Helicopter money

What do Central Banks do when interest rates are around zero or even negative, and Quantitative easing does not seem to be offering much stimulus?

Some say the next thing is helicopter money. By this they mean the Central Bank creates new electronic money in an account (the modern version of printing notes or clipping coins) and gives it to people. The idea is they would then go out and spend. The sages think that if the economy is working below full capacity then the extra money spent will be more demand, and will bring more of the unused raw materials and labour into use. Clearly the conditions would have to be very unusual. Normally if a Central Bank prints more and gives it away or spends the cash it leads to more inflation. Those countries that have tried it to excess end up with hyperinflation, like Germany after the First World War or Zimbabwe more recently.

There are disguised or more elegant variants of helicopter money that are on the agendas of some with power in our modern world. Finland, a poster boy of Euro financial rectitude, is struggling with no growth and lower living standards as a result of the cruel Euro policies being followed. There the government is asking should it move to a system of basic income, where every adult, rich or poor, in work or out of work, is given a tax free basic income by the state. Most other benefits would be removed to partially offset the huge costs, but there would still be a big increase in total public spending from giving money to people not currently on benefits. The idea is work incentives would be bolstered, as there would be no benefit withdrawal as people took on paid employment. If the basic income is enough to get by on, the incentive effects may not be as sharp as some hope. If the basic income is not high enough to live on, then the state will have to carry on with an additional range of means tested benefits for those in poverty.

Some think this is a variant of helicopter money, but under the Euro scheme it is not. Finland cannot print the money to pay for the basic income. Only the ECB can print money, and it shows no signs of wanting to send newly created money to an individual state to pay for more spending, which remains against its rules. So if Finland wished to stick within the tough budget deficit controls of the Euro it would need to raise other taxes to pay the bills. If it was prepared to break the rules on deficits then it would borrow more to pay the bills, making this a normal fiscal stimulus akin to a tax cut.

Another variant is Mr Corbyn’s People’s Quantitative Easing. Under this model the Bank of England would create new money to buy the UK more infrastructure, or it would buy the bonds the state needed to issue to pay for infrastructure in the more normal way. It amounts to the same thing if the state in due course cancels the bonds it has bought up from the market in pursuit of its QE programme. If the extra borrowings have later to be repaid to the private sector, then it is simply a higher borrowing policy of the familiar kind.

I trust the Bank of England will not need to play around with such measures. Nor should the USA need them. Bond and property markets have been pushed quite high enough already by the large Quantitative Easing programmes already undertaken by the four leading monetary authorities of the world. In the Euro area they need to break up the zone so currencies can find their own levels against each other again, and individual Central Banks can follow money policies and set interest rates appropriate for their country. Far from needing more radical and possibly dangerous monetary policies, the Euro needs to go back to more reliable basics. Monetary authorities need to work with sovereign governments who have control over taxing and spending in the area of the monetary union. Together national Central Banks and governments in each country could fix the slow growth and no growth of parts of the current Eurozone. If the Eurozone is going to develop more it needs to get on quickly with its ideas of political union, a Euro Treasury, a common European budget, and much larger transfers from rich to poor. That is what we have in the sterling currency union, and the USA has in its dollar union.

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106 Comments

  1. Lifelogic
    Posted December 11, 2015 at 5:28 am | Permalink

    Interest rates to most bank borrowers are not low. They bank have large margins and fees for most borrowers. What is really needed is confidence. The best think to give confidence would be a government that cut its endless waste and reduced taxes. Perhaps first by Osborne keeping his IHT promise of 7+ years ago.

    I had not realised that Cameron’s foolish promise not to expand Heathrow was another “no if no buts” one. This is one that he certainly should break as soon as possible and build one at Gatwick too asap. They take years to build get just get on with it. The delay now seems to be political due to his green, hug a husky lunacy and his foolish recruitment of the green priest Zag Goldsmith to detoxify the Tory brand (as the PR gimmick Cameron saw it). This just before Cameron threw the sitting duck Gordon Brown election in 2010 and we then had to suffer the Libdims.

    • Mark
      Posted December 11, 2015 at 10:04 am | Permalink

      Given that borrowers can pay less than 2% rates on a 75% mortgage, and recently as little as 4.25% on an unsecured £10,000 loan, if they are finding interest burdens high it is because they have borrowed too much.

      http://www.bankofengland.co.uk/statistics/Documents/bankstats/2015/nov/tabg1.3.xls

      Compared with the 15.5% mortgage rate I had to pay when I first bought a property, with 20% for a personal (guaranteed) loan, these rates are chickenfeed.

      • dame rita webb
        Posted December 11, 2015 at 2:58 pm | Permalink

        Here is something to worry you. Cameron and Osborne are not old enough to have experienced this. In the early to mid eighties they were having a fun time with the Bullingdon Club. Having said that though their daddies probably bought them their first homes anyway.

      • Lifelogic
        Posted December 11, 2015 at 4:00 pm | Permalink

        Many people are paying bank margins far higher that that also it is real rates relative to inflation that matters.

        Businesses can be paying perhaps 7% plus with zero inflation. The 15 % was just the daft Major and his idiotic Erm fiasco – still no apology or regret from the dreadful man.

  2. Dame Rita Webb
    Posted December 11, 2015 at 6:10 am | Permalink

    And that £27 billion that Osborne found is his Autumn statement is not “helicopter money”? It came from nothing more substantial than a forecast from the OBR that said everything is going to be groovy in future with regard to the UKs finances. Economic forecasting, remember which even the super Keynesian JK Galbraith said, made astrology look respectable. Enquiring minds might want to check out the Buttonwood column in the “Economist” website, from a few weeks back, to see the OBRs form with regard to predicting the future. The Conservatives must think people are stupid.

    • oldtimer
      Posted December 11, 2015 at 10:14 am | Permalink

      It is the default position of the ruling political class, of whatever political colour, to regard the voters as stupid – namely stupid enough to believe the “promises” they, the politicians, make when seeking election. It is the fundamental reason why the country spends beyond its means and runs up £1.5 trillion of national debt. The UK government run by Cameron and Osborne must be among the leading exponents of helicopter money.

    • Mitchel
      Posted December 11, 2015 at 10:22 am | Permalink

      Indeed.As one commentator (possibly Russell Lynch in The Standard) remarked – the OBR has discovered it can do QE too!

    • Bob
      Posted December 11, 2015 at 11:39 am | Permalink

      @Dame Rita Webb

      “The Conservatives must think people are stupid.”

      Well it worked for the Tories last May, and judging by the BBC QT audiences it’s easy to see how one might get that impression.

      The dumbed down education system limits the ability of ordinary people to challenge politicians on important issues. A large number of British people struggle to cope with their personal budgets never mind local authority or national budgets. That’s why lollipop ladies get laid off while chief execs of LAs get paid more than the PM.

      • Dame Rita Webb
        Posted December 11, 2015 at 2:30 pm | Permalink

        The “Office of Budget Responsibility” I wonder what Orwell would have made of that name? Well you can hardly blame the voters can you? This depression feels different from the recessions of the eighties. The news does not come with regular headlines of mass redundancies. So most of the punters out there probably feel things are going ok and a merry xmas will be had by all. However they are not bright enough to realise that their kids are being loaded up with debt and their pension fund is now a crappy DC version. The DB benefits they may have picked up earlier are also being threatened by ZIRP effecting the solvency of the scheme that they used to belong to. Also when they begin to drool they will be paying for LTC themselves.

        When the wheels eventually falls of this thing, the political elite will be shown to be what it is. Just a post graduate extension of the Oxford Union for the otherwise unemployable. What then fills the political vacuum after that is anybodies guess. However history shows you that you are more likely to end up with a Lenin than a Churchill.

      • Lifelogic
        Posted December 11, 2015 at 4:05 pm | Permalink

        Indeed many used to borrow money at 2000% Plus until recently while others even buy lottery tickets. Education is what is needed and perhaps brighter people. How can we aspire to equality if some people do things as daft as this?

    • Michael Walzer
      Posted December 11, 2015 at 1:40 pm | Permalink

      Seconded.
      As if economics were a (hard) science: obviously it always is possible to put a few (mostly linear) equations, impress the public and pretend one can forecast things.
      Look a few or more years back, try to remember what the economic forecasts were, anyone to score them? Any better than forecasts of climate change? but nobody to get incensed as much by these eno-comic forecasts. However, the impact of this failure is likely to have cost most of the UK population much more than whatever is being debated in Paris.

