose out the difficulties of the Government of the day in securing subscriptions to State loans. Globally, the International Monetary Fund can take certain steps to intervene to prevent anticipated defaults. This is because printing money has other effects that the government may see as more problematic than defaulting. United States Department of the Treasury.

Lending to a national government in a currency other than its own does not give the same confidence in the ability to repay, but this may be offset by reducing the exchange rate risk to foreign lenders. Short term debt is generally considered to be for one year or less, long term is for more than ten years. In 1997 and 1998, during the Asian financial crisis, this became a serious problem when many countries were unable to keep their exchange rate fixed due to speculative attacks. Mohr Siebeck, 2011, Nachdr. This is why bonds and gilts are considered the safest form of investment. Another common division of government debt is by duration until repayment is due. In this case, the local government could to a certain extent pay its debts by increasing the taxes, or reduce spending, just as a national one could. In the dominant economic policy generally ascribed to theories of John Maynard Keynes, sometimes called Keynesian economics, there is tolerance for fairly high levels of public debt to pay for public investment in lean times, which, if boom times follow, can then be paid back from rising tax revenues. Medium term debt falls between these two boundaries.

It is mostly uncommon for invaders to accept responsibility for the national debt of the annexed state or that of an organization it considered as rebels. Monetarily sovereign governments issue their own currencies and do not need this income to finance spending. Alternative social insurance strategies might have included a system that involved save and invest. Their ability to issue currency means they can always service the interest repayments on these savings accounts. Governments create debt by issuing securities, government bonds and bills. For example, all borrowings by the Confederate States of America were left unpaid after the American Civil War. US government and its ability to continue repayments during any financial crisis. Wikimedia Commons has media related to Government debt. It was thought that this could start a virtuous cycle and a rising business confidence since there would be more workers with money to spend.

King George III, with William Pitt handing him another moneybag. An example is in borrowing by different European Union countries denominated in euros. During the Early Modern era, European monarchs would often default on their loans or arbitrarily refuse to pay them back. From then on, the British Government would never fail to repay its creditors. Not all developing countries have been affected to the same extent. In practice, the market interest rate tends to be different for debts of different countries. The founding of the Bank of England revolutionised public finance and put an end to defaults such as the Great Stop of the Exchequer of 1672, when Charles II had suspended payments on his bills. Another political risk is caused by external threats.

This syndicate soon evolved into the Bank of England, eventually financing the wars of the Duke of Marlborough and later Imperial conquests. He engaged a syndicate of city traders and merchants to offer for sale an issue of government debt. This reflects the views of the market on the relative solvency of the various countries and the likelihood that the debt will be repaid. Adherents of this school of economic thought argue that the scale of the problem is much less severe than is popularly supposed. Lending to a local or municipal government can be just as risky as a loan to a private company, unless the local or municipal government has sufficient power to tax. National Debt, James Gillray, 1786. Relatively few investors are willing to invest in currencies that do not have a long track record of stability.

World War II really ended the Great Depression. Since the war was being paid for, and being won, Keynes and Harry Dexter White, Assistant Secretary of the United States Department of the Treasury, were, according to John Kenneth Galbraith, the dominating influences on the Bretton Woods agreements. Further, local government loans are sometimes guaranteed by the national government, and this reduces the risk. Assess the expected value of any public asset being constructed, at least in future tax terms if not in direct revenues. The Royal Charter was granted on 27 July through the passage of the Tonnage Act 1694. GDP that it is now. This generally made financiers wary of lending to the king and the finances of countries that were often at war remained extremely volatile. Usually small states with volatile economies have most of their national debt in foreign currency.

Public debt clearing standards are set by the Bank for International Settlements, but defaults are governed by extremely complex laws which vary from jurisdiction to jurisdiction. How to Pay for the War, published in the United Kingdom in 1940. Empirically, however, sovereign borrowing in developing countries is procyclical, since developing countries have more difficulty accessing capital markets in lean times. Journal of Economic Literature. Retrieved 10 May 2010. For countries in the Eurozone, the euro is the local currency, although no single state can trigger inflation by creating more currency. Archived from the original on November 1, 2004.

