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£Sterling My Thoughts ?


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2 minutes ago, HawkHybrid said:

 

problem is everything going forward will be priced at 2x?

 

HH

Inflation - different discussion.  Just say you're right (inflation is not a given; and all inflation is not caused by an expansion in the money supply), and prices double, how much, here in the UK, will your £1 be worth?  How many £1 will you need to pay your £10 tax bill?

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6 minutes ago, reidpj said:

Inflation - different discussion.  Just say you're right (inflation is not a given; and all inflation is not caused by an expansion in the money supply), and prices double, how much, here in the UK, will your £1 be worth?  How many £1 will you need to pay your £10 tax bill?

 

the old tax bill is still at £10, the new one will be £20?

the figures may change but you are not getting any

richer?

 

HH

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4 minutes ago, HawkHybrid said:

 

the old tax bill is still at £10, the new one will be £20?

the figures may change but you are not getting any

richer?

 

HH

How can a tax bill issued today for £10, magically become a demand for £20 tomorrow?  Getting richer - different discussion.

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We agree Sterling has no value on its own, a £1 will always be worth £1 - a unit of zero value is a unit of zero value. Right so with that in mind;

46 minutes ago, reidpj said:

 The amount of circulating £Sterling reduces as more is saved; which can only result in a downturn in economic activity - unless, of course, more is issued.

----but we just agreed sterling was worthless on its own, so why does the amount circulating have an impact on economic activity?

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1 hour ago, KDave said:

We agree Sterling has no value on its own, a £1 will always be worth £1 - a unit of zero value is a unit of zero value. Right so with that in mind;

----but we just agreed sterling was worthless on its own, so why does the amount circulating have an impact on economic activity?

Reduced opportunity to exchange other value.

I agree that £Sterling has no intrinsic value, but it does have a value - as a means to exchange.

Can't remember agreeing that £Sterling was worthless on its own - £Sterling always has a worth, here in the UK, due to the law requiring its sole use for settling tax liabilities; it may become worthless in the US, Europe, etc. but never here.

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16 minutes ago, reidpj said:

How can a tax bill issued today for £10, magically become a demand for £20 tomorrow?  Getting richer - different discussion.

 

vat 20% on coins priced at £50, tax bill £10.

next purchase vat 20% on similar/same coins now

priced at £100, tax bill £20.

 

HH

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32 minutes ago, HawkHybrid said:

 

vat 20% on coins priced at £50, tax bill £10.

next purchase vat 20% on similar/same coins now

priced at £100, tax bill £20.

 

HH

That transaction would happen in the future (after the doubling of the money supply); the £10 tax bill under discussion was raised in the past (before the doubling of the money supply).  I'm not arguing about the effects of a doubling of the money supply; just that £1 will still be worth £1 even if the doubling occurred: £1 will not suddenly be worth 50p - it's value may drop when measured against other things, but that's another discussion.

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Just now, reidpj said:

it's value may drop when measured against other things, but that's another discussion.

 

that is everything.

I slice a cake fairly for 2 people. both get a slice of

cake.

one day I unexpectedly have 2 guests, I slice the

same cake(last one) for 4 people. each get a slice

of cake that is half the size of the slice for 2 people.

some decisions have consequences and cannot be

taken in isolation.

 

HH

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16 minutes ago, HawkHybrid said:

 

that is everything.

I slice a cake fairly for 2 people. both get a slice of

cake.

one day I unexpectedly have 2 guests, I slice the

same cake(last one) for 4 people. each get a slice

of cake that is half the size of the slice for 2 people.

some decisions have consequences and cannot be

taken in isolation.

 

HH

That may very well be true but it one of the effects of the supply of £Sterling (politics; what may, or may not happen); this post is primarily about the mechanics of its supply (factual).

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8 hours ago, reidpj said:

Reduced opportunity to exchange other value.

I agree that £Sterling has no intrinsic value, but it does have a value - as a means to exchange.

Can't remember agreeing that £Sterling was worthless on its own - £Sterling always has a worth, here in the UK, due to the law requiring its sole use for settling tax liabilities; it may become worthless in the US, Europe, etc. but never here.

Yes fair enough, if bread was used as the means of exchange it would hold premium above its use as bread, but its still just bread. You can't grow the economy by making more bread and the rest of the economy will not shrink because you don't have enough bread to exchange. You don't lose bits of the economy because there isn't enough bread to exchange with, people will use something else in its stead. This is where the Keynesian monetary theory falls down in my view. It thinks that the supply of bread is the key to economy and it just isn't, evidenced by the last 10 years of CB monetary policy. Its not all about bread.

