Thread: How is it that Britain can borrow money at 2% in the money markets ?

It is always been a mystery to me how Britain can borrow at 2% in the money markets, while the PIGS have to pay up to 7% or more to borrow money.

Liam Halligan in the Sunday Telegraph seems to point to the answer, and it is all about the Bank of England.

Over 2009 -11 Britain borrowed 241 billion pounds from the Bank of England. That is roughly half of all our total borrowing requirements, and Britain borrowed it from the Bank of England.

To put it simply Britain is borrowing form itself. It is a sort of quantative easing. The Bank of Engand creates the money electronically and then lends it to Britain.

All the talk that the money morkets trust David Cameron and his tough recovery plans are just not true. Britain can borrow money at 2% for one reason, and that is we are lending it to ourselves.

Originally Posted by SDP

It is always been a mystery to me how Britain can borrow at 2% in the money markets, while the PIGS have to pay up to 7% or more to borrow money.

Liam Halligan in the Sunday Telegraph seems to point to the answer, and it is all about the Bank of England.

Over 2009 -11 Britain borrowed 241 billion pounds from the Bank of England. That is roughly half of all our total borrowing requirements, and Britain borrowed it from the Bank of England.

To put it simply Britain is borrowing form itself. It is a sort of quantative easing. The Bank of Engand creates the money electronically and then lends it to Britain.

That's not quite what Liam Halligan wrote, nor is it his entire story. The three pars below show more of his argument. But the complete article gives a better picture:

So why are gilt yields so low? Quite simply because the UK debt market is being propped up by "printed money" and regulatory diktat. I've argued this for a long time now, ever since the UK's "quantitative easing" programme was launched, back in early 2009. Originally dismissed as "outlandish" and "irresponsible", my position is increasingly becoming conventional wisdom. That's because the evidence is undeniable, at least to those who bother to look.

During 2009 and 2010, the Government issued a massive £475bn in gilts. That's equivalent to more than a third of the UK's annual GDP. No less than £241bn of those IOUs - more than half – have been sucked up by the Bank of England. In other words, the demand for UK gilts has been strong, pushing yields down, because the majority of them have ultimately been bought by our central bank, using "electronically-created" credits.

So gilt yields have been artificially suppressed, by money printing and regulatory requirements, together with panic-buying by some foreign investors, keen to stay in Europe for now, but fleeing the eurozone.

'Printed money' and regulatory diktat are keeping UK gilt yields low - Telegraph

I'm afraid you just don't understand. If the solution were as simple as you say, the Euro problems could all disappear. Life is a bit more complicated than you seem to think..

Originally Posted by SDP

It is always been a mystery to me how Britain can borrow at 2% in the money markets, while the PIGS have to pay up to 7% or more to borrow money.

Liam Halligan in the Sunday Telegraph seems to point to the answer, and it is all about the Bank of England.

Over 2009 -11 Britain borrowed 241 billion pounds from the Bank of England. That is roughly half of all our total borrowing requirements, and Britain borrowed it from the Bank of England.

To put it simply Britain is borrowing form itself. It is a sort of quantative easing. The Bank of Engand creates the money electronically and then lends it to Britain.

All the talk that the money morkets trust David Cameron and his tough recovery plans are just not true. Britain can borrow money at 2% for one reason, and that is we are lending it to ourselves.

Originally Posted by CB100

I'm afraid you just don't understand. If the solution were as simple as you say, the Euro problems could all disappear. Life is a bit more complicated than you seem to think..

CB100

Its not quite as simple as that, because Zimbabwe tried to do the very same thing and it did not work for Zimbabwe. It is a short term fix and not a long term cure.

Originally Posted by CB100

I'm afraid you just don't understand. If the solution were as simple as you say, the Euro problems could all disappear. Life is a bit more complicated than you seem to think..

CB100

Printing money created a hyperinflation in the Weimar republic during 1921 to 1924.

Although the inflation ended with the introduction of the Rentenmark and the Weimar Republic continued for a decade afterwards, hyperinflation is widely believed to have contributed to the Nazi takeover of Germany and Adolt Hitler's rise to power.

You are quite right CB100 this is not a simple answer to all our problems. The Nazi take over in Germany led to 50 million deaths in World War II.

They seem to forget that we have a huge NHS, welfare state and a big defence budget, unfortunately we can't afford all three. So printing money is like drinking your problems away.

I'll drink to that! Cheers!!!!

Originally Posted by longbow64

They seem to forget that we have a huge NHS, welfare state and a big defence budget, unfortunately we can't afford all three. So printing money is like drinking your problems away.

Hmm! The printed money goes straight to the criminal City banks to fuel their re-hypothecation (ie multiple re-lending against our now at-risk cash savings); meanwhile the banks charge us large, not low, fees; and make the returns on citizen savings negative in real terms.
Banks lend at interest what they create out of nothing (fiat money|). The solution is far mire radical: to regain control over money creation for the State (why should we borrow back at high rates what we create for ourselves for nothing?) and reasserts our own national fiscal policy free of control by euro monetarists.