The debt deception

It was announced on Friday that government debt for the first time since 1963 is greater than GDP. Indeed it might be worse because GDP is currently declining.

Really that is all quite remarkable…

How fortunate we are that there were people waiting in the wings with the odd billion in their back pockets – just waiting to lend it to us.

Goodness only knows where these billions were before – because you’d expect wherever and whatever they were invested in before to be now screaming that there had say, been a run on their bank.

I haven’t heard that, have you?

So it must have been in cash under the bed – it really is the only possibility. We are likely to need still more ‘borrowing’ so let’s hope there is still more where the original lot came from.

All these sensible savers really are so good to us in our oh so highly indebted nation….

Except that actually, I fear this is all nonsense.

It is either propaganda or basic misunderstanding.

Simple logic suggests that these people with billions in their back pockets do not exist (well they do but at the last count there were only 147 of them in the UK and – in this context – that is not enough). The private banks could of course create the money – yet surely they couldn’t insist on interest as they haven’t paid back the principal of the last lot they received in 2008 so it would need to be at no profit – and I don’t think that is their style. And why would the government borrow from a private bank when, in the form of the Bank of England, it actually owns its own?

If we persist in the idea that asking the Bank of England to create money puts us in debt, then given its only shareholder is the government we are actually in debt to ourselves – and that is no debt at all.

And logic dictates that if you are not indebted you do not have anything to pay back.



  1. Bill Hughes -

    There may be a few billion squirreled away under mattresses in Jersey, Isle of Man, BVI. Cayman Islands et al but why go to all the bother to access funds these when all it needs is for a clerk at the BOE to make a few strokes on a computer keyboard at the behest of the Ways and Means Committee and Bob’s your uncle, problem solved, enough money for all that is needed!

    1. Peter May -

      I don’t think the tax havens either would be able – were they so inclined – to provide sufficient funds for us to ‘borrow’…

  2. Charlie Grafton -

    For those who want more info and political-economic context&theory, check out Modern Monetary Theory (MMT) and Positive Money.
    Important to understand that government media-supported narrative is to deceive us that our sovereign currency, the source of all spending, does not belong to all of us but only to a few.

    1. Peter May -

      Agreed – my point was particularly to show that never mind the actual economic ‘workings’, on the basis of simple logic, the debt narrative does not stack.

  3. Graham -

    The old saying that knowledge is power is why the government and the billionaire press won’t let on that the emperor has no clothes, otherwise we might get ideas above our station and realise that lack of money is not the reason the NHS (in England) is being sold off and that poverty is a direct result of political decisions not to spend.

  4. Calgacus -

    If we persist in the idea that asking the Bank of England to create money puts us in debt, then given its only shareholder is the government we are actually in debt to ourselves – and that is no debt at all.

    Correct on one interpretation, but verges on common misconceptions of those who should learn MMT more precisely.

    Of course, a central bank or government spending puts the state into debt. That is what money is. A credit to the holder, a debt of the issuer. We don’t have to issue bonds, pay interest, whatever in addition, and play silly games exchanging them. But “government credit and government currency are one and the same thing.”

    Of course if it is held domestically, it is just “us owing ourselves”. Just as if you borrow anything from your brother, owe him in any way – That cannot make your family as a whole owe anyone outside your family. But an American holding a UK pound note is a creditor of the UK, the UK is in debt to him. Simple. And just because you don’t owe anybody outside your family doesn’t mean you don’t still owe your brother. 🙂

    In any case, the “paying back” occurs when someone pays their taxes. That doesn’t mean that governments have to “get paid back”, receive taxes on any set schedule, cannot run up higher indebtedness, issue more money, should worry about debt/gdp ratios or debt sustainability.

    Even private concerns (usually utilities) who don’t issue money can survive for decades with increasing debt loads, if they have sufficient financial power due to steady demand for their services. This little known fact illustrates the absurdity of worrying about government finances, as they have far greater financial power than any firm and enjoy universal demand for their service (of not putting you in jail or taking property for non-payment of taxes).

    1. Peter May -

      Good points – you’re right to highlight foreign debt – particularly as Britain imports roughly 50% of its food, which is why I have suggested that the Rule of Law is so important.
      But the point of this piece particularly was to focus on the idea that the ‘debt’ has ‘now’ increased to be greater than GDP. This increase was in fact all the Bank of England’s work! Which is why I said it was no debt at all….

  5. B. Gray -

    American MMT economist, Stephanie Kelton, has just published (June 11) a new book, The Deficit Myth, that blows away all of the myths and false narratives around government debts and deficits for monetary sovereign nations such as US and UK. I am only part way through the book, but so far it is a good read.

Comments are closed.