Oh i see there is an analogy above about cake, looks like we are all thinking on similar lines just need to agree which wheat based food product is the right one for the job.

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@reidpj  

I do not have a degree in maths or economics.  

Over the last 10 years the government/treasury/Boe has increased supply of sterling massively, this has weakened the £ but has caused deflation why? Please do not just blame labour.

Commercial banks are allowed to lend money out as soon as it is deposited but do not have to rebalance that loan when the money is withdrawn, this in any other commercial area would be called money laundering or creating money out of thin air. Remember this is not the Government that is doing this activity it is the commercial banks this is corruption so it is laundering.  Does this put a spanner in your argument? 

Your tax argument is also incorrect IMO though does have some merit.  Let's just say for point of easyness everyone earned the same amount then raising or reducing tax would work apart from one factor we live in a democracy and people are greedy, they want benefits in the way of tax breaks and loop holes, also working benefits and out of work benefits, business benefits (lots of these that are never spoken about).  This then beggars the question on imports and exports a question you do not ask and also services abroad how do you account for them? 

IMO sterling is traded on trust only and it goes down and up mostly down.  The money that the treasury has created over the last 10 years had gone to the very wealthy who have put the money into monetary funds and tax havens.  This makes a joke out of the trickle down effect, ( piss on effect) . 

 

 

 

 

 

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8 hours ago, Pipers said:

Over the last 10 years the government/treasury/Boe has increased supply of sterling massively, this has weakened the £ but has caused deflation why? Please do not just blame labour.

The increase supply has been of what the economists call M4 or broad money.  The effect on the economy is less than actually printing physical notes or lower types of money, so you need more of it to have an impact, and its been done to increase liquidity.  The economist work on an equation V=PQ/M, where V is the velocity of money (how much is moves around the economy), PQ is the GDP and M is the money supply.  If V reduces M or PQ must increase to balance, and in absence of short/medium term increase of PDQ (cant make the economy grow very quickly) policy favours increasing M.  To add, advantage of expanding M4 in the form of bond purchases, is thats its more controllable, the money can be removed from the supply more easily, you re-sell the bonds to soak up excess liquidity.

Graph on this page shows that the increase in money supply has been low, despite the tens of billions pumped in through QE.  Had there been no QE there would have been no increase and very severe deflation/recession. 

(Dont have a degree in economics either, but been following it for so long this stuff just sinks in eventually)

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On 03/01/2018 at 22:48, KDave said:

Yes fair enough, if bread was used as the means of exchange it would hold premium above its use as bread, but its still just bread. You can't grow the economy by making more bread and the rest of the economy will not shrink because you don't have enough bread to exchange. You don't lose bits of the economy because there isn't enough bread to exchange with, people will use something else in its stead. This is where the Keynesian monetary theory falls down in my view. It thinks that the supply of bread is the key to economy and it just isn't, evidenced by the last 10 years of CB monetary policy. Its not all about bread.

Oh i see there is an analogy above about cake, looks like we are all thinking on similar lines just need to agree which wheat based food product is the right one for the job.

Government spending down - we’ll, attempting to - (saving = less circulating £Sterling in the system); Businesses not investing / retaining profits because they have a lack of confidence, etc. (saving = less circulating £Sterling in the system); importing more than exporting (saving = less circulating £Sterling in the system); if it were not for the rise in the personal debt bubble, we would, IMVHO, be in a recession right now - not necessarily a bad thing for the environment.

Yes, I agree, that if circulating £Sterling eventually drop to a very low level, people will be forced to use an alternative ‘token’ of exchange, but I can’t see that ever happening........can you?

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On 04/01/2018 at 01:07, Pipers said:

@reidpj  

I do not have a degree in maths or economics.  

Over the last 10 years the government/treasury/Boe has increased supply of sterling massively, this has weakened the £ but has caused deflation why? Please do not just blame labour.

Commercial banks are allowed to lend money out as soon as it is deposited but do not have to rebalance that loan when the money is withdrawn, this in any other commercial area would be called money laundering or creating money out of thin air. Remember this is not the Government that is doing this activity it is the commercial banks this is corruption so it is laundering.  Does this put a spanner in your argument? 

Your tax argument is also incorrect IMO though does have some merit.  Let's just say for point of easyness everyone earned the same amount then raising or reducing tax would work apart from one factor we live in a democracy and people are greedy, they want benefits in the way of tax breaks and loop holes, also working benefits and out of work benefits, business benefits (lots of these that are never spoken about).  This then beggars the question on imports and exports a question you do not ask and also services abroad how do you account for them? 

