printing money

[Bubblesofearth]

Printing money won't achieve that.

If the money is given (not loaned) where needed then of course it will. Businesses normally service their operating costs from income received from sale of goods or services. If those sales dry up but those costs are covered by e.g. HMG then they will not be driven further into debt.

If this is treated purely as a liquidity problem and loans offered then, if the shut down is protracted, many businesses will be insolvent. They will have a debt burden too great to reasonably expect to service. Remember, many businesses are already highly leveraged and close to the wire when it comes to profitability.

BoE

[ursaminortaur]

What would happen if rather than money printing all debt payments were suspended ? Like a mortgage holiday but for all debt?

The creditors who use the income from those payments for their own spending or that of their business would be forced to borrow increasing their own debt. (Also since the lenders of that money would know that they wouldn't be paid for sometime they would probably demand a much higher rate of interest on that new debt for when repayments eventually re-started).

[dealtn]

Printing money won't achieve that.

If the money is given (not loaned) where needed then of course it will. Businesses normally service their operating costs from income received from sale of goods or services. If those sales dry up but those costs are covered by e.g. HMG then they will not be driven further into debt.

If this is treated purely as a liquidity problem and loans offered then, if the shut down is protracted, many businesses will be insolvent. They will have a debt burden too great to reasonably expect to service. Remember, many businesses are already highly leveraged and close to the wire when it comes to profitability.

BoE

My point is not that money doesn't need to be used in that way by government, but it doesn't have to be "printed" to achieve that. Whether money is "printed" or otherwise "created" or simple borrowed by the government either through issuance, or against future taxation generally, is a different matter to what and how that money is used.

[GoSeigen]

A contraction in both supply and demand, and both due to non-economic factors that can't be fixed by money printing or lower rates.

It's not about stimulating demand during the crisis, it's about trying to prevent insolvency so that businesses survive the crisis.

That's an anti-business proposition. As a businessman, in a crisis I want my weakest competitors to fail. Why should I have to pay to keep them taking business from me though they are unviable, and threatening my suppliers by trading whilst insolvent?


GS

[Itsallaguess]

As a businessman, in a crisis I want my weakest competitors to fail.

Why should I have to pay to keep them taking business from me though they are unviable, and threatening my suppliers by trading whilst insolvent?

In every crisis?

Even the one the planet is currently experiencing?

Under normal capitalist conditions, I'd of course agree with your proposal, but these clearly aren't normal conditions, and if global governments took your view then we'd be in real trouble, unable to distinguish viable companies from unviable ones at this current time...

The majority of global governments get this, and are acting accordingly, and I'm grateful that they are. The business and social costs of not taking this approach are really quite cataclysmic, in my opinion...

If the price for the current approach is that a number of 'normally unviable' businesses are propped up for a time longer than would naturally occur, and their day of reckoning is put off for a time whilst we collectively deal with this pandemic, then I certainly see that as a price worth paying when we consider the alternative situation should we not be delivering the support packages that we are.

I'm sorry GS, but it's not nice to see the ugly face of capitalism, and especially during these critical times...

Cheers,

Itsallaguess

[GoSeigen]

I'm sorry GS, but it's not nice to see the ugly face of capitalism, and especially during these critical times...

And I think it's not nice to see the ugly face of communism (or national socialism, not much difference) in a crisis, but hey, the cry of "crisis!" justifies any sort of behaviour by our governments, right?


Any thoughts on how I can be reunited with my son, who is banned from travelling to be with us (and vice versa). And how would you suggest I deal with the staff I have to lay off because all our clients have cancelled their bookings? Should I just take a hand-out from the government (if they deign to give us one) and act as if nothing changed?


GS

[Itsallaguess]

I'm sorry GS, but it's not nice to see the ugly face of capitalism, and especially during these critical times...

And I think it's not nice to see the ugly face of communism (or national socialism, not much difference) in a crisis, but hey, the cry of "crisis!" justifies any sort of behaviour by our governments, right?

In this particular instance, then yes, I do think it's right...

