Where do people think money comes from?

[MrsBlobbyOnLockdown]

Everyday we are hearing pay the NHS an extra 30% pay them £26 per day extra is the latest one.

I’m not disputing they deserve it of course they do & if we had an endless supply of money it’s the first place it should go.

But seriously, where do people think all this money is coming from?

What are your thoughts

We wouldn't be so reliant on them if we still had more of our own industries.

This is true but do people have the appetite to spend more or do the want cheap?

News flash; money is COMPLETELY MADE UP. By humans, we invented it and we make up imaginary rules about it. It’s not a real thing like, say, water.

I read several years ago that only around 5% of the population understand any economics at all. This was during the Brexit debate. I think people understand sound bites. So “NHS pay rise” or “pay nurses more” is easy to understand. The economics behind the funds for that is very hard for many to understand and of course it’s not been taught to them. For the most part, it would be self taught from reading or watching tv. So understanding the concepts is likely to be poor. The political parties know this. So that’s why we get three word slogans and little detail. About everything.

We want “cheap” everything. Food and other purchase. We want more and more but wish to pay less and less. China and India have low wages. That keeps costs down. But a Range Rover by all means, but I bet you don’t!

Regarding currency, since the abolition o the gold standard, we have FIAT currency, so the value of one currency relative to the other is determined by supply and demand, which is informed by the confidence of the economy it is used in.
Quantitative easing saw the bank of England exchange cash for government debt held by the banks, which increased their cash, and enabled them to lend more out, as they had greater liquidity. This was important in 2008 as the banking sector wasn't lending out enough cash, and so was starving the economy of loans. This is NOT the same, as the B of E giving everyone £5k as such a huge amount of money suddenly be spent would cause inflation, see weimar Germany in the 20s if you doubt that. How the government will help the economy after this will be different, but I suspect massive infrastructure projects will be useful (especially building houses which is a whole thing on its own). If anyone wants to caht about it feel free to message!

@eska
Sort of. So are human rights and laws, just because it isnt tangible doesn't mean we can pretend economics doesn't exist. Money simply represents goods and services, yes it could be backed by gold, but due to complicated reasons, this is a sub optimal way of operating monetary policy.

We tried that before and produced total crap, our economy is 80% services, Germany's is 70% not the huge difference some imagine.

It's the value of what they manufacture & export that is the difference $1.4 trillion compared to our $370 billion.

Another difference is household debt, ours is much greater.

well in a way NHS staff are taxed more than many. As any overtime is counted as a separate contract of employment, and therefore as a second job. So we would pay 40% tax on that
No, this is not correct.
You would only be taxed at 40% once you earn over £50000 - regardless of whether you earn that in one job or three. And if you are taxed at 40% when you shouldn't have been, it will be refunded after the tax year end.
So if you are working bank you would only start paying tax at 40% if you were earning almost £4200 every month in total from both jobs. And if you are earning that much, you should be paying 40% tax imo.

@tontie
Something to consider with Germany's exports, is that it greatly benefits from having the euro, which relative to Germany's economy, is massively undervalued, meaning its artificially cheaper to import German products.

There is a misconception we dont make anything in the UK, we do, but it tends to he small quantities of high quality goods, that operate with very high levels of mechanization, thus they dont employ as many people. This is why for example forgemasters steel works in Sheffield, near me, still creates lots of extremely expensive alloy, but employs maybe 20% of the blokes it used to, as wages in the west are far higher than in say China.

I agree

In terms of future taxes I do favour the scandinavian higher regimes but we need to consider wealth as well. It's unfair to burden everything on the young when they are already disadvantaged.

Alsohuman I got a letter with a pie chart from HMRC it's called a annual tax summery it didn't have refuse collections so that was wrong but it did have a breakdown of expenditure on benefits, pensions, housing, health etc it was actually very interesting

Care workers are often on minimum wage. They do a lot of the work that nurses do. There are also many other people who work really hard in warehouses and factories who are also on minimum wage. They should get a pay rise first. I do think the government should allow medical staff to go to uni and pay their fees though. In return for at least 7 years service to NHS. I am very thankful for all NHS staff for everything they do.

Something government could do that would help people my age (21) is to massively liberalise planning law, as greenbelt has become an utterly ridiculous situation, where local councils have arbitrarily increased it to curry favour with locals. We need to be building 100s of thousands of houses for many decades to deal with the issue, as houses are on average around 8x annual wages, compared to around 3x in the 70s. Until this happens, huge amounts of disposable income will continue to be wasted, propping up inflated asset prices, which alone could easily trigger a massive recession, as in 2008.