IMO sterling is traded on trust only and it goes down and up mostly down.  The money that the treasury has created over the last 10 years had gone to the very wealthy who have put the money into monetary funds and tax havens.  This makes a joke out of the trickle down effect, ( piss on effect) . 

 

 

 

 

 

Hi mate

Commercial banks do not lend out depositors’ money - as was finally admitted by the BOE in 2014.  They, under license from the Government, create the £Sterling to be loaned ‘out of thin air’ as it were.  So long as they’ve an asset (a signature on a loan agreement) to cover the liability (the new deposit created), they can, under Governmental control, create as much £Sterling as is requested.  This, non-Governmental, £Sterling is immediately destroyed upon repayment (the value of the asset must, by law, fall with the liability), it is no recirculated.

See:  money-creation-in-the-modern-economy

Tax dodging is, unfortunately, a part of life, but that doesn’t alter the fact that tax destroys £Sterling as soon as it’s paid.

You are, of course, entitled to hold whatever opinion you desire.  But it is not my opinion but fact that, here in the UK, £Sterling has a worth  above that which is bestowed by mere trust alone: we are obliged to pay our taxes using it; we must obtain it (from wherever; by whatever means) to meet those obligations - you cannot pay your taxes using gold; you have to sell/pawn/leverage it in order to obtain the necessary £Sterling.

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39 minutes ago, reidpj said:

Government spending down - we’ll, attempting to - (saving = less circulating £Sterling in the system); Businesses not investing / retaining profits because they have a lack of confidence, etc. (saving = less circulating £Sterling in the system); importing more than exporting (saving = less circulating £Sterling in the system); if it were not for the rise in the personal debt bubble, we would, IMVHO, be in a recession right now - not necessarily a bad thing for the environment.

Yes, I agree, that if circulating £Sterling eventually drop to a very low level, people will be forced to use an alternative ‘token’ of exchange, but I can’t see that ever happening........can you?

Remove sterling from the picture and watch goods/services being exchanged. Ignore the medium of exchange and you see the economy. Sterling (digital/paper currency) is a good means of exchange and because its used as such for so long it is seen as more than just a measuring stick. You pay taxes in goods and services, via sterling. Sterling does not derive its value from demand as tax, it has no value on its own, the goods and services generated to pay tax are the value which is what the government takes when you work 5 days a week and only get 4 days pay (for example). 

Destroying and creating sterling doesn't create any value in the real economy. The government decides how much sterling it creates and destroys, but that doesn't create and destroy goods and services. It just changes the length of the measuring stick. 

Personal debt bubble is not a good thing. Borrowing is taking future goods and services and using them today. Sterling is the medium. By creating a personal debt bubble the future has been borrowed into the present on an unprecedented scale and will need to paid back (with interest), the recession has been delayed only. 

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25 minutes ago, KDave said:

Remove sterling from the picture and watch goods/services being exchanged. Ignore the medium of exchange and you see the economy. Sterling (digital/paper currency) is a good means of exchange and because its used as such for so long it is seen as more than just a measuring stick. You pay taxes in goods and services, via sterling. Sterling does not derive its value from demand as tax, it has no value on its own, the goods and services generated to pay tax are the value which is what the government takes when you work 5 days a week and only get 4 days pay (for example). 

Destroying and creating sterling doesn't create any value in the real economy. The government decides how much sterling it creates and destroys, but that doesn't create and destroy goods and services. It just changes the length of the measuring stick. 

Personal debt bubble is not a good thing. Borrowing is taking future goods and services and using them today. Sterling is the medium. By creating a personal debt bubble the future has been borrowed into the present on an unprecedented scale and will need to paid back (with interest), the recession has been delayed only. 

Never said that £Sterling derive a value via taxation: Taxation is the only thing (excepting blind faith) that gives £Sterling worth (here in the UK).

Taxation is used to destroy circulating £Sterling - not as a punishment for producing goods and services, nor to finance Government spending. The Government decides whether or not to tax (death is certain, taxes are not); and, if it decides that taxes are necessary, at what level, and who will pay said taxes - politics.

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24 minutes ago, KDave said:

Taxation is not used to finance government spending? On this we must agree to disagree. 

