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What are reserves?

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TheMotorcycleBoy
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What are reserves?

#393814

Postby TheMotorcycleBoy » March 9th, 2021, 9:55 am

Apologies if this is the wrong board for posting this to, but it seemed to be the closest one I could think of. Anyway in an earlier thread The funding of the $1.9TN relief package and effect on yields I ended up getting a bit stuck on the difference between the BoE issuing Sterling or Gilts and the effect on the "money supply" that either of those activities would have.

These two are the most relevant where the reserves are mentioned:

NeilW wrote:
TheMotorcycleBoy wrote:Sterling promises to pay the bearer the principal amount. Gilts promise to pay the bearer the principal amount at maturity plus the outstanding number of coupons until maturity. And therein lies the difference, the gilt vanishes at maturity.

So returning to your swap credits for either sterling (printing) or gilts (borrowing) remark; if the swap is for sterling the M supply increase is permanent but if for gilts the supply rise is temporary and is bound by the life of the gilt.

Hence printing and borrowing are different.

Matt


That's a fallacy of composition. What are the Gilts swapped back for at the end of the term? Sterling reserves. It doesn't disappear does it. It is simply exchanged for a period of time. Hence the point about the 'floating debt' and the 'unfunded debt'. Sterling reserves are just a different form of debt. You might call it 'money printing', but that is just pejorative.

As for the higher interest payment over time, that's precisely the point. Gilts are more expensive than the reserves which do earn a variable interest rate of, currently, 0.1%. So Gilt interest is a welfare payment (literally since the majority of the interest paid backs private pensions in payment), and welfare payments are spent - increasing the tax take which reduces the 'money supply' - funnily enough by the amount of the interest payment via the my spending is your income less tax and your income is my spending less tax chain.

and also:
NeilW wrote:
You stated that swapping the earlier credit for either sterling or gilts, expanded the money supply by the same amount. However they don't because 1) the gilts created are later swapped back for existing sterling, hence their initial expanding effect (as addition IOUs) is cancelled but 2) the sterling created does not mature in the same way as the gilts so their initial expansion effect persists.


They are swapped back for *new* reserves, not existing. The previously cancelled reserves are simply reissued (and then later in the day swapped back for Gilts by the DMO cash management process, so the Gilts don't really mature anyway).

So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves? By the way I'm keen on learning about this topic "from the ground up", that is, without trying to dive straight into the deep end by looking at accounts etc. Alternatively, if anyone could recommend a good book on the subject, about how concepts like currency, banks, central banks, reserves and so on evolved that would too be appreciated.

Many thanks,
Matt

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Re: What are reserves?

#393837

Postby ReformedCharacter » March 9th, 2021, 11:11 am

TheMotorcycleBoy wrote:So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves? By the way I'm keen on learning about this topic "from the ground up", that is, without trying to dive straight into the deep end by looking at accounts etc. Alternatively, if anyone could recommend a good book on the subject, about how concepts like currency, banks, central banks, reserves and so on evolved that would too be appreciated.

Many thanks,
Matt


According to Buckminster Fuller: (Critical Path)

'Up until 1500 B.C. all money was cattle, lambs, goats, or pigs—live money that was real life-support wealth, wealth you could actually eat. Steers were by far the biggest food animal, and so they were the highest denomination of money. The Phoenicians carried their cattle with them for trading, but these big creatures proved to be very cumbersome on long voyages. This was the time when Crete was the headquarters of the big-boat people and their new supreme weapon—the lines-of-supply-control ship. Crete was called the Minoan civilization, the bull civilization, worshippers of the male fertility god.'
...

'Graduating from carrying cattle along for trading in 1500 B.C. the Phoenicians invented metal money, which they first formed into iron half-rings that looked like a pair of bull’s horns. (Many today mistake them for bracelets.) Soon the traders found that those in previously unvisited foreign countries had no memory of the cattle-on-board trading days and didn’t recognize the miniature iron bull horn. If metal was being used for trading, then there were other kinds of metal they preferred trading with people—silver, copper, and gold were easy to judge by hefting and were more aesthetically pleasing than the forged iron bull horn symbols.'
...

'This gradual alteration of world trading devices from cattle to gold brought about the world-around development of pirates who, building small but swift craft, could on a dark night board one of the great merchant ships just before it reached home, richly laden after a two-year trip to the Orient, and take over the ship and, above all, its gold.'
...