    • A different Simon
      Posted December 11, 2015 at 3:54 pm | Permalink

      Dame Rita Webb ,

      Perhaps they have started to believe their own B.S. ?

      Alternatively perhaps they know what needs to be done ( and it’s not cutting expenditure , selling the family silver or working harder etc ) but find it unpalatable .

      Because they are not Statesman they are resisting the medicine which would help the ordinary person but cost them and the interests they represent dearly .

      The problem seems to be that Govts and vested interests in The City/Wallstreet will not accept that the “financial innovations” which they were prohibited from using before the 1970s cannot be made safe and must be prohibited again .

  3. DaveM
    Posted December 11, 2015 at 6:17 am | Permalink

    Regarding Finland:

    If they offer a free income to all, then consequently every economic migrant heads there, they will have to call upon the ECB to print money to cover the extra costs.

    And seeing as how the EU’s free movement policy and Merkels invitation to the world will have caused the increased demand for money in Finland, the ECB surely won’t be able to refuse? Sounds a bit mad to me.

  4. mickc
    Posted December 11, 2015 at 6:22 am | Permalink

    But Corbyn’s policy is right. The country needs better maintained and more infrasructure (not HS2!). The time to borrow is when rates are low.

    Osborne’s policy has not worked because he cut capital spending and ramped up revenue spending; the debt has rocketed anyway, but with nothing to show for it.

    He should have slashed taxes and slashed revenue spending.

    This government is failing, on the EU, on the economy, and on foreign policy (Syria).

    When these finally hit, Corbyn has every chance of winning the next General Election, unfortunately.

    Reply Labour cut capital spending before leaving office. Mr Osborne has been increasing it again.

    • rk
      Posted December 11, 2015 at 10:11 am | Permalink

      That’s quite misleading- it’s clear that the big cuts to capital expenditure came under George Osborne. Capital investment fell by 1/3 in real terms from 2009-10 to 2013-14 according to the NAO.

      Reply The big cuts were made by Labour before leaving office. Mr Osborne put back some of their cancelled projects.

      • rk
        Posted December 11, 2015 at 6:42 pm | Permalink

        I’m genuinely confused as to how you can say this. Both on the facts and your argument.

        The Darling budget of 2010 states the plan was to increase capital spending by between £1.78bn and £2.16 bn per year for 2010 – 2015.
        By contrast, George Osborne’s Spending Review of 2010 cut capital spending by 29%.

        You seem to be saying that Labour announced a cut in capital spending- then George Osborne largely followed through on it.

        Even if this were true- doesn’t that still mean both Labour and George Osborne are at fault (if you accept that cutting capital spending was a bad idea)?

        Reply The Red Book for the last Darling budget cut cap ex from £50 bn in 2009-10 to just £22bn by 2013-14. Mr Osborne abated these cuts in successive budgets.

        • rk
          Posted December 13, 2015 at 8:55 pm | Permalink

          I think I have misread some of those numbers… and you are right that Alistair Darling intended to cut public sector net investment in his budget (to 1.3% of GDP in 2014/15).

          George Osborne by contrast has reduced it to 1.7% of GDP – down from 3.3% in 2009/10 according to PESA 2015.

          I also looked up the meaning of the word abate- which does not mean ‘stopped’ as I had assumed but apparently means ‘make something less intense’ – so you’re right on that count also.

          I’m still going to blame George Osborne for the fall- which I think is a mistake and I do think he is responsible for- but I didn’t know that Labour were also planning this. Thanks for the discussion and the replies.

    • JoeSoap
      Posted December 11, 2015 at 10:57 am | Permalink

      Corbyn is also right about Syria. But then so also is Trump and our host…

      Surely the Cameron/run-of-the-mill UK politician position is the illogical one. The same people he is trying to bomb in Syria or Iraq could turn up at Heathrow or Dover, saying they’re refugees and he’d let them in with open arms. It is actually nonsense. It makes much more sense to think carefully about how we tackle problems in Syria/Iraq (Corbyn/Redwood) yet keep a very watchful eye on a group of people some of whom wish us harm in our own country. If that means excluding them, coralling them or whatever a la Trump, I just don’t see what’s unreasonable about that. Did we let “nice” Germans into the UK in the World Wars? No, Germans and anybody speaking German was treated with deep suspicion and/or returned to Germany.

      • stred
        Posted December 11, 2015 at 7:17 pm | Permalink

        If the identity of home based IS supporters is known, surely it would be better to intern them in a camp, perhaps in a disused army base on Salisbury Plain, separated and eating army food. Many of their families might prefer to turn any likely recruits over, rather than see them going of to fight and die. They may then see the light with age and be able to go home. Watching them all while free to roam is impossible.

  5. Lifelogic
    Posted December 11, 2015 at 6:40 am | Permalink

    The problem is all the “easing” is nearly all for the largely parasitic, over pensioned and paid usually misguided, misdirected and hugely inefficient state sector and all the taxing, borrowing on the back of, over regulating and over charging for energy is on the backs of the productive. QE is in essence yet another tax rendering the productive less so and less able to compete.

    Worse still this state sector is also misdirecting the private sector with over complex taxes, absurd green grants, bio fuels, carbon taxes, landfill taxes and endless other misguided regulations from the EU and UK governments. A parasitic state killing the beast it feeds of.

    Still according to Vince Cable Osborne is finally killing the green crap (while pretending not to) about time too. Kill it all now and use the money to do things we know work in the short term.

    • fedupsoutherner
      Posted December 11, 2015 at 9:28 am | Permalink

      Great reply Lifelogic. someone should try telling the Energy minister for Scotland that!! Fergus Ewing and co have their heads firmly implanted where the sun doesn’t shine.

  6. Mark B
    Posted December 11, 2015 at 6:43 am | Permalink

    Good morning.

    A very good article by our host today.

    I believe wherever large government goes, with its endless cash supply private investment is pushed out and the normal ckecks and balances of an economy are damaged. The State is busy trying to correct all the decades of mistakes it has made and only seems to be making it worse.

    Why do we have individuals at both number 10 and 11 who have never run a business in their lives yet, seem to be able to dictate to employers who they should and should not employ and how to run their business.

    Constant interfering and meddeling in things that are of no concern to the government should stop.

    Pumping in more money to inflate an economy is much like pumping air into a ballon. Sooner or later it is going to go POP !!!

  7. Margaret
    Posted December 11, 2015 at 7:05 am | Permalink

    No wonder I have been dreaming of private jets and helicopters. I cannot really see the difference between the notion of printing more money and creating ‘e’ money , The ‘e’ money has a ‘f’und ‘ and QE money goes into circulation. The Finish model seems to be the same as the UK’S except for the EU restrictions, which you think is a good idea anyway due to potential hyperinflation.

    • graham1946
      Posted December 11, 2015 at 10:36 am | Permalink

      Dream on, Margaret. You won’t get your helicipter or private jet. The QE money does not go into circulation, it stays with the rich, inflating assets, stocks and shares, property etc. which is why we have deflation despite the QE we have already had. Helicopter money, might reach the poor who, not having much, would just spend it on stuff – that would never do.

      • Margaret
        Posted December 11, 2015 at 2:04 pm | Permalink

        How do you know I haven’t already got a copter?
        In past posts John has commented that the easing actually paid off debts and is in circulation in that respect , however circulation does not mean that the shares of printed money go into the ordinary chaps pocket.

      • Denis Cooper
        Posted December 11, 2015 at 2:46 pm | Permalink

        I expect you have some of the QE money in your wallet.

  8. Richard1
    Posted December 11, 2015 at 7:24 am | Permalink

    We keep hearing monetary authorities will do “whatever it takes” to achieve some objective such as stability or growth. Maybe whatever it takes is radical market liberalisation, tax reductions, free trade deals etc? The Euro authorities would do better to go down that route than the dirigiste big govt measures they seem to be so keen on.

  9. Roy Grainger
    Posted December 11, 2015 at 7:31 am | Permalink

    Yes, I read about the Finland proposal and had the same thoughts as you – it only makes a vague amount of sense if Finland had control of their own currency, which they don’t. I can also confirm that if the UK government paid me a basic wage which was enough to live on I’d stop work immediately and top it up with my private pension. I expect plenty of other people would stop work too for various reasons.

  10. Ben Kelly
    Posted December 11, 2015 at 8:16 am | Permalink

    The UK has been pursuing a policy of helicopter money through housing benefits and tax credits. This money unfortunately is not given to all and therefore enables the low paid to compete with the higher paid and has led to inflation in living costs.

