Interesting questions we might be able to answer

This particular formulation is from Danny Blanchflower but it’s an often enough asked question:

Here is a question why didn't the tories borrow a trillion pounds - or even two - between 2010 and 2020 at really low interest rates and invest/repair them in schools, infrastructure and hospitals, train doctors and build lots of houses roads, railways, clean up the water supply, and rebuild what was needed

I am just an old economist who wants to understand why they did austerity instead and now are borrowing really expensively> Just asking for a friend (me..)? Why didn't they?

The answer is because no one was lending to the government at those really low interest rates. That’s how the Bank of England ended up owning that near £1 trillion of gilts. You know, the flip side of that near £1 trillion of central bank reserves they’re paying 5.25% to the banks upon, the cause of the massive inflation we did finally get and so on.

If anyone had actually tried to borrow a couple of trillion at those 0.5% interest rates then interest rates would not have been 0.5%. If the BoE had printed more money (done more QE) in order to buy them then the money supply would have blown out and so would inflation. So also would the losses right now be vastly greater than they already are.

Why didn’t the tories (sic) or anyone else borrow £2 trillion at low interest rates to then “invest”? Because they couldn’t.

Glad we’re able to have sorted this out.

There was no market for those low rate gilts, that’s why the Bank of England owns them all. #

Tim Worstall