On the other hand, in the modern era, the transition from dictatorship and illegitimate governments to democracy does not automatically free the country of the debt contracted by the former government. Determine whether any public debt is being used to finance consumption, which includes all social assistance and all military spending. The establishment of the bank was devised by Charles Montagu, 1st Earl of Halifax, in 1694, to the plan which had been proposed by William Paterson three years before, but had not been acted upon. Retrieved October 12, 2010. In the following centuries, other countries in Europe and later around the world adopted similar financial institutions to manage their government debt. New York State and the United States. An advantage of issuing bonds in a currency such as the US dollar, the pound sterling, or the euro is that many investors wish to invest in such bonds. William III of England for the financing of his war against France.

According to Modern Monetary Theory, public debt is seen as private wealth and interest payments on the debt as private income. It is sometimes criticized for the measures it advises nations to take, which often involve cutting back on government spending as part of an economic austerity regime. Sovereigns issuing debt denominated in a foreign currency may furthermore be unable to obtain that foreign currency to service debt. The Ascent of Money: A Financial History of the World. What about the National Debt? Who lends the government money?

The Money Advice Service has information about debt management and offers free debt advice. Your options depend on the amount of money and assets you have. You may also have the option of reaching an informal agreement with your creditors. In Scotland you can arrange a Debt Payment Programme from the Debt Arrangement Scheme. Does government borrowing create new money? This of course lowers output and therefore the tax take. For these reasons, the government should focus on enabling the public to reduce its debts. Many companies favour investing money in government bonds due to the lack of risk involved: the UK government has never defaulted on its debt obligations and is unlikely to in the future, primarily because it is able to collect money from the public via taxation. While the government talks about reducing the deficit, the reality is that the total national debt will keep growing.

Fiscal consolidations have not improved the public finances. It is very unlikely that the government will be able to reduce debt in the current system. These companies lend money to the government by buying the bonds that the government issues for this purpose. First, as mentioned previously, the debt gives the private sector a safe asset in which it can invest. The empirical evidence runs exactly counter to conventional thinking. This section is condensed from an appendix from our book Modernising Money, which you can buy in paperback or Kindle format. In addition, in the five years before the banking crisis the government spent an average of 10. Is it possible to reduce the national debt?

Of course, if this printing of currency caused significant inflation it would reduce the real value of the debt and represent a form of hidden default, in that the holders of the debt would not be repaid as much, in real terms, as they initially invested. This brings us to the crux of the argument. To spend the money it could now transfer the reserves to Regal Bank where an NHS hospital holds an account. Government bonds compete with private sector investments for funds, so government borrowing diverts money away from private sector investments and increases the rate of interest the private sector pays to attract investment. In order to actually reduce the debt, it needs to raise taxes even further, or reduce public spending even more. Fourth, it is misleading to think of the national debt in the same way as we think about private debts. However, as was discussed in Chapter 9, when money is created with a corresponding debt, a fall in prices leads to an increase in the real value of debt, thus the negative effect on the real value of debt offsets the positive effects on real wealth. We promise never to sell or swap your details and you can change your preferences at any time. In fact, in this situation a debt deflation scenario is far more likely if the population is highly indebted to begin with.

First, the government would need to start paying the annual interest on the national debt each year out of tax revenue, rather than simply borrowing the money to pay it. Overall, the average interest rate is undoubtedly higher for households than it is for the government. The borrowing to bailout banks is not included in the main national debt figures. The exception to this rule is with Private Finance Initiatives, where the government borrows directly from banks. There is also the danger that excessive government debt can lead to a sovereign debt crisis, as seen in Greece and other Eurozone countries. However, this is likely to have similar effects to increasing taxes. Even at this level it would take 30 years to pay down the national debt, assuming tax revenue is unaffected by these changes.