    Future helicopter money would no doubt only be given to the “relatively” poor as giving it to those who are net contributors would not be politically expedient.

    In the meantime government will continue to address demand through population increase.

  11. agricola
    Posted December 11, 2015 at 8:17 am | Permalink

    It not being the 1st of April, you must be serious. Sounds great can I order a Chinook full.
    However you can be sure the electorate will not see any of it in our accounts. All we will benefit from is the inflation it will lead to and a faster diminution in value of what assets we may have. As a nation I suggest we start trading and consider reverting to the gold standard which is at least real.

    There is no clever solution for any country wishing to spend more money than it has earned, just as it is not the answer for an individual. I am sure however that the alchemy will continue in the minds of the Gideons of this World.

    • Bert Young
      Posted December 11, 2015 at 9:04 am | Permalink

      Agricola – your response echos exactly mine this am . Creating any form of artificial base to the economy is foolish ; the only policy we should pursue is that of only paying our own way from our own real resources . The “young boys” of Nos. 10 and 11 are only there for their own self-glorification ; it is time to kick them out and bring in individuals with their feet on the ground and real life experience .

  12. JJE
    Posted December 11, 2015 at 8:27 am | Permalink

    They should do nothing. They are the problem.

  13. alan jutson
    Posted December 11, 2015 at 8:31 am | Permalink

    Yet more new words for Magic Money.

    Just like all magic, it’s an illusion.

    The more you create, the lower its value.

    The simple solution is to live within your means, if you want more, then you simply have to work harder, longer or more effectively.

    The Welfare State is a support system for those who are unable to work, not for those who choose not to do so.

    All Governments and the EU need to get back to the old KISS System.

    Keep It Simple Stupid.

    • Bob
      Posted December 11, 2015 at 12:04 pm | Permalink

      @Alan Jutson

      “The Welfare State is a support system for those who are unable to work, not for those who choose not to do so.”

      That was once the case Alan but not any more. The Labour Party used welfare to buy votes and the Tories now do the same.

      • Antisthenes
        Posted December 11, 2015 at 3:40 pm | Permalink

        It is no surprise that the Conservatives are now using welfare to buy votes parts of it at least. Labour showed them the way and by having done it vigorously and with total abandonment have turned the public into welfare zombies. Zombies who can only be satiated by more and more taxpayers money being fed to them.

        The Conservatives are at least looking for a cure but that takes time so in the mean time the feeding must go on and directed to where it will garner the most votes. The alternative of allowing Labour to be the only ones to use bribery will result in them being re-elected and any cure will promptly be abandoned and then another round of feeding frenzy will begin.

    • Posted December 11, 2015 at 2:36 pm | Permalink

      Alan,

      A responsible government does have to create some money otherwise neither you nor I would have any! Surely you can see that?

      Where do you think money comes from? Do you think that Government’s should create just so much? Say $1 trillion of the stuff and say “OK that’s it. Not a penny more”?

      • Edward2
        Posted December 12, 2015 at 11:04 pm | Permalink

        Confusing the normal management of the supply of coins and paper money into the economy with the creation of magic money as usual.

        • Posted December 14, 2015 at 1:33 am | Permalink

          I don’t believe so. The government generally doesn’t lend out money into the economy. They spend it out. That’s why they’re in debt!

          If they lent it out they’d count those debts as assets just like private banks do, and so they wouldn’t be in debt overall.

  14. Antisthenes
    Posted December 11, 2015 at 8:35 am | Permalink

    Putting more money into the economy than there is demand for is certain to be counter productive. We wondered why QE did not produce high inflation because it did not show up in the high street. As we looked there for it it it was beavering away in other places fuelling inflation in bond, equity and other asset markets which it was designed to do. At the same time enriching those few who were the first recipients of this largess.

    Helicopter money and the insane idea of PQE will show up in the high street and once again enrich only the few. Those who champion this idea usually from the left are the same ones who promise us all something for nothing. Nothing ultimately is not free as all that is happening is that productive wealth is being transferred to unproductive uses. The price of doing that can be very expensive indeed.

    QE did work and served a purpose as no doubt without it the current economic crisis would have been considerably worse. However QE is designed to be reversible so that it does not in the long run cause economic harm. Helicopter money is not reversible so there is no built in safety device to guard against harmful effects.

    Corbyn and the like like the idea of PQE that alone should tell us that like most of his other ideas they should not even be considered let alone put into practice.

    • Roy Grainger
      Posted December 11, 2015 at 9:16 am | Permalink

      QE is designed to be reversible but I bet we never see it reversed in our lifetime, the BoE will just hang on to all the bonds they purchased until they expire or (more likely) are cancelled.

      • Posted December 11, 2015 at 2:41 pm | Permalink

        Roy,

        But that’s how all money is created in the first instance. If Greece issued the New Drachma, or whatever they wanted to call it, the Greek government would supply ND bonds to the Bank of Greece and the BoG would supply the currency to the Greek Government so that it could pays its bills and spend the new currency into existence.

        So the BoG would be all square in its accounts but the Govt would assume the debt having issued the bonds.

  15. Ian wragg
    Posted December 11, 2015 at 8:38 am | Permalink

    I’ve been following the events in Finland and it’s very odd. A country which does all the right things vis a vis the Euro is going backwards. There is no more powerful testament to the folly of the Euro than this.
    Only Germany flourishes under the Euro as it is actually a devalued successor to the Deutsch Mark.
    France, Italy etc have absolutely no chance of exiting this mess until they return to their own currencies.
    Still we have the great and good telling us that we should join up eventually.
    I think Finland may be the catalyst that brings the whole house of cards tumbling down

  16. bigneil
    Posted December 11, 2015 at 8:48 am | Permalink

    Basically then, print “false money” in the hope people will generate real money for the country. As I have mentioned the (recent migrant ed)on £20k+ benefits before ( real money) I’ll bring him in again. We only need 50 of him – and a million quid is being handed over to go back to (the country he came from ed)How many are doing the same here – and what is the total handout for these “industrious people”?
    How much “international aid” is given away? Billions. Most of which will be stolen and in up in corrupt people’s pockets.
    A report on the BBC said the boats from Turkey to Lesbos are now landing on the south of the island – amid claims that the money given to Turkey to stop the flood is having an effect already. Really??? – -So they just go a longer journey !!!!! – – 3,000 arrived on Lesbos the other Monday – -in one day. So money is given to Turkey but still they come and expect a free life in Europe. We may as well have given the money to Turkey and flown the designer clothed, selfie taking, clearly desperate (for a free everything life) “refugees” here first class in private jets, ready for the non contributed benefits-for-free lives.
    How many billions a year to the EU?
    All this is REAL money being thrown away. Despite repeated claims by DC of ” down to tens of thousands” – hundreds of thousands pile in here and stick their hands out – -and our politicians who have never had to struggle will continue to throw real money away because it makes them feel good on the world stage.

    • fedupsoutherner
      Posted December 11, 2015 at 9:31 am | Permalink

      Yes, like Princess Nicola giving more to foreign aid recently. Still, she likes to look good to the rest of the world. Shame she didn’t spend it on the Forth bridge!!

    • forthurst
      Posted December 11, 2015 at 11:16 am | Permalink

      “We only need 50 of him – and a million quid is being handed over to go back to (the country he came from ed)How many are doing the same here”

      There are plenty of (DM type) stories of property empires and the like being built from the money being remitted abroad; are these transfers significant in the scheme of things and are they being captured in the Current Account together with transfers like Foreign Aid etc.

    • Denis Cooper
      Posted December 11, 2015 at 12:28 pm | Permalink

      It’s impossible to always keep up with everything that is going on, but I have to say I haven’t noticed any parliamentary debate about Cameron’s decision to include large sums of UK taxpayers’ money in that being so generously handed out to Turkey, and also elsewhere; let alone any formal approval by those MPs who are otherwise so keen to defend their “financial privilege” that they will reject a Lords amendment to a Bill on the sole ground that it would entail a one-off extra cost of about £6 million.

