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I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value

I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value, so the bank is making a loss. This presumably goes on the UK deficit? If that's the case we're in trouble right? Because the UK is already at 143% Debt:GDP, interest rates are only now starting to go up, and the government's entire plan is to deficit spend to grow the economy. So it sounds like this increase in interest rates is likely to eat away massively at our budget and force us into more austerity?

Pennycade 4y ago
The BoE is independent (in theory) from the government. If the bonds that BoE own go to zero, their entries are effectively just deleted from the database. In the same way that an increase in the number of £ in the database doesn't increase the government's deficit. It's a very simple concept but can have psychological hurdle to overcome, given the simplicity of it and implications once internalised. Analogy .. BoE has root admin access to the database of £. Government does not, has read only access.
- SilverBirch 4y ago
  So does this just mean it's inflationary? You borrow money, that means more money in the world (inflation) but it's debt, so it'll be paid back, so in the long run you haven't permanently inflated the currency. But then if you don't pay it back that turns into realized inflation and hurts your currency?
  - amrocha 4y ago
    Any spending is inflationary, regardless of how you finance it. If the spending is financed via taxation it can still cause inflation if it doesn't produce any real resources. Taxation does create room for non-inflationary spending. That being said, if a government used QE to finance spending that was productive in real resource terms then it would not be inflationary.
orwin 4y ago
Central banks owe their debt in their issued currency to themselves. So basically, those bonds going down in value are just a countability artifact and mean nothing. Some media and politicians love to make a big deal about this, but they are either misinformed or disingenuous (or both).
spacebanana7 4y ago
What's your source for that Debt:GDP figure? From these sources it seems to be closer to 100% currently [1][2][3] [1]https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2022 https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe... [2] https://tradingeconomics.com/united-kingdom/government-debt-to-gdp https://tradingeconomics.com/united-kingdom/government-debt-... [3] https://www.theguardian.com/business/2022/sep/04/now-britain-is-in-the-100-debt-to-gdp-club-whats-the-spending-plan https://www.theguardian.com/business/2022/sep/04/now-britain...
- SilverBirch 4y ago
  Weird, I just picked the first reputable looking source I could find, oecd: https://data.oecd.org/gga/general-government-debt.htm https://data.oecd.org/gga/general-government-debt.htm
amrocha 4y ago
It's because it doesn't make any sense. Japan has a national debt of over 200% of GDP, economists have been predicting a recession for decades, and yet nothing has happened.

Pennycade 4y ago

The BoE is independent (in theory) from the government. If the bonds that BoE own go to zero, their entries are effectively just deleted from the database. In the same way that an increase in the number of £ in the database doesn't increase the government's deficit. It's a very simple concept but can have psychological hurdle to overcome, given the simplicity of it and implications once internalised. Analogy .. BoE has root admin access to the database of £. Government does not, has read only access.

SilverBirch 4y ago
So does this just mean it's inflationary? You borrow money, that means more money in the world (inflation) but it's debt, so it'll be paid back, so in the long run you haven't permanently inflated the currency. But then if you don't pay it back that turns into realized inflation and hurts your currency?
- amrocha 4y ago
  Any spending is inflationary, regardless of how you finance it. If the spending is financed via taxation it can still cause inflation if it doesn't produce any real resources. Taxation does create room for non-inflationary spending. That being said, if a government used QE to finance spending that was productive in real resource terms then it would not be inflationary.

orwin 4y ago

Central banks owe their debt in their issued currency to themselves. So basically, those bonds going down in value are just a countability artifact and mean nothing. Some media and politicians love to make a big deal about this, but they are either misinformed or disingenuous (or both).

spacebanana7 4y ago

What's your source for that Debt:GDP figure? From these sources it seems to be closer to 100% currently [1][2][3] [1]https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2022 https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe... [2] https://tradingeconomics.com/united-kingdom/government-debt-to-gdp https://tradingeconomics.com/united-kingdom/government-debt-... [3] https://www.theguardian.com/business/2022/sep/04/now-britain-is-in-the-100-debt-to-gdp-club-whats-the-spending-plan https://www.theguardian.com/business/2022/sep/04/now-britain...

SilverBirch 4y ago
Weird, I just picked the first reputable looking source I could find, oecd: https://data.oecd.org/gga/general-government-debt.htm https://data.oecd.org/gga/general-government-debt.htm

amrocha 4y ago

It's because it doesn't make any sense. Japan has a national debt of over 200% of GDP, economists have been predicting a recession for decades, and yet nothing has happened.