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August 11, 2020



" The cost of supporting jobs need not and should not be borne by current taxpayers. The government can borrow over decades and so spread the cost not only to our grandchildren but to their grandchildren too"

How kind of you to burden the unborn with paying for expenditure that benefits you.........what do they get out of this 'deal'?

Robert Mitchell

"How kind of you to burden the unborn with paying for expenditure that benefits you.........what do they get out of this 'deal'?"

They get to print, and equally distribute, money faster than prices rise while lowering taxes. Win-win. The unlimited currency swap line with the Fed eliminates foreign exchange risk.

Dave Timoney

@Jim, What did we get out of the Napoleonic War?


How kind of you to burden the unborn with paying for expenditure that benefits you....

[ Precisely my kind of kindness. ]


«The Tories aversion to massive intervention in markets is reasonable in normal times»

HAHAHAHAHAHAHAHAHA! Massive tory and whig market interference in the property and financial markets seems to show that they have no such aversion in general, just an aversion to intervention in favour of "not our own", that is in favour of the servant classes.
A tiny anecdote from Nick Timothy as to such "aversion":

«I remember one MP who, as a member of the Shadow Cabinet, once said: “school reform is all very well but we must protect the great public schools, because we need to look after our own people.”»


«The unlimited currency swap line with the Fed eliminates foreign exchange risk.»

As long as the Fed are willing to exchange an unlimited quantity of newly issued pounds for newly issued dollars forever, and as long as the oil sheiks etc. continue to accept newly issued dollars in payment, the Fed can indeed fund any level of spending by the UK government.

I now realize that an unlimited 0% eternal overdraft at the Fed is the Philosopher's Stone of economic policy.

Currently that kind of overdraft is reserved to bankrupt USA financial conglomerates, as the swap arrangements have been mostly shut down or are not unlimited in time or amount, but I guess that if the UK government incorporated in Delaware as an american financial conglomerate very little would change in practice, so let's do it!



«How kind of you to burden the unborn with paying for expenditure that benefits you.........what do they get out of this 'deal'?»

Perhaps a momentary lapse of concentration resulted in missing «If I’m even ball-park right that today’s losses of jobs and businesses will reduce future capacity».

This said both the "austerian" argument and that of our blogger today are way misdesigned, both based on a ludicrous confusion between between accounting issues and productive issues, between the financial and the real political economy, and a comical disregard of distributional issues. But that of our blogger is marginally less ludicrous.


«both based on a ludicrous confusion»

Dear old JM Keynes wrote that the essence of his policy advice was to ensure a good level of wages, and everything else would work allright; this based on the notion that wages-funded purchases drives both sales and (via the expectation of future sales) investment, and if you set the wage-fund at a good level sales, investments, profits will follow.
VERY IMPORTANT NOTE: this applies *only* if there is a "general glut", does not apply to "special gluts".

But this does not apply at all in the current situation, as the restrictions have reduced *both* the supply and the demand of goods and services, and in very unequal terms across various sectors.

The current situation is much more similar to a war economy situation, where a lot of "peacetime" demand and supply are suppressed to generate spare capacity for military demand and supply. Presently "peacetime" demand and supply have been suppressed to generate less opportunity for contagion rather than more capacity for military supply and demand, and while this is different, the basic principles are the same.

Suppose for example that restrictions had caused a fall of demand across all sectors by 50%, reducing employment in hours only and supply equally by 50% in each sector, what would have been the correct policy response?

To cut wages by 50% (by whichever means) and to tax savings by 50%.

That is because the goal of policy is to *keep the real economy running at 50% of capacity*, not to return it to 100% capacity, and if the real economy has has halved in side, the monetary one has to halve too:

* If despite a reduction in employment (in hours) wages are kept at 100%, either people will want to spend as before, but supply has reduced by 50%, and there will be massive inflation (but such an event also goes against the assumption that demand has also fallen by 50%); or they will save the 50% of their wages they cannot spend, and this will cause trouble in the financial markets now, and massive inflation in the future as they spend their savings.

* If existing financial savings are not taxes at 50%, their holders get a large windfall as an increase in purchasing power, and larger holders will be able to outcompete smaller holders in buying a bigger share of that halved supply; this also would violate the assumption that demand has also fallen by 50%.