      I’d quite like to see the Commons debates and resolutions relating to:

      http://www.thesun.co.uk/sol/homepage/news/politics/6773385/Critics-slam-EU-travel-deal-for-Turks.html

      “David Cameron confirmed at the meeting the UK’s contribution will be £275 million.”

      and:

      https://euobserver.com/tickers/131471

      “EU Commission is willing to up its initial €500 million contribution to the €3 billion fund pledged to Turkey by €200 million”

      so our share of that would be about £50 million; or the £100 million which the UK has pledged under these schemes:

      http://ec.europa.eu/dgs/home-affairs/what-we-do/policies/european-agenda-migration/press-material/docs/state_of_play_-_member_state_pledges_en.pdf

      I repeat that our treaty opt-out from the EU’s common immigration and asylum policy extends to any financial consequences of that policy, such as “We have to give the Turks €3 billion to bribe them to slow down the flow of illegal immigrants who were invited into the EU by Chancellor Merkel.”

      Article 5 in the Protocol (No 21) attached to the EU treaties, here:

      http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012M/TXT

      “A Member State which is not bound by a measure adopted pursuant to Title V of Part Three of the Treaty on the Functioning of the European Union shall bear no financial consequences of that measure other than administrative costs entailed for the institutions, unless all members of the Council, acting unanimously after consulting the European Parliament, decide otherwise.”

      • forthurst
        Posted December 11, 2015 at 5:12 pm | Permalink

        Should this €3 billion be known as Turkgeld? Not only has Turkey played a major role in creating the genuine refugees, a minority, from the ME (Its predicted that all the remaining Christians will be driven out, presumably with the loss of some world heritage sites, having lived there since before Islam was invented) but Turkey has been facilitating the passage of far more from further afield such as Pakistan and Afghanistan, and others it has offered cheap flights from Africa.

    • turbo terrier
      Posted December 11, 2015 at 11:44 pm | Permalink

      BigNeil

      They may be more than sticking their hands out, what is a worry could be what they are holding. There is a post with photographs going around on facebook showing supposedly crates with furniture and belongings for the refugees being opened on the Greek border and they are full of weapons. This just might be a scam but how long before it is for real?

      The way that the SNP politician last night with Andrew Neill went on was a disgrace. It just shows the poor quality of what we have in Westminster. She did not listen and I thought Micheal Portillo was very good the way he handled her. The only sad thing is nobody in the programme actually repeated what Mr Trump said in full. They all left out the ending about America finding out what is really going on.

      The way that Empress Nick has jumped on the band wagon shows how inexperienced she is in handling people matters. Wouldn’t I laugh if Donald Trump just stuck up two fingers and walked out of Scotland taking all his investment with him. Remember he is American and they do have a tendency not to get angry but get even.

  17. Mike Stallard
    Posted December 11, 2015 at 8:49 am | Permalink

    Our national debt now stands at over one and a half trillion pounds. The interest on our national debt last year (2014) was £84 billion. We borrowed a further £53 billion from private investors. It is still rising.
    Meanwhile we spent just £38 billion on defence and just £32 billion on Public Order and Safety. The Health Service got £140 billion. Education got £94 billion (source the Guardian). the debt interest is way up there with them. But nowhere near the hand-outs to people (including me, a pensioner).
    If this were a private company, I should be very worried about it, especially if I were an investor. The annual income cannot keep up and neither can our exports. We are living well beyond our means.
    Just issuing more IOUs (called QE) is only going to mask the problem. What we need to do – and the government is trying to do – is to increase our exports and also to cut back on hand-outs to the “vulnerable” (including me). There is a lot of waste and a lot of very fat cats lapping up far too much money (Daily Mail articles last week).

    • fedupsoutherner
      Posted December 11, 2015 at 9:32 am | Permalink

      Spot on Mike.

    • A different Simon
      Posted December 11, 2015 at 2:53 pm | Permalink

      Mike ,

      The govt should print the money it needs debt free rather than borrow at interest .

      The govt must revoke the privilege to create money from the private banks and assume responsibility for the money creation function itself .

      Pretty well all our problems started when the financial sector was deregulated in the 1970’s and private banks got to create far more money by expanding credit .

      This has lead to increasing asset prices which justify more borrowing which increases asset prices .. .. in a vicious positive feedback loop which is underwritten by the taxpayer with bank guarantees .

      Housing benefit goes up as debt increases . Wages have to go up which makes us uncompetitive and causes jobs to move offshore .

      This is how money is transferred from the many to the few .

      Cutting govt spending , lowering our standing of living , working harder , improving our balance of payments etc will not be able to stop our trajectory towards serfdom .

      Govt has to start acting in the interests of society as a whole , not the finance sector which has become far too powerful .

    • Posted December 12, 2015 at 4:41 am | Permalink

      ” If this were a private company……..”

      But that’s rather the point. HMG of the UK isn’t a private or public company and it isn’t a household !

      It’s a sovereign currency issuing government. For every pound it issues it creates a pound of debt.

      If it doesn’t issue any money, then yes it doesn’t have any debt, but neither do we have any monetary assets denominated in pounds. We’d either have a barter economy or we’d have to use the euro!

      • Edward2
        Posted December 12, 2015 at 11:06 pm | Permalink

        By this logic if the State printed a million pounds for each citizen we would all be rich overnight.
        So why doesn’t it do this.
        Eliminating poverty at a stroke.

        • Posted December 14, 2015 at 1:27 am | Permalink

          A million pounds would be overdoing it and would cause too much inflation.

          A thousand pounds wouldn’t do any harm though. The Aussie governments handed out cheques for a similar amount and that helped keep their economy buoyant after the GFC. But I’d prefer a reduction in VAT to 15%.

          There is something in Mrs Thatcher’s argument that people do know how to use their own money better than the State. This argument is usually used to justify a reduction in the higher rates of income tax but I don’t see why it shouldn’t apply to VAT also!

          • Edward2
            Posted December 14, 2015 at 9:36 pm | Permalink

            600 Aussie dollars is a deal less than a £1000.
            So we now know the general policy is a failure.
            The amount of magic money just defines how much of a disaster it is.
            Back to “just a bit of inflation” surely won’t hurt.
            Rather like some innocent student thinking just one experiment with heroin won’t cause any furure problems.
            Pathways….

  18. Vanessa
    Posted December 11, 2015 at 8:59 am | Permalink

    The trouble with people in a “bubble” is that they think they can control people and the way they spend – they can’t. Banks seem to think that if they steal our money and give us nothing for the privilege that we will spend more – we wont. If they steal our money in negative interest rates, then because we end up with less money we spend less. Once they have taken all our money in negative interest we have nothing more to spend. This is ludicrous thinking by ignorant, incompetent, greedy bankers and it will lead to a complete collapse of our financial system.

    Now, if they freed up our money to spend as we want to and stopped trying to control the way we spend it then we would spend. Leave the markets alone and let we, the people, create it as it should be created and allow us to run it as it should be run – BY US.

  19. acorn
    Posted December 11, 2015 at 9:13 am | Permalink

    The central bank can’t “print” NEW money into the economy unless it is financed by the Treasury. The Treasury, as the sovereign currency ISSUER, is the only agent that can increase by spending into existence NEW “money” (that is its Unit of Account; the Pound Sterling); and, decrease it by taxation. The difference between the aggregates of the two is dictated by the spending and saving preferences of the non-government sector. Call it the taxpayers’ share equity (savings) in UK plc, it is not national debt as neo-liberals would have the taxpayers believe!

    The central bank can SWAP Treasury Gilts back into the “money” (government spending = central bank reserves), that bought those Gilts when, they were issued by the Treasury. BTW, Gilts have nothing to do with “borrowing” money for the government to spend. A FIAT currency Treasury does not have to “borrow” its own money from anybody. Every Pound it spends into existence is created, brand new, the moment it hits the send key on the Treasury keyboard. This swap is QE, it has increased asset prices which is what it was meant to do, to increase corporate values, to aid borrowing investment money. There is little evidence it has increased the aggregate spending by households, which is the driver of the economy. If it hasn’t done that, it has failed.

    The central bank can LEND new “money” (reserves) only against an asset conservatively valued (haircut) to cover the loan, to keep its balance sheet, balanced. It can’t create new money like the Treasury. Hence, only the Treasury can do a HELICOPTER DROP. The central bank would have to have collateral / a loan agreement, thrown back into the helicopter to keep its balance sheet balanced.

    However, you can camouflage a Treasury FISCAL stimulus, which is what a helicopter drop is, by making it look like a central bank monetary operation and not directly impacting the budget deficit. The exemplar for this is the Funding for Lending scheme. An exquisite system of smoke, mirrors and virtual financing, that ever came out of the Treasury DMO and the BoE. Remember that the Treasury and the BoE are consolidated as one and the same in the WGA Accounts. That is, when the BoE buys in a Gilt and gives reserves in exchange, it is the same as if the Treasury had never issued that Gilt at all and kept its spending as reserves at the BoE.

