• The above Banner is a Sponsored Banner.

    Upgrade to Premium Membership to remove this Banner & All Google Ads. For full list of Premium Member benefits Click HERE.

  • Join The Silver Forum

    The Silver Forum is one of the largest and best loved silver and gold precious metals forums in the world. Join today for FREE! Browse the sponsors topics (hidden to guests) for deals and offers, check out the bargains in the members trade section and join in with our community reacting and commenting on topic posts. If you have any questions whatsoever about precious metals collecting and investing please join and start a topic and we will be here to help with our knowledge :) happy stacking. 

reidpj

¬£Sterling My Thoughts ūü§Ď

Recommended Posts

12 minutes ago, reidpj said:

 

Who promises to pay of the Debt with future taxes?

 

no one does, that's the politics of promising something for 

nothing that we live in today. what's the reality?

in practice if your creditors never got paid. how many creditors

would you be left with over the long term?

using future taxes to pay for current spending works especially

well if you have a growing population. there are more future

tax payers to pay off the current debt accrued. there is more

future tax revenue(on average) without the need to raise the

tax per person. growing government debt in line with a growing

population works.

 

HH

Share this post


Link to post
Share on other sites
15 minutes ago, HawkHybrid said:

 

no one does, that's the politics of promising something for 

nothing that we live in today. what's the reality?

in practice if your creditors never got paid. how many creditors

would you be left with over the long term?

using future taxes to pay for current spending works especially

well if you have a growing population. there are more future

tax payers to pay off the current debt accrued. there is more

future tax revenue(on average) without the need to raise the

tax per person. growing government debt in line with a growing

population works.

 

HH

We don’t use taxes to pay for anything.  The UK Government uses taxes for a variety of reasons, none of which have to do with funding. 

This will explain what tax is used for¬†far better than a ‚Äėbar room economist‚Äô like me could ever do:

http://www.taxresearch.org.uk/Blog/2018/01/03/the-reasons-to-tax/

The reasons to tax

Posted on January 3 2018

There was some discussion¬†here¬†yesterday on the relationship between tax and government spending. As I pointed I out, this is by no means a direct relationship: the reality is that tax does not fund government spending, all of which can in principle be funded by ‚Äėmoney printing‚Äô or borrowing.

It is, of course, very unlikely that this would actually happen: inflation would rapidly destroy the value of a currency in this situation and the willingness of people to lend would quickly expire. This means that tax, which is used to balance the equation between government spending, money creation and borrowing, is an essential fact of economic life. The relationship can be formally summarised as:

G = T + ‚ąÜB + ‚ąÜM

Where:

G = Government spending

T = Net tax receipts

B = Borrowing (and so ‚ąÜB is the change in borrowing in a period)

M = Government created money (and so ‚ąÜM is the change in that sum during a period).

In this context the purpose of tax is to achieve a number of  goals, none directly related to spending:

  1. Reclaiming the money the government has spent into the economy. As already noted, it may appear that tax revenue is being used to pay for government services supplied but that is not true: government spending always comes out of funds the government borrows from its central bank. Tax, in that case, reclaims the money spent to prevent excessive inflation. The amount reclaimed is that which is considered sufficient to leave the desired rate of inflation in the economy.
  2. Ratifying the value of money. Because a government requires that tax be paid using the currency that it creates (simply because that’s the currency it bills in) that currency has for all practical purposes to be used in the economy for which it is responsible, assuming that tax forms a significant part of people's total liabilities. The payment of tax does, therefore, give a currency its value in exchange and as a result passes control of an economy to the government that charges that tax. This makes tax an absolutely fundamental component in macroeconomic policy.
  3. Reorganising the economy. Fiscal and monetary policy are the two fundamental tools available to a government to manage its economy, assuming it has its own currency. As the explanation already offered has shown, money creation and taxation are the flip side of each other. Tax is then an integral part of macroeconomic policy and so of reorganising the economy to meet social and economic goals.
  4. Redistributing income and wealth within the economy.Experience has shown that market economies are very good at concentrating income and wealth in the hands of a few people in a society. At the same time economics makes clear that this is harmful to the prosperity of a society as a whole because it seriously reduces overall levels of demand in the economy. Redistribution of income and wealth is then an essential function that any Government must undertake and appropriately designed taxes are a proven and effective method for delivering this policy.
  5. Repricing goods and services. Markets cannot always price the externalities of the goods and services they supply or reflect social priorities. Tax permits repricing of goods and services to reflect these facts.
  6. Raising representation in a democracy. The fact is that if people know they pay tax they vote. This only seems to be true, however, for income taxes. That's why it is important that people are in that tax system. When they are they want a say on how the system works and democracy is enhanced as a result.