And how would you suggest I deal with the staff I have to lay off because all our clients have cancelled their bookings?

Should I just take a hand-out from the government (if they deign to give us one) and act as if nothing changed?

Would your strong principles on this matter prevent you from taking up such hand-outs if they were offered GS?

If so, would you be holding a team meeting to discuss this with your staff?

Far be it from me to give any advice here, but it might be worth getting some 'Dangers of communism' posters printed first, as I'd imagine there may be a bit of a background din whilst you're trying to verbally explain your principled views on the matter...

Cheers,

Itsallaguess

[GoSeigen]

Would your strong principles on this matter prevent you from taking up such hand-outs if they were offered GS?

Jeez given a proper choice, without a second's hesitation! I will not just accept the enforced separation of my family in exchange for a kickback to soften the blow. The two are linked, and I deeply resent it at this moment.


I guess you fall squarely into the subset of people most vulnerable to this virus. Your words no doubt arise from a sense of self-preservation. I pity you but will fight for the well-being of those younger and less able to throw their weight around.


GS

[Itsallaguess]

Would your strong principles on this matter prevent you from taking up such hand-outs if they were offered GS?

Jeez given a proper choice, without a second's hesitation!

I will not just accept the enforced separation of my family in exchange for a kickback to soften the blow.

The two are linked, and I deeply resent it at this moment.

Whilst it's a desperate shame that some diverse family groups will find it impossible to travel and see each other at the moment GS, surely you can see that much of the current issue has been highly exacerbated by the international travel of unknowing virus carriers?

In addition to that, I can't agree that government responses for business support are any kind of 'kickback to soften the blow' of such travel-restrictions. The issues are linked by a single virus, yes, but that's as far as that link goes in my opinion...

I guess you fall squarely into the subset of people most vulnerable to this virus.

Your words no doubt arise from a sense of self-preservation.

I pity you but will fight for the well-being of those younger and less able to throw their weight around.

I'm not too sure how you jump to that conclusion, although I do think it's interesting that you might think someone that's defending the very widespread support for global jobs and businesses must be in some sort of high-risk category themselves, and be taking a position on this subject purely from a sense of 'self preservation'...

In all honesty I expect to be able to continue working throughout, and additionally would perhaps consider myself relatively 'low risk' in terms of the virus itself, especially when viewed in the context of the demographics known to be worst affected by it, but I'm really not sure why those situations should then stop me wanting to take a much broader view on the matter when it comes to what I think is the correct response from governments when they look to both clamp down heavily on non-essential social contact during this outbreak, and at the same time protect jobs, livelihoods, and businesses from the worst effects of those forced clamp-downs...

I don't often agree with much that Sturgeon has to say in recent times, but having just listened to her news conference in Edinburgh, she said that 'life should not feel normal now', and if it did, then we should look to make further restrictive changes, as if that is the case, we're clearly not going far enough as individuals to help the wider, collective effort to stop the spread of this deadly virus at it's current rate...

No-one is going to be immune from those restrictions, and some will pay a heavier personal price than others, but collectively it must be a price we're willing to pay to get through this, and to think it can somehow be easier than that seems to show a gross misunderstanding of the seriousness of the situation, in my view...

Italy are ahead of the curve here GS, and *someone died in Italy every two minutes yesterday* due to this virus, and all other countries are trying their hardest to avoid playing 'catch-up' to those sorts of figures - and by the way, the Italy figures are likely to get worse before they get better...

Cheers,

Itsallaguess

[gryffron]

So here's the point GS.

Suppose our govt lets all our businesses go broke and collapse, whilst Germany, France, China & Japan prop up theirs with govt debt. Who do you think would be more prosperous at the end of all this?

IMO: Govt support is a price worth paying in order to remain nationally competitive over the next decade.

Of course, this assumes governments can actually wean industry OFF of govt support within a year or two. I suspect that might be MUCH more difficult than introducing it. And some/many more left leaning governments than ours might find it VERY difficult indeed.