    See Appendix A in http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb120401.pdf

    • acorn
      Posted December 11, 2015 at 9:58 am | Permalink

      “Those countries that have tried it [printing money] to excess end up with hyperinflation, like Germany after the First World War or Zimbabwe more recently.”

      The inflation cases you quote were caused by the collapse of the “supply side” of those economies. There was less and less to buy so prices of what was available went up. The governments responded by injecting more money, positive feedback took over. The Germans made it worse by overdoing the welfare payments.

      The UK for one, will suffer similar at the stage where a third of the population are pensioners, with few working age people to make anything for them to buy. That’s why Osborne wants loads of immigrants; but under thirty years old.

      • Posted December 11, 2015 at 2:28 pm | Permalink

        Yes, inflation is often said to be caused by too much money chasing too few goods and services. Or we could say that inflation is caused by too few goods and services being chased by too much money.

        So if our economy isn’t working to its full capacity, as it can’t be if we have too many unemployed or underemployed workers we do have too few goods and services in that respect. We are creating our own inflationary problem, therefore, and have to manage with less money to compensate.

        It’s all ultimately self defeating. We just need to take a step back and think about how to get the economy working to its full potential.

        • Edward2
          Posted December 12, 2015 at 11:07 pm | Permalink

          Returning wealth to the private sector would be a start.
          Smaller State.
          Less tax.

      • stred
        Posted December 14, 2015 at 6:19 pm | Permalink

        Perhaps this is why the price of a budgerigar ha srisen from £15 to £30 over the last 10 years.

  20. rk
    Posted December 11, 2015 at 9:23 am | Permalink

    Andy Haldane has an interesting book out about this.

    Another thought- what will happen to the government bonds that have been purchased by the Bank of England under quantitative easing?

    Is it realistic that government will pay back the Bank of England? Or that the Bank of England will resell those bonds on the market? Surely it’s more likely that they will simply cancel the debt.

    In effect then- would that not be helicopter money? Are we not already doing this even if it is not yet admitted?

    • Denis Cooper
      Posted December 11, 2015 at 2:44 pm | Permalink

      The Bank and the Treasury swapped their respective IOUs. They did it indirectly through the gilts market, rather than directly, partly because the EU treaties prohibit the Bank from buying bonds direct from the Treasury. The Treasury got the Bank’s IOUs, money, to the tune of £375 billion or thereabouts, and spent it paying the government’s bills; those IOUs are now in private hands, including yours and mine, and there is no feasible or reasonable way that they can be cancelled. The Bank got the Treasury’s IOUs, gilts, which it is holding as an asset to counterbalance the liability of the new money that it issued when it bought them. If the Bank agreed to its stock of gilts being cancelled then it would be left with negative net assets, once again at present to the tune of £375 billion or thereabouts, and normally if a bank has negative net assets we would describe it as being “bust”. Hence cancellation of the gilts would leave the Bank of England “bust”, and I guess that means that under current law it would have to cease to operate; Parliament being sovereign it could change the law to allow the Bank to continue with even massively negative net assets, but I wonder how well that move would go down around the world.

    • Leslie Singleton
      Posted December 11, 2015 at 5:48 pm | Permalink

      Dear rk–No, it would not be helicopter money because the money to buy bonds under QE would only go, ever so ipso facto, to those selling the bonds, meaning only the rich because the poor do not own bonds. Helicopter money is no more no less than a rebate of taxes. This would obviously be highly redistributive given that most tax will have been paid by the rich.

  21. JoeSoap
    Posted December 11, 2015 at 11:17 am | Permalink

    So the state needs money to pump up the economy?
    The first question has to be why? Why can’t the state live at an equilibrium which doesn’t take from tomorrow to buy today?
    Next, if you don’t like the idea of keeping the state in equilibrium the the next question is how? In some ways a wealth tax is a better answer than QE. Given the choice, it is “fairer” for all assets to be devalued rather than just the currency itself. As it is, we are encouraged to rid ourselves of paper money by this meddling worldwide with currencies. One day the harvest sown will be reaped.

  22. Denis Cooper
    Posted December 11, 2015 at 11:56 am | Permalink

    Off-topic, if anybody thinks that banning Donald Trump from the UK would be wrong they can add their signature to this e-petition if they like:

    https://petition.parliament.uk/petitions/114907

    Incidentally I notice that it is being claimed that the e-petition calling for him to be banned is now the largest ever, but that is not the case because in February 2007 an e-petition against road pricing closed with about 1.8 million signatures.

    What has happened is the coalition government had the site revamped, and instead of the information on previous e-petitions being archived it was all expunged.

    I’m sure I’ve come across this kind of thing before, where it is proclaimed through the mass media that something is the highest or the lowest since records began, but in fact that is only true if some of the earlier records are conveniently ignored.

    • Anonymous
      Posted December 11, 2015 at 2:46 pm | Permalink

      The Trump petition is getting bigger but only because the BBC keep mentioning it – as have other petitions that got free and publicity on the hour from them.

      Trump has foolishly managed to toxify the issue of preventing terrorism through religious profiling. Anyway. 60 million of our people have not signed the petition.

      Perhaps the BBC and politicians ought to be clearer with our people here in the west. Terrorism has NOTHING to do with Islam.

      If the politicians dislike the stance that Trump has taken then they really ought to stop scaring us with indiscriminate and misdirected security checks, public safety warnings, Parliamentary debates leading to declarations of war against rogue Islamic states – they should also put a block on constant BBC news reporting about muslim atrocities (it has nothing to do with Islam) and relentless reporting of refugees fleeing muslim violence (this has nothing to do with Islam either.)

      YouTube should also be banned from showing execution videos too. These have nothing to do with Islam either.

      The scare mongering and agitation is not from Donald Trump, believe it or not.

    • Anonymous
      Posted December 11, 2015 at 2:58 pm | Permalink

      Dennis – There is plenty of anti Islamic propaganda around. It’s called The News.

      The Left rage at Donald Trump because he says he’s unhappy about what he sees on The News and dares to express it.

      He calls for a stop on immigration ‘until we know what’s going on’. His mistake was to mention a particular religion (note – NOT race.)

    • fedupsoutherner
      Posted December 11, 2015 at 11:05 pm | Permalink

      Have signed this so thanks for the pointer. I live about 20 mins from Turnberry golf course. It would serve the SNP right if Trump just walked out on his golf projects and left them standing as they are. S Ayrshire relies on Turnberry to bring in rich Americans and others. He is entitled to his opinion and should be allowed to voice it. I noticed that on Newsweek nobody quoted all that he said. He did not say he hated Muslims but that is what they are all trying to say he said. So many times the media try to portray a different story.

  23. CHRISTOPHER HOUSTON
    Posted December 11, 2015 at 12:07 pm | Permalink

    Under George Bush, the US Market received a noticeable uptick in stock prices. Retail stocks in particular rose by 3%-5% each and every time periodic welfare payments were made to families. Remarkably the total amount of money was relatively small.

    Yet when we look at the UK with a prolonged drip feed directly to people of billions of refunds due bank over-charging for insurance on loans; a drip-feed of spending of cashed-in premium bonds due to lowered prize money; and, returning refunds of miscalculated individually paid taxes, no-one seems to to see this as a form of helicopter money. Well the money must have had an impact. Even if all that money was immediately re-invested there would be stamp duty and capital gains tax drip-fed straight back to the Chancellor.
    The money exiting the UK by migrants, temporary and permanent, by electronic means is vast. Other money they transfer physically and simply by mail is probably even more since it is fee-free and cannot be recorded by authorities. That of course does not include illegal money transfers by foreign owners of anything from takeaways to huge amounts of rented property where tenants in and out, flit every few months under the tax and migration radar. BUT, no-one in the UK does or can calculate just what effect this money is to the countries of origin of UK migrants. It is really, literally , money dropping from the sky (helicopter money ) via airmail and internet. The physically transferred money is creating false economies in poorer European countries as well as in Asia and Africa.
    This Asian, African and South and East European money, naturally not made in their own countries, inevitably creates an inflated retail sector and an inability of their flawed governments to have any control whatsoever on their economies. All they know is that the sun has got his hat on hip hip hooray based on hot unfathomable hot air and their real economies are not progressing one iota. Their workers necessary to building planning and running infrastructure are in some crowded terraced houses in Birmingham,Bradford and Boston to name just a few.
    A world-wide economic bubble waiting to pop.