When this is properly understood by governments we might get some decent economic policy. And as the formula shows, it‚Äôs not exactly rocket science and yet it is apparently nigh on impossible to get politicians (and others) to accept this reality which is why we perpetually end up with the fascicle question whenver a new poliucy is proposed of ‚Äėhow are you going to pay for it?‚Äô, which in itself assumes that the above variables are independent of each other, when they are not. But that‚Äôs the subject of another blog.

Edited by reidpj

Share this post


Link to post
Share on other sites
30 minutes ago, reidpj said:

We don’t use taxes to pay for anything.

 

would it then be ok for everyone to stop paying taxes :)

 

there's no example in that link to show what I'm saying is

incorrect. it's all I'm an economist so I'm correct? these

economist need to 'prove' that what they say is correct.

I like to think of government debt as a mortgage. you need

the debt to buy your home. the debt is always there as you

can continuously re-mortgage. as long as your creditors

are satisfied with their returns you can increase your

mortgage to add improvements, especially if those

improvements help the residents to expand and grow. within

these restrictions you can re-mortgage indefinitely.

 

I don't see proof that current government spending is not

balanced by future tax revenues.

 

HH

Edited by HawkHybrid

Share this post


Link to post
Share on other sites

This is some crazy economic theory in those links Reidpj, I like it because it is new and making me think more than usual :D

There appears to be some confusion between money and currency in the articles. His formula appears to go like this;

GOVERNMENT SPENDING = TAXES + CHANGE IN BORROWING + CHANGE IN CURRENCY SUPPLY

What are we arguing about then? The 'context' of tax is irrelevant to the equation, its math not politics. If you want tax to 'not be directly related to spending' don't put an = sign between government spending and tax in your equation. See if it works without.

I do especially like this bit on the first article;

"First it assumes that the government spends other people’s money. It doesn’t. It spends it’s own. That’s because it actually creates all money at the end of the day (even that put into circulation by private banks is done under government licence). And because it creates all money there is technically no limit on the amount it can produce if it so wants."

Followed by these contradictions;

"That’s because people like pension funds, the banking system and prudent savers are exceptionally keen to buy that debt"

"And all UK government debt is just a giant savings account for those who want an ultra-safe place to deposit their money, and what’s wrong with that?"

"In that case who will pay? You could say it’s the people who are queuing up to save with the government who will pay. And we’re doing them a favour by letting them do just that."

An interesting, but contradictory and unreasonable article. Constantly assuming that if I build a chair and sell it, I am still owner of the chair. No one else would agree, so why should we agree that the government owns all sterling?

Share this post


Link to post
Share on other sites

Then we’ll have to agree to differ......

I like to think (rightly or wrongly) that Debt built up previously is neutral as it‚Äôs effects have already played out; the clock can not be wound back, the dosh is already in circulation. Paying¬†it back won‚Äôt change the past¬†but could have negative consequences both now and/or in the future. ¬†If the economy is overheating, then certainly ¬†tax more than you spend to try to cool it down. ¬†But if it‚Äôs not overheating, spending can‚Äôt do any harm (note that I‚Äôm not advocating where the spending should occur, nor who should be taxed to destroy it, as¬†that‚Äôs politics, and, unlike our good Professor Murphy, I tend not to do politics - well, when I say never I really mean.....ūüėČ)

Share this post


Link to post
Share on other sites
14 minutes ago, KDave said:

This is some crazy economic theory in those links Reidpj, I like it because it is new and making me think more than usual :D

There appears to be some confusion between money and currency in the articles. His formula appears to go like this;

GOVERNMENT SPENDING = TAXES + CHANGE IN BORROWING + CHANGE IN CURRENCY SUPPLY

What are we arguing about then? The 'context' of tax is irrelevant to the equation, its math not politics. If you want tax to 'not be directly related to spending' don't put an = sign between government spending and tax in your equation. See if it works without.