I have never (well, not since ‘I saw the light’ ?) said, nor implied, that taxation financed anything, let alone Government spending.  Taxation is used  to remove £Sterling from circulation - the amount and velocity of removal, and what section of the economy bears the ‘burden’, is a political decision.

The UK Government uses taxation for other reasons than £Sterling removal.

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I must apologise because this is where the idea loses me. IMO Taxation is goods and services being given to the government via the medium of currency for it to spend. Borrowing is taking the promise of goods and services to spend today, via the medium of currency. Taxes and borrowing fund spending. Creation of sterling and destruction of sterling alone, changes the measuring stick. 

Borrowing from the future and default on obligations to repay debt, these effect the economy. The creation or destruction of sterling alone will not do anything but change price of things exchanged in sterling. To get anything out of new sterling you must back it with borrowing or tax, or else you have just made the measuring stick longer.

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You’ve really got to think of it the other way around.  The Government doesn’t need to tax, nor borrow, in order to spend.  The UK Government’s (and any other government that issues a sovereign, free-floating, fiat currency’s - e.g. US, Australia, etc.; not Germany, Greece, etc.) spending and borrowing  do not work in the same way as household/business/Local Authority/Devolved Government’s.  The Scottish Government can not create £Sterling, therefore it needs funds before it spends.

How much £Sterling is created/destroyed is a political decision - which, of course, will have different effects on the economy - not one limited to a finite amount of Sterling (which is infinite by its very nature).

The UK’s £Sterling debt never has to be repaid (see above); and there is a cognate argument against repaying it - but that’s a political decision, not one that effects the mechanics of £Sterling.

If the UK Government decided to spend £10bn tomorrow on building new homes; it would not need to borrow the money; it would just (OK, the actual process is a little bit more complicated - due to EU rules - than ‘just) spend the money into existence.  It would not be obligated to either tax nor borrow that spending back out of existence; it may or may not do so - politics.

There isn’t a lot of evidence that spending disadvantages future generations - think of all that Government spending that took place after WW2; it hasn’t been ‘paid back’, and we’re certainly not suffering for it now.

Our National Debt is only the total sum of all budget deficits since £Sterling came into use.  It represents all the £Sterling in existence that doesn’t have to be repaid (technically Gilts have to be at some time, but the £Sterling required can just be created).  Imagine the devastating if all that currency was removed......

As an aside.  The National Debt isn’t as much as we are led to believe.  The £460bn of Gilts bought during QE are now ‘owned’ by the BOE.  Who owns the BOE?  The UK Government (let’s not pretend otherwise ?).  As it’s impossible to owe yourself anything (The Treasury certainly aren’t paying the interest on them http://www.thisismoney.co.uk/money/news/article-2230579/Treasury-receives-35bn-money-Bank-England-QE-gilts-interest.html), they have, in effect, been written off; they will never be re-sold into the market; they will just languish on the BOE’s books forever ( http://www.taxresearch.org.uk/Blog/2015/09/04/quantitative-easing-has-never-been-repaid-and-theres-not-a-hope-it-will-be/) Hey presto!  The UK Government created £460bn (debt-free) and introduced it into circulation; at the same time it wiped £460bn off it’s National Debt - no wonder many believe that QE is, or should be, illegal ?

 

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£sterling is a currency. it is there to facilitate trade.

governments create more/less £sterling as and when

required. they trade that £sterling for real goods and

services on the credit of the people backing sterling.

it's goods and services traded for other goods and

services via £sterling. £sterling is only a receipt for a

promise to pay. foreigners only accept £sterling as

payment because they hope to spend that £sterling

at a later date. governments spend the £sterling

whenever they want but tax payers have to pay off

that credit bill at some point in time. create too much

£sterling and if creditors call in that debt, it will create

inflation. governments do not have their own money.

every time they spend, they are spending tax payers

money.

 

HH

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All £Sterling belong to the UK Government.  As such, there is no such thing as ‘tax payers’ money’ - if there is, where is it held? (certainly not at the BOE).  When taxes are paid the £Sterling are destroyed, they do not go into a central pot/bank account, to be distributed at a later date.  The UK Government alone has the legal authority to create and destroy £Sterling at will (it may grant licenses, but the buck stops with them) - there may very well be disastrous consequences, but that doesn’t take away their power to do so.  

How does the UK Government pay for Gilts as they mature? How has the UK Government Gilts that have matured in the past?  How will the UK Government pay for maturing Gilts in the future?  We all know the answers; so why all this talk about Debt repayment.

