Some time late last century I was working on a particularly thorny issue a client had. I’d followed my usual approach, listening to people tell me how things worked, watching how things operated, and, in particular, finding out what people believed to be the case. Plus, of course, agreeing a solid fee. The fee is important, because it is the way you get a client to agree to your report and remedy. If they don’t agree with you, then they have just thrown a lot of money in the bin.
I presented my report and remedy to the client, to raised eyebrows as is often the case, and asked if I could proceed. A few moments of collar feeling and mopped brows later, I was asked to continue, and after a very small amount of tinkering, the problem was solved, saving the client my fee many times over. As I was shaking the client’s hand, readying to leave, he said:
“I’ve figured you out Neil. You can see The Matrix can’t you”
If something is broken within my sphere of expertise I can usually fix it, often by doing something that was believed impossible. If that appears like magic to others, then it just adds to the mystique. What a career in this game has taught me, though, is what is obvious to me generally isn’t to others. That makes progress difficult, particularly in cases where there is no solid fee to grease the wheels of change.
With that in mind we finally come to the topic of this blog. I received an email containing “a detailed refutation” of An Accounting Model of the UK Exchequer. It is nothing of the sort. Andrew has already gone into detail with the numerous technical mistakes made and posted them as a comment. We shall see if they appear. For me, it is a declaration by a denizen of The Matrix that certain things are impossible because they don’t believe them. As should be clear by now I like to do impossible things before breakfast (see the posting time of this blog!). So let’s stop a few bullets.
The root of the issue appears in a couple of axiomatic statements:
- “Overdrafts have to be paid off”
- “A £1,000 government bond does not become a gilt until a lender buys it for £1,000”
Here we see the core of the belief. Banks have power over man. These two items are stated without reference, or legal force. They are to be believed and never questioned.
Therefore once I get the reins to HM Treasury I will do the following:
Scrap the Full Funding Rule, stop the issue of Gilts and Treasury Bills and disband the Debt Management Office. This is under Schedule 5A s2(1)(b) of the National Loans Act 1968 which provides that the Treasury can “generally manage the [Debt Management Account] in the way the Treasury consider the most efficient”.
Issue a standing offer of redemption of any Gilt or Bill at par on submission to HM Treasury. This is under s14 of the National Loans Act. Funds are automatically provided under s12(4) of that Act without further requirement to consult Parliament. This guarantees that a £100 gilt is always worth at least £100. (Gilts are always issued in units of £100, as anybody who has traded Gilts would be aware).
Once the DMO has gone, the payment process, as we detail in our paper, will conclude the day with a negative end of day balance on the National Loans Fund account at the Bank of England. The DMO has confirmed again this year “Automatic transfers from the government Ways and Means (II) account at the Bank of England would offset any negative end-of-day balances” (p35). These are permitted under The European Union Budget, and Economic and Monetary Policy (EU Exit) Regulations 2019 s6(4)(d)(i).
The Ways and Means(II) account would then be cleared from the main long term Ways and Means account at the Bank of England, as permitted under the same regulations s6(3)(c).
HM Treasury will direct the Bank of England that the Ways and Means account is to be maintained in perpetuity and that no interest will be payable upon the balance. This is using the general powers the Treasury has to direct the Bank of England under s4(1) of the Bank of England Act 1946 and the authority to run overdrafts at the Bank under s12(7) of the National Loans Act 1968.
And there we have it. Gilts guaranteed to be worth £100 at all times and an overdraft at the Bank of England that will never be repaid or charged interest. All backed by copious spending on Gilt redemptions without taxing a penny, and all within the laws of the United Kingdom as they stand today. (Notwithstanding that I would have Bills before parliament to repeal the redundant sections, completely repeal the EU Exit regulations, and replace the Bank of England Act 1998. There’s quite a few overpaid wonks propping up this unnecessary edifice who need to be made redundant).
Since all the other words are just froth sitting on those two axiomatic statements, the whole ‘detailed refutation’ immediately crumbles to dust. The impossible turns out to be perfectly achievable once you get past rigid beliefs that are simply not the case.
If anybody wants to challenge what I have proposed above, then I want to see a skeleton argument that would form the basis for a Gina Miller-esque judicial review. For there is no law without enforcement. What’s the legal basis for your injunction? Who gets to say ‘no’ and make it stick?
“I’m trying to free your mind, Neo. But I can only show you the door. You’re the one that has to walk through it.”