Messages

Indeed, Peter. I think that the "water" analogy I posted earlier adequately and simply explains how the system really works.

Yes, this week I'll be pole dancing as well.

Me in fishnets and a basque.

I emailed the Treasury with the simple question:

"Dear Sir or Madam,

Could you please explain to me why the government borrows the money that
the banks create instead of exercising its right to print its own,
debt-free money?

Thanks

Mark Howard"

Here's the reply (which came after another email wondering what happened to the first):

Dear Mr Howard,

Thank you for your email please see reply below.

Operational independence for the Monetary Policy Committee (MPC) has been a central feature of the UK's monetary policy framework, and the inflation-targeting objectives of the monetary policy framework are unchanged. The MPC continues to pursue an objective of maintaining price stability - as defined by a 2 per cent annual rise in CPI inflation. The MPC was authorised to use the Asset Purchase Facility (APF) for monetary policy purposes on 3 March. On 5 November, the MPC announced that it would purchase a further £25 billion of assets financed by the issuance of central bank reserves, bringing their scheduled total purchases to £200 billion.

Quantitative easing aims to raise inflation relative to what it would have been if quantitative easing had not been implemented. But it is being used in a deflationary environment with considerable spare capacity in the economy. The severity of the global downturn created strong deflationary pressures on the economy and consequently a real risk of deflation. CPI inflation fell from its peak of 5.2% in September 2008 to 1.1% in September 2009. The considerable margin of spare capacity in the economy will continue to put downward pressure on inflation over the medium-term.

The decisions of the MPC continue to be guided by the medium-term outlook for inflation, and its remit to target CPI inflation at 2%. The use of the APF for monetary policy purposes demonstrates its commitment to the inflation target. Private sector inflation expectations remain anchored around the 2% inflation target. As growth returns and the outlook for inflation picks up, the MPC will make the necessary adjustments to monetary policy to keep inflation under control. Consequently, quantitative easing will not result in high inflation.

Asset purchases financed by central bank reserves expand the monetary base, and allow the MPC to ease monetary conditions further by raising the quantity of money in circulation, at a time when it has not been feasible to reduce further the price of money. The MPC cut Bank Rate to 0.5 per cent in March and decided that further policy action was needed to counter the risk of deflation. The aim of quantitative easing is to get the annual rate of growth of nominal spending in the economy back to near the 5 per cent that it averaged during the first decade of the MPC's existence, and which is consistent with inflation at target and growth at trend. The MPC is concerned with the growth of nominal spending because it is a primary determinant of inflation in the medium term.

The Bank of England is not buying gilts from the Government and is not creating money to finance the Government's deficit. For governments to print money to finance their borrowing would be in contravention of Article 104(1) of the Maastricht Treaty. The Bank of England is purchasing gilts on the secondary market from private-sector holders of those assets. Central banks routinely buy and sell government debt in the secondary market as part of their normal operations in the money markets, and such operations are not deemed to amount to monetary financing under the Maastricht Treaty. Quantitative easing differs from these normal operations only in their scale and the length of time for which the assets are likely to be held. The MPC decides on the level of asset purchases to finance through the issuance of central bank reserves. Its decision is informed by its assessment of the scale of asset purchases needed to meet the inflation target, and not by the need to finance the government's deficit. The Committee's actions are being undertaken for monetary policy purposes and not for fiscal policy purposes.

I hope this is helpful.


Thank you
Enquiry Unit.



To which, I have replied:


Dear Sir or Madam,

1. I am NOT asking why the MPC exists.
2. I am not asking if it is a good idea to have an independent monetary policy.
3. I am NOT asking if it is a good idea to attempt to control inflation.
4. I am NOT asking what the causes are for and reactions are to the "global downturn".
5. I am NOT asking if you believe that the MPC is committed to their stated inflation targets.
6. I am NOT asking if governments should print money to finance their borrowing.
7. I am NOT asking if it is unusual for central banks to buy and sell government debt.