If, as you insist (which I refute), the Debt has to be repaid; why all the stress about future generations having to pay there fair share of it?  Surely they will get as much, if not more, benefit from the spending (..on infrastructure, R&D, training, education, border controls, diplomacy, etc. etc. etc.) than the present generation - so why shouldn’t they contribute?

 

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I can't see it the other way around because that's not how the world works. HH laid it out best in his last post. 

Future generations do not always benefit from the spending of the last generation. For example, Pensions are being paid to feed house and cloth and service a lifestyle of consumption, this benefits the next unborn generation who will pay for it, nothing. Debt is being issued to pay for this which won't be possible to repay for decades at no benefit to the people who will be taxed for it to be cleared. 

Gilts are a good example of why the debt must be repaid, it's borrowing that is keeping the game going and without it services would not be possible, pensions would not be paid, public workers would not be paid. Sure you can up taxes but we are already the most taxed nation on earth how much can you push the string before it breaks. 

Lose credibility by defaulting on a debt because you can't find buyers to roll it over and the government will find it can't pay for anything I listed. Currency is largely irrelevant to this reality, creation of more just changes the price of everything without adding any value and is a default on debts measured in sterling in everything but name. In other words the debt must be repaid, or you default. Creation of currency is linked with one of those two options. 

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29 minutes ago, reidpj said:

As such, there is no such thing as ‘tax payers’ money’ - if there is, where is it held?

 

maybe I should have used 'the promise to pay off the

debt from future taxes'. governments spend first and

receive settlement of that debt at a later date. the

payment of that debt is not in £sterling but the work

required to acquire that £sterling in order to make tax

payments. work that foreign holders of £sterling may

find useful and exchange their £sterling for.

 

HH

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On 02/01/2018 at 23:17, reidpj said:

How are you going to pay for it?

Posted on May 4 2017

The most dangerous question in political debate in the UK is the one always rolled out by every journalist, on air or in other media, which is to ask a politician ‘How are you going to pay for it?’ where ‘it’ is whatever the politicians has just proposed to do.

Why is the question dangerous? Three reasons.

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.

Second, this means that the assumption that the government behaves like a household with regard to debt is just wrong. Households can’t create their own money out of thin air to repay debt but governments with their own currency and central bank (as the UK has) can. £435 billion of quantitative easing since 2009 proves this and yet everyone pretends that this has not happened, which is ludicrous. The fact is that governments and households are not the same at all because households may be constrained by the need to repay debt but governments are not.

Third, so long as the creation of government debt keeps pace with inflation and it does not overheat the economy by trying to create more than full employment then government debt is not a problem any more than having money in your pocket is a problem. And that’s unsurprising because the money in your pocket is government 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?

So, what’s the answer to that question in no more than 100 or so words? Try this:

We’re not going to pay for it. We’re going to issue debt to pay for it. That’s because people like pension funds, the banking system and prudent savers are exceptionally keen to buy that debt. But more than that, government debt is just money. Read what it says on any bank note and you’ll realise that is true. And a growing economy needs more money and it’s the government’s job to create it. So we will. 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.

And if the follow up question is ‘But what about repaying the debt?’ the answer is:

I really think you should look at the history of government debt since 1694. It’s grown, a lot, and almost continuously. And very rarely has any been repaid. And that’s a good thing. Because government debt is what underpins the value of our money. So repaying it cancels money. If you don’t want money I’m happy to take whatever you wish to donate, but most people see value in cash. And so do I. That’s precisely why I don’t want to repay government debt. It would cancel the money we all depend on to make our economy work. You may think that’s a good idea. I definitely do not.

And then to the bemused comment ‘But who pays then?’ which is bound to be the retort the answer is:

As I have explained the government does. It uses its money to pay. That’s the money it effectively puts into the economy by creating debt that people want to buy and it’s the money that people owe in taxes - which is then the government’s money. So the government pays. But if what you’re really saying is does this mean more tax the answer is no, it doesn’t. It means we will create more debt because the economy needs it. Just to keep pace with inflation we need to create about £50 billion of new debt a year to provide pensioners, banks and other savings institutions with the government debt that they need to keep the economy going. I’m not going to risk a financial crisis by refusing them the debt they need when at the same time I’d also be creating unemployment, harming those in need, be denying health care and would undermine education as well as the security and the safety of our country. Thanks very much, but I’ll keep the bankers and financiers of this country happy by creating the debt they need and by providing public services all at the same time.

And it you want a slogan then it’s ‘Government debt meets everyone’s needs’.

 

Who promises to pay of the Debt with future taxes?

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