'If the ship did come back, both the enterpriser and the bankers realized a great gain. The successful ship venturer paid the banker back, and the banker who had been holding the cattle as collateral returned them to their original proprietor. But during the voyage (usually two years to the Orient and back to Europe) the pledged cattle had calves, “kind” (German for “child”), and this is where the concept of interest originated, which was payable “in kind”—the cattle that were born while the collateral was held by the banker were to belong to the banker.

When the Phoenicians shifted their trading strategy from carrying cattle to carrying metal money, the metal money didn’t have little money—”kind”—but the idea of earned interest persisted. This meant that the interest was deducted from the original money value, and this of course depreciated the capital equity of the borrower. Thus, metallic equity banking became a different kind of game from the original concept.'

RC

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Re: What are reserves?

#393848

Postby bluedonkey » March 9th, 2021, 11:44 am

Perhaps a good starting point which links to the modern world is to look at definitions of "money supply". There's more than one!

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Re: What are reserves?

#393885

Postby Urbandreamer » March 9th, 2021, 1:25 pm

TheMotorcycleBoy wrote:So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves?


Tablets? Surely you mean beer.
https://www.sciencealert.com/this-5-000 ... rk-in-beer
About 3300 BC or BCE.

Of course the roman soldiers were paid in salt or paid a salarium.
https://www.npr.org/sections/13.7/2014/ ... 5292516245

Then I think we started using things that don't go off or suffer if they get wet, like metal coins. The state has always been a big employer, principally of soldiers.
Hence what they were paid needed to be stored, in what we call a treasury.

The trouble with, shall we say silver, coins, is that there may be a limited supply of Au (argenti, latin for silver). The term Argent or Silver has to some extent entered the French and English language to mean money.

The solution that I believe Henry VIII came up with was to use siver plated copper. He debased the currency which had his face looking out of it rather than in profile. The silver rubbed from his proud nose leading to the phrase "old copper nose".

The Chinese invented paper money long ago. However it was introduced to Europe a lot more recently than that by John Law.

This was in effect a promise to real argent held in the French central bank. However if the note was in the hands of a shopkeeper, then what was the argent in the bank? Well obviously it was the reserve held to redeam the note.

Of course it all ended badly. There was soon less argent in the French bank than notes in circulation. It was a fractional reserve bank.

We all learned and went back to metal money.

Of course metal money still had it's issues and Isaac Newton (yes him) was put in charge of both minting the stuff and ensuring that it was not counterfiet.

There were problems with the value of the metal being more than the value of the coin. Or more so in some countries than others. Leading to coins being shipped aboad and having to be replaced.

Indeed this problem was so bad that when they struck a gold coin intended to be worth 20 silver pennies or £1 the gold was in fact worth 21 silver pennies. Hence the guinea which was worth £1 and 1 shilling.

About the time of old Isaac the UK government need to borrow. The bank of England was formed to provide that function. Lending to the state at an interest and taking deposits which they paid interest upon.

Roll forward a few years and we form a series of agreements with other countries to cope with the balance of trade and money supply. This greatly reduces the shipping of coins for their metal content. The most recent was the Bretton Woods agreement. We now used the $ for international trade, but it was still backed by gold.

However it didn't change the fact that the money supply and in particular the money that the state could access was limited. The US came off the gold standard ensuring that everyone else had to if international trade (like oil) was to be measured in dollars.

Let us returned to fractional reserve banking like Mr Law's example. This is where the banks can lend more money than they recieve in deposits. They only really need enough money on hand to meet their day to day turnover. In effect they create money by lending funds that they don't have.

The caused serious problems when the French got the Idea from Mr Law. These days government regulates the required banking reserves. In order to do so they split money into different types. M1, M2 and M3.

Hope this is of interest or helpful.

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Re: What are reserves?

#393895

Postby NeilW » March 9th, 2021, 1:57 pm

TheMotorcycleBoy wrote:So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves? By the way I'm keen on learning about this topic "from the ground up", that is, without trying to dive straight into the deep end by looking at accounts etc. Alternatively, if anyone could recommend a good book on the subject, about how concepts like currency, banks, central banks, reserves and so on evolved that would too be appreciated.

