Well, if you start from a foolishness

Starting out with a foolishness is not - probably not perhaps - the correct way to go about understanding the world around us. At which point we give you Richard Murphy:

So, if the ONS claim the national debt is around £2.1 trillion at present, it isn’t. Allowing for the UK government owning around £800 billion of its own debt the figure reduces to maybe £1.3 trillion, give or take a bit. But that, I hasten to add, is not the end of the story.

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And remember, government backed saving is so popular that right now people will buy government gilts, or bonds, due to be repaid in 40 years time with a negative interest rate, which means they will get back less than they actually save now. And people still buy it.

It is possible to believe one or other of those two things but to believe both at the same time might require three whole professorships of illogic.

For note the second thing being said. That even at current prices people are just gasping to own gilts. Note then the first thing - so few people wish to own gilts that the government has had to buy a third of them to make sure they actually get sold.

That is, the reasoning is being done from a manipulated price. This does not work.

Start again from a more rational point. What would be the price of gilts if the government did not own one third of the issuance? Rather higher we would say. So, what’s the real price which illustrates the private sector demand for gilts? Rather higher than the current one. We cannot, therefore, use the current, manipulated, price of gilts to illustrate the gasping desire of the private sector to own gilts. For to do so is to reason from the manipulated price, something that will always lead us into error.

It isn’t, of course, just Murphy making this mistake. It’s a general societal delusion. Government borrowing is cheap right now so why not do more of it? Perhaps, maybe, that’s even the right thing to do. But we cannot reason to that point from the current price of government borrowing. Because that is, worldwide, a manipulated price.

Don’t forget, the whole point and aim of QE is to manipulate the price of money. We cannot then go around using that manipulated price as an input to our decisions about the use of money or debt issuance. To do so is to fail to understand the most basic thing about a price system - it is market prices that are the necessary information source, not manipulated ones.