The Lemon Fool

The FT has an article this morning stating that the UK taxpayer faces losses of as much as £23bn across emergency bailout loans.

Schemes will also continue to run til end of November.

That is an incredibly high default figure. Surely this money should never have been issued in the first place.

The UK taxpayer faces no loss, because there is nothing to lose. If government gives somebody £100 it will be spent and earned and generally bounce around the economy being taxed over time and the entire £100 will return to the Exchequer in time. Sterling can't go anywhere else because they don't use it anywhere else.

Could the money have been better targeted to help a wider set of people and get more bang for the buck. Almost certainly. But that is the extent of the loss - an opportunity cost. Nothing else.

It is better that it was issued than not - as it helped many people down the spending chain earn an income and stay afloat.

Her we go again with NeilW's MMT.

Dod

We are ending the furlough scheme because we want to wean people, employers and employees off the idea that the state can support people for the foreseeable future. We need to accept that some of those on furlough are going to lose their jobs. The furlough scheme was intended to 'bridge the gap', the temporary period of disruption caused by Covid. If MMT had its way I guess we would all be living in nirvana, just plucking the fruit from the government's money tree and happily spending it. The world would be wonderful with all that extra money circulating and giving everyone a 'feel good' factor, at least for a short time until reality set in.

That reality would at the very least be increasing inflation and a corresponding reduction in the external value of the currency. We may be living on an island but our economy is not.

Dod

scotview wrote:The FT has an article this morning stating that the UK taxpayer faces losses of as much as £23bn across emergency bailout loans.

Schemes will also continue to run til end of November.

That is an incredibly high default figure. Surely this money should never have been issued in the first place.

It would help if the OP linked to the article. Then everyone would know what they are talking about....

GS

Link to the article,

https://www.ft.com/content/61802999-657 ... 73840c06bb

scotview wrote:Link to the article,

https://www.ft.com/content/61802999-657 ... 73840c06bb

Thanks for the link. For those not subscribed to the FT, it's also available here: https://globalinsolvency.com/headlines/ ... tate-loans
From the article:

Figures published on Wednesday in the Department for Business, Energy and Industrial Strategy’s annual report show officials estimate losses could rise to £23bn in the worst-case scenario based on August figures. Under the best-case scenario, this drops to about £12.9bn, using loss ranges based on similar previous programmes. Both estimates combine credit and fraud losses.

So the headline £23bn is a worst case figure, approx double the best case estimate, so maybe £18bn as a half-way compromise?

Question is, how much would the economic fallout have cost us in a "government stood by and did nothing" scenario?

VRD

Dod101 wrote:Her we go again with NeilW's MMT.

Dod

Thx for the link. Agree with Dod, the MMT stuff is nonsense.

100 people have a pound each. Government takes the pound from them and lends £100 to Fat Cat who promises to pay it back. Fat Cat doesn't pay it back. 100 people have permanently transferred their one pound to Fat Cat with the aid of the government. There's really not much more to it than that. If assets end up in the hands of someone unintended at the expense of someone else that is a loss in any usual sense of the word.

Agree 23bn/58bn is a high loss ratio. Actual losses may be lower. Whether the funds should have been issued in the first place is another question...

GS

GoSeigen wrote:

Dod101 wrote:Her we go again with NeilW's MMT.

Dod

Thx for the link. Agree with Dod, the MMT stuff is nonsense.

100 people have a pound each. Government takes the pound from them and lends £100 to Fat Cat who promises to pay it back. Fat Cat doesn't pay it back. 100 people have permanently transferred their one pound to Fat Cat with the aid of the government. There's really not much more to it than that. If assets end up in the hands of someone unintended at the expense of someone else that is a loss in any usual sense of the word.

Agree 23bn/58bn is a high loss ratio. Actual losses may be lower. Whether the funds should have been issued in the first place is another question...