Many thanks,
Matt


That has never been how money comes about. It is a complete myth. Money is always a promise, an IOU, and the tokens represent the promise. We retain that today hence "I promise to pay the bearer on demand the sum of X pounds" on the face of every bank note - which is a promissory note.

We trade by making promises to each other, and every one of us knows who we owe and who owes us when are in our small tribal groups. Once those groups got bigger a formal mechanism for recording the debts showed up.

"Here's a chicken, owe me one" is simply more efficient than the alternatives. So that's what rises to the top.

See:

https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

Money

Taxes in the UK started, and functionally remain, on tally sticks - which are claims against taxes to be collected in the future. The 'stock' half changes hands in exchange for goods and services, and it is 'returned' to the Exchequer eventually to be matched with the 'counterfoil' half of the stick that was retained when the tally stick was split.

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Re: What are reserves?

#393916

Postby TheMotorcycleBoy » March 9th, 2021, 3:30 pm

Thanks for all these replies, people. I'm pretty busy at the day-job right now, but I'm starting to slowly parse this lot.

Urbandreamer wrote:This was in effect a promise to real argent held in the French central bank. However if the note was in the hands of a shopkeeper, then what was the argent in the bank? Well obviously it was the reserve held to redeam the note.

Of course it all ended badly. There was soon less argent in the French bank than notes in circulation. It was a fractional reserve bank.

I must admit that's where I thought the term reserves came from. i.e. in the times before fiat currency, it was necessary to have a tangible asset to "back up" the notes/coins etc.

NeilW wrote:
TheMotorcycleBoy wrote:So working from first principles....


That has never been how money comes about. It is a complete myth. Money is always a promise, an IOU, and the tokens represent the promise. We retain that today hence "I promise to pay the bearer on demand the sum of X pounds" on the face of every bank note - which is a promissory note.

We trade by making promises to each other, and every one of us knows who we owe and who owes us when are in our small tribal groups. Once those groups got bigger a formal mechanism for recording the debts showed up.

"Here's a chicken, owe me one" is simply more efficient than the alternatives. So that's what rises to the top.

See:

https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

Money

Taxes in the UK started, and functionally remain, on tally sticks - which are claims against taxes to be collected in the future. The 'stock' half changes hands in exchange for goods and services, and it is 'returned' to the Exchequer eventually to be matched with the 'counterfoil' half of the stick that was retained when the tally stick was split.

Thanks will try to read the Money PDF later on.

Incidently I followed the Debt:The First 5000 years link that Neil just shared. We actually have that book already! My Dad bought it round the other year...but I've still not read it :( Has anyone here read it? Will it explain the kind of concepts that this thread is about i.e. the notion of reserves in the banking system, in earlier times and current day?

I was just wondering, as it's my birthday soon and my family know that I'm a book worm so they pester me for ideas about what books to buy me...but if the "Debt:The First 5000 years" is all I need for an initial enquiry then it would be pointless to refer them to any others in this vein!

thanks again,
Matt

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Re: What are reserves?

#394276

Postby TheMotorcycleBoy » March 10th, 2021, 1:32 pm

I've started reading this
http://www.levyinstitute.org/pubs/wp_647.pdf

A few notes so far, page 2:

The typical orthodox story of money’s origins is too well-known to require much reflection: because of the inefficiencies of barter, traders choose one particular commodity to serve as the money numeraire (Innes 1913; Wray 1998; Ingham 2000). A hypothetical evolutionary process runs through the discovery of a money multiplier (notes issued on the basis of reserves of the money commodity) to

I assume that reserves in the above case would be gold.

The author is already starting to contradict themselves, and confuse the reader, page 3:

Since the market and commodity production analytically precede money, money is not essential, although it plays a lubricating role.

Surely that contradicts the opening premise?

(1) As R. W. Clower (1965) famously put it, money buys goods and goods buy money, but goods do not buy goods.


IOW if "money is not essential", but "goods do not buy goods", then how did people legimately "get stuff that others possessed first?". If goods can't buy goods then it must be impossible, since there is a logical connection in the meaning of "buy", "swap", "exchange" according to online dictionaries/thesauruses.

I'll keep reading however while I wait for work tasks to complete.

Matt

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Re: What are reserves?

#394282

Postby TheMotorcycleBoy » March 10th, 2021, 1:55 pm

Perhaps I'm being pedantic. But he/she should be less melodramatic.