  24. Gary
    Posted December 11, 2015 at 12:26 pm | Permalink

    dropping money is just another economic distortion, along with htb, QE etc. Instead of competitive hard work and enterprise of millions of players in the economy, each trying to maximise their own position by allocating their scarce resources optimally, where the price of money is a delicate equilibrium between saving and investment, here we have yet another dead hand , this time opening the bomb doors and dropping money. These bureaucrats are so clueless and so corrupt and so desperate to keep their ponzi going, that we arrive at this?

    Venice in 1340 and the effects of John Law’s insanity on France in 1790 had nothing on this, this time it’s global and bigger. We are headed for absolute collapse. By the mathematics of geometric progression.

    • Mitchel
      Posted December 11, 2015 at 2:48 pm | Permalink

      I think a collapse or re-set of sort is coming too.The only thing which will stop it is world government,which is clearly what the elites in the west are secretly working towards-why the EU and NATO are constantly expanding;why TTIP has been conceived(together with its Asian equivalent TPP);why Russia is demonised, its vast resources must be brought under control of the West and its sheer size and location-look up the Mackinder Heartland theory,originating from our own adverse experiences with Russia during the “Great Game” in Central Asia and further developed by Zbigniew Brzezinski in “The Grand Chessboard”, the bible of the neo-con establishment (and if Russia can be controlled,China will be surrounded and neutralised).Throw in the mix the idea being floated in a number of countries that we outlaw cash and move to a digital currency and you have one government (far removed from any democratic accountability),one currency which,there being no alternatives,will be worth whatever that government needs it to be worth,full employment (in the Soviet we pretend to work and you pretend to pay us way)-in fact the Soviet Union reborn and globalised,complete with career or social gulags for the non-believersProblem solved!

      • Gary
        Posted December 13, 2015 at 5:07 am | Permalink

        That is exactly what I am seeing. Out of all the spin and verbiage, this is what makes the most sense. It ticks all the boxes, including the climate change boondoggle. It is Empire 2.0. There are people who cannot rest until they own it all, it’s like a cancer for humanity.

  25. JimS
    Posted December 11, 2015 at 12:35 pm | Permalink

    I don’t think there is anything new in economics, (or management theory for that matter – reward them or whip them), that the ancient Egyptians didn’t know.

    Anyone who claims they have invented something new is either a liar or selling a scam that is either illegal or ought to be.

  26. BobE
    Posted December 11, 2015 at 12:44 pm | Permalink

    I think that we have forgotten the real purpose of work. Of course it results in money but it also provides meaning and purpose to many. By adopting a global model we have destroyed our own working processes as we only buy from the cheapest. We should make everything we need, if it costs slightly more then so be it. If you watch robots building cars then always remember that robots don’t drive cars. Work is the more than just making money.

  27. The Prangwizard
    Posted December 11, 2015 at 1:10 pm | Permalink

    How much will I get? I’d like cash-in-hand please.

  28. ian
    Posted December 11, 2015 at 1:26 pm | Permalink

    Its a natural thing to happen when people with money demand something be done because they are losing money, especially when you have the ear of number 10 and 11 downing street and the people that matter and in this case ended up double and trebling their wealth, with more to come.
    Wet&mad is on over 11,000 pounds a week for letting out his house and camping out at number 11.
    Now the government has nearly bar people from having BTL unless your a cash buyer or a company. I can see houses going up another 40% rents 30% and shares going up, wages, the min wages going up 32%, people above min wages going up 12%, lower government workers 0% higher government workers no limit and people on benefit down and council workers the same as government workers.
    As for helicopter money, it been and gone with the witch finder general IDS and universe credits coming in but it will still work for people with lots of money.

    They will keep going as long as they can.

  29. CHRISTOPHER HOUSTON
    Posted December 11, 2015 at 1:50 pm | Permalink

    Was it the EU or France alone which started to calculate illegal drug and illegal prostitution in its GDP figures? Quite a sum. In this regard no tax was paid on the illegal underage prostitution in Rotherham…1400 victims over 10 years. Well it shouldn’t have been paid and it should, kind of.

    In the UK we all know there is a two-tier system of drug use and sales. Prior to the even more lax and irresponsible intoxicating official attitudes to the use and selling of cabbabinoids, young people frequently cited the expense of alcohol and tobacco as an added reason for their indulgence and most certainly over-indulgence. Their pop/rock/ fashion idols grossly overpaid and unfortunately still over here, were and are seen to be legally and socially immune from prosecution. Nor does it impact on their employment prospects. Being totally beyond the law to import and presumably export and use domestically illegal substances which mere mortals pay a heavy price, they are not taxed even in monetary terms. Estimated billions of “helicopter” money ( well that is one way of bringing it in aside from that brought in regularly by our armed forces not subject to normal passport and border controls ) makes an even greater nonsense of OBR and Mr Osborne’s calculations.
    Of course we only hear of the permitted drug rich zones of the UK when some celebrity or other and his or her relations dies, then another dies, then another and one learns that certain persons ( never named or prosecuted or investigated ) have been supplying and selling drugs over that entire time period. Most imported from abroad ( again no prosecutions )
    Words left out ed. So, the Chancellor could add a penny or two to his coffers if he secretly tapped these people for tax upon their elite lifestyles and habits since they have legal and tax immunity otherwise. Of course they may decide go abroad. It would be a breath of fresh air for many if they did. Good riddance.

    reply If you evidence of drug sales you should report it

    • CHRISTOPHER HOUSTON
      Posted December 13, 2015 at 4:29 am | Permalink

      Our Constabulary know all about that kind of stuff; hence their salaries and pensions. It’s just the odd drugged-up-to-eyeballs dead body that somehow manages to fall through their all-encompassing dragnet. Dave’s idea of giving them more laptops and smart phones might just work.

  30. Posted December 11, 2015 at 2:06 pm | Permalink

    “Helicopter Money” is an unfortunate phrase which seems to have caught on, but of course, panic spending along these lines is to be avoided. Schemes like “cash for clunkers” and just sending out cheques for a $1000 to all taxpayers (yes the Australian Govt did that) don’t lead to the best use of resources in the economy.

    Money would be better being spent in a sensible way on providing more policemen, doctors, nurses, teachers for example. The money needs to be spent in a controlled way of course. Or we could just have tax cuts. That would have the same effect.

    It is considered quite normal for savers (including the central banks of the big exporters) to buy government bonds. The government then deficit spends the money back into its economy so that aggregate demand doesn’t fall too low and create recession. In this way the Government is playing its part in ensuring that the excess money spent in Germany, buying German cars, is returned by the Germans to their UK customers, so they can continue to be good customers.

    What would happen if the savers didn’t buy bonds but kept cash instead? If interest rates on bonds became negative as they are starting to do in parts of the EZ then it may make more sense to do that. We can think of central banks with vaults full of UK £50 notes, if we like, but in reality the money is kept digitally on a BoE computer.

    To keep the money-go-round working the UK government still has to deficit spend exactly the same amount to maintain aggregate demand in the economy. If necessary it just needs to recreate that stored money by PQE or whatever you want to call the process. That’s probably not the best name for it, incidentally.

    Of course the government can’t know what may or may not have happened to every pound that it issues either physically or electronically. It’s possible that some it it simply disappears never to resurface.

    All government can do is adjust its fiscal policies to ensure that inflation isn’t too high on the one hand and that levels of recession aren’t too bad on the other.

    That makes government policy very easy. It just has to steer a sensible middle course and everything should just come right in the end – even if might not seem so to those who can’t quite grasp that macroeconomics doesn’t work in quite the way our own microeconomic experiences might lead us to believe . As Keynes famously said:

    “Look after the unemployment, and the budget will look after itself!”

    • Edward2
      Posted December 12, 2015 at 11:11 pm | Permalink

      What is zero unemplyoment in an economy which has 65 million people?
      At any one moment how many will be counted as unemployed?
      Far more today than Keynes thought, I would say.

      • Posted December 14, 2015 at 1:39 am | Permalink

        We’ll never get 0% unemployment. We agree on that.

        But it hardly ever rose above 2% in the 50’s and 60’s. That was under both Conservative and Labour governments of course.

        So it is possible to have very low levels of unemployment.

        • Edward2
          Posted December 14, 2015 at 9:39 pm | Permalink

          So what is the current zero?
          How do you get single parents with several children to be employed for example?
          I think we are already close to zero.