The major holders of the national debt are UK investors: mainly pension funds and insurance companies. Bank of England, which can be used to make payments. Of course, increasing taxes by such large amounts is likely to lead to a recession and even a depression: businesses will pass on the costs of higher taxes to their consumers, with the increase in prices likely to lower demand for goods and services. Alternatively the government could cut its spending. Instead of paying off the debt by actually reducing its nominal value, the debt tends to be reduced over time in terms of its burden. Because the majority of government borrowing is done in this way it does not constitute a monetary stimulus to the economy. Who does the government borrow from?

It has borrowed the money without any additional deposits being created. This is true of all episodes examined, except at the end of the consolidation after World War II, where action was taken to bolster private demand in parallel to public retrenchment. To understand why, consider what would need to happen for the debt to be paid down. Positive Money is a company limited by guarantee registered in England and Wales. Goswell Road, London EC1V 7ET. In most cases the process of government borrowing does not create any new money.

Likewise, faced with higher taxes, individuals will have lower levels of disposable income, and, independent of the increase in prices this will negatively affect demand. This means that new money is not created in the process of government borrowing. Because of the potential for adverse effects to long term interest rates and the exchange rate. On the surface, paying off government debt may be beneficial because lower government debt frees up government revenue for core services. Is it desirable to reduce the national debt? This brings into context the comments made earlier about the government never really paying off its debt. Surpluses have been relatively rare in the UK in recent decades, with the government typically running deficits, spending more than they collect in taxes and borrowing to make up the difference. Both factors will feed through to lower sales and therefore lower sales taxes, forcing the government to further increase taxes to hit its debt reduction target.

United Kingdom has been slow, but it has been able to recover. If the government were to earn more than it spends, it could use the money left over to pay the national debt and start to reduce it. Values have been rounded for better understanding of the statistic. This statistic shows the national debt of the United Kingdom from 2012 to 2016, with projections up until 2022. GDP ratio can still fall, despite a budget deficit. Many believe that if the economy is stable, the government will reduce spending and not accrue any more debt, and it can indeed be seen that while government spending continues to increase, the gap between spending and revenue is projected to get smaller. Indeed in this uncertain climate today, investors are so desperate to move cash to something safe, they are willing to accept just fractions of a percent interest on 2 year and 5 year gilts, rather than invest it in companies. Within 5 years it will be poorer than Bangladesh. The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.

When considering government borrowing, it is important to place it in context. But it also seems more likely that the huge increase in the money supply since the eighties has made it much harder for governments to keep proper control over national debt much of which is fuelled by rapid increases in investment. GDP in the 1950s, UK avoided default and even managed to set up the welfare state and NHS. Interest rates are rising. PPI was included in that agreement. So governments can never get into debt because they can create as much money as they like at any time. How to reduce the debt to GDP ratio? Governments can and do default. This increase in savings led to a sharp fall in private sector spending and investment.

One potential confusion is that politicians may say the budget deficit is coming down. Argentina and Russia to give two fairly recent examples. We are coming to the end of a 31 year cycle of low interest rates and cheap money. Borrowing in a recession helps to offset a rise in private sector saving. The government bailed out RBS in 2007, but was this because RBS held a substantial amount of Government debt, and if the bank failed the treasury would have to repay that money to the liquidators. However, these pension liabilities are not things the government are actually spending now. But bond markets do exist so either Warren Mosler is a fool or I am. Most of the money is not created by the government or indeed the central bank.

You really can lose money lending to a government. Therefore, there is no need to borrow for them yet. Deficit down but debt up? Well I can see that because it reduces the amount that people spend in the economy producing government revenue such as VAT. We have gone well past the point of no return. Do we know how much government debt RBS holds? There has also been a marked rise in social security spending. The biggest lie in UK politics?

More at: who owns UK debt? Financial bailout of Northern Rock, RBS, Lloyds and other banks. Central Bank willing to buy bonds during a liquidity crisis have been more at risk to rising bond yields and fears over government debt. First World War period. This is a sharp increase from two years ago, but still quite manageable. Warren worked inside banking becoming a billionaire in the process! The majority of UK debt used to be held by the UK private sector, in particular, UK insurance and pension funds. Notably in the aftermath of the two world wars. This is the amount the government has to borrow per year.

