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Sadly, the British government remains very deliberately wedded to the myth that it needs to run to the nearest lender every time the stationery cupboard gets low on pencils. (The feudal aristocracy of the private economy would have it no other way.)

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This is 100% correct. In a fiat currency system with no gold backing, the equilibrating mechanism is no longer interest rates per se, but the level of the free-floating currency relative to other currencies (esp the $). In such a situation, the relevance as far as the UK is concerned is the extent of foreign (i.e. non-sterling) borrowings on the debt. In the UK's case today, it is a non-factor. Virtually all of the borrowing is being done in sterling, so there is no question as to whether the UK government can continue to service the debt because, as the sole issuer of the pound, it can always service the debt. I also suspect that at some point, sterling becomes sufficiently low relative to other currencies, and that may well attract additional inflows from institutions/individuals, who view sterling based assets as "cheap".

That the UK government is highly unlikely to face a 1970s style currency crisis in which the IMF might have to be called in DOES NOT, however, vindicate the strategy adopted by the Truss Administration. The new policies announced last week by Kwasi Kwarteng offer the worst of all possible worlds: they do nothing to address the gaps in the supply chains that did so much to create the inflation in the first place. To the extent that this package delivers expansionary fiscal stimulus, it is directed to the wrong people. The benefits largely accrue to the cohort with the highest savings propensities, so it's terribly inefficient and will also likely exacerbate prevailing inequalities (and the UK is one of the most unequal economies in the G7, in fact it might be THE most unequal and this fiscal plan will make it worse). In fact, as the Shadow Chancellor, Rachel Reeves, noted the other day in the FT, "research by the IMF has shown that higher income inequality is associated with lower and more fragile growth. It is obvious why. Concentrating income among fewer people — those least likely to spend it and drive the economy forwards — undermines workers’ health and education, the crucial components of a productive workforce."

Likewise, as Stephanie pointed out in her previous piece, there is a substantial body of economic work illustrating that "trickle down economics" is fiscally inefficient in terms of delivering decent bang for the buck to foster greater economic growth. So to the extent that the tax cuts induce any kind of spending response, we'll get more demand that will likely go to the wrong areas (e.g. prime London property), as opposed to funds that will generate more equitable growth and prosperity.

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Sep 26, 2022·edited Sep 26, 2022

Thanks for the nod Stephanie.

The key to understanding 1976 is that the government of the day was still operating in the Bretton Woods mindset and were trying to defend the $2 to the £ exchange rate. There were several dollar loans obtained by the UK throughout the 1960s and the 1970s to defend the exchange rate all of which were paid back. The difference in the mid 1970s was that the world had fully changed to the floating rate era, particularly in the USA, and the UK hadn't caught up. The 1970s Labour government was a government out of time in more ways than one.

I wrote it up in a blog a few years ago. https://new-wayland.com/blog/uk-borrowed-foreign-currency-from-imf-in-1976/

The characters in charge now won't care too much if the pound slides. From their point of view that just puts more pressure on the Bank of England to do what they need the Bank to do - massively hike interest rates.

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I'm in full agreement with the thrust of liberal/progressive reforms like MMT etc., but how many times do I need to reiterate that reforms are all too easily gamed and/or morphed into some "new" orthodoxy that serves the same master?

All of the leading edge reforms revolve around money, debt and finance. That tells you that they are onto the problem. All they need to do is up their analytical game to the level of the paradigm. Paradigmatic analysis is counter intuitive to the current dominant paradigm for investigation, that is, science, in that it is wholistic instead of reductionistic. Science of course is wonderful, necessary and delicious...and it exists entirely within the digestive tract of paradigmatic analysis. So I'm not in any way advocating dropping science...just utilizing a more comprehensive temporal universe changing method. New paradigms are single concepts that change the nature of entire complexities. In this sense they are the ultimate human integrative of opposites phenomenon. Like wisdom insights, they are deep simplicities..

Scientific analysis of macro-economic theory tells us the problem is about money, debt and finance. Now we just have to find the single concept (which is historically in complete conceptual opposition to the present problematic paradigm) that most efficaciously applied changes the entire system under analysis.

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I didn't realise people were still pretending MMT was a suitable policy. Of course, the Govt could simply print money and has always been able to do that. The check and balance to this is that people quite like their money to be worth something.

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"Can “It” (1976) Happen Again?

With apologies to H.P. Minsky for twisting the phrase."

Behold the ghost of Hyman Minsky! It speaks ...

"No, apology not accepted. Make up your own attention-grabbing headline!"

Found Hyman's book in the stacks back in 1983 (I think). Unread, dusty.

Reading it was truly a revelation - especially compared to the rational expectations rubbish thye profs were cramming down our gullets.

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