Gryff

[Bubblesofearth]

My point is not that money doesn't need to be used in that way by government, but it doesn't have to be "printed" to achieve that. Whether money is "printed" or otherwise "created" or simple borrowed by the government either through issuance, or against future taxation generally, is a different matter to what and how that money is used.

In the short term it doesn't matter how the money enters the system but longer term it will.

Let's say I have a £100,000 mortgage and an income of £30,000 per annum out of which I service the mortgage as well as other costs. If my income vanishes for a year and I am loaned £30,000 then I can meet my costs but end up £130,000 in debt after the year is up. Depending on my circumstances, it's possible I could still service this debt but at the expense of having less disposable income for other stuff. If, on the other hand, I am given the £30,000 then after the year is up I am where I started, with £100,000 of debt, and can continue to spend as before.

I appreciate printing and handing out money debt free is radical. But the current situation is radical and unprecedented. Scale up what I have written above to (almost) the entire economy and we are IMO talking 30's style depression. Likewise, to answer the point GS has made about letting businesses fail we would also be talking depression.

Occasionally there are what amount to philosophical shifts in economic thinking. Ayn Rand and others inspired the moves to ever freer markets and lower government intervention, especially in the US where the Gini coefficient has become so high the social consequences are beginning to see capitalism eat its own tail. IMO a change in philosophy is now needed.

BoE

[dealtn]

My point is not that money doesn't need to be used in that way by government, but it doesn't have to be "printed" to achieve that. Whether money is "printed" or otherwise "created" or simple borrowed by the government either through issuance, or against future taxation generally, is a different matter to what and how that money is used.

In the short term it doesn't matter how the money enters the system but longer term it will.

Let's say I have a £100,000 mortgage and an income of £30,000 per annum out of which I service the mortgage as well as other costs. If my income vanishes for a year and I am loaned £30,000 then I can meet my costs but end up £130,000 in debt after the year is up. Depending on my circumstances, it's possible I could still service this debt but at the expense of having less disposable income for other stuff. If, on the other hand, I am given the £30,000 then after the year is up I am where I started, with £100,000 of debt, and can continue to spend as before.

I appreciate printing and handing out money debt free is radical. But the current situation is radical and unprecedented. Scale up what I have written above to (almost) the entire economy and we are IMO talking 30's style depression. Likewise, to answer the point GS has made about letting businesses fail we would also be talking depression.

Occasionally there are what amount to philosophical shifts in economic thinking. Ayn Rand and others inspired the moves to ever freer markets and lower government intervention, especially in the US where the Gini coefficient has become so high the social consequences are beginning to see capitalism eat its own tail. IMO a change in philosophy is now needed.

BoE

Your analogy is inaccurate. The £30,000 can be loaned or given. It is where the £30,000 comes from. It doesn't need to be "printed" by the government to be either lent or given, that is what I am saying. In either scenario it can be printed, or borrowed by the government through bond issuance. My thinking is it is unlikely, at least initially, to be the former.

[tjh290633]

I think that the point which is being missed by everybody, is the probablility of inflation in the future. Printing money has always led to it in the past. If I tell you that my first mortgage in 1961 was for £1600 and the monthly payments were £11.50 approximately, you can judge the effects of inflation. My father's house, built in 1938, cost £850 and the mortgage was £3/10/6 per month, at a fixed rate of 3.875%

Nowadays comparable houses cost £300,000 or so, so you can do your own calculations. The point is that inflation makes an initially large loan rather smaller over time, almost to vanishing point. Money loses value, as those who relied on War Loan for their income discovered to their cost.

Do not ignore the probability of inflation. It is not negligible, even if interest rates are negligible at the moment.

TJH

[GoSeigen]

My point is not that money doesn't need to be used in that way by government, but it doesn't have to be "printed" to achieve that. Whether money is "printed" or otherwise "created" or simple borrowed by the government either through issuance, or against future taxation generally, is a different matter to what and how that money is used.

In the short term it doesn't matter how the money enters the system but longer term it will.