GS

How has Fat Cat managed not to pay it back ? Has he frittered it away ie spent it ? If so then as NeilW says it is on its way back to the government just the long way round. MMT seems to be a good description of how things really work but that doesn't make it a panacea where government can just continually create money without limits to give everyone the good life. There are constraints such as increasing inflation etc and the fact that Fat Cat's loan will eventually make its way back to the government is irrelevent to most people as they are more concerned with their local situation rather than the global position which in your example is that 100 people are slightly poorer at the point in time because the government took £1 of them (presumably throiugh some taxation method). However whether Fat Cat defaulted on the loan or not doesn't really concern them it was the government taking the money from them that concerned them - even if FatCat paid the loan back in full at some point there is no guarantee (and probably little likelihood) that they would get a tax-rebate to pay the money back to them.
Of course if rather than the loan to Fat Cat being raised via taxation the Government borrowed it by selling gilts then those 100 people who funded the loan to Fat Cat by loaning money to the Government would get their money back (plus whatever interest they were promised) when the gilts matured irrespective of whether Fat Cat had defaulted or not (assuming that is that the government itself hadn't decided to default).

ursaminortaur wrote:

GoSeigen wrote:

Dod101 wrote:Her we go again with NeilW's MMT.

Dod

Thx for the link. Agree with Dod, the MMT stuff is nonsense.

100 people have a pound each. Government takes the pound from them and lends £100 to Fat Cat who promises to pay it back. Fat Cat doesn't pay it back. 100 people have permanently transferred their one pound to Fat Cat with the aid of the government. There's really not much more to it than that. If assets end up in the hands of someone unintended at the expense of someone else that is a loss in any usual sense of the word.

Agree 23bn/58bn is a high loss ratio. Actual losses may be lower. Whether the funds should have been issued in the first place is another question...

GS

How has Fat Cat managed not to pay it back ? Has he frittered it away ie spent it ? If so then as NeilW says it is on its way back to the government just the long way round.

Neil is assuming £1 is always worth £1. That assumption will fall down one day, if the money is frittered away as you say.



GS

Dod101 wrote:That reality would at the very least be increasing inflation and a corresponding reduction in the external value of the currency. We may be living on an island but our economy is not.

I agree with the general-thrust of a fiat currency having to be marshalled responsibly and that MMT is delusional nonsense. The amazing thing since 2008 and definitely since C19 is that boundaries of fiscal loosening have been pushed, pushed and pushed again yet still no inflation! I have a feeling CNY is having a global impact with the weak against USD stance. If China and America cannot agree a 1985 Plaza Accord (USD/JPY) type concord I really do worry how this is going to end. I have however no doubt whatsoever that end, one way or the other, it will........

ursaminortaur wrote: MMT seems to be a good description of how things really work but that doesn't make it a panacea where government can just continually create money without limits to give everyone the good life.

This is the nub of the issue. The question is where QE ends. The answer is if it causes any material inflation. Hence it cannot be used for regular government spending as a rule even though it has been used for one off capital chunks.

Seeing money printing as a regular solution to the problem of balancing government spending and government income will lead to hyper inflation. There always has been a bit of money printing and at the start of the coalition government and more rencently there have been big chunks of it, but they were at least in theory one offs.

ursaminortaur wrote:“How has Fat Cat managed to not pay it back?”

He’s gone to Monaco or Singapore.

GoSeigen wrote:100 people have a pound each

Where did they get the pound in the first place?

In reality, what happens is that the National Loans Fund is debited and the Consolidated Fund is credited, and the newly created £100 is given to the Fat Cat, who then spends it into a depressed economy ensuring people continue to earn an income and pay tax, who then spend it again paying tax, where it is earned again paying tax. And so on like a stone skipping across a pond.

If everybody spends everything they earn, then the £100 created in the National Loans Fund will be precisely offset by £100 retrieved via taxation and the circulation into the Consolidated Fund, which then is swept to the National Loans Fund and the balance cleared.

You pay tax because you are earning more than you otherwise would do without government offsetting people saving (and providing public provision). Something vitally important at the moment if we are not to head into depression.

Of course, we can do better than give money to Fat Cats. We could have hired the unemployed for example, given them to local authorities and got the local authorities to use those people to do something useful for their money. The circulation effects would be the same, but the real output would be higher.

johnhemming wrote:Seeing money printing as a regular solution to the problem of balancing government spending and government income will lead to hyper inflation.

30 years in Japan, no inflation. 10 years in the rest of the world no inflation. Massive furlough scheme. No inflation.

At what point does it dawn on you that you might just be missing a part of the puzzle?

