Re: It's Your Choice, Europe: Rebel Against the Banks or A...
by peteretep on Tuesday December 06, 2011 @08:14AM
(#3319110)
> This is the crucial flaw in the article's argument. The UK government is monetarily sovereign, and therefore always able to service its debt. That pretty much destroys the article's argument in favor of austerity.
This is almost true technically, but not true how it matters. In order to service "unserviceable" debt, they need to cause inflation. Expected inflation gets priced in to bond yields, and inflating your way out debt ends up being not very useful if you will then need to go back to the money markets at some point in the future.
But actually, your central point is also not quite true: the UK government is NOT monetarily sovereign - in theory anyway - because it's the BOE who sets the money supply in practice. And it's for this reason that they have an inflationary target. Can the government intervene? Almost certainly. Will this further fuck market confidence and drive up bond yields? Yes. Do you get to a point where no-one will buy government bonds in GBP rather than USD? Absolutely.
This is almost true technically, but not true how it matters. In order to service "unserviceable" debt, they need to cause inflation. Expected inflation gets priced in to bond yields, and inflating your way out debt ends up being not very useful if you will then need to go back to the money markets at some point in the future.
But actually, your central point is also not quite true: the UK government is NOT monetarily sovereign - in theory anyway - because it's the BOE who sets the money supply in practice. And it's for this reason that they have an inflationary target. Can the government intervene? Almost certainly. Will this further fuck market confidence and drive up bond yields? Yes. Do you get to a point where no-one will buy government bonds in GBP rather than USD? Absolutely.