It is Obvious

Chris Rick has got altogether too much to say

My word is my bond

Posted by chrisrick13 on December 21, 2010

It is obvious: everything has a value

The English billion is a million million or 1,000,000,000,000.  It fell out of common use as it was too big a number to ever occur (sic).  So we use the American billion, which is 1,000,000,000 and trillion which is the English billion.  Very sensible.  A few short years ago we were in awe at numbers measured in the millions, at least as far as economics was concerned.  Now we are blasé about billions and trillion is coming into common use.

As these numbers blur it is useful to be able to grasp them.  I have written about ‘4 cents a passenger mile’.  You need to be able to go both ways on a number.  So when the government spends £1bn what does that mean to you?  It is not accurate but close enough to say that it means that they have come round and collected £20 from every man, woman, and child in the country.

So the ‘visible’ national debt is nearly £1tn which is £20,000 for every one of us.  If the interest is 5% then that is £1,000 for every one of us every year or £20 a week.  I’m collecting on behalf of the government so you can send me your £20 now.  If you want to do that on a household basis then you need to triple those numbers.  (There is also a not so visible debt, that we have run up as individuals, that is the unfunded pension commitments of business and government, and PFI, all of which triples those numbers again.)

So the government has spent £200bn on QE.  That is the process of buying assets.  I assume that there is a return from those assets or they would have been free.  At least there was a return when they were bought…  That is £4,000 of my money or £12,000 from my household.  At 5% there will be £200 coming back to me each year.

In fact the government has been throwing a lot of my money about to buy things.  It has lent £8bn to Ireland (£160) – we won’t see that again.  It puts £8.5bn in bribes (foreign aid) into foreign economies every year (£170) – we won’t see that again but it might come back in other ways.  There are plenty of other purchases I could mention including large stakes in banks.  However I am interested in QE and also the bond purchases by not only the UK government but the ECB and the Fed and a number of other national institutions.

The UK has spent £200bn on QE.  This was spent buying bonds…I think.  It was not spent on buying foreign holidays for the cabinet, expensive meals at the Savoy, jewellery for girlfriends of MPs or even cleaning moats.  These are all things where, once bought, the resale value is very small.  What was bought was an asset that has a well defined value that can be recovered at some future time.  They are acquired assets not expenditure.  Investments even?  Anyway that will be £4,000 from you thankyou very much – I’ll take a cheque.

Can you imagine the sharp intake of breath that will occur when the government comes along to a bond dealer and offers up all the bonds it has bought for sale?

It is obvious: everything has a value which seems to be high when you are buying and almost zero when you are selling.  If you are government it isn’t your money when you bought it and it certainly isn’t when you sell it.

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