Monday, 10 April 2017

No? Surely Not?

Here

The Bank of England implicated in the 'fixing' of LIBOR. Quelle surprise.

As in my view (and the view of many others) the Bank of England's first of two main purposes is to 'fix' interest rates at a level less than the market would voluntarily lend to the government at, it is hardly surprising that they were, allegedly,  helping to 'fix' LIBOR.

(The second main purpose of the Bank of England is, having borrowed money at below market rates for the government, to work out how not to pay it back.)

10 comments:

DBC Reed said...

@L
Why " if the majority of money in the modern economy is created by commercial banks" is the Gov borrowing off them in the first place? Why doesn't the State create the money itself? Or as Lvt stalwart Martin Wolf says in FT 9.xi.10 "The essence of the contemporary monetary system is creation of money out of nothing ,by private banks' often foolish lending". Or 24.iv.14 FT"Strip banks of their power to create money" followed by his remarks at a "Does Money grow on Trees" Conference 18.xi.14 "Why have we given out greatest social creation- money- over to private profit-seeking companies?"

Mark Wadsworth said...

Broadly agreed. As a taxpayer, I commend this behaviour. As a saver, I am appalled.

Lola said...

@BDCR.
1. Search me?
2. And of course the state does 'create money itself'.
I hold that the whole bloody system is corrupt and it starts with corrupt central banks.

Lola said...

MW. You're shafted either way.

Mark Wadsworth said...

L,

Point 1, a government "creating money" and "running a deficit" are exactly the same thing.
Point 2, as a taxpayer, I am happy for the government to keep interest rates as low as poss.
Point 3, as a saver, I am appalled in equal and opposite measure.

Only I don't have much savings so 2 outweighs 3, but as a future taxpayer, I don't like 1 either, ergo, best is government does not run a deficit.

Ralph Musgrave said...

DBC Reed, Re your question: why does government borrow off commercial banks, the answer is that it doesn’t to any great extent. When government wants to borrow, it borrows off any willing lenders out there. The willing lenders are mainly pension funds, insurance companies, unit trusts, and a few private individuals. The proportion of government debt held by commercial banks is quite small: 2% in the US and 10% in the UK last time I looked at the numbers.

Re your 2nd question, why doesn’t government create the money itself, good question. Milton Friedman and Warren Mosler (founder of Modern Monetary Theory) argued for a “zero government borrowing” regime.

So why do governments borrow? The best answer, far as I’m concerned, was given by David Hume writing in the mid 1700s. He said governments borrow in order to ingratiate themselves with voters. I.e. voters squeal a bit less when governments borrow as compared to when they raise taxes.

You are required to drink to David Hume this evening. That’s an order, not a request…:-)

Lola said...

RM. So that's David Hume, you and me in agreement then?

Mike W said...

Ralph,

'So why do governments borrow? The best answer, far as I’m concerned, was given by David Hume writing in the mid 1700s. He said governments borrow in order to ingratiate themselves with voters. I.e. voters squeal a bit less when governments borrow as compared to when they raise taxes.'

Nice. How do you explain this to Daily Mail and Express pension holders? Who will no doubt tell you that wicked Guv bonds only balance the books each month/year in socialism. And if only that nice Mr Osborne was back in charge we would could 'hope to have' zero government bond sales and a balanced budget, as soon as year xxxx. Which is a jolly good political and economic goal. But as soon as I mention that Bond sales are, in effect an optional government service to crusties, they go mental, and I find I am on the set of Family Guy.. :)


If Ralph drinking to Hume tonight, Lola drinking to Hume tonight, DBC Reed drinking, I'm drinking to Hume tonight. I conclude every poster on this site is drinking to Hume tonight..... No, wait a minute....

Lola said...

Mike W. From memory the original way government borrowed was by issuing annuities. Something to do with funding the Napoleonic war I think. That's why Gilts are used to back annuities. Generally. I mean you don't need Gilts to back annuities you could any old bond (of reasonably good quality).

DBC Reed said...

I should imagine everybody on here is drinking of a night to drive away the horrible doubts occasioned by Googling: Banks Create Money and reading Positive Money's merciless skewering of the soppy monetary myths of the hard right.
When I were a lad, a friend's father was a spokesman for the Flat Earth Society.He was delighted by the advent of Sputnik; not because he could answer the basic question but because the papers were always ringing up for stories. He played a straight bat steadfastly avoiding the issues.He would be a career diplomat nowadays.
Other methods of avoiding the horrible truth and preserving one's personal dignity were revealed by the Amazing Randi, the stage magician and escapologist. He went on to show how Uri Geller faked his stunts after first exposing on TV how a fake healer diagnosed his victims' illnesses by listening via an earpiece to his wife reading out the details ,including full addresses, which they had handed in on arrival at the auditorium.
The sad fact was this latter guy (Popof?) increased his popularity afterwards with his fans not believing that anybody as clever as themselves could be taken for fools.