Note: the Government has offered to back mortgage securities. Public sector debt interest payments will be the 4th highest department after social security, health and education. Is it a good idea to enshrine in law the idea of a government being forced to run a budget surplus? We get our income from govt, govt doesnt get income from us. We cannot also probably relate our current economy to what happened before in any meaningful way. Potential of rising interest rates as markets become more reluctant to lend to the UK government. You are all missing the point. What are the prospects for UK debt default? The government has announced strict spending limits. In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.

Government borrowing helps maintain aggregate demand and prevents a fall in spending. GDP is high by recent UK standards, it is worth bearing in mind that other countries have a much bigger problem. The difficulty is the extent to which these spending cuts could reduce economic growth and hamper attempts to improve tax revenues. Some economists feel the timing of deficit consolidation is very important, and growth should come before fiscal consolidation. Bond yields reflect the cost of borrowing. NBER Working Paper 15795, March 2010. These cyclical factors have also exposed an underlying structural deficit. Since 2007, UK bond yields have fallen. Can I ask why our of my tax comes a national Al debt interest payment?

SO Mosler is right. GDP, debt interest payments are relatively low. See page 43 of Warren Moslers work the seven deadly innocent frauds of economic policy. How is National Debt financed? This is because people want to save and buy government bonds. Warren Mosler is a fraud. Is the debt issue exaggerated?

Also, the ability to print money does not mean you can in reality repay a debt. Economic expansion which improves tax revenues and reduces spending on benefits like Job Seekers Allowance. What will bankrupt Britain is this. The deficit is just savings. See more at: Who does the UK own money to? Should we worry about National Debt? This suggests that current UK debt is manageable compared to the early 1950s. National Debt accumulates due to the deficit adding to it, I assume that at the same time that National Debt is slowly been paid back via bonds or gilts maturing, or have I got that wrong. Borrowing more is crazy, we are spending more than we can afford.

It looks as though some of our future plans may have to change regarding this and focus on more manageable priorities to deal with this. Governments can choose to default but they dont have to. That is how sovereign banking works. If the government borrows money in its own currency, then devalues that currency to the point where it is worthless, then repays the debt in the worthless currency, has the lender been repaid? This is because national debt should include pension contributions and private finance initiatives PFI which the government are obliged to pay. Thanks for the information, succinctly written. Therefore the further squeeze on tax revenues has led to deficit reduction targets being missed. Who owns UK Debt?

UK public sector debt. However, it is a sign that it will be difficult to improve finances in the future. GDP per capita growth. Lower bond yields reduce the cost of government borrowing. They are unlikely to spend this money. But it still looks as though the world economy cannot go on sustaining such high levels of debt. Another way to examine UK debt is to look at both government debt and private debt combined.

Countries in the Eurozone with similar debt levels have seen a sharp rise in bond yields putting greater pressure on their government to cut spending quickly. Total UK debt includes household sector debt, business sector debt, financial sector debt and government debt. The increase in government borrowing is making use of this steep increase in private sector savings and helping to offset the fall in AD. IT is a fact. The cost of National debt is the interest the government has to pay on the bonds and gilts it sells. GDP has been much higher in the past. What is the real level of UK national debt? It is more of a guide to future public sector debt. Books on Debt at Amazon.

However, Government Borrowing is not always as bad as people fear. The BOE the US federal bank have all explained that is impossible for those central banks to be forced into insolvency. In the current climate, the UK would struggle to borrow the same as in the past. UK National Debt since 1900. But, at the same time, national debt is rising. How much can a government borrow? Fiscal policy is one of those areas where everyone has an opinion but few people can agree on any given idea. Take for example the issuance of government debt. Gross Domestic Product in 2003 to just 10. By the late 90s the country had a balanced budget through a combination of spending cuts and tax increases.

