Coronavirus

[Oracle]

I see a lot of myths and misunderstandings on this thread, as well as the socialist propensity for thinking you can spend what you dont have. You cannot.

Setting a few of the myths at rest. The word "money" is the problem
Banks dont create wealth or even money out of thin air. Ever. Conservation of mass applies.

When they make a loan , there is an equal and opposite liability held at the bank.
When punters are given 1bn, the banks become worth -£1billion until the loans are repaid. Which is why banks must care what money is spent on.
Nothing was created or lost. Unless a borrower defaults.

Banks are obliged to hold a proportion of their capital in rock solid liquid things so they can allow a proportion of savers to withdraw money they have saved. But it is all a confidence trick. Banks are all in essence insolvent.

Governments can never spend what they do not have except by issuing loan instruments, "bonds"

Governments can only borrow or raise in taxation for current account. In quantitative easing a central bank buys assets off the market at market rate, so value is not distorted. Government first must sell its debt to the market, before it is bought by central banks.

In this way the central bank is creating "money" but that too is just a loan, the central bank becomes insolvent if the governments default on bonds. QE is simply a mechanism by which governments and people can borrow more than they would , when there is nobody else with assets to lend!

It is still money on tick. Nothing is created or lost.

Wealth is only created by growing it, designing it, making it (adding value ), digging it out of the ground, transporting it and distributing it (and of course the planet and the sun are ultimately finite resources but not on our timescale. It is why I have manufacturing underpants. It is one of the least valued but only valuable activities, as indeed is the occupation of Wittons wife! These are the true KEY workers. Not NHS diversity officers.

The contribution of many parts of the economy are at best indirect. Bankers accountants and lawyers just push it around a table. They create nothing. Some have value, those that educate the productive parts of society to improve productivity. If germany is successful it is partly because it still values apprentices and vocational training. Not waste of time degrees in bird subjects for all. they are just a drain. One policy I would like to see, is selective funding of courses that add to wealth creation. eg engineer.

The health industry helps increase the productivity of working age people, but that needs offsetting against horrendous cost ( but even that is arguable if there is a large section of unemployed, so others could fill the productivity space) As for keeping post working age alive, that is simply a consumption of resources , a drain on wealth. The argument for health is a moral one not an economic , it is a massive drain on resources and must be kept under control within the means of wealth creation. The idea that "health workers" are the "key workers", is a misunderstanding of what keeps our society fed.

It is also consumed (eating it, burning it, burying it in landfill and so on), or anything consumed by those who do not create the wealth. It can also be burnt. Like NHS diversity officers.

The ONLY spending on tick, that is valuable to the economy is that which creates more wealth.
So there are examples of spending on infrastucture. America late 19th early 20th century borrowed heavily to create the biggest manufacturing engine in the world. Ditto japan in seventies. Both were worthwhile but, it does not help if you spend more than you make. Both have gone tits up.

Economies are naturally deflationary. This years farming is more efficient than 100 years ago. This years production line more efficient or TV. Programming inflation is simply wrong. It is a way for governments to devalue their debts killing saving and investment returns. The rot started here under new labour in 1993 (central bank) and later 2002.

The explosion of money on tick and cheap interest, for consumerism not productive investment is a short term boost with long term pain. The heroin of cheap money is how Gordon Brown destroyed our economy. The QE that followed, more of the drug that made the patient sick.

No you cannot print value. The only way to spend more is to create more REAL wealth. Not spending on ever more good causes. Callaghan tried it. Look what happened to him.

I trust the economists who predicted 2008 in 2005. None of them believe monetary explosion is good. It creates artificial bubbles like Gordon Browns bubble that burst. In 2008 he said "we will never return to boom and bust". Who remembers what happened next? Idiot.

If governments borrow for current account (non productive asset purchase)then when they spend more, their children will have less to spend less. The rest is just sophistry. The excessive pensions taken by many in public sector are stealing from children.