PTK
Paul Kegan
Like premimum bonds? Like shares?
Chancellor Rachel Reeves: Her Time Is Up!
- Thread starter Larry O'Hara
- Start date
Elpenor
Well-Known Member
PTK
Paul Kegan
I thought that it was the case that auctions of government debt are not carried out by the government. I may have got this wrong, but I thought that the reference to the auction of government debt referred to people who held government bonds selling them to other people.
kabbes
First intersubjective, then internalised
No, that’s just done through market makers, same as shares. The auctions of government debt refer to new issues of debt.
After all, the government only directly cares what their new issues sell for. Past issues only matter to them indirectly, by being competitors for their new issues and thus influencing the price.
PTK
Paul Kegan
I wish that this was explained in the news reports I read.
Smokeandsteam
Working Class First
According to this Reeves time is nearly up. And if true, a) the replacement will be no better and b) Starmer wont be far behind:
teqniq
DisMembered
The "markets" simply refers to those who buy gilts and hence lend money to the government. That includes me (in the past, when I had some spare cash), my pension fund, and quite probably yours as well. We all have the right to decide whether or not UK gilts are an acceptable risk, and hence lend our money. That risk became marginal in 2022 after Truss' absurd mini budget.
But at the end of the day, we are talking about a financial transaction, where we weigh up the risks before committing our money. Just like any financial decision. There's nothing unusual or sinister about it.
Smokeandsteam
Working Class First
There is no risk in buying UK gilts.
There is the risk that the government may default.
In the case of the UK that has historically been deemed to be a low risk, it's true; but when the government decided in 2022 to issue gilts to fund tax cuts, the market concluded that we had a batshit crazy government that was no longer to be trusted.
magneze
🎧
Check the spelling, looks like a fake.
"Twitter is so useful". It really, really isn't.
Smokeandsteam
Working Class First
There is no risk that the government might default as it prints its own currency.
Therefore, ‘risk’ is entirely a construct of the market, and the market deems ‘risk’ to be increasing when the government does something it does not like: like Truss unfunded tax cuts or Reeves unfunded budget that was not part of the manifesto.
Let’s say, a Labour government was elected that wanted to massively invest in infrastructure, reduce inequality, guarantee full employment and wanted to bring public services back under public ownership. The market would inevitably deem such a programme to be a risk and would whack up yields on UK gilts.
At some point, a popular government (so the current one can safely be ruled out), enacting a programme that has mass popular support would inevitably come into conflict with the ideology of the market. In fact, the only way a walking dead economy like the UK could ever change it’s economic future is by coming into conflict with the market.
I respectfully disagree.
The government, through the agency of the Bank of England, certainly creates its own money. However, this is "central bank money" that is used for the settlement of commercial bank payments and to maintain commercial bank reserves. It is not used to fund government spending, as it can only circulate between accounts held by around 200 financial institutions on the BoE's banking systems. There is no mechanism for central bank money to circulate or be spent in the wider economy. Aside from which, central bank money is an asset to the commercial banks in whose accounts it sits; but that means it is a liability to the Bank of England, not a spendable asset.
To spend, the government is in the same boat as the rest of us. It needs commercial bank money, which is money created by the commercial banks on their books. We are all paid in commercial bank money. We pay our taxes to the government in commercial bank money. When we buy gilts, we use commercial bank money to pay the government. And when the government redeems gilts, it uses commercial bank money to pay back to us.
The risk of the UK government defaulting on gilts is the risk that it cannot get access to sufficient commercial bank money to fund the repayments. It is not a risk that is mitigated by creating new central bank money.
(It has to be acknowledged that neither the government, nor the Bank of England, nor the economic textbooks do a great job of explaining any of this.)
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teqniq
DisMembered
I just provided the screenshot as requested, I made no claims regarding the veracity. However that account is not known for posting fake news and they have followed it up with the Times article that they are basing the tweet on.
archived version:
Business is cold on Rachel Reeves. Will the PM freeze her out?
HeAthen
Nadgers.
You never know, we might see her up here in her constituency........
I won't hold my breath.
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