Tax increases are a common tactic. It is likely that this is largely due to the failure to cut spending. It seems like a logical approach, but keep in mind that the government must pay interest to its creditors and at some point the borrowed money must be repaid. Throughout history, which methods of reducing government debt have proven to be the most successful? In 2011 the country is once again deeply in debt. Governments often issue bonds to get money. In turn, the borrowers spend that money on goods and services, which creates jobs and tax revenues. When the economy is in pain, such as suffering from high levels of unemployment, governments can also seek to stimulate the economy by buying the very bond they have issued themselves. When cash flows increase and spending continues to rise, the increased revenues make little difference to the overall debt level.

For related reading, see Do Tax Cuts Stimulate The Economy? In extreme cases, such as Greece in 2011, protesters take to the streets when then the government spigot is turned off. Many nations in Africa have been the beneficiaries of debt forgiveness. Critics of every position take issues with nearly all budget and debt reduction claims, arguing about flawed data, improper methodologies, smoke and mirrors accounting and countless other issues. The answers may not be what you expect. Getting rich nations to forgive your debts or hand you cash is a method that has been employed more than a few times. Despite the frequency of the practice, most nations face large and growing debts. Spending cuts and tax increases play a role in both efforts. In theory, others countries could emulate this example.

Learn how the biggest ones affected the economy. This enables them to avoid raising taxes and provides money to stimulate the economy by public spending, theoretically generating additional tax income from prosperous businesses and taxpayers. Low interest rates have been employed by the Unites States, the European Union, the United Kingdom and other nations with some degree of success. Debt reduction and government policy are incredibly polarizing political topics. Nowhere is this more true that when it comes to government, debt and fiscal policy. Maintaining low interest rates is another way governments seek to stimulate the economy, generate tax revenue and, ultimately, reduce the national debt.

Neither a borrower nor a lender be. North Korea, Russia and Argentina have all employed this method. While there are a variety of methods countries have employed at various times and with various degrees of success, there is no magic formula that works equally well for every nation in every instances. Unfortunately, even this method has its faults. Similar conflicting arguments and data to support them can be found for nearly every aspect of any discuss about federal debt reduction. Decades of political wrangling over the Social Security program in the United States is a prime example of this, with politicians avoiding action that would anger voters. Sweden was close to financial ruin by 1994.

Eisenhower managed to reduce government debt in 1956 and 1957. The country did this without raising taxes. Defaulting on the debt, which can including going bankrupt and or restructuring payments to creditors is a common and often successful method for debt reduction. Low interest rates make it not difficult for individuals and businesses to borrow money. Politicians are voted out of office when their constituents are angry, so they often lack the political will to make necessary cuts. While reducing debt and stimulating the economy are the general goals of most governments in developed economies, achieving those goals often involves tactics that appear to be mutually exclusive and sometimes downright contradictory. If you are unfamiliar with their specific attributes and uses, you may be missing out on one of the most powerful and versatile fixed income products in the marketplace today!

History teaches, and it tends to come round again, and again, and again. While it has a stark simplicity I am a little doubtful that nobody would have registered any scepticism that it has survived so long, with so much at stake, and on this scale. Taxation is one mechanism, but is the interest rate not another usable mechanism; and probably more rapidly applied, and more rapidly removed, with less disturbance to the system than taxation, with all its leads and lags? Now, just spend a moment thinking about this. What was the point of QE? Why not just cancel all debt? Why not keep doing it so we can spend as much as we want on anything we want? The answer is no, of course we will not.

However, the levels of public debt or deficit are merely a signifier of those savings desires, and should never be used as any kind of target for policy formation. The constant in the equation is humans. Or come to that worry about the interest on it? And we actually need more debt, and not less of it. This is a good place for discussion and reflection. Suppose you owe your mortgage to yourself. In other words, the composition of the debt has changed but not its total amount. They are simply an Asset swap, parked cash to Bonds.

My last comment on this thread, you will be happy to note. They are immediately bought up again by those who wish to hold enormous sums of sterling in the safest possible form; Government Bonds. Hyman Minsky saw it all coming, and he died around 1994. Firstly that is because we have never repaid the national debt. Indeed, as I have shown, it is actually shown as cancelled debt in the UK national accounts, which is precisely what it is. Or to put it another way, right now there is no national debt issue to worry about. No reason at all really.