I still exchange work and chainsaw parts for firewood when I do my hobby job of mending the local tree surgery outfits' power tools!

I use "goods to buy goods" in that above instance. They should have stated that "goods aren't always interchangeable", IMHO.

Matt

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Re: What are reserves?

#394414

Postby TheMotorcycleBoy » March 10th, 2021, 8:49 pm

Actually I'm now up to page 14, and after ditching the pedantry, I'm a lot c!earer. The bits about IOUs and tax helped make the penny, pardoning the pun, drop.

http://www.levyinstitute.org/pubs/wp_647.pdf

I used some of t account things to sketch stuff out and it seems clearer, may attach an image of my sketches if I can get the time.

Matt

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Re: What are reserves?

#394428

Postby AsleepInYorkshire » March 10th, 2021, 9:36 pm

bluedonkey wrote:Perhaps a good starting point which links to the modern world is to look at definitions of "money supply". There's more than one!

M2

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Re: What are reserves?

#394561

Postby 1nvest » March 11th, 2021, 11:33 am

Part of UK reserves are the 310 tonnes of gold the BoE stores.

In large parts of India the banking system is distant and gold is often held/traded. Gold lending is popular where you can quite easily secure a loan for around 70% of the spot gold price of the amount of gold you offer, with flexible repayment methods such as paying back both interest and capital on a monthly basis, or just the interest on a monthly basis and repay the capital at the end date, or even not paying anything until the end date and only then pay the capital and interest .... before getting your gold back. Typical interest rate 0.75%/month, around 10%/year. The borrowed Rupee can then be spend/used where otherwise exchanging for gold might not otherwise be accepted.

Great for both parties if gold is rising in price. But that's not always the case. Property/land is also the other main saving/investment asset, which is similar to stocks, home price + imputed rent, the rent you'd otherwise have to find/pay, broadly compares to share price + dividends. 50/50 of both can be more stable/consistent and provide reasonable rewards.

In that context gold is a reserve. Perhaps swapping a ounce or two for the month as a form of 'pay day loan' where you get your gold back at the end of the month long period when it then becomes available again for another swap at a later date as/when the need might arise.

The BoE's gold reserves are called upon much less frequently, more a case of a extreme event insurance such a the Pound massively collapsing and other reserves such as US$'s having all been deployed, or where extreme rises in the price of gold may make it more appropriate to use that instead of reserves of currencies. I believe in bygone times London stored gold reserves for many countries and periodically had gold bars moved from one cage (country) to another in reflection of trade surpluses/deficits.

When on the gold standard money and gold were exchangeable at a fixed rate, so generally it made more sense to hold money deposited and earning interest, as that way at year end you'd in effect own more ounces of gold. Returning to India and gold lending provides a alternative means to 'own gold'. If you borrow someone else's gold and they pay you interest on top, then even though that's just lent gold you can maintain your overall preferred exposure to gold using that along with long/short gold exposure adjustments to align to your overall desired level of gold exposure at any one time. If fully covered by 'borrowed gold' that is also paying 10%/year, and the price of gold broadly offsets inflation, then great. But as gold zigzags around a lot its better partnered with another asset that tends to zag as gold zigs and vice-versa - such as 'equities' (home or stocks).

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Re: What are reserves?

#394902

Postby Charlottesquare » March 12th, 2021, 12:58 pm

Urbandreamer wrote:
TheMotorcycleBoy wrote:So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves?


Tablets? Surely you mean beer.
https://www.sciencealert.com/this-5-000 ... rk-in-beer
About 3300 BC or BCE.

Of course the roman soldiers were paid in salt or paid a salarium.
https://www.npr.org/sections/13.7/2014/ ... 5292516245

Then I think we started using things that don't go off or suffer if they get wet, like metal coins. The state has always been a big employer, principally of soldiers.
Hence what they were paid needed to be stored, in what we call a treasury.

The trouble with, shall we say silver, coins, is that there may be a limited supply of Au (argenti, latin for silver). The term Argent or Silver has to some extent entered the French and English language to mean money.

The solution that I believe Henry VIII came up with was to use siver plated copper. He debased the currency which had his face looking out of it rather than in profile. The silver rubbed from his proud nose leading to the phrase "old copper nose".

The Chinese invented paper money long ago. However it was introduced to Europe a lot more recently than that by John Law.

