Corbyn's PQE
I find this format for replying difficult to use!
Quote: Surfinjo
The entire basis of the free enterprise economy has been based upon the notion that spending provides funds for investment. Investment creates jobs and income, income is spent providing funds for investment. Income also results in tax which pays for public services which in turn, allow individuals the best opportunity to innovate, create, work and increase their own personal incomes, thus improve their own spending / investment power and the levels of taxation they pay.
I have no argument with that at all. But spending by borrowing puts it into a different light.
Quote: ProVox
He repeatedly refers to ‘buying Government Bonds’ but these bonds are only required as security for a loan if ,as I believe Corbyn is proposing, the money goes straight from the BoE as an INVESTMENT in UK Ltd., it is NOT a loan.
Reply: Surfinjo
I'm sorry but it is. The purpose of Government bonds is partly to raise finance for capital projects and also to demonstrate to outside investors the health of the economy.
I disagree with you on that but only when it is applied to currency creation by the central bank as opposed to that as currently created by the commercial banks. A bond is no more than an IOU and an IOU is a promise to pay. If the currency is raised by the BoE creating it as currency directly into a State Investment Bank, then it is exactly the same as the Central Bank making an investment into shares. A share certificate is not an IOU it is a receipt for your investment of currency into a company, or in this case a
non-market traded receipt of investment into a State owned enterprise. The currency has been paid out, never to be repaid (
as is the original purchase price of a share, where the ‘trading’ is then on the value placed on the receipt by The Markets) and the return to the investor, in this case the State owned Central Bank .... i.e. you and me, comes from the '
dividends' of the investment ....... the creation of wealth in the resultant boosted economy.
The current system just allows the commercial banks to create the investment currency needed to purchase the bonds, out of nothing. They do this simply by offering credit (
Debt) and when the government spends the credit, hey presto the bank has created new currency to the credit limit when those benefitting from the investment pay it into their accounts. That is how currency is created according to the BoE. Quote ‘
Every time a bank creates a loan, it creates at the same time an equal deposit of currency in another account(s)’ they go on to say ‘
Every time a loan is repaid it destroys that amount of currency by removing it from the economy to write off the debt.’ (Ref: BoE Bulletin 1st Quarter 2014 – The creation of money in the modern economy’)
Quote:Surfinjo
No. money creation is through economic growth.
I think you are confusing '
wealth' with
'currency/money'?
Currency and money are similar but not the same thing. Money has one quality that currency does not have ..... it is a store of value over time. Currency is nothing more than an IOU and has no intrinsic value. We work to create wealth and this manifests itself as a deposit in our bank account but even this is not money, it is actually an IOU from the bank ....... who have just '
borrowed' your currency deposit to use as part of their reserves. This is why depositors are unsecured creditors of a bank (
As Cypriots found out when the Troika imposed the infamous 'Bail In').
Put simply the only '
money' (
actually currency ... not money) the bank has is your and my deposit’s which is why to a bank, deposits are a liability, they have to be repaid at some time. (
Unless you happen to have it in a Cyprus Bank, then it is optional!)
They then use their reserves to generate currency (
FIAT Currency) applying the principal of fractional reserve banking, by creating debt (
They call them loans but they don't actually loan anything) but they do not and cannot lend their reserves. It is a common misconception that banks loan depositor’s accounts to borrowers. It is the other way round .... loans create deposits!
We can in theory convert our currency into wealth by spending it on tangible assets such as Kruger Rand, gold sovereigns, gold/silver, land/property as these, like real money hold relative value over time but these are finite resources.
It is the commercial banks not the BoE that has been creating currency through QE. The BoE only sells the Govt. IOU's (
Bonds) to the commercial banks and then passes the sale proceeds back to the Treasury. The bonds are now bank assets as they expect to receive back the currency they have created, to write off the debt they created for the Government. Banks only make a profit out of the interest not the return/repayment of the capital ........ that is a simply a book keeping exercise.
What went wrong with the UK’s QE was that the banks were in a position to create loans but there were few takers. So they put much of it into shares and bonds, which boosted share/bond markets, not the economy and the only significant loans taken up were for house buyers, the collateral being the property which would continually increase in value all the time the banks could lend at very low rates of interest. When interest rates rise people cannot afford the mortgages and they default and as a result property values drop. (
The bubble bursts ..... 2008 sub-prime mortgages?)
I honestly feel that not enough has been done to educate the general population on how the ‘money’ they spend is created in the first place. I have tried and have found that even relatively intelligent people find the concept of private commercial banks creating 98% of currency in circulation out of thin air ..... find it difficult to accept that that is a fact ..... not a ‘conspiracy theory’. When I asked one very well educated friend why it felt that it was not true, he replied “Well .... it’s obvious!” i.e. he didn’t know why it was obvious only that it runs against common sense so that alone makes it ‘
obvious’.
S'jo .... still having problems! This was pasted from Note book but the paragraph breaks have all disappeared although the gaps between words seems OK now.