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A Neat Way to Get Rid of the UK's National Debt?
Comments
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Wouldn't it just be a book entry at the BoE as the BoE (I think) pays coupons on Gilts? I am not an accountant nor do I pretend (or indeed intend) to be.
The registered nominee holder of the gilts will receive the interest coupon just like any other investor. As the payment made will be automated.
The BOE is holding the interest in a bank account in its own books.0 -
Thrugelmir wrote: »
The BOE is holding the interest in a bank account in its own books.
On its own books as a "wholly owned subsidiary" of the Government ,how the figures on paper move is a not really the issue, apart from keeping up the smoke and mirrors charade.
Student fees are little different. Nominating the debt then underwriting it merely takes the debt of the public balance sheet. The debt will be recovered by future taxation (fees), if not, written off back to the exchequer at some future point. Based on the current FE model that will IMO be much more than they would like to admit."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »On its own books as a "wholly owned subsidiary" of the Government ,how the figures on paper move is a not really the issue, apart from keeping up the smoke and mirrors charade.
As I said in an earlier post. The Treasury is still borrowing this money on the open markets so is incurring interest. There's no smoke and mirrors but actual transactions. That make no sense financially.
Rather like individuals that put their debt and savings in different pots in their minds.0 -
Once the APF has bought gilts in the QE auctions the interest payment just become accounting entries in effect anyway.
At treasury
Dr cash Cr gilt liability (this actually happens at DMO then is transferred to treasury but trying to simplify...)
Dr DMO budget Cr cash
At DMO
Dr cash Cr budget payment from treasury (income)
Dr interest Cr cash
At APF
Dr cash Cr income
As all of this lot is owned by the govt the substance of all the entries (after the first where you borrow the money to pay the interest) is that they are self cancelling. It is actually pretty stupid to do anything other than net them all off (as now proposed) as if you don't net them off then the substance is that the govt is borrowing money and paying it to the APF to have it sitting there in a bank account.0 -
As far as I can gather, this just brings forward future income due to the Treasury to today.
The Bank pays, what, £120ish for its gilts. When they mature they get the £100 back; so making a loss of £20. As it stood, they had the coupon to give them a small profit on the gilts they bought after the capital loss is taken into account. So instead of realizing a profit in future when the Bank gives the income to the Treasury once QE is unwound, they're giving them the interest now.
Seems to me it's just an accounting trick to flatter the books now at future expense.
The figures quoted on the news are the ones 'excluding financial interventions' so I wonder if this interest will affect them?“I could see that, if not actually disgruntled, he was far from being gruntled.” - P.G. Wodehouse0 -
Thrugelmir wrote: »Not an accrual as involves a physical transfer of cash.
So who owns this cash ? The B of E itself, or a depositor ? If the fomer, as has been said the B of E is owned by HMG so the money belongs to HMG. If the latter, is the depositor in question HMG ? If not who ?
I just found a Peston take on it. He reckons it's effectively been an example of the government doing business with itself, at a cost, and the change is no big deal with no significant economic impact. The issue seems to have been blown up by people who do not know that, or choose to ignore that, the B of E is not an independent bank, but a government owned quango.No-one would remember the Good Samaritan if he'd only had good intentions. He had money as well.
The problem with socialism is that eventually you run out of other people's money.
Margaret Thatcher0 -
GeorgeHowell wrote: »So who owns this cash ? The BofE itself, or a depositor ? If the fomer, as has been said the BofE is owned by HMG so the money belongs to HMG. If the latter, is the depositor in question HMG ? If not who ?
I am still struggling to appreciate the alleged significance of this.
Who owns the cash is irrelevant.0 -
Thrugelmir wrote: »Who owns the cash is irrelevant.
Why so ? If the government is effectively just moving its own cash around isn't it entitled to do so ? Simplistically is it any different from you or I moving cash from one account, or bank, to another to get a better rate of interest ?No-one would remember the Good Samaritan if he'd only had good intentions. He had money as well.
The problem with socialism is that eventually you run out of other people's money.
Margaret Thatcher0 -
As far as I can gather, this just brings forward future income due to the Treasury to today.
The Bank pays, what, £120ish for its gilts. When they mature they get the £100 back; so making a loss of £20. As it stood, they had the coupon to give them a small profit on the gilts they bought after the capital loss is taken into account. So instead of realizing a profit in future when the Bank gives the income to the Treasury once QE is unwound, they're giving them the interest now.
Seems to me it's just an accounting trick to flatter the books now at future expense.
The figures quoted on the news are the ones 'excluding financial interventions' so I wonder if this interest will affect them?
Yes. The Treasury has indemnified the Bank against any loss they may make by purchasing the Gilts via QE.
Therefore the coupon payments being handed over to the Treasury now will need to be made good at some stage in the future.'In nature, there are neither rewards nor punishments - there are Consequences.'0 -
GeorgeHowell wrote: »Why so ? If the government is effectively just moving its own cash around isn't it entitled to do so ? Simplistically is it any different from you or I moving cash from one account, or bank, to another to get a better rate of interest ?
To pay the interest to the BOE. The Treasury borrows money on the open market. Currently around £35 billion. So no makes no sense.
Its like you borrowing a £1,000 on your credit card to make a purchase when you already have this sum in a savings account. As the net effect is to cost you money unnecessarily.0
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