But in reality while supply and demand have fallen a lot, the impact has not been uniform in two ways:

* Some sectors have seen a much bigger fall in demand than others, for example restoration.

* Some sectors have seen a much bigger fall in supply in supply than others, for example education.

* Unemployment has consequently risen not by cutting hours uniformly, but in different amounts in different sectors, and within sectors some workers have become totally unemployed with no wages and some have kept their numbers of hours with the same wages.

To address these issues there must be not just a large monetary contraction, but also a large amount of redistribution between sectors and within sectors.

Because it is politically much easier to redistribute if there is monetary *expansion*, our government has handed out a colossal mount of new money to those sectors and some workers that have had the largest falls in demand, without radically increasing taxes on savers and on workers that still get a full wage.

Peter Shaw

The blogger ignores the entire concept of moral hazard.

By supporting all the irresponsible banks, business owners, workers etc you just encourage them to take even bigger risks in the future.

There was s time when being able to support yourself for a year without income was considered responsible. But there is no reward at all for prudence these days and in fact you are penalised

Robert Mitchell

Blissex said:

"the swap arrangements have been mostly shut down or are not unlimited in time or amount"

See https://fred.stlouisfed.org/graph/?g=u2fh

Note that currency swaps spiked recently to ensure dollars were available to the big central banks including the Bank of England.

Unlimited currency swap lines with major central banks are a standing facility.

See also https://crsreports.congress.gov/product/pdf/IF/IF11498

> In October 2008, the Fed made the swap lines with certain countries unlimited in size. These swap lines expired in February 2010, but were
subsequently reopened in May 2010 with the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Bank of Japan, and the Swiss National Bank in response to the eurozone crisis. Although initially temporary, the Fed converted them to permanent standing arrangements in October 2013.


> In March 2020, there has been a sudden surge in usage as a result of COVID-19. As some banks have become reluctant to lend to each other, central banks have taken a much larger role in providing banks with liquidity directly. During the week ending March 25, 2020, the European Central Bank, Bank of England, Bank of Japan, and the Swiss National Bank cumulatively drew $206 billion from the Fed.

So yes, currency swap lines are unlimited with the Bank of England. Rollovers are infinite; the Fed lends the BoE as many dollars as the BoE decides it needs, and rolls the loans as long as the BoE asks.

James Charles

" . . . it might stoke up inflation."
Inflation will 'increase' in the U.S.?
“A reasonable view is that reliance on banking systems to finance budget deficits will keep money growth positive, at annual rates at least in the mid- single digits %, over the next year or two. The evidence is universal and compelling, that agents’ money-holding preferences are stable in the long run. Whereas in spring and summer 2020 ratios of money to GDP (i.e., the inverse of the velocity of circulation) have climbed dramatically, in coming quarters they will drop sharply, closer to long-run averages. The rates of increase of nominal GDP and the price level will soar, probably after or in association with asset price inflation.”

James Charles


Robert Mitchell

Nominal inflation is easily solved by Cost of Living Adjustments, Treasury Inflation Protected Securities (for savings), and inflation swaps for private contracts. Inflation makers voluntarily sell inflation insurance to inflation takers. If inflation is below the breakeven, the inflation taker pays what amounts to insurance premiums. If inflation rises above breakeven, inflation makers - like retailers who benefit from rising prices - redistribute a portion of their inflation-driven profits to inflation takers via payouts on the swaps. The Fed can manipulate breakevens by buying and selling inflation swaps on open financial markets.

Ralph Musgrave

The above article claims that immigrants going home is a problem because “the economy has lost potential supply”. Er – the economy also loses demand in that immigrants (gasps of amazement) buy food, housing etc when in this country.

In fact if there was net EMMIGRATION to the extent that the population shrank to half its present size over a few decades, that would be no problem at all. I’m sure Daily Mail readers have worked that out, though I doubt Guardian journalists have.


Daily Mail readers would have started with the premise that immigration is a net bad and found the justification for that position. But we know that when they go home they take their positive contributions (especially so for EU migrants) to public finances with them.


Ralph Musgrave

Paulc156, Simply accusing someone, e.g. Daily Mail readers, of making an assumption, and then looking for justifications for the assumption is not a brilliant argument.

I suggest there are plenty of Mail readers (just like anyone with half a brian) who observe female genital mutilation, wife beating, homophobia, grooming gangs in Rotherham (I could go on) and conclude that importing Islam is not too clever.

