Perhaps Comrade Bilimoria likes inflation!
As for turning into
@The Byre - I hope you know how to drive a tractor and can use a chainsaw - we'll put your arse to work!
What you are alluding to is the trickle-down fallacy. The poor spend every penny they can lay their hands upon. They have to because they are poor! A homeless person living in a hostel with a food budget of £10 a week, when given an extra £10, will spend every penny of that extra on nicer and better food.
That means that every extra penny he gets goes IMMEDIATELY into the real economy. In economic terms, the velocity of his extra £10 is 52 - it goes into the real economy 52 times a year.
Give a rich man £10 and he will never notice it. It, along with the rest of his £10m will go into a Swiss or Luxembourg bank account. The velocity of his extra £10 is 0 - it leaves the real economy, never to return. If we are lucky, he may use some of that money to buy a nice German car or a French motor yacht. Of one thing we can be sure - he (or his housekeeper) will not use that £10 to buy Scottish potatoes at Lidl!
No, it cannot!
OK - big subject - The ND is created by issuing government bonds. The banking world needs those bonds as collateral for borrowing and lending. When there is a shortage of high-quality collateral, the BoE (and not the government) can set the rates/terms of the bond.
However, right now there is a shortage only of dollar-denominated bonds ever since the Fed has stopped borrowing as much as it did last year as it is tightening - that is why the dollar is going up in value compared to other currencies.
Those bonds are used by the banks and other financial institutions as securities for other transactions - I borrow $10bn from you and give you a gov. bond (aka 'government paper') for $10bn. You get a credit note from me (a company bond) and use that paper as security for another deal - and so on and on.
For every money movement, there has to be a counter-movement. Without all those papers, we could not have a banking system. Because that daisy-chain of lending and borrowing requires high-quality assets to get the ball rolling, there is a shortage of quality paper (US treasuries, aka US gov. bonds) and dollar-denominated blue-chip bonds.
That shortage means that governments and blue-chip companies can borrow at ridiculously low rates or even at negative rates (interest minus inflation). That is what I meant when I wrote that we can inflate away our debts! The debt remains, but its true value diminishes over time.
BUT - The UK government has a problem, a big one! The pound is not the world's reserve currency. That honour has been going to the almighty dollar since the post-war Bretton Woods agreement.
There is some limited demand for £-denominated assets, but it is nowhere nearly as great as for dollar assets. Also, the UK economy is not seen as a safe bet anymore, thanks to Brexit and many other factors, economic mismanagement being one of those reasons for a lack of confidence.
For those reasons, the BoE and the Gov. cannot set its own interest rates and (after a certain level of borrowing) has to issue bonds on the open market and rates are set by the open market - and they are high and getting higher (linked to RPI).
In simple terms -
even if you are a government, the more you borrow, the more interest you have to pay!
Yes and no.
When one drills down into the facts, the component parts of most government spending on weaponry or infrastructure is non-UK based. Indeed, any time you buy any capital goods, they are either totally or partially foreign.
The new motorway system around Glasgow was built by Siemens and Hoch-Tief. Those two German companies also built the new hydroelectric pump-storage system at Loch Ness. That £350,000 AMS-Neve desk at Abby Road Studios was built in Blackpool, but every component is Chinese or Taiwanese and the pick-n-place machines that assembled the boards are German or Japanese. Your tank will have a German motor and a US or German gearbox - as will the luxury car for the company CEO that built that tank.
By becoming a service-based economy, the UK turned its back on manufacturing. The world's CPUs are made on Dutch machines. We are riding in Japanese railway carriages. We are driving cars from everywhere except the UK and on motorways built by Germans and financed by bonds bought by a Spanish bank.
But manufacturing is a knowledge-based activity. It takes generations to develop that knowledge. You must have industrial buyers who went to business school and graduated in business economics. You must have master toolmakers to develop and fit out the stamping presses and all the other machines on the shop floor. You must have CNC programmers to programme the robots. You need industrial designers and production designers to develop the products and design the production flow. You need production managers with degrees in engineering and with a follow-up MBA to oversee the factory. You need a CEO with an engineering or business doctorate to run the company.
All those things are missing in the UK. All you get half the time is a gaggle of goofballs who sort of learned on the job and did an HNC at night school at the local tech and a CEO with a degree in history!
STORY -
I was working with a US company and one of my contacts was a nice chap called Greg. He was the overseeing production manager for their overseas operations. My job was to produce all documentation in English and German as their EU operations were at the time in Germany.
Greg used to come to Germany and see what we were up to and we got to chat about this and that over coffees in the canteen. His story was illuminating - school, followed by working on the shop floor at their Mid-West HQ. He did night school at the local community college in Indiana and got an engineering degree. The company then paid him to get a master's at the state college. On his return, he got promotion and then got unpaid leave to get an Ivy-League MBA. He became sales manager for the whole company.
About six years ago, I looked at that company as a possible investment opportunity and saw that the new CEO was Greg and with a low seven-figure salary. He has since transformed the company. It has almost no debt and the stock went from $5 to $80+ under his stewardship. He is right now working on vertical integration, buying up companies that used to be his customers and buying into partner companies that integrate his company's products into theirs. Soon he will hit retirement, but I bet he will get that eight-figure salary before he does!
The moral of that story is the power of education - a proper education! We don't need sociologists, diversity studies graduates, media studies grads, music psychologists and all the other riff-raff that comes pouring out of the various Wysuckie Colleges for the Totally Dumb (gain vital college credits for money paid!)
We need engineers! (And judging by yesterday's budget, we certainly do not need yet another Chancellor with a Ph.D. in history! The Commons benches are already filled with useless crap like that!)
en.wikipedia.org