  31. forthurst
    Posted December 11, 2015 at 2:12 pm | Permalink

    “Hundreds of millions of pounds in subsidies will be paid to diesel generators and old coal and nuclear plants to help keep the lights on later this decade, ministers are set to confirm on Friday.”

    http://www.telegraph.co.uk/finance/newsbysector/energy/12045006/Coal-nuclear-and-diesel-to-keep-lights-on-in-800m-scheme.html

    …and still the insanity continues.

    Why does Osborne believe the economy needs 300k foreigners to be imported every year to keep the economy growing; is it not the abundance of labour which is holding down wages and the ability of the domestic economy to expand? Cheap labour requires taxpayers’ subsidisies to make ends meet but does enable foreign business owners to make large profits without having to pay corporation tax to the Exchequer. None of this is good for the deficit or for young people looking to buy their first home; meanwhile Osborne manipulates our current account from falling through the floor by bribing foreigners to invest in our country.

    words left out ed. why exactly does the British government believe it needs to overthrow Assad and why cannot these plots and the real reasons for them by rehearsed in parliament? This government cannot run our own affairs properly so it needs to mind its own business about how other nations should be run, especially as every recent interference continues to have very damaging conseqences for us.

  32. Denis Cooper
    Posted December 11, 2015 at 2:14 pm | Permalink

    I quite like the helicopter analogy because it requires the central bank to literally print lots of money – in £50 notes the £375 billion of QE money in the UK would have filled four Olympic size swimming pools – and that would have made it much easier for people to understand, and detect, what was going on.

    So back in 2009, for example, when elderly people went along to their local post offices to pick up their pensions they would surely have noticed that they were being given a lot more crisp new banknotes than had usually been the case, indeed then a quarter of all the money being paid out by the government would have been newly created money. But I expect the pensioners would have much preferred that to being told that the government was running out of money and so they would have to make do with only three quarters of what they had been getting previously.

    But of course having issued all those pieces of paper, each with a “promise to pay”, which had been scattered around into the hands of tens of millions of people, mainly in this country but also to some extent abroad, the Bank of England could not later just call them all back and give nothing in exchange, or get Parliament to pass a law cancelling them; that money would have to be clawed back by the Treasury, through taxation, and then handed over to the Bank.

    Which the Bank could expect to happen, over time, because it had stored in its vaults other valuable pieces of paper, namely gilts certificates issued by the Treasury, each with its own “promise to pay”; but if those gilts certficates were cancelled or destroyed the Bank could no longer expect to be paid by the Treasury, and then it would be bust.

    • Posted December 13, 2015 at 2:39 pm | Permalink

      Denis,

      Cash, ££, is an IOU of government issued by its central bank, the BoE, and is traditionally interest free. Except now the BoE does now pay a small amount of interest on reserves.

      Gilts are are IOU of govt , denominated in £, issued directly by the treasury and do contain an element of interest depending on the price they may fetch at auction. There may also be coupon payments.

      Governments naturally swap one type of IOU for another in the markets – primarily to set the level of interest rates in the economy. If they want them to be higher they sell more gilts at a lower price. The lower selling price compared with the maturity price determines the yield which in turn determines the effective level of interest paid on those gilts.

      When the GFC hit government taxation revenue both in the UK and the USA both governments could have issued more bonds if they had wished to. Except that this would have driven up interest rates, which was the opposite of what they wanted to happen, so they ‘asked’ their, totally independent of course 🙂 , central banks to buy up gilts in the market at the same time as they were selling more into the market.

      One recurring feature of this blog is a complaint that governments are paying too much interest on borrowed money. I don’t think so. They know very well how to pay nothing at all !

      • Edward2
        Posted December 14, 2015 at 9:40 pm | Permalink

        Strange then that the UK Govt is paying tens of billions per year in repayments.

        • Posted December 15, 2015 at 12:05 am | Permalink

          Not strange at all. It is setting the level of interest rates in the economy. If the Govt wants 10% it can have 10%. If it wants 0% it can have that too.

          There are good arguments to suggest that it should be 0% or even slightly negative but the powers-that-be are thinking aloud that they are too low and should be higher. The problem is that they are scared stiff (or at least they should be) that they’ll crash the economy when those with excess levels of private debt find themselves unable to pay.

  33. ian
    Posted December 11, 2015 at 2:22 pm | Permalink

    Russia coming out of recession already and ramping up, so much for sanction by the west, as I said that was all that was needed for putin to get his act together and come out a lot stronger, any elite ready for a nu up.

  34. A different Simon
    Posted December 11, 2015 at 2:26 pm | Permalink

    Would anyone doubt that deregulation of the financial sector from the 1970’s onwards has proved a disaster ?

    Handing the private banks the power to create the lions share of the money in circulation by using fractional reserve banking to expand credit has lead to asset bubbles which justify more debt .

    This “debt->asset price -> more debt” positive feedback loop continues to transfer money from the many to the few .

    Ironically the same financial sector which is robbing every ordinary citizen blind requires them to underwrite their activities and massive leverage ratio’s by guaranteeing banks .

    It’s time for the govt to take away the private banks power to create money and provide that function itself .

    Yes politicians will seek to abuse money creation but the alternative is certain destruction .

    I’m sick and tired of seeing the growing number of suicides amongst our young and their hopeless situation which is in no small part due to the transfer of wealth from Mainstreet to Wallstreet .

    John , you have to bring the finance sector to heal . If necessary destroy it before it destroys everything you hold dear .

  35. CHRISTOPHER HOUSTON
    Posted December 11, 2015 at 2:46 pm | Permalink

    Today the UK’s Chief Medical Officer Professor Dame Sally Davies is reported as stating that Obesity is the one thing she wishes to bring to the top of the political agenda.

    Frankly I have not personally noticed any change in general weights of humans since my childhood except to the direct opposite. Girls would have been scolded and perhaps smacked for being too thin and their lives made very uncomfortable indeed if:-

    1. They did not empty their plates at home. “A sin to waste good food”
    2. Empty their plates at school dinner. “Waste not want not”

    Government could have more helicopter money if it encouraged:-

    A/ Labour-physical intensive work
    B/ Non-office jobs or such jobs having a physical/outside workplace component.

    Unfortunately government and intelligent people have been mis-educated, massively over-fed, over-educated in the virtues of the use of computers.A gluttony of “intelligence”. The fat knee-jerk reaction by management is to have hundreds of their sometimes trivial communications laser printed and distributed to staff requiring even more unproductive and muscle-less sitting on computer stools reading the facile and wasteful words.

    Unproductive gyms, unproductive exercise machines and useless weights are used by…EXECUTIVES …and in their spare time when they should be relaxing. Such nonsense.

    It is obviously most profitable for the State though perhaps not for individual capitalistic enterprises, as units of production, to have a proper mix of the physical and the mental in each job. Nothing original. “The Concept of Mind” by Gilbert Ryle in 1949 spoke to the question in highfalutin enough language for the intelligentsia to absorb between their hysterical fits of jogging and other forms of self-mutilation and physical self-flagellation due to well-meant but ill-conceived mental flagellation from on high by the UK medical authorities that be.

  36. outsider
    Posted December 11, 2015 at 3:36 pm | Permalink

    Dear Mr Redwood, “helicopter money”can play a useful role in certain closely-defined situations, namely where recession is being caused by a dramatic loss of confidence, a flight to safety and a consequent dearth of supply of and demand for credit. But today that only applies in a few countries such as Greece.

    In the eurozone, as you say, several countries are being impoverished because they cannot adjust their own exchange rates or run very big fiscal deficits but, as yet, do not receive direct transfers from the better off members of the single currency to compensate.
    Even if the eurozone had a full system of income transfers, however, Finland would not receive any because its income per head is still above the EU average (similar to France and the UK).

    Finland is in trouble because its leading sector (mobile phones) has collapsed and another key industry, newsprint, is suffering because the internet is cutting newspaper sales. EU sanctions against trade with Russia have not helped. In economic jargon, Finland has suffered a severe shock from negative technical progress. It is simply poorer.

    These problems are common across the EU, except for Germany and a few others such as Slovakia. Key basic industries are being lost to China et al while we are generating too few new products and services and big, fast-growing companies to maintain anything beyond snail-like growth in income per head.

    In the UK these issues are merely being disguised, or put off, by a policy of import-led growth, spending more than we produce on credit by selling our most desirable businesses, licences and other assets to foreign-currency investors.

    These problems are not susceptible to any macroeconomic policies, which are merely short-term palliatives.