Let's say I have a £100,000 mortgage and an income of £30,000 per annum out of which I service the mortgage as well as other costs. If my income vanishes for a year and I am loaned £30,000 then I can meet my costs but end up £130,000 in debt after the year is up. Depending on my circumstances, it's possible I could still service this debt but at the expense of having less disposable income for other stuff. If, on the other hand, I am given the £30,000 then after the year is up I am where I started, with £100,000 of debt, and can continue to spend as before.

I appreciate printing and handing out money debt free is radical. But the current situation is radical and unprecedented. Scale up what I have written above to (almost) the entire economy and we are IMO talking 30's style depression. Likewise, to answer the point GS has made about letting businesses fail we would also be talking depression.

Occasionally there are what amount to philosophical shifts in economic thinking. Ayn Rand and others inspired the moves to ever freer markets and lower government intervention, especially in the US where the Gini coefficient has become so high the social consequences are beginning to see capitalism eat its own tail. IMO a change in philosophy is now needed.

BoE

Okay, this post shows where the misunderstanding is. Fallacy of composition: what applies to an individual (borrowing or being given a sum of "money") does not work the same way for a complete group of all those individuals.

Aggregated over the whole UK economy, the two cases are economically identical, save for the detail of who is out of pocket and over what timescales.

In the loan case, you have not only the debtor, but also his creditor. The creditor is £30000 out of pocket for the duration of the loan agreement, but gets repaid after five years perhaps. No matter how "in debt" the debtor feels you have failed to take account of the fact that the creditor has an asset and increasingly looks forward to being repaid.

In the gift case, you have the recipient and the donor. Yes, the recipient feels wonderful because he has £30,000 more, unencumbered. But the donor has £30000 less and no prospect of recovering those funds which will dampen his optimism in proportion to the joy of the recipient.

In pure economic terms the cases are fairly indistinguishable. What you are hoping is that one party or the other can be fooled in to feeling better off than they are entitled to feel.


Printing money is absolutely not a free lunch. It is only appropriate when the transaction is useful to both parties. Ten years ago was a great time to do it; sadly the ideology of the time prevented its use. Today, the economic position of the donor is far more precarious and furthermore he is being forced into the transaction, contrary to his former better instincts, by circumstances and the power of a certain political constituency. To me that reeks of peril.


GS

[odysseus2000]

GS
In the loan case, you have not only the debtor, but also his creditor. The creditor is £30000 out of pocket for the duration of the loan agreement, but gets repaid after five years perhaps. No matter how "in debt" the debtor feels you have failed to take account of the fact that the creditor has an asset and increasingly looks forward to being repaid.

Yes, but what happens if the debtor can't pay the loan back because they have gone bankrupt.

In that case the creditors asset becomes a liability that will never be recovered, save for what ever if anything is available after the liquidation and the tax persons take.

Banking is a good business if the debtor does pay back the loan and interest during the duration of the loan, but it becomes a very bad business if the creditor gets neither interest nor capital back as the buyers of toxic equity founded on US sub prime debt experienced in 2008.

Regards,

[GoSeigen]

So here's the point GS.

Suppose our govt lets all our businesses go broke and collapse, whilst Germany, France, China & Japan prop up theirs with govt debt. Who do you think would be more prosperous at the end of all this?

We're going to be relatively worse off than China, India and others anyway. That's life, the empire is over, we have raped the victims, and kidded ourselves that they'd lie weeping in the gutter forever. Not so. The natural balance is being restored, so let's get over it.

Meanwhile I find it bizarre that I, having criticised conservative policy for ten years, now find myself among the last Tories standing while our leaders roll over and adopt the kind of Commie policies our country battled against for decades. Truly Maggie would be turning in her grave.

Oh and by the way "our govt lets all our businesses go broke and collapse", ARE YOU SERIOUS? Our government caused this to happen, they are now trying to patch up the problem with a HUGE and random neo-Brownian redistribution of wealth.