I do especially like this bit on the first article;

"First it assumes that the government spends other people’s money. It doesn’t. It spends it’s own. That’s because it actually creates all money at the end of the day (even that put into circulation by private banks is done under government licence). And because it creates all money there is technically no limit on the amount it can produce if it so wants."

Followed by these contradictions;

"That’s because people like pension funds, the banking system and prudent savers are exceptionally keen to buy that debt"

"And all UK government debt is just a giant savings account for those who want an ultra-safe place to deposit their money, and what’s wrong with that?"

"In that case who will pay? You could say it’s the people who are queuing up to save with the government who will pay. And we’re doing them a favour by letting them do just that."

An interesting, but contradictory and unreasonable article. Constantly assuming that if I build a chair and sell it, I am still owner of the chair. No one else would agree, so why should we agree that the government owns all sterling?

Read it a few more times (I had to ūüėČ), ¬†you‚Äôll soon ‚Äėsee the light‚Äô. ¬†Don‚Äôt forget that these academics talk a completely different language than we civvies ūüßź.

If you haven‚Äôt already, you could do a lot worse than get hold of a copy of his book ‚ÄėThe Joy of Tax‚Äô - available in your local library. ¬†Don‚Äôt be tempted by any of his other offerings though - you might turn into a ‚Äėleftie‚Äô ūüôÉ

Share this post


Link to post
Share on other sites

I like the idea but the national debt is not really neutral, it has interest cost that we are paying through taxes and at some point it will mature and will need to be paid back. The only real option on such a pile is to borrow again to issue more debt to pay back the maturing debt. Madness but if we cut spending there are tears and if we raise taxes anymore then at some point real economic growth is impacted resulting in less take in the future. Catch 22 of bad times all round. 

I am interested what do you mean by overheating and cooling down the economy and how does tax factor into this? 

2 minutes ago, reidpj said:

Read it a few more times (I had to ūüėČ), ¬†you‚Äôll soon ‚Äėsee the light‚Äô. ¬†Don‚Äôt forget that these academics talk a completely different language than we civvies ūüßź.

If you haven‚Äôt already, you could do a lot worse than get hold of a copy of his book ‚ÄėThe Joy of Tax‚Äô - available in your local library. ¬†Don‚Äôt be tempted by any of his other offerings though - you might turn into a ‚Äėleftie‚Äô ūüôÉ

Haha I am far too mercenary to become a leftie or a righty but always happy to read new ideas.

Share this post


Link to post
Share on other sites
1 hour ago, KDave said:

Such analysis are usually fatalistic notion the dollar will, must collapse.  And the reason, because price of gold is out of step so this must readjust.  This article makes this argument clear with the simple gold price comparison, post war dollar was $35, now its £1300, " giving a loss of the dollar’s purchasing power, measured in the money of the market" as the article states.

But $ inflation since 1945 is not anywhere near that.  Quick lookup shows its cumulatively ~1260%, so the gold price should be about $440 on that basis.  Its probably true that US has exported inflation across the globe for decades, but one cant make claims base on market prices then ignore the recorded change in market prices of goods and services (inflation).

Share this post


Link to post
Share on other sites
53 minutes ago, Martlet said:

Such analysis are usually fatalistic notion the dollar will, must collapse.  And the reason, because price of gold is out of step so this must readjust.  This article makes this argument clear with the simple gold price comparison, post war dollar was $35, now its £1300, " giving a loss of the dollar’s purchasing power, measured in the money of the market" as the article states.

