Why Does The Government Borrow Money When It Could ‘Print it’ - create Credit - to the Same Effect?

October 24, 2020

Why Does Government Borrow Money When It Could ‘Print it’, to the Same Effect?

Our government for years has said ‘there is no money’ for this and that. The recents events surrounding the Coronavirus have seen the government borrowing huge sums of money, which is then pumped into the economy, so as to keep ordinary people secure from disastrous hardship.

80% of what would have been wages at present for many people. A huge amount of money – billions in their tens, maybe in their hundreds.

The USA has done similarly but in trillions of dollars.

Why is this money borrowed, when both governments have the power and the means to print pounds or dollar bills, as many as are needed? Or to issue credit.

And whether or not money is borrowed or printed, pumping it into an economy for social support in the ways being done, but yet having added zero goods and services to be bought with that money, will have the same inflationary effects, whether it is loaned money or ‘printed’ by government. Exactly the same.

Why then are governments borrowing? Why saddle us all with huge debts when another solution without such debt, which is to ‘print the money’, is available.

By ‘print’ I might include ‘issue credit’ since there is power in government to do either, and the social relief looked for would be the result in either case. I don’t mean credit as government issuing debt as credit is normally meant these days – I mean simply that a sum ‘goes into’ a citizen’s bank account monthly, on which s/he can draw so as to shop groceries and pay bills, just like Universal Credit payments ‘go in’ right now. No repayments by citizens

And we have all seen the severe inflationary trends in these past months, food prices having increased some 50% some 100%, and this is ‘normal’ and to be expected when the economy is being flooded with extra money, but with no extra goods or services being made available to be bought by that money.

It follows then that concerning the money being borrowed by government – the lenders of this money, whoever they are, who have such billions sloshing about to be borrowed, they too would be seeing their money losing value at the same rate as the general population sees it lose value – this must be true, unless the lenders are using a currency different from and able to be unaffected by these inflationary trends. There can be no other conclusions.

The questions arise – why should lenders lend, when their money is going to devalue at a great rate by them lending it? From where do they get this sort of money to lend; where is it kept in the normal way of things, when there is no cirsis like we have presently? Surely it must be tied up somewhere, earning money, and if so, how is it suddenly able to be realised as money, and able to be borrowed by governments, at this sudden emergency having arisen?

Lots of things don’t make sense.

Unless the money loaned is in fact itself credit, - but credit, and created automatically, by whom? The government surely could do this itself, as I said, metaphorically, ‘print the money’. So let’s presume for the sake of argument that for reasons unknown the government can’t or won’t do it, but government will allow, or cannot prevent, and will use as a resource, another entity or other entities, who do dispense automatically created credit on this huge scale, from which the government can borrow.

A kind of crazy scenario but can you come up with a more cogent one? Given the facts we think we know and have had from the day to day news bulletins.

The question arises – why would a UK government want to saddle the people of the nation with so much debt?

I do know that the British public is still servicing debts going as far back as the 18th century, when the Bank of England was first formed as an institution. And I know it was formed to be, or at least that perhaps the major motivation for its coming into being was, so as for it to be an instrument to bail out the monarch of the time from his huge debts. And I know that the negotiations for The Bank Of England being formed consisted of deal brokering between private financiers and the monarchy, and that a heavy price was demanded of the monarchy, and so of the British people, for the formation of the bank by the financiers to go ahead. So these kinds of conundrum are not a new phenomena.

Back to today. Let’s assume there are lenders, that the government is not kidding us and printing the stuff instead and in fact.

How do the lenders protect their huge ‘investment’ in Britain? Stop it from losing much of its value? Do they charge more and more % interest as inflation goes higher? Do they lend at such a high rate that their loans and income are protected?

Or, is it more likely to be the case, that they ask as security hard assets from the government in return for the loans of money? Hard assets which won’t lose value but will always keep abreast of currency devaluations – items like property, and perhaps huge ventures like a large public institution, and maybe also ownership of artworks, precious stones, gold, and suchlike?

This seems to be the likely answer if the rest of my assumptions are correct. And if this is true, is then our government selling off the farm to these lenders? And so saddling us all, and for many generations to come, with huge repayment obligations to boot, and into a time maybe as far as England, the UK, goes, in the future?

What’s the summary then? Let’s state it not as questions but as assumed facts

A non-government entity or entities are creating credit (“printing money”) and loaning it to UK government, Even though the UK government is an entity which has power itself to “print money”, to issue credit. In return the lenders place long term, extraordinarily so, interest payment obligations on every person in UK, via government, and to the knowledge of UK citizens, at unknown rates and terms.

As security on the loans, the UK government is pledging UK property, institutions, artworks, jewels, gold etc, but these loans are made of indefinite duration, of indefinite length of repayment installments. Unless instead these repayments are merely ‘just marking time’, that is, with interests awards only going to lenders. If ‘marking time’ this makes lenders de facto owners of the items being used by UK government in securing the loans.

Besides there is always a danger of default by government, given these present special circumstances, and so triggering seizures of assets by creditors. I do think that at some point a (further) deal might well need to be done between government and the lenders; one in which at least some UK property, gold, artwork etc has to be surrendered permanently in law to the loaners.

The final question I want to ask is - is the income had by the lenders justified, given that they just ‘printed’ money, or made the substance of their loans as credit - that they just created the stuff, like gods, ex nihilo?

You can answer that one. I ask you please,. think about these things. And ask -what is going on?

Sincerely Peter