This was in effect a promise to real argent held in the French central bank. However if the note was in the hands of a shopkeeper, then what was the argent in the bank? Well obviously it was the reserve held to redeam the note.

Of course it all ended badly. There was soon less argent in the French bank than notes in circulation. It was a fractional reserve bank.

We all learned and went back to metal money.

Of course metal money still had it's issues and Isaac Newton (yes him) was put in charge of both minting the stuff and ensuring that it was not counterfiet.

There were problems with the value of the metal being more than the value of the coin. Or more so in some countries than others. Leading to coins being shipped aboad and having to be replaced.

Indeed this problem was so bad that when they struck a gold coin intended to be worth 20 silver pennies or £1 the gold was in fact worth 21 silver pennies. Hence the guinea which was worth £1 and 1 shilling.

About the time of old Isaac the UK government need to borrow. The bank of England was formed to provide that function. Lending to the state at an interest and taking deposits which they paid interest upon.

Roll forward a few years and we form a series of agreements with other countries to cope with the balance of trade and money supply. This greatly reduces the shipping of coins for their metal content. The most recent was the Bretton Woods agreement. We now used the $ for international trade, but it was still backed by gold.

However it didn't change the fact that the money supply and in particular the money that the state could access was limited. The US came off the gold standard ensuring that everyone else had to if international trade (like oil) was to be measured in dollars.

Let us returned to fractional reserve banking like Mr Law's example. This is where the banks can lend more money than they recieve in deposits. They only really need enough money on hand to meet their day to day turnover. In effect they create money by lending funds that they don't have.

The caused serious problems when the French got the Idea from Mr Law. These days government regulates the required banking reserves. In order to do so they split money into different types. M1, M2 and M3.

Hope this is of interest or helpful.


You forgot little M0, the smallest of the money family :D

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Re: What are reserves?

#396481

Postby NeilW » March 17th, 2021, 4:48 pm

TheMotorcycleBoy wrote:I still exchange work and chainsaw parts for firewood when I do my hobby job of mending the local tree surgery outfits' power tools!

I use "goods to buy goods" in that above instance. They should have stated that "goods aren't always interchangeable", IMHO.


You don't. What you do is you build up a debt in tree surgery promises (which is a 'money thing'), which the tree surgeon buys back by exchange with firewood. That's because you do the work asynchronously from the tree surgeon doing theirs

In accounting terms that's called 'Work in Progress'. You'd know you have that debt if you had to go to court because the tree surgeon defaulted on their firewood settlement. And you could sell that debt to a debt collector - for firewood if the debt collector had any.

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Re: What are reserves?

#396486

Postby todthedog » March 17th, 2021, 5:07 pm

'The deficit myth' by Prof Stephanie Kelton about MMT is a fascinating read.

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Re: What are reserves?

#396601

Postby Bubblesofearth » March 18th, 2021, 7:36 am

NeilW wrote:
You don't. What you do is you build up a debt in tree surgery promises (which is a 'money thing'), which the tree surgeon buys back by exchange with firewood. That's because you do the work asynchronously from the tree surgeon doing theirs

In accounting terms that's called 'Work in Progress'. You'd know you have that debt if you had to go to court because the tree surgeon defaulted on their firewood settlement. And you could sell that debt to a debt collector - for firewood if the debt collector had any.


I've swapped 'stuff' loads of times without any temporal delay. Even in primary school I remember swapping items from my lunchbox with other kids. Nowadays I'll swap golf-related stuff with other golfers. I've got too many balls, they've got a spare umbrella was a recent example.

Unless you count the fractions of a second that it takes between hand-overs to imply debt. But that really does start to look like a person with a hammer.

BoE

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Re: What are reserves?

#396654

Postby Bubblesofearth » March 18th, 2021, 9:58 am

Snorvey wrote:Bloomberg, today

Stephanie Kelton on How MMT Won the Fiscal Policy Debate

(I think you get a number of free Bloomberg articles per month, otherwise yu can normally find it via a Google search)

https://www.bloomberg.com/news/articles ... ium-europe


I don't know a great deal about MMT but it looks to me a move to giving Government more control and therefore accountability over currency. In theory it looks a good idea but my concern would be that in practice it relies even more on sound policies than the current Keynsian system. I'm not convinced Governments, always wanting to be re-elected, are going to do enough (e.g. with tax rises) to prevent inflation running away.