But $ inflation since 1945 is not anywhere near that.  Quick lookup shows its cumulatively ~1260%, so the gold price should be about $440 on that basis.  Its probably true that US has exported inflation across the globe for decades, but one cant make claims base on market prices then ignore the recorded change in market prices of goods and services (inflation).

 

does your ~1260% come at least part from government official

figures?

consider this, us government official inflation was 2.2% in 2017.

the dollar fell against the pound ~10+% 2017, official inflation for

the pound was ~2-3% versus the pound one year earlier. how

then does the dollar only lose 2.2% purchasing power versus the

dollar one year earlier?

 

HH

Edited by HawkHybrid

Share this post


Link to post
Share on other sites
21 minutes ago, HawkHybrid said:

 

does your ~1260% come at least part from government official

figures?

consider this, us government official inflation was 2.2% in 2017.

the dollar fell against the pound ~10+% 2017, official inflation for

the pound was ~2-3% versus the pound one year earlier. how

then does the dollar only lose 2.2% purchasing power versus the

dollar one year earlier?

 

HH

First of all, it was $ inflation number.  To the question, why does dollar fall x and inflation not go up by x, the answer is not everything is paid for in $. If you import a good paid for in dollars, then apply costs for transport, marketing, retail margin, that 10% £:$ drop is diluted.  Some distrust the government inflation as manipulated, the thing is it is manipulated but in a transparent way - changes are recorded and you can carry out the measurements (checking prices regular on basket of goods) yourself. Its one of the more empirical economic states, unlike say growth, productivity or GDP that rely on a lot of estimates and later revision.

Share this post


Link to post
Share on other sites
2 hours ago, Martlet said:

Such analysis are usually fatalistic notion the dollar will, must collapse.  And the reason, because price of gold is out of step so this must readjust.  This article makes this argument clear with the simple gold price comparison, post war dollar was $35, now its £1300, " giving a loss of the dollar’s purchasing power, measured in the money of the market" as the article states.

But $ inflation since 1945 is not anywhere near that.  Quick lookup shows its cumulatively ~1260%, so the gold price should be about $440 on that basis.  Its probably true that US has exported inflation across the globe for decades, but one cant make claims base on market prices then ignore the recorded change in market prices of goods and services (inflation).

Is it not reasonable to adopt a fatalistic perspective on fiat based on the historical evidence that every previous fiat currency has failed? The alternative is to say its different this time. The reason this will happen is not because gold is out of step, gold is the indicator and agreed, the price of gold holds a premium above historical inflation figures. If as you suggest, the US has been exporting inflation as Wiemar Germany did to its foreign interests leading up to its own hyperinflation, why can not a similar situation develop with the dollar? Perhaps then the gold price is a reflection of this expectation. 

Share this post


Link to post
Share on other sites
1 hour ago, Martlet said:

the answer is not everything is paid for in $. If you import a good paid for in dollars,

 

what other currency would an american use to buy goods with?

 

when the dollar falls by x%, does not all imports rise by x% ?

(assuming the suppliers are charging the same local currency)

 

HH

Share this post


Link to post
Share on other sites
25 minutes ago, KDave said:

Is it not reasonable to adopt a fatalistic perspective on fiat based on the historical evidence that every previous fiat currency has failed? 

Its not unreasonable.  The problem seems to be the analysis, starting from a conclusion its imminent and looking for evidence, when you look at the evidence provided ($:gold price vs inflation) its not actually the situation portrayed.  If we accept the $ is on a slow burn path to a fall, the argument is about how far along the path it is and i'd say its probably a lot further off.  It might be more comparable to sterling, which has slowly declined rather than an abrupt fall.  And it is different this time.  Interesting point in there was mention of the chartalism, the name given to the form of monetary control our OP is talking about, with the state literally printing money to pay for anything.  The difference this time is market forces, in from of interest rates, determine what the government can spend and banks lending is similarly constrained by their relative balance sheets and demand for investment.  You cant loan money if no one wants it.  Who knows how long the US fiscal policy can continue, but there's a lot more flexibility now. 