Re your claim that migrants who return home "take their contribution to public finances with them", I'm baffled. So an immigrant who pays taxes which fund the NHS somehow manages to get that money back from the NHS when they go home??? I'm fascinated. Do please explain. I'm sure Daily Mail readers will be as fascinated as I am.

The truth


So what, life is not all about money. Britain is overcrowded and would benefit from even more emigration


«So yes, currency swap lines are unlimited with the Bank of England. Rollovers are infinite; the Fed lends the BoE as many dollars as the BoE decides it needs, and rolls the loans as long as the BoE asks.»

I am impressed that the Fed are just going to obey the BoE forever, will never change their mind, and are no longer controlled by the USA government.
If only the ECB had become equally obedient to Varoufakis then Greece's politicians would now be vastly rich, and Greece's economy would be now 100% imports.

Things seems to have changed a lot since Bretton Woods, when the USA government rejected JM Keynes's proposal of a "Bancor" international currency because they were afraid that the the other nations would print them in unlimited quantities to buy USA goods and assets priced in dollars.



«Nominal inflation is easily solved by Cost of Living Adjustments, Treasury Inflation Protected Securities (for savings)»

Who is going to impose these retroactively in all existing contracts, for example into all existing bonds?

Note for those who don't get the prevarication here: the argument seems to be that if all contracts and prices are fully indexed and have always been indexed, then any wholly uniform inflation rate has no effect redistributive effect.

«Inflation makers voluntarily sell inflation insurance to inflation takers.»

Why? Inflation makers, for example workers or land owners, aim to redistribute to themselves a larger chunk of real income by increasing their prices, why would they sell that advantage away for less than their likely profits?

Why should dentists or private schools who want to increase their prices faster than wages or other prices sell insurance against them doing so?
And assuming that they do sell it, all that would happen is for "inflation" to be re-labeled "insurance premiums". If dentists or private schools think they can increase their prices and thus their incomes by 10%, why should they sell insurance against that for less than 10% of their sales?


«So yes, currency swap lines are unlimited with the Bank of England. Rollovers are infinite; the Fed lends the BoE as many dollars as the BoE decides it needs, and rolls the loans as long as the BoE asks.»

Note for those who don't get the prevarication here: it is not stated that the Fed will exchange dollars for pounds at a given exchange rate in unlimited quantities forever, or that they cannot terminate those swap agreements:

«standing arrangements that will remain in place *until further notice*»
«the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars *at the prevailing market exchange rate*.»

Unfortunately the Fed has not yet volunteered to finance in dollars unlimited UK balance of payment deficits forever. The colonials are still rebellious. "We are not amused" :-).

Ralph Musgrave

Paulc156, On second thoughts I think your "contribution to public finances" figure referred to the ANNUAL contribution that immigrants make to public spending rather than any sort of capital sum, which is what I was referring to.

However I suggest your point is still invalid because while immigrants clearly CONTIBUTE to public finances, they are also a DRAIN on those finances, e.g. when they claim benefits. Thus the net effect of their going home on public finances will be around zero.



We can burden them with slightly increased national debt or the persistent and very real costs of lower long term growth, higher unemployment and higher private debt.



I think immigrants are on average net contributors.


@D. You are correct and if RM had bothered to read the link I posted he would have immediately seen the following:

"The average European migrant arriving in the UK in 2016 will contribute £78,000 more than they take out in public services and benefits over their time spent in the UK (assuming a balanced national budget), and the average non-European migrant will make a positive net contribution of £28,000 while living here. By comparison, the average UK citizen’s net lifetime contribution in this scenario is zero."

So 'net' cobtribution, allows for benefits to be counted. So a net positive contribution. But hey, RM assumes it's net zero, conveniently...


@ The truth. Arguably Britain is overcrowded but its a weak argument... really it's only London and it's hinterland that is. Over 90% of UK land is undeveloped.

The truth


You are wrong again. The UK is the 09th most densely populated country in Europe, even adjusting for London. And micro states like the Vatican and Monaco are on the list.

In fact by world standards the English countryside is over developed. And the UK is woefully lacking in national parks. Moreover the UK imports over half its food, good luck in a crisis. And the movement in 1st world countries, has turned against big cities.

The UK is full

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