    • A different Simon
      Posted December 13, 2015 at 2:26 pm | Permalink

      Outsider ,

      It sounds like what is being proposed is rather not “helicopter money” but a “citizens wage” .

      If the cost of living was brought down sufficiently a Citizens Wage might work better than the bureaucracy laden current benefits system . Whilst the cost of living is out of control and land prices are going through the roof it’s a non-starter .

      In a normal system where there are debtors there are creditors but we are supposed to believe that their are no creditor nations .

      They are p***ing down our backs and telling us it’s raining again .

  37. ian
    Posted December 11, 2015 at 3:42 pm | Permalink

    See they can afford to spend billions of pounds on refugees to house them but not a pound on the British homeless people which is the highest in the world.
    Witch finder general having a field day, who next for the chop.

  38. Tad Davison
    Posted December 11, 2015 at 8:02 pm | Permalink

    Slightly off topic, but very important.

    Christine Lagarde gave an interview to Channel 4 News this evening. When asked about Brexit, she told Jon Snow that she wanted her Christmas Pudding without tariffs. I think we may take it that was code for France imposing import tariffs upon UK goods if we left the EU.

    Snow for his part lapped it up and just smirked in an arrogant and contemptuous way so typical of leftie EU nonsense peddlers who think they know it all.

    Personally I feel we ought to press Christine Lagarde for a fuller explanation. If she is privy to some hitherto secret plan to impose tariffs upon UK exports to the EU in the event of us leaving, it needs to be talked about, not merely alluded to.

    I doubt though, if they’d dare, because it would likely hurt them more than it would hurt us, but a person in Christine Lagarde’s position shouldn’t go around scaremongering or peddling BS. Perhaps John could look into this on our behalf.

    Tad Davison

    Cambridge

    • Mercia
      Posted December 12, 2015 at 9:12 pm | Permalink

      Personally I feel we ought to press Christine Lagarde for a fuller explanation. If she is privy to some hitherto secret plan to impose tariffs upon UK exports to the EU in the event of us leaving, it needs to be talked about, not merely alluded to.

      >
      I agree Tad, that woman seems to be privy to all sorts of advanced inside info. I have noticed. Some of her IMF speeches are bizarre, involving numerology and astrological predictions.

  39. Iain Gill
    Posted December 11, 2015 at 8:08 pm | Permalink

    But that’s this governments solution to everything, worst healthcare providers in the developed world, throw money at them that’s bound to help. NO IT IS NOT.

    Worst schools in the developed world, thrown money at them that’s bound to help. NO IT IS NOT.

    Swashing money around is no solution to anything. Please let the blommin citizens have their buying power back to bring these rubbish service providers back under commercial pressure to keep the customers happy.

    As for the economy it all started with the sub prime crisis remember, blowing up our own housing bubble, and giving our own sub prime mortgages is no solution to anything either.

    Apparently the other government solution to everything is just to flood the country with ever more immigrants…

  40. Posted December 11, 2015 at 9:00 pm | Permalink

    While on the subject of expenditure :

    On the news yesterday I heard a guy talking to a TV reporter while wading around in the lounge of his flooded house in Cumbria.

    He asked why the Government is giving away so much money in foreign aid when people in his town are being flooded out because the expenditure on flood defenses is inadequate or has been been cut.

    Hard to argue with that isn’t it ?

    Very surprised it made it on air and it was on the BBC !

    • Posted December 12, 2015 at 8:10 pm | Permalink

      “Hard to argue with that isn’t it ?”

      No, it isn’t.

      From a left perspective we could equally well argue that the Govt shouldn’t be buying a Trident replacement when flood defences were inadequate.

      My children used to play a computer game where they had to allocate resources in a kingdom . They had to allocate a number of workers to grow crops otherwise there would be too many deaths from starvation. Then they had to allocate soldiers to the army or there would be the risk of invasion. There was a river which flooded periodically so they had to allocate some resources to building and maintaining the levees to prevent too many deaths by drowning etc.

      The game was cleverly designed so that there were never quite enough resources to stop something bad happening. Sooner or later the kingdom was flooded or invaded and that was the end of the game. But, by skillful management it was possible to delay the inevitable for quite a time.

      So, in our real Kingdom, how do the problems compare? Do we have enough resources to prevent invasion, stop too many deaths or damage from floods, and still be able to lend a hand too those in the world who might be less fortunate than ourselves?

      Well, yes of course we do. We have lots of idle spare capacity. We have people hanging around doing nothing or working in very low productivity jobs. We If you didn’t use your resources to maximum effect in the computer simulation the game was over very quickly indeed.

      • Edward2
        Posted December 12, 2015 at 11:13 pm | Permalink

        Why not let the market decide?
        In your scenario only the State can decide.
        Who say they always make the best decisions?

    • Posted December 12, 2015 at 8:11 pm | Permalink

      “Hard to argue with that isn’t it ?”

      No, it isn’t.

      From a left perspective we could equally well argue that the Govt shouldn’t be buying a Trident replacement when flood defences were inadequate.

      My children used to play a computer game where they had to allocate resources in a kingdom . They had to allocate a number of workers to grow crops otherwise there would be too many deaths from starvation. Then they had to allocate soldiers to the army or there would be the risk of invasion. There was a river which flooded periodically so they had to allocate some resources to building and maintaining the levees to prevent too many deaths by drowning etc.

      The game was cleverly designed so that there were never quite enough resources to stop something bad happening. Sooner or later the kingdom was flooded or invaded and that was the end of the game. But, by skillful management it was possible to delay the inevitable for quite a time.

      So, in our real Kingdom, how do the problems compare? Do we have enough resources to prevent invasion, stop too many deaths or damage from floods, and still be able to lend a hand too those in the world who might be less fortunate than ourselves?

      Well, yes of course we do. We have lots of idle spare capacity. We have people hanging around doing nothing or working in very low productivity jobs. We are ultra wasteful. If you didn’t use your resources to maximum effect in the computer simulation the game was over very quickly indeed.

      • Edward2
        Posted December 12, 2015 at 11:18 pm | Permalink

        Even if, in your fantasy scenario, there is 100% efficient use of all under used resourses there is still no stopping a sucessful invasion or a natural disaster overwhelming a nations defences.
        You assume a paternalistic State can protect from cradle to grave.
        It cannot.

  41. Posted December 13, 2015 at 2:26 am | Permalink

    But we have had people’s QE. In the 1972 Heath/Barber budget, public expenditure was increased massively and in 1975 the Wilson/Healey budget poured petrol on the flames. By 1976, UK inflation was running at 25% pa and there was even a 6 month period when the annualised inflation rate approached 50%.

    Before that experience, there was a fierce debate between economists over whether inflation was a cost push or demand pull phenomenon. Those taking the former view argued that trade union activity in the public sector forced governments to spend more. They didn’t consider the possibility of financing the extra expenditure by increasing VAT and releasing the names and addresses of individual trade union members so that the general public could ‘thank’ them.

    Thankfully, trade union law was changed so that trade unions can be sued for the consequences of their strike actions.

    • Posted December 14, 2015 at 3:25 pm | Permalink

      Lindsay,

      The problem with your argument is that there is little to no correlation historically between the size of the Govt’s budget deficit and the rate of inflation:

      http://www.economicshelp.org/wp-content/uploads/blog-uploads/2012/10/borrowing-percent-gdp-69-14-500×370.png

      http://www.click4annuities.co.uk/wp-content/media/Inflation-Index.png

      For example: between 1989 to 1991 inflation spiked to about 10% after Mrs Thatcher’s govt seemed to have made some progress in bring inflation under control. Yet, this was one of the very few times the UK budget has actually been in surplus!

      When inflation was very high in 1974 the budget deficit (close to 25% as you say) was just about the same as it was in 2012. The very high budget deficit of 2010 (11% of GDP) was accompanied by about 3% inflation.

      So, I suggest that if inflation is largely a demand pull phenomena as the conventional wisdom of monetarism might suggest then I’d suggest that the correlation might be somewhat more apparent.

      PS I don’t understand your comment about cost-push inflation, TU activity and the need for govts to spend more.

      • Edward2
        Posted December 14, 2015 at 11:34 pm | Permalink

        My memory of the high inflation eras of the seventies was Unions demanding and getting annual pay rises of 20 or 30% and then monopolistic nationalised industries then pushing up their prices to pay for it..
        Chicken and egg perhaps, but strikes had a big role in that era’s high inflation.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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