Share this post


Link to post
Share on other sites

I understand what you are saying, when I read the article I got a mixed impression, the author many times suggest we are no where near the end by historical terms, but then there are a few examples to the contrary or that give the impression at least. I don't wish to imply that I think the collapse is imminent, who knows how long it will take but I do think it is it is inevitable. I posted this here for the reason you have identified; printing for nothing has several historical examples of where it leads that are provided in the article, hopefully pj has a read. :P 

You know what I agree it is different this time in that the fiscal ability to influence the value of money is a lot more sophisticated, but, how long do these measures remain effective - can the same be applied again, can we print our way out a second time. When money is worthless you can print as much as you want. I do not believe that fundamentally anything has changed for it to be different this time in that the end result will be different. The value of money has always been driven by the market, what the government can spend has always been constrained by tax and borrow. Pay back or default. History does not repeat it rhymes, so yep its a little bit different this time :)

Share this post


Link to post
Share on other sites

@reidpj

Oll.libertyfund.org/quote/431

Read the above page.

I must be missing something here, if Adam Smith was wrong and the idle rich are good for the economy someone please let me me know how. 

Argentina have gone from a very rich country to a poor country because of bond defaults!! 

Also in your argument I assume you think the government are willfully being cruel to the homeless and poor in our country because as you say the government could just tell the banks to create more money to solve the problems.  Also why is there any need for debt in the first place or tax?  I remember the Italian currency being a joke.  Then we have the Spanish silver crash where everyone had so much silver they were all very RICH do you get it!!! Also the French property crash!!!! What I am getting at is if you create too much sterling then it will be worth a lot less. 

 

 

Share this post


Link to post
Share on other sites
14 hours ago, Pipers said:

@reidpj

Oll.libertyfund.org/quote/431

Read the above page.

I must be missing something here, if Adam Smith was wrong and the idle rich are good for the economy someone please let me me know how. 

Argentina have gone from a very rich country to a poor country because of bond defaults!! 

Also in your argument I assume you think the government are willfully being cruel to the homeless and poor in our country because as you say the government could just tell the banks to create more money to solve the problems.  Also why is there any need for debt in the first place or tax?  I remember the Italian currency being a joke.  Then we have the Spanish silver crash where everyone had so much silver they were all very RICH do you get it!!! Also the French property crash!!!! What I am getting at is if you create too much sterling then it will be worth a lot less. 

 

 

Hi mate

I‚Äôm not really in to discussing the ‚Äėeffects‚Äô of ¬£Sterling creation/distruction; but rather the actual ‚Äėmechanics‚Äô - how ¬£Sterling is created (and by whom); its usefulness (or not) in modern UK society; how, and why,¬†it‚Äôs destroyed (removed from circulation). ¬†But just to answer some¬†of the points you made above:

I don‚Äôt believe that Smith was wrong re. the idle rich (even though I could be classed as such ūüėČ).

Argentina‚Äôs problem‚Äôs were caused, IMVHO, by ‚Äėrun away ‚Äė spending¬†by their Government¬†compounded by corruption on a massive scale, plus the breakdown of the rule of law.

The UK Government‚Äôs motives for where it spends the money it creates, and who it obliges¬†to pay for its destruction (if it deems it necessary - only death is inevitable; not taxation nor ‚Äėborrowing‚Äô), are myriad (and highly political ūüėČ). ¬†Re-read my posts on this thread: there is one on the real need/use of Governmental¬†¬†‚Äėborrowing‚Äô, and another on what taxes are really used for - both ‚Äėcut and pastes‚Äô courtesy¬†¬†of Professor Murphy.

£Sterling may be weakened, when compared to other currencies, if more is added to the supply but that is not a given - did the recent £460bn (via Quantitative Easing) weaken the £?

If you haven‚Äôt already, you may find it enlightening to read Professor Murphy‚Äôs blog (http://www.taxresearch.org.uk/Blog/).¬† I don‚Äôt agree with everything he writes about (some of his politics - aka the ‚Äėeffects‚Äô) -¬†in fact I‚Äôve been threatened with a banning order because of one or two of my posts ūüėá - but, IMHO, his descriptions re. the mechanics of ¬£Sterling are second to none.