I've been slowly increasing my gold holding recently. Mostly using dives to buy the occasional sovereign.

BoE

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Re: What are reserves?

#396806

Postby todthedog » March 18th, 2021, 4:06 pm

Thanks for the link Snorvey my thanks button has vanished :D

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Re: What are reserves?

#397193

Postby GoSeigen » March 19th, 2021, 5:47 pm

Snorvey wrote:
todthedog wrote:Thanks for the link Snorvey my thanks button has vanished :D


No worries :-)

From the BBC today :o

Ordinary households rightly fear getting into too much debt because if interest rates rise, lenders can close in and deploy lawyers and bailiffs with all the attendant unpleasantness.

But it is profoundly wrong and misleading to infer that it's like that for governments who issue their own sovereign currency.

Unlike households, governments controlling their own currency can borrow without limit money that they have freshly created.

They therefore can't go bankrupt. Because almost all of the money borrowed by the government in this financial year (by issuing gilts) will be owed to another public sector body, the Bank of England, it's nothing like a household borrowing from a bank.

And in fact, as the government tacitly acknowledged in its recent Budget, it makes sense in the midst of an economic contraction for the government to spend more, not less - not least because other parts of the economy (households and businesses) aren't spending anything like what they normally would.

Without the additional government spending the economic contraction would, without a shadow of a doubt, be worse.


https://www.bbc.co.uk/news/business-56453869

Basically, we owe ourselves the money and Governments who issue their own currency cannot go bankrupt and, that being the case, don't need to raise taxes before they can spend.....whoodathunkiteh?


Andy Verity's analysis is nonsense. He says

"Because almost all of the money [sic] borrowed by the government in this financial year (by issuing gilts) will be owed to another public sector body, the Bank of England [...]"

but this is not even true. The BoE has issued a huge amount of money to fund its purchases of those gilts and it will be obliged to pay interest on that money. So the NPV of that obligation is quite clearly not zero.

GS

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Re: What are reserves?

#397604

Postby GoSeigen » March 21st, 2021, 10:34 am

Snorvey wrote:From the BBC

However, what's happening now is not much different. As the Financial Times has noted, of the money being borrowed by the government this financial year by issuing gilts - a sort of IOU note also known as a government bond - 92.7% of it will be owed to the Bank of England.'

Paying interest to ourselves really. It's just a charade.


Wrong again. The interest on the issued money will have to be paid to private investors.

GS

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Re: What are reserves?

#397677

Postby TheMotorcycleBoy » March 21st, 2021, 4:06 pm

Sorry, I've not really contributed here for ages ppl. Day job work, family life and DIY have been frantic of late. I did process all of this "money" link that Neil linked a while back and have also been reading Keynes's "The General Theory of..." which is pretty damn mind-blowing, IMHO.

NeilW wrote:Money

Taxes in the UK started, and functionally remain, on tally sticks - which are claims against taxes to be collected in the future. The 'stock' half changes hands in exchange for goods and services, and it is 'returned' to the Exchequer eventually to be matched with the 'counterfoil' half of the stick that was retained when the tally stick was split.

Anyway going back to me trying to figure WTH money and banks and taxes are I zeroed in on this from the above link:

However, the financial institution is not simply an uninterested scorekeeper. The “scores” on its balance sheet are liabilities—its IOUs are the points credited to players. We will have much more to say about the role played by financial institutions in the next section. Here we only want to focus on the “dual” debt nature of the money “scores.” First, as discussed above, production must begin with money, and that money is a “score” that represents an IOU. Typically, it is a demand deposit liability of a bank. It is matched on the other side of the bank’s balance sheet by a loan, which represents the debt of the borrower in whose name the bank’s IOU is issued....
I then embarked on sketching out how I conceived this *could actually have happened* with an earlier High Street bank and an Entrepreneur. I figured that firstly they swap IOUs. The most tangible being the Entrepreneurs access to cash (his asset) in a bank account (banks liability). I then decided to try my hand at T-accounts:

Image
As shown in the above the arrangement results in an asset and liability for both the Bank and the Entrepreneur. Then a central bank comes into existing and a similar arrangement occurs where the the CB and HSB swap IOUs, as follows:
Image

More to come in next post, splitting into 2, so as not to fill too much screen, in a single post.

Matt


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