Perhaps I have fundamentally misunderstood something but what are governments trying to achieve by this travel ban and lock-down nonsense? Really? I don't understand it. I bet they are barely going to save a single life, once you count the collateral damage of the Dresden bombing of our economy. To me it is all a sop to the blue rinse generation and to spare blushes for a month or two at the impotence of health services. Not to mention the awful hubris and entitlement that believes we (rich non-chinese non-muslims) deserve at all costs to be immune to both to the rage of a suicide bomber and the random ravages of a microorganism. Did we ever crater the world economy to fix malaria or HIV in Africa? Remind me: how many victims?

I have the horrible feeling there will be at best a pyrrhic victory in this pandemic.

GS

[Itsallaguess]

Perhaps I have fundamentally misunderstood something but what are governments trying to achieve by this travel ban and lock-down nonsense? Really? I don't understand it.

I bet they are barely going to save a single life, once you count the collateral damage of the Dresden bombing of our economy.

<snip>

I have the horrible feeling there will be at best a pyrrhic victory in this pandemic.

Well I guess there's the fundamental problem with two parties even agreeing on what any sort of 'victory' might even look like, when one side is counting lives and the other side is counting pennies...

Cheers,

Itsallaguess

[Bubblesofearth]

In the gift case, you have the recipient and the donor. Yes, the recipient feels wonderful because he has £30,000 more, unencumbered. But the donor has £30000 less and no prospect of recovering those funds which will dampen his optimism in proportion to the joy of the recipient

GS

If the donor is the government and has printed the money debt-free then the funds do not need to be recovered and they are not worse off.

If every Nation printed an amount, maybe in proportion to the GDP of their country, and gave that money to all individuals in their respective countries then this could prevent mass insolvency, debt default, deflation, and likely depression. It would also avoid an increase in debt levels that money borrowed into existence would cause.

Of course this is not a free lunch and there are risks, the main ones being future inflation and confidence in fiat money with lenders looking for higher levels of compensation in the future (this itself may be no bad thing?)

But it's a question of the lesser of evils.

BoE

[GoSeigen]

I'm sorry GS, but it's not nice to see the ugly face of capitalism, and especially during these critical times...

And I think it's not nice to see the ugly face of communism (or national socialism, not much difference) in a crisis, but hey, the cry of "crisis!" justifies any sort of behaviour by our governments, right?

GS

Nice to see some mainstream press coverage for dissenting views:

https://www.bloomberg.com/news/articles/2020-04-07/michael-burry-slams-virus-lockdowns-in-controversial-tweetstorm?srnd=premium-europe

“Universal stay-at-home is the most devastating economic force in modern history,” Burry wrote in an email to Bloomberg News. “And it is man-made. It very suddenly reverses the gains of underprivileged groups, kills and creates drug addicts, beats and terrorizes women and children in violent now-jobless households, and more. It bleeds deep anguish and suicide.”

and

If COVID-19 testing were universal, the fatality rate would be less than 0.2% [GS--debateable]. This is no justication [sic] for sweeping government policies, lacking any and all nuance, that destroy the lives, jobs, and businesses of the other 99.8%.

GS

[NeilW]

If the money is given (not loaned) where needed then of course it will. Businesses normally service their operating costs from income received from sale of goods or services. If those sales dry up but those costs are covered by e.g. HMG then they will not be driven further into debt.

If this is treated purely as a liquidity problem and loans offered then, if the shut down is protracted, many businesses will be insolvent. They will have a debt burden too great to reasonably expect to service. Remember, many businesses are already highly leveraged and close to the wire when it comes to profitability.

BoE

You can’t give state money to people. It has to be exchanged for something of value to make it worth something. Most likely their hours of work. Otherwise there is no real value to the exchange and it won’t work long term. Pensions are ultimately backed by a surplus produced by those working which they choose not to consume themselves.

Moreover all money is debt and all spending is done by money creation ex nihilo. The clearing system can’t work any other way as transactions are asynchronous inter day.

There is no material difference between two £50 notes and a £100 gilt in economic terms. Both attract interest from the government sector on certain terms and both have a lifetime before they are replaced. There is no control function for one that isn’t also present with the other.