An MMT site bringing you dogma-free economics without the pleadings of self interest
Obviously the UK government can default and UK government bonds do not have "zero risk" as Prof Mitchell seems to claim. (in bold letters). It can default with a "screw the foreigners" attitude. Suppose it pegs its currency to the US dollar in 2021. By his own admission, the UK government can default after 2021. So as of now it does not have zero risk. Suppose the Euro Area forms a central government. This will be good for the Euro Area and it might prosper. The UK might join the Euro Area and surrender its sovereignty to Europe. Then it is more obvious that there is a possibility of default on the UK government debt. The UK government may be forced to borrow in foreign currencies or it may do it out of its own volition and someday - maybe in 2021, it may not have sufficient foreign reserves to pay off the debt. So it can default on it as well. It is wishful thinking that this would not happen. Just like 1975, the UK may need financial assistance from the IMF - which the next time may require the UK government to have a "PSI", and hence a default.
Sounds like Ramanan and Mitchell are in agreement (or at least have the absence of any conflicting statements). Mitchell argues there is "zero risk" of involuntary default. Ramanan, for the sake of completeness, cheerfully describes many permutations of voluntary default.
"Just like 1975, the UK may need financial assistance from the IMF -"Ramanan,Was the UK completely off gold at that time like the US went a few years before 1975?iow was the UK truly running a free floating non-convertible currency?rsp,
I said it here.
Mike, you have been out front on this for some time. Good work, bro.
Thanks, bro! :)
Matt,Before 1971, there was a change in the Articles of Agreement of the IMF and Gold was replaced by SDR in the Article VIII. The United States had a special obligation to begin with unlike other members of the IMF which is withdrew in 1971. Second official convertibility is still there. More important is market convertibility. The UK pound is not "nonconvertible". In 1972, the UK and some European nations formed a snake and pegged their currencies to each other but the whole system was floating to other currencies. This however failed within a few weeks. The ERM came into effect in 1979. The Pound was floating when Britain needed assistance from the IMF.
"Sounds like Ramanan and Mitchell are in agreement (or at least have the absence of any conflicting statements)."By that logic Mitchell is in agreement with Fitch.
By that logic Mitchell is in agreement with Fitch.I don't follow. Fitch and Mitchell make mutually exclusive claims. You and Mitchell didn't.
Well yeah but neither do I claim like Mitchell (in bold letters) that there is zero risk.
The point is that Mitchell's claim is about involuntary risk, as I'm sure you're aware. So descriptions of hypothetical voluntary default scenarios sit along side it without contradiction.
Irrelevant (if you wanna call it voluntary or not). At any rate, for an investor, there isn't a zero risk.
Here's some stuff from the national archives about the IMF loan.http://www.nationalarchives.gov.uk/cabinetpapers/themes/sterling-devalued-imf-loan.htmhttp://filestore.nationalarchives.gov.uk/pdfs/small/cab-128-60-cm-76-35.pdf
Post a Comment