Does raising base rates really reduce inflation?

[servodude]

There are now 20 milion more people in this country than there would be without the immigration of the last 30 years. In 20 years time there will be 100 million people in the UK.

There will not be enough detached or semi detached houses for them all to own. There will not be enough lucrative non jobs for them all.

Without proper strategic thinking there wil be shantytowns around most major cities. But I predict that once again "equality signalling" will defeat fairness.

A strong psychopathic dictator is then usually elected to safeguard the assets of the nobility or a new nobility.

You've got to really figure that old people can't keep living progressively longer in the way they have though

[Mike4]

Without proper strategic thinking there wil be shantytowns around most major cities.

This is already happening in a way.

The canals in London used to be sparsely populated with live-aboard boats but now they are rammed full with boats often moored two and three abreast.

Once you get your eye in, you can spot large numbers of live-aboard white vans too. The giveaway is the small chimney in the roof and sometimes a single glass porthole window in the side. This is in addition to the more obvious motorhome live-aboards one sees around.

And I gather (but haven't seen any yet) there is a burgeoning trend in renting out larger garden sheds in back gardens.

[ReformedCharacter]

Without proper strategic thinking there wil be shantytowns around most major cities. But I predict that once again "equality signalling" will defeat fairness.

This is happening in Bristol, where I grew up, in the form of van dwellers:



Durdham Down, Clifton, Bristol.

People living in vans on the Downs are resisting a bid to have their homes outlawed.

Two communities – residents and vehicle dwellers – are at loggerheads over the right to park permanently at the beauty spot.

Neighbours are demanding a ban on those who lead the alternative lifestyle – either out of choice or because of the housing crisis – from camping overnight on the roadside, making the area a “no-go zone” and using it as a “latrine”.

https://www.bristolpost.co.uk/news/bristol-news/residents-van-dwellers-clifton-down-4715645

RC

[CliffEdge]

Without proper strategic thinking there wil be shantytowns around most major cities. But I predict that once again "equality signalling" will defeat fairness.

This is happening in Bristol, where I grew up, in the form of van dwellers:



Durdham Down, Clifton, Bristol.

People living in vans on the Downs are resisting a bid to have their homes outlawed.

Two communities – residents and vehicle dwellers – are at loggerheads over the right to park permanently at the beauty spot.

Neighbours are demanding a ban on those who lead the alternative lifestyle – either out of choice or because of the housing crisis – from camping overnight on the roadside, making the area a “no-go zone” and using it as a “latrine”.

https://www.bristolpost.co.uk/news/bristol-news/residents-van-dwellers-clifton-down-4715645

RC

There is clearly a need for many properly managed camper van and caravan sites. Not everyone can afford to buy a house. Provision of economical people containers should be a strategic priority.

[Mike4]

There is clearly a need for many properly managed camper van and caravan sites. Not everyone can afford to buy a house. Provision of economical people containers should be a strategic priority.

Very droll.

I predict campervan and motor home sites all all specifically exclude liveaboards.

Besides, why pay fifty quid a night when you can park in a layby for nothing?

[GoSeigen]

Question - how does fiscal policy curb inflation, if the tax money raised is then spent within the economy?

You're assuming tax pays for stuff. It doesn't

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

[Tedx]

Question - how does fiscal policy curb inflation, if the tax money raised is then spent within the economy?

You're assuming tax pays for stuff. It doesn't

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

Disagree on the first point, agree on the second. Hey-ho!

[TheMotorcycleBoy]

Question - how does fiscal policy curb inflation, if the tax money raised is then spent within the economy?

You're assuming tax pays for stuff. It doesn't

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

What's the precise mechanics of that?

Is it effectively that Government in the guise of the "Treasury" basically have a bank account with the BoE?

And if, for example the balance of their account is -£100B, (i.e. £100B overdrawn) and then they receive £25B in tax, does the value in their account at the BoE then become -£75B if they use all the tax revenue to pay their debt?

Sorry to sound stupid.... but is that the fundamentals of how it works?

thanks Matt

[Tedx]

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

What's the precise mechanics of that?

Is it effectively that Government in the guise of the "Treasury" basically have a bank account with the BoE?

And if, for example the balance of their account is -£100B, (i.e. £100B overdrawn) and then they receive £25B in tax, does the value in their account at the BoE then become -£75B if they use all the tax revenue to pay their debt?

Sorry to sound stupid.... but is that the fundamentals of how it works?

thanks Matt

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

Explains it better than I could.

[Nimrod103]

Question - how does fiscal policy curb inflation, if the tax money raised is then spent within the economy?

You're assuming tax pays for stuff. It doesn't

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

Interesting point about moving cash to give to people who want to save. Those savers are forced to spend some of the money they want to save. The interest on their cash savings (almost) always falls behind the depreciation of the value of the currency, and any interest is taxed at their marginal rate. Hence for every £100 a saver tries to save, perhaps 5%/year goes directly back to the Govt.

[GoSeigen]

Er, yes it does except in the most pedantic sense.

