Why bankers rule the world

Jegersmart

CLAPTON wrote: »

it writes a cheque

Drawn on what?

J

CLAPTON

Jegersmart wrote: »

Drawn on what?

J

drawn on the BoE

Jegersmart

Clapton.........naughty naughty.....:)

So where does the BOE get the funds that the cheque draws on?

(Can we stop playing games now)

J

CLAPTON

Jegersmart wrote: »

Clapton.........naughty naughty.....:)

So where does the BOE get the funds that the cheque draws on?

(Can we stop playing games now)

J

what don't you underestand?

the BoE can print currency Notes and mint coins.
there is no limit to what it can print.
this money is accepted by all businesses, ordinary people, banks etc. so a BoE cheque is backed by it's ability to print as much currrency as it likes.
In practice there is merely a journal entry to mark the creation of money.

Jegersmart

Hi Clapton


Thanks for that - so finally we are there. The BOE has the ability create money as needed out of nothing. With that money, it can decide to do many things - one of which is to buy securities in the market. Are we agreed so far? If the Government needs more money, it could go to the market to see if the participants will lend it money. If that is the case, the Government will create a Gilt or similar and sell those to the market. In this scenario, no money is created, the money that already exists is buying those Gilts (lending money) in return for "interest" and then at some point the "principal".

If there is insufficient demand for Gilts, either due to market conditions or a genuine need for additional money supply and the Government needs funding, can it go to the BOE and ask for that money to be handed to them?

Thanks

J

CLAPTON

better to keep a clear distinction between the bank's role
- in managing the money supply
- in acting as banker to the government.


Where the government is running a budget deficit (like now) the government can raise funds by 'selling' securities to the BoE and so can then write cheques on it's BoE a/c.
This will mean an increase in the money supply.

If it sells treasury bills to the banking sector then again the money supply is increased. This is because although the banks use 'existing' money to buy the treasury bills, the money the government uses ends back with the banks; however the banks have a treasury bill as security which counts as part of it's liquidity.

If however the treasury bills are bought by the non banking sector then there is no change in money supply.

Jegersmart

Great.

So, would you say that when new money is created - i.e. when the Government "sell securities" to the BOE so they can "write a cheque" that they will issue a Gilt or similar in exchange for the money from the BOE?

J

CLAPTON

I'm only an amateur with an interest in economics; so I'm interested in the 'money supply' and how governments can create it.
However I don't really know the full mechanisms of the relationship between the BoE and the Treasury.

grizzly1911

CLAPTON wrote: »

I'm only an amateur with an interest in economics; so I'm interested in the 'money supply' and how governments can create it.
However I don't really know the full mechanisms of the relationship between the BoE and the Treasury.

Child and parent respectively?

antrobus

Jegersmart wrote: »

Hi Antrobus

Thanks for the response. I am not sure whether you are being deliberately obtuse, I was looking for some reasons as to why I am wrong, not for you to reiterate that you think I am wrong...

What do you mean by "reasons that you are wrong"? You made a statement that "whenever the money supply is increased, governments do so by issuing gilts/t-bills whatever and the central bank in question buys those interest bearing instruments from the government which it created out of thin air". That statement is just wrong, inaccurate, mistaken, unsound, etc and so forth, and so on.

Jegersmart wrote: »

... Does that make sense?

No.

Jegersmart wrote: »

Also, why are you so hostile?

Why do you interpret disagreement as hostility?

Jegersmart wrote: »

I am trying to debate an issue which I think affects us all, you seem to be angry at me for some reason?

Debate works on this basis - You make a statement. I say the statement is wrong. You reply by either admitting you were wrong, or coming up with arguments in support of your original statement. Acting all bewildered doesn't cut it.

Jegersmart wrote: »

So to be clear, I am asking you the following:

1. Where does the BOE or Fed or ECB get "money" from? (I think you missed this one)

To do what exactly? If you're talking about quantitative easing, it doesn't get it from anywhere. That's the whole point.

Jegersmart wrote: »

2. I agree that money expansion does not only increase as a result of money printing, it also increases within the banking system.

There you go, I told you, you were wrong.

Jegersmart wrote: »

What I am specifically interested in your answer to is the specific scenario when money is printed. What happens then? What is the process? This ties in with the point being made around governments selling or issuing debt that I made earlier.

You mean, what is quantitative easing?
http://www.bbc.co.uk/news/business-15198789

Jegersmart wrote: »

3. Why are you being hostile? What is it about thos conversation that upsets you?

You really have a thing about 'hostility' don't you? In what way do you think I'm 'upset'?