The answers you provided work from the standpoint of acceptance of government debt
as if it is a force of nature. My questions are more fundamental than any of the
answers you have provided :

1. Is the Bank of England a fully government controlled entity, is it privately
    held or is it semi-private/public? (please choose from one of these options and
    provide sources to support your answer)

2. What is the authority relation between the UK government, the Bank of England and
    the MPC? In other words : who is legally allowed to override whose decisions?
    (please provide sources to support your answer)

3. Is it or is it not true that the UK government, like many other countries, acquired
    their large debts because the central bank was privatized, issuance of money was
    delegated to the privatized central bank and interest was charged to the UK
    government on the money it borrowed from the central bank? (please provide a
    simple yes or no answer first, then feel free to elaborate and please provide
    sources to support your answer)

4. Is it or is it not true that the UK government issues government bonds to the
    central bank, in effect making tax payers the collateral for the debts incurred?
    (if your answer is "no", then please explain what IS used as collateral and
    provide sources to support your answer)

5.    Please name 10 nations that do not have a privatized central bank that issues
    debt based currency. Please name 10 nations that do not have a national debt.

6.    Do you PERSONALLY believe that it is good for a government to be forced to
    borrow debt based money from a privatized central bank? Do you personally
    believe that this is better for taxpayers than if a government would issue
    its own debt free money, NOT to finance borrowing, but to prevent debts to
    third parties and to control government spending?

7.    Do you PERSONALLY believe that treaties like the Maastricht Treaty should be
    adhered to in perpetuity, even if it is not to the benefit of the nation and
    its taxpayers?


Best,

Mark J. Howard

Wonder what'll happen next?

Bread secured, back online.

The room is open!

I have to nip out for some bread, I'll be back in a bit.

Monarch we miss you!

Last one this evening:

Surely this should be labeled "Unicorned Beef."


I'll get me coat (of many colours).

Fantastic!

He must be... the bean counter.

(Kindly leave the stage, I know.)

Wow, Roger's Mom's a unicorn?

Bank of England Court of Directors, 2010  http://www.bankofengland.co.uk/publications/annualreport/2010/courtofdirectors2010.pdf

Not one of them elected, not one of them accountable to the public.

Don't forget to rant about the Royal Family being shape-shifting lizards who bathe in the blood of virgins.

David Ike and his like really get on my nerves as they take serious concerns over the more shadowy aspects of government and make a mockery of them. It makes anyone who investigates real conspiracies and cover-ups easy to dismiss as a "conspiracy theorist nutcase." Conspiracy has become a dirty word, but anyone who plans something in secret, from organising a surprise birthday party to a covert military operation, is a conspirator.

Hatti Earthquack and the Earth-Axis Knockers. Definitely one for Tharg!

I'm not an economist, either, so I may well be wrong in everything I say and write about it. That said, I know fish when I smell it.

One analogy that helps me understand the root of the problem is this:

Imagine that money is water. The flow of water must be kept up according to the needs of the system - everyone needs water, just like everyone needs money.

The Government, who we elect, has access to its own well. All it has to do is lower a bucket into this public well, draw a bucket of water and pour it carefully into the system (public spending). The water flows around the system and trickles back into the public well in the form of taxes, keeping the public well topped up.

The Government, however, has fallen into the bad habit of using a private well from which to draw the water. So, the Government goes to this private well, draws a bucket of water and carefully pours it into the system. Now, the water that flows out of the system in taxes is used to re-fill the bucket, which is then poured back into the private well. On top of this, an extra quarter of a bucket of water is drained from the system to pour into the private well because the owners of this private well want to be paid for using their water (interest). This means that more water is being drained from the system than is being returned to it. Thus, the parts of the system that use the most water are deprived of it and whither away and die - like Britain's manufacturing industry.

Once we persuade the Government to begin using its own well again, we can still pay off all those quarter buckets we owe whilst not drawing any more water from that private well. Once this is done, the amount drained from the system will fall dramatically, allowing everyone's taxes to fall and allowing an appropriate amount to be invested in industry, public services and society as a whole. So long as the water continues to be added to and drained from the system according to established economic principles and the needs of society, the only losers will be the owners of the private well, who have enough water of their own to begin with and don't need ours.

I thought of that analogy a couple of days ago - does it work, you think?

1: I can't comment, because I don't know. I hope nothing was fixed, I really do.

2: That worked out nicely, didn't it? Well, it did for the banks - not so much for the rest of us.