McDonnell brands Treasury response to bond markets turbulence “economically inept”
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
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Efficiency is a myth as well, since it only ever exists from a particular perspective, there’s no such thing efficiency in the abstract, it’s always a question of who benefits. You’re absolutely right, between the state and the citizen, banks as private entities have inserted themselves to make money from money, and they are entirely unnecessary. Same is true with water companies and utility companies and so many other essentials. Capitalists make claims and lie through their teeth again and again about capitalism, yet it has only ever benefited a tiny minority. I read somewhere (can’t recall where) that, what we can achieve through competition we can achieve through co-operation, without all the shit that competition brings. David Graeber noted that underpinning all competition is communism, since competition cannot occur without co-operation (there are rules and obeying them is communism), and if you look in any single organisation you see people trying to work together and get on, rather than, say, people knocking each other to the ground and stamping on each others’ heads. If competition were so great we would just get rid of any commie fucking rules and start sharpening our knives. The fact that we don’t, and neither do the arch neoliberals, who are the first to run to govt and demand that it creates some laws to protect them, as is the case either the faux markets the utilities sit within. So we might as well just go straight to co-operation. As has been noted recently by Richard Murphy, far from neoliberals wanting markets to be free, they love government, they want nothing more than govt intervention and law, they can’t get enough of the state, and that without the state their beloved markets would not survive longer than 3 seconds (that’s Chomsky’s generous estimate of how long markets would survive if they were truly free, rather than swaddled in govt protection, as it turns out, even with govt protection they can’t survive). I agree that money should be created directly by govt at cost rather than via banks with unearned interest. I also want to add, these sorts of by-the-way comments are really great for showing an alternative, like you do with articles about housing, where you always add that housing should be decommodified and provided at-cost. Keep doing this, because these ideas filter through and people get to see the alternative.