@BubblesBuddy and you would be right about that. Going by this thread alone and knowing my own failings in this area.

@sunny,
There are loads of great channels on YouTube that cover some concepts, and as an economics student I must say it is rather interesting . I would recommend Khan academy on YouTube of people have some spare time, which if you're furloughed like me you will!

QE did cause house price inflation. The "printed" money didn't go direct to the people, but to the banks enabling them to lend out more. The low interest rates and banks lending out more mortgage per salary, as well as demand, has caused huge house price inflation. Is a 2 bed flat in London really worth 650k? Really?

There are a lot of useful articles on ThoughtCo about macroeconomics, and some good courses on Coursera.

we did print a lot of money in the last recession. It’s called quantitative easing. The problem with lots of extra money floating about is it causes inflation.

@justanotherneighinparadise. An economist in a blog post points out rampant inflation didn’t happen with quantative easing after the 2008 crash:

“A myth:

When the government starts financing its deficit by printing money rather than issuing debt, rampant inflation is just around the corner.

Many thought this after the GFC, when central banks started buying government debt through their Quantitative Easing programme, because they bought the debt by creating money. Subsequent events have shown that those who thought inflation was inevitable were completely wrong, as many of us said at the time. The reason they were wrong is because interest rates are at their lower bound, and at the lower bound it does not matter too much how the government deficit is financed. The reason is intuitive: when rates are zero, you are indifferent between cash and short term debt. So why would issuing money rather than debt cause inflation when rates are zero? No reason at all.”

However he goes on to say:

“In a recession you can create a lot of money, because it is willingly held by nervous banks and investors. But outside a recession investors and banks will want to get rid of that money, which will force down rates of interest in the economy, encouraging too much borrowing and discouraging savings. That excess demand will create inflation. Central banks are only able to control the general level of interest rates in the economy by restricting the amount of money they create, which is why government deficits are largely financed by issuing debt.”

mainlymacro.blogspot.com/2020/04/

That suggests the OP thinks there is a fixed amount of money available to the UK. That's the "the economy is just like my household budget scaled up" fallacy. It's a myth conservatives and labour are both happy to peddle for different reasons, the first because it justfies reducing public spending "there's no money to spend", and the second because it implies the reason some have money and some don't is because people with money have taken more than their share of the pot.

@Blibbyblobby, I grant Miliband’s Labour didn’t tackle the economy is like a household budget fallacy after the 2008 crash, but to be fair Labour since 2015 have not been peddling that myth and were making the case since then that govt spending especially on investment needed to be ramped up.

Great post @perfectstorm

The repurchase would lead to greater borrowing costs over time, all things equal, however. Those effects would be spread though.

This is such an interesting thread. Thank you so much to the people who have a handle on economics, it's been so eye opening to read.

I haven't read all the replies but wanted to reply to someone saying how come they said theres no money but spent on bailing out this and that etc..

The country doesn't have money in the bank. It has defecit. This means in basic terms, in overdraft! This debt is left over from the world wars!! So osterity was designed to try and get rid of it. The end goal being that the debt gets cleared and the country starts taking in more money than it pays out.... it was working for a while and the debt was getting smaller. But now that's going to go to shit!

Whenever you hear about countries GDPs, this is the percentage of national debt we are in. To put a monetary term on it, in 2019 it was over £1.8billion. So the country was £1.8billion in the red.

Covid will obviously increase that by a huge huge amount.

Expect when this is all over that this money will need to be repaid. So probably higher taxes, NI, council tax, benefits cuts etc...who knows...but it's not going to be easy.

I am truly worried about shops /businesses staying closed/ furlonged for much longer because we will all have to pay this back in the long run.

The UK remains one of the wealthiest economies in the planet. The ability to properly fund all public services is well within our capability, the just isn't the public, and therefore political will to do it.

@squiglet111

Did you mean 1.8% not £1.8 billion?

Also that £1.8 billion is the daily average tax collected by central government with further tax collected by local government (council tax and business rates).

It’s when people say things like ‘give the MP’s expenses money to the NHS, it’s sufferinng and has no money, why are we underfunding it so much’
When we fund the NHS £140 BILLION pounds a year. It wouldn’t even touch the sides.