 

Edited by reidpj
edited due to spelen

Share this post


Link to post
Share on other sites

Control of the economy would be a reason for the Government to create ¬£Sterling. ¬†If we weren‚Äôt obliged to pay our taxes with ¬£Sterling, there wouldn‚Äôt be much incentive for us to use it - there isn‚Äôt, at present, much incentive for the majority of us (here in the UK) to use ‚ā¨, $, etc.

Share this post


Link to post
Share on other sites
14 minutes ago, reidpj said:

Control of the economy would be a reason for the Government to create £Sterling.

 

if taxes weren't priced in £sterling nobody would price any

goods in £sterling? why bother? there would be no £sterling

economy to control?

 

HH

Share this post


Link to post
Share on other sites
21 minutes ago, HawkHybrid said:

 

if taxes weren't priced in £sterling nobody would price any

goods in £sterling? why bother? there would be no £sterling

economy to control?

 

HH

If £Sterling didn’t exist (as you suggested), the UK Government couldn’t oblige us to pay our taxes with it, and, therefore, wouldn’t have much control over the economy; surely the need for control would be reason enough for them to create £Sterling (or a currency with a different name), and then oblige us to pay our taxes using it.

Or did you mean; would there be any reason for the continual creation of ¬£Sterling (via Spending, etc) if the Government stop accepting it in payment of taxes, and not, as I originally read it, would there be any reason to ‚Äėinvent‚Äô ¬£Sterling in the first place. ¬†If¬†so, please forgive my confusion - it was the ‚Äėthe‚Äô in front of ¬£Sterling currency that threw me ūüôÉ.

 

Share this post


Link to post
Share on other sites
2 hours ago, HawkHybrid said:

would there be a reason to create the £sterling currency if

the government did not accept taxes paid in £sterling?

 

HH

Little confused ūü§∑‚Äć‚ôāÔłŹ¬†

Are you asking whether there would be any reason to create (as in ‚Äėinvent‚Äô) a currency and then call it ¬£Sterling (as the ‚Äėthe‚Äô in ‚Äėthe ¬£Sterling currency‚Äô suggests - well, to me anyway¬†ūü§Ē), or whether there would be much point in the continuing creation of ¬£Sterling, via spending, if the Government didn‚Äôt require us to use it when settling our tax obligations?

If the former, then in order that the UK Government could take control of the economy ( say we had joined the ‚ā¨, and now wished to leave it) it would have to create a currency which it controlled, and with which it could tax. ¬†If the latter (e.g. if we joined¬†the ‚ā¨, and we were obliged to pay our taxes using ‚ā¨; then I agree, there wouldn‚Äôt be any need to continually spend ¬£Sterling into creation as there wouldn‚Äôt be, as you say, ¬†a ¬£Sterling economy to control).

Share this post


Link to post
Share on other sites

I'm saying that I believe the reason to create £sterling is

so that people have to pay their taxes using £sterling. this

receipt of production from the people can then be spent or

if already spent, then have the debt of that spending paid

off. there is no point to creating a circulating currency

unless people paid their taxes using that circulating

currency? the currency is nothing without the taxes to

back that currency?

 

HH

Share this post


Link to post
Share on other sites
6 minutes ago, HawkHybrid said:

I'm saying that I believe the reason to create £sterling is

so that people have to pay their taxes using £sterling. this

receipt of production from the people can then be spent or

if already spent, then have the debt of that spending paid

off. there is no point to creating a circulating currency

unless people paid their taxes using that circulating

currency? the currency is nothing without the taxes to

back that currency?

 

HH

Don‚Äôt have much of a problem with that.....excepting¬†¬†that UK taxes can never be spent (see previous posts),¬†and that there is absolutely no reason why the Debt has to be paid off (see previous posts). One¬†of the uses of UK taxation is to give ¬£Sterling worth¬†(see previous posts), but it is not the only reason for taxation (see previous posts). ¬†The currency can exist without the need for taxation or borrowing (see previous posts), therefore it must be ‚Äėsomething‚Äô (but I know what you‚Äôre getting at ūüĎć).

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now