Posts Tagged ‘government spending’

Jack Lesgrin’s week: Turns out there is a Magic Money Tree

02/06/2021, 08:49:54 AM

by Jack Lesgrin

Back during Theresa May’s ill-fated 2017 general election campaign, she told a nurse who had complained about low wages that “there isn’t a magic money tree that we can shake that suddenly provides for everything that people want.” Standard fare of political and economic discourse, you might think.

Yet listening to BBC economics correspondent Andy Verity’s Today Programme news item last Tuesday helped those of us who have been trying to locate the ephemeral Magic Money Tree. Regarding recent government financial figures, he noted that while “borrowing £300 billion may sound a frightening number”, this is a much smaller amount than the figures for both world wars, and smaller than the Office for Budget Responsibility predicted last November. But the killer line was the last one of the report: “…and almost all the money borrowed is owed to the Bank of England, which created the money to purchase that debt from nothing.”

It seems the government borrowed money from itself (in the quasi-independent form of the Bank of England) to spend during a crisis, and now owes itself this sum. It begs the question why must the government owe itself money and therefore, presumably, go through the painful process of either cutting expenditure or raising taxes to repay itself this money?

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