Which is why claiming to be able to counter austerity solely via increased public spending on capital projects alone is patently ridiculous. Gold is no different, except that someone has to dig it up. We need knowledgeable and healthy engineers to the build roads and bridges which enable all those other sectors of the economy to thrive. Why is the FT as economically illiterate as the rest of the media and Westminster politicians? Bank of England is owned by the government. Would you worry about repaying it? MMT and where money comes from and how govt spending is financed. If QE were used to cancel debt this would change what we believe about the way the BoE operates and the nature of money. National Debt, considering that all the National Debt is, is the choice by the private sector to invest in Gilts rather than hold cash?

Gov, the currency issuer. The debt is under control. Mea Culpa; but it is interesting and I have found it very useful. The purposes of taxation are not to fund debts or anything else. Government of the last 10 years, I suspect not, but I do not want to play on the ambiguity of the meaning of the terms? The difference is the rebate which Richard often refers to payed back to the Treasury by the BoE via the APF. The BoE owes money to the banks. From the Gov point of view, including its central bank, BoE, Fed etc. And to therefore say that we cannot have schools, healthcare, benefits and university education because of the scale of our national debt is a lie.

And why cancel all debt? Salaries are considered to be current spending, whether you like it or not, no matter how idiotic it would clearly be to construct a dozen newly built and equipped hospitals or schools, and leave them unstaffed. December 2016, equivalent to 89. However, it is vastly easier and more direct to use fiscal spending or tax powers to not just moderate inflation, but actually target the specific sectors where it is arising. Gilts mature and new ones issued. The first is to provide an arbitrage mechanism in normal market conditions to prevent money market rates moving far away from Bank Rate. No, because there goes that savings option, and had they wanted to hold cash instead of have a little flutter with their spare savings, they would never have bought them in the first place. Until there is policy change, whatever BoE lists as a debt on their balance sheet has to be regarded as a debt that may at some point need to be refinanced.

Current Neoliberal dogma says that to spend, governments need to either tax or borrow, and both of these are bad. So why not wipe out all the UK national debt by doing even more QE? The local shops and factories and restaurants will go out of business. US, UK, Japan etc. This in itself will increase the tax take, and reduce the budget deficit, and in time, the national debt. Gilts, just on a bigger scale. It seemed to me that the operation of the SOF lent credence to the interest argument you and Mr Hall were making yesterday; and against my slight scepticism. What a ridiculous manipulation of economic statistics. Belief is all there is. And we cannot do without national savings.

Why stop there in fact? Surely the interest rate has to reflect the desire to inhibit inflation? But that does not mean that government can spend without consequence. However, this might be outweighed by the adverse impact on confidence of the perception that government is engaged in unsound and risky financing practices. National Debt, to unilaterally cancel every Premium Bond and give each holder their cash back, would those Premium Bond holders be happy? Why would tax rates need to go up, or even be as high as they are if this is also true, and all money eventually comes back to the government through tax which is something you also argue? And would you worry about when you repaid it? National Savings, or National Debt. Clearly the prima facie discrepancy between the two rates shown is scarcely an inducement to save.

The macroeconomic impact will also be the same in either scenario, assuming that the composition of the fiscal stimulus package is identical. Because that would cancel money, national savings, private pensions and the security of the banking system. The two are not really connected. It literally no longer exists. And that is 66. Still interest on debt is regressive so need to make sure that spend and tax is progressive to rebalance. Whatever the Bank of England says it believes is what we have to believe it believes, and as fiat money is nothing more than a belief system, belief is all there is. The govt can spend as much extra new money into the economy as there the is capacity for it to be absorbed, without leading to an inflationary boom. And that is unforgivable. When received by treasury they are removed from the economy permanently never to be used for anything. The real rate allowing for QE is at historically low levels.

For example, you probably own, or know someone who owns, Premium Bonds. If the assets of the BoE are consolidated with the liabilities of the government, then the liabilities of the BoE should become liabilitiesc of the government. First Published in 2000.