To answer the question, taxation could drain liquidity for example by removing cash from people who want to spend to those who want to save (so it sits idle), or by using it to repay debt.

GS

What's the precise mechanics of that?

Is it effectively that Government in the guise of the "Treasury" basically have a bank account with the BoE?

And if, for example the balance of their account is -£100B, (i.e. £100B overdrawn) and then they receive £25B in tax, does the value in their account at the BoE then become -£75B if they use all the tax revenue to pay their debt?

Sorry to sound stupid.... but is that the fundamentals of how it works?

thanks Matt

I question whether anything written by Richard Murphy could adequately explain...

Actually I can't explain the debt example myself and doubt whether it's even a good example. But I'll come back later on that when I've had a think. Just to say the point was not about the precise examples but that fiscal activity can affect inflation, how couldn't it? The government is active in the economy and its activities vary: it could be purchasing large amounts of equipment, it could be raising public sector wages, it could be redistributing monetary balances among the private sector via tax and welfare and all of these will have some effect on inflation.

Now the role of the Bank of England is to a large extent to accommodate what the exchequer chooses to do by taking necessary action to neutralise its effect on money/inflation and ensure monetary stability. I certainly don't deny that this is a primary monetary function but I think it can be pointed out that fiscal policy can make this job easier or harder, but also that fiscal policies can be mistaken in their conception and simultaneously threaten monetary stability. Which is probably heretical to monetarism -- while the actual outcome of following monetarist orthodoxy is not looking too clever in the UK at the moment.

GS

[CliffEdge]

There is clearly a need for many properly managed camper van and caravan sites. Not everyone can afford to buy a house. Provision of economical people containers should be a strategic priority.

Very droll.

I predict campervan and motor home sites all all specifically exclude liveaboards.

Besides, why pay fifty quid a night when you can park in a layby for nothing?

Are you talking about staycationers?
I wasn't talking about staycationers but I'll leave it there as you obviously aren't concerned about where poor people are going to live in the future. I was talking about publicly owned, constructed and managed sites of decent but cheap to build (caravans, pre fabs I don't know I'm not well up on this) where poor people can live with security.
Not privately owned camp sites where rich people go glamping and frolicking among the glades.

[servodude]

What's the precise mechanics of that?

Is it effectively that Government in the guise of the "Treasury" basically have a bank account with the BoE?

And if, for example the balance of their account is -£100B, (i.e. £100B overdrawn) and then they receive £25B in tax, does the value in their account at the BoE then become -£75B if they use all the tax revenue to pay their debt?

Sorry to sound stupid.... but is that the fundamentals of how it works?

thanks Matt

I question whether anything written by Richard Murphy could adequately explain...

Actually I can't explain the debt example myself and doubt whether it's even a good example. But I'll come back later on that when I've had a think. Just to say the point was not about the precise examples but that fiscal activity can affect inflation, how couldn't it? The government is active in the economy and its activities vary: it could be purchasing large amounts of equipment, it could be raising public sector wages, it could be redistributing monetary balances among the private sector via tax and welfare and all of these will have some effect on inflation.

Now the role of the Bank of England is to a large extent to accommodate what the exchequer chooses to do by taking necessary action to neutralise its effect on money/inflation and ensure monetary stability. I certainly don't deny that this is a primary monetary function but I think it can be pointed out that fiscal policy can make this job easier or harder, but also that fiscal policies can be mistaken in their conception and simultaneously threaten monetary stability. Which is probably heretical to monetarism -- while the actual outcome of following monetarist orthodoxy is not looking too clever in the UK at the moment.

GS

Can I just say that I'm enjoying this chat between the two of you & I hope that the noise on this thread doesn't get in the way.

[GoSeigen]

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

Explains it better than I could.

The way the article describes this is just silly.

"For example, I suspect that 98% of people think that tax pays for government services, but it doesn't.

Not one penny of the tax paid in the UK to our government in Westminster is used to pay for government spending.

Instead, every single penny that the UK government spends is paid for with money that the government borrows all day and every day from the Bank of England, which is the bank that it owns. The government can spend whatever it likes because it has that bank. "

Well the dude is trying to reframe the argument which is a nice thing to do and helpful in enabling a person to analyse a situation in different ways, but the problem here is the description doesn't alter the reality. It's like someone deciding to describe a picture to a blind person from right to left instead of left to right. The description and maybe even the emotional impact is quite different but the picture is still the same.

What Murphy fails to make clear is that this is a notional division into fiscal branch and monetary branch of the government. He makes much of the idea that the government can simply borrow as much as it wants from its bank because it owns it, but completely fails to point out that each pound of "money" borrowed creates an obligation of the Bank and since as he says the government owns the bank it is actually ultimately the government's obligation. So the government is NOT borrowing from its own bank it is borrowing from its counterparties which are the very people it uses those funds to pay for what it spends (in aggregate terms: i.e. private sector vs public sector).

[EDIT: and we see a wonderful illustration of this now, where the market is demanding a meaningful rate of interest be paid on those perpetual obligations.]