And that part of the puzzle is what the "deficit" is in the first place - the balancing item to the increase in net savings in the non-government sector. People save. It's as plain as the £20 note in your wallet that is actually part of the deficit. That's why supply-side beliefs fail, have failed and continue to fail.

NeilW wrote:Of course, we can do better than give money to Fat Cats. We could have hired the unemployed for example, given them to local authorities and got the local authorities to use those people to do something useful for their money. The circulation effects would be the same, but the real output would be higher.

Have you Any Idea whatsoever how petrifyingly authoritarian your words sound?

NeilW wrote: We could have hired the unemployed for example, given them to local authorities to use those people to do something useful .

Do the words "Arbeit macht frei" mean anything to you? People shouldn't be rounded-up and placed at the control of shambolic bureaucrats. Local Authorities struggle to competently provide roads, schools and refuse collection. Government needs to do as much pump-priming as is possible to allow free enterprise to adapt to the catastrophe we are all enduring. Adam Smith and John James Cowperthwaite will drag us out of this mess, Karl Marx or Adolf Hitler should hold no appeal whatsoever to free people.

YeeWo wrote:

NeilW wrote:Of course, we can do better than give money to Fat Cats. We could have hired the unemployed for example, given them to local authorities and got the local authorities to use those people to do something useful for their money. The circulation effects would be the same, but the real output would be higher.

Have you Any Idea whatsoever how petrifyingly authoritarian your words sound?

NeilW wrote: We could have hired the unemployed for example, given them to local authorities to use those people to do something useful .

Do the words "Arbeit macht frei" mean anything to you? People shouldn't be rounded-up and placed at the control of shambolic bureaucrats. Local Authorities struggle to competently provide roads, schools and refuse collection. Government needs to do as much pump-priming as is possible to allow free enterprise to adapt to the catastrophe we are all enduring. Adam Smith and John James Cowperthwaite will drag us out of this mess, Karl Marx or Adolf Hitler should hold no appeal whatsoever to free people.

You've invoked Godwin's Law, therefore according to the usual maxim on the Internet, you've already lost the argument.

I don't think NeilW's post was authoritarian, as the unemployed were going to be hired and therefore given pay. How is that different to a big employer putting out 1000 job adverts with full pay + pension + benefits?

Edited to add: NeilW didn't say the unemployed would be rounded up, those were your words only.

YeeWo wrote:[Have you Any Idea whatsoever how petrifyingly authoritarian your words sound?

How is giving a job to somebody who hasn't got one authoritarian? I mean seriously - have you ever been unemployed? That's really scary.

When they have money to spend then the private sector comes back and hires them away, leaving very few remaining. It's a simple auto-stabiliser that keeps people work-ready while the private sector reorganises its affairs properly.

Far better than asking the private sector to pay 33% of wages for nothing in return propping up zombie jobs. For capitalism to recover, firms must be allowed to reconfigure their workforce without interference - or guilt in letting people go.

GoSeigen wrote:Thx for the link. Agree with Dod, the MMT stuff is nonsense.

100 people have a pound each. Government takes the pound from them and lends £100 to Fat Cat who promises to pay it back. Fat Cat doesn't pay it back. 100 people have permanently transferred their one pound to Fat Cat with the aid of the government. There's really not much more to it than that. If assets end up in the hands of someone unintended at the expense of someone else that is a loss in any usual sense of the word.

Agree 23bn/58bn is a high loss ratio. Actual losses may be lower. Whether the funds should have been issued in the first place is another question...

GS

100 people have their pound diluted. That's called inflation, and over the past 20 years (with the rise of cheap consumer goods imports from China and others) has manifested in the massive rise in price of the things people save for - houses and pensions.

Your Fat Cat could be a Yeltsin-generation Russian Oligarch or post-war London Landlord: someone who got obscenely rich in a government-sponsored kleptocracy. To what extent the £23bn (if that is the figure) is in the same class remains to be seen: doubtless some recipients have genuinely done no more than offset losses arising from government restrictions on them.

johnhemming wrote:Seeing money printing as a regular solution to the problem of balancing government spending and government income will lead to hyper inflation.

My theory is that debt issuance is deflationary and genuine money printing via printing presses or equivalent is inflationary. I think QE is debt issuance not money printing, no matter how often the media call it money printing.