In a move of enormous cheek and deceit the Treasury has changed its accounting rules so it does not have to pay the Bank of England £35bn in interest payments on the government bonds the Bank bought, by creating electronic money, for its Quantitative Easing (QE) programme.
The Bank of England has purchased £375bn of bonds (Government debt) as part of its monetary policy to support the economy. The purpose of this was to lower interest rates, not to fund government spending. But we had the stupid situation whereby the Government is borrowing money to pay interest due to the Bank of England on the gilts it owns. This situation does not exist in the US or Japan where the Fed and the BOJ simply transfer any interest received back to the Treasury/Finance Ministry.
This demonstrates a number of key issues.
1. The Bank of England can create money debt free
2. The Treasury has no need to borrow money
3. The Bank of England could eradicate all of the government's debts - at no cost to the tax payer
4. The austerity programme has been laid bare as a politically motivated action
As a result the Bank will now hand back around £35bn in electronic money to the Treasury by March next year and the Treasury will effectively pay no interest on the £375bn of government debt (around one third of the total) held by the BOE as long as QE is in operation.
This shows the lie about the budget deficit - if the Bank of England is buying the debt and the private sector is not what is the point of austerity all at once? Osborne is funding his own deficit and claiming credit for selling bonds at such low interest rates! The national debt held by the publicly owned bank should be cancelled and then the budget deficit will be reduced as the Treasury does not have to pay out interest. The austerity programme is a political tool to justify the decimation of the public sector and the benefits system and should be so exposed. It is pushing us into years of slow growth and wasting young peoples' lives.
These actions by the government finally expose the nature of the monetary system and the support for profit making banks who serve the Tory Party. While at the same time demonstrating that the solution proposed to get us out of economic misery, on these blogs and by Positive Money, is workable and achievable. If anything could stir the trade union and labour movement to educate its members on the issue of money creation this is it. The struggle to free us from debt bondage is as much an intellectual one as it is a marching one!
