I’ve just got figures for how much of the money borrowed by the government since April (by issuing IOU notes – also known as government bonds or gilts) now has the Bank of England as creditor (which created the money to do so from nothing). /1
Of the vast £485.5 billion being borrowed in this financial year (2020/2021), £450 billion will be owed to the Bank of England. This is why it’s wrong to say because we’ve got big debts, we must fix them immediately.
Financially, governments aren’t like households. As sovereign currency issuers, they can borrow vast sums from themselves (the Bank of England is ultimately another branch of govt).
After the financial crisis, austerity in public spending and weak private investment led to the worst decade for improvements in living standards in 200 years. Please, not again.
The pandemic put the economy and the public finances on something very like a war footing. Note in 1945, when debt was much higher, the Attlee government embarked on the biggest expansion in peacetime of the role of the state and public spending. Far from mortgaging the futures of the children of that generation’s voters, it was a long-term strategy with long-term goals in mind: a better future.
And the children of that generation ended up, when they grew up, with far greater prosperity than any preceding generation.
All of which is to say that if you get the economy going with sufficient momentum, you can then grow your way out of debt – rather than cutting your way out of it. Taxes can rise later, at a time when the brake they put on economic growth won’t bring things juddering to a stop.
He really needs to conclude with the word ‘investment’. But I suppose it’s only a Twitter thread so I shouldn’t be too picky.
We probably also need a new expression other than ‘government IOU’, because you cannot actually owe to yourself.
But this is still progress – let us hope the rest of the BBC catch on – fast!