As this nifty little chart, courtesy of the FT shows, despite denials, the government has been doing what it said it would never do. The huge increase in borrowing needed to support the economy during the Covid crisis, largely equates with the amount of public debt bought back by the ‘independent’ Bank of England. Whereas during the financial crash, the Bank could claim it was using Quantitative Easing primarily to keep interest rates down (the price of a bond is inversely related to its yield) it can’t get away with pretending this time around.
While neo-liberal economists, the Tories and disappointingly, many on the Left worry about how the increase in borrowing – and by implication the national debt is going to be paid off, financing spending this way means that it doesn’t really have to. Sunak at the Treasury and Bailey at the Bank play for the same team — they can pass the ball around. Another way of seeing it is to imagine an individual using an increasing balance from one of their bank accounts to write off a rising deficit in another.
If this can happen during the pandemic then why can’t the magic money tree be shaken in ‘normal’ circumstances to fund spending on education, public services, or the Green New Deal? Back in 2016, Jeremy Corbyn and John McDonnell used to talk about doing just that through ‘peoples quantitative easing’ but downplayed it, no doubt worried about the response of ‘the markets’. But as the FT rightly observes, the markets know only too well what’s happening now. But sadly, their rejection of neo-liberal orthodoxy is unlikely to last.