Murphy and his MMT ilk are masters of sophistry, so much so that in many cases they have fooled themselves.

The idea that the government can spend what it likes is nonsense. "Oh but inflation, so that's why the government taxes". YOU DON'T SAY!! The people from whom the government ultimately borrows demand (when in their right minds) that the government is demonstrably ably to service its borrowings in a stable currency. Government spending is in fact limited by this constraint. Sure governments can ignore that for a while but in the end they will be found out.

To make a bald claim that the government can spend as much as it likes because it has a bank of its own is really the epitome of deception.

GS

[GoSeigen]

Can I just say that I'm enjoying this chat between the two of you & I hope that the noise on this thread doesn't get in the way.

Oh my god, now you've created an audience and I can feel myself getting nervous!

As I crawl into my hole I'll diminish myself by saying I am not an expert or economist of any sort, all from my own reading and experience of the markets. Caveat emptor!

GS

[TheMotorcycleBoy]

What's the precise mechanics of that?

Is it effectively that Government in the guise of the "Treasury" basically have a bank account with the BoE?

And if, for example the balance of their account is -£100B, (i.e. £100B overdrawn) and then they receive £25B in tax, does the value in their account at the BoE then become -£75B if they use all the tax revenue to pay their debt?

Sorry to sound stupid.... but is that the fundamentals of how it works?

thanks Matt

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

Explains it better than I could.

Thanks. Quite an interesting read.

I couldn't quite get my head around this one however:

Second, a government taxes people because it wants us to use the money that it creates in our routine transactions in the economy. We do that if we have to pay significant amounts of tax to pay because we cannot afford to take the risk of doing anything else when tax has by law to be paid by law using the currency government creates. As a result, the government gets control of money in our macro economy, and as a result gets quite a lot of control of that economy, which is exactly what it wants.

Matt

[servodude]

Can I just say that I'm enjoying this chat between the two of you & I hope that the noise on this thread doesn't get in the way.

Oh my god, now you've created an audience and I can feel myself getting nervous!

As I crawl into my hole I'll diminish myself by saying I am not an expert or economist of any sort, all from my own reading and experience of the markets. Caveat emptor!

GS

By the power of Grayskull!?? it's just nice to see a bit of discussion beyond the blind acceptance of the party orthodox
- the old "someone told me once" so it must be true
There's so much nuance in how stuff actually works and from my own thinking the interest rate as the ONLY tool might have worked on a month to month basis when the majority of folk who had mortgages felt the effect every month
- now there's a lot of pent up hidden potential in the system

[XFool]

Not privately owned camp sites where rich people go glamping and frolicking among the glades.

"glamping and frolicking among the glades" gets my vote for 'Phrase of the Month'.

[XFool]

Murphy and his MMT ilk are masters of sophistry, so much so that in many cases they have fooled themselves.

The idea that the government can spend what it likes is nonsense. "Oh but inflation, so that's why the government taxes". YOU DON'T SAY!! The people from whom the government ultimately borrows demand (when in their right minds) that the government is demonstrably ably to service its borrowings in a stable currency. Government spending is in fact limited by this constraint. Sure governments can ignore that for a while but in the end they will be found out.

I don't read Murphy as NOT saying that too. His emphasis is different, but he seems to be to be implying/saying that inflation - a BAD thing - is the ultimate limiting factor.

To make a bald claim that the government can spend as much as it likes because it has a bank of its own is really the epitome of deception.

But who is making that claim? I feel he is making a point that it is a matter of real political choice what the government spends its money on.

[GoSeigen]

There's so much nuance in how stuff actually works and from my own thinking the interest rate as the ONLY tool might have worked on a month to month basis when the majority of folk who had mortgages felt the effect every month
- now there's a lot of pent up hidden potential in the system

Indeed. Lurking behind this discussion is the "zero bound" which Krugman wrote about extensively. It was a real problem monetarily because you cannot have negative rates (to effect a purely monetary policy) on cash and cash substitutes (cryptos anyone?). So the Friedmanite tool of simply lowering rates to stimulate demand wasn't available. This is ultimately what prompted a return to governments (r. central banks) expanding the money supply. Keynes said that Governments should spend/invest in those circumstances. The Obama administration took that onboard, the UK government did not, they were urged on by their aged electorate who still remembered and feared inflation (this is in the years leading to 2010) and wanted them to fight the same battle as their hero Thatcher did in the 1980s -- reduce the size of government (never mind that it was diminished already), reduce borrowing (never mind that it was sitting at generational lows), incentivise capital (never mind that it was already dominant). So you get a decade of government doing exactly the wrong thing and the monetary branch trying to cope with that AND the threat of deflation.

Is it any surprise that against that backdrop and the distractions of Scottish referendums (you must not leave a union), endless Brexit (we must leave a union, f£ck b£siness) and COVID (we found the magic money tree!) most people lost the habit of looking both ways?

There's a lot of important stuff that has simply been overlooked, left on the back-burner or just done wrong.


Having said all that, the pound is still worth a silly amount and UK shares on the floor, so I think there's an opportunity for investors.

GS