Former Labour Party shadow chancellor John McDonnell has denounced the Treasury for reportedly planning to use bond markets turbulence as an excuse to cut welfare:
There’s much talk of Treasury insisting on cuts to welfare spending as response to the movements in bond markets. To allow the Treasury to use the market turbulence to promote its long held aim of cutting welfare spending would be economically inept but also political suicide.
— John McDonnell (@johnmcdonnellMP) January 9, 2025
The issue is that the bond market itself attaches debt to the financing of public services in a form of corporate welfare. The gilt set up constrains government and functions as a tool for private finance to extract money from the public.
A society based on high interest debt
This week, Reform MP Rupert Lowe tabled a bill to ban quantitative easing. He said:
Our moral decline is clearly evident as true capitalism has been undermined by regular intervention, increasing state regulation and a growing, bloated and inefficient state
Regulation often means the standards that uphold quality in society. And the idea the state is necessarily inefficient makes no sense, given public ownership of essential services brings down prices for people and businesses. It also helps control inflation through keeping pricing low on the essentials society needs, like water, energy (say, through a Green New Deal) and the internet. And it’s inflation that is a key driver of the increase in price of government bonds. It’s a merry-go-round of con artistry.
Essentials are a risk free investment for the state to run (and can do in a way that’s accountable to the people). That’s because we aren’t going to wake up one day and say we don’t need water anymore or we’re going to stop using electricity and live in caves.
Lowe further described quantitative easing as a “national ponzi scheme”. But what we have at present is that money is created when private banks issue loans to people.
Ignore the bond markets?
This is a system where we rent our money from private banks, rather than the state issuing it without interest. Money could be cost price, rather than effective usury. As the Bank of England explains on its website:
Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans…
Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up 3%.
Positive Money, meanwhile, estimates that 97% of the money in the economy is created in this way.
So, McDonnell was right to call out just how the Labour government is responding to the bond markets. Whether it listens or not remains to be seen.
Featured image via the Canary
