The UK government has a savings organisation called National Savings & Investments (NS&I) which is popular because it is the only place where savings of large amounts are 100% secure. This is explicitly stated on their website:
In recent years when the NS&I has announced that it is issuing savings certificates (i.e. takes deposits) demand for them has been huge and they and they have been 'sold-out' within a few weeks. This reflects the huge demand there is at the moment for a secure place to deposit savings. It also explains why the Treasury has no problems selling government bonds even though interest rates earned for buyers is at record low levels. Having seen runs on a bank (Northern Rock) and realizing that bank deposits are only insured up to a certain level (currently £85,000), sensible people prefer to deposit their money in government-backed institutions. This is a reminder that government debt represents very safe savings accounts for the private sector.
While there is disagreement about the significance and risks of current level of government debt, I think most people now accept that private sector debt is too high. It exceeds 300% of GDP in the UK, which is far higher than it has ever been. It follows that it is necessary for this debt to be reduced, by saving.
It is an cast-iron accounting fact that when the private (or non-government) sector as a whole is trying to save money (accumulate net financial assets) the only possible source of these savings is the government sector. There is nowhere else for net financial assets to come from. To meet this desire and need to save the government sector (which includes the central bank) must introduce more money into the economy. That means that either the government must run a deficit by cutting taxes and/or increasing spending, or the central bank must issue debt-free money directly into the economy. Given the instinctive opposition that there is to government deficit spending, and the many self-imposed rules designed to restrict it, many knowledgable central bankers are beginning to consider the latter option. They could do this by crediting every citizen with a certain amount of money. This is also known as 'helicopter money' using a colourful phrase coined by Ben Bernanke.
This way of introducing money into the economy is very different from quantitative easing. With quantitative easing the central bank creates money and uses it to purchase an asset, such as government bonds or mortgages. The private sector receives the money but hands over an asset of the same financial value (the bonds or mortgages) to the government in return. There is no change in the net financial position of the private sector. With 'helicopter money' the central bank creates the money and GIVES it to the private sector, without receiving any asset in return. As a result private sector has increased its net financial assets (and reduced is overall debt levels).
Just as government debt just represents private sector savings, deposit at NS&I represent government debt owed to the depositors, and savings deposits at banks represent bank debt owed to depositors.
"Your money is safe with NS&I. We’re backed by HM Treasury, so all the money you invest is 100% secure. Always."Note that this is the same Treasury that sells government bonds. It follows that government bonds must also be 100% secure. Those who imply that there is any risk of default by the government if it 'borrows' too much money by selling bonds are either wrong or the NS&I are lying.
In recent years when the NS&I has announced that it is issuing savings certificates (i.e. takes deposits) demand for them has been huge and they and they have been 'sold-out' within a few weeks. This reflects the huge demand there is at the moment for a secure place to deposit savings. It also explains why the Treasury has no problems selling government bonds even though interest rates earned for buyers is at record low levels. Having seen runs on a bank (Northern Rock) and realizing that bank deposits are only insured up to a certain level (currently £85,000), sensible people prefer to deposit their money in government-backed institutions. This is a reminder that government debt represents very safe savings accounts for the private sector.
While there is disagreement about the significance and risks of current level of government debt, I think most people now accept that private sector debt is too high. It exceeds 300% of GDP in the UK, which is far higher than it has ever been. It follows that it is necessary for this debt to be reduced, by saving.
It is an cast-iron accounting fact that when the private (or non-government) sector as a whole is trying to save money (accumulate net financial assets) the only possible source of these savings is the government sector. There is nowhere else for net financial assets to come from. To meet this desire and need to save the government sector (which includes the central bank) must introduce more money into the economy. That means that either the government must run a deficit by cutting taxes and/or increasing spending, or the central bank must issue debt-free money directly into the economy. Given the instinctive opposition that there is to government deficit spending, and the many self-imposed rules designed to restrict it, many knowledgable central bankers are beginning to consider the latter option. They could do this by crediting every citizen with a certain amount of money. This is also known as 'helicopter money' using a colourful phrase coined by Ben Bernanke.
This way of introducing money into the economy is very different from quantitative easing. With quantitative easing the central bank creates money and uses it to purchase an asset, such as government bonds or mortgages. The private sector receives the money but hands over an asset of the same financial value (the bonds or mortgages) to the government in return. There is no change in the net financial position of the private sector. With 'helicopter money' the central bank creates the money and GIVES it to the private sector, without receiving any asset in return. As a result private sector has increased its net financial assets (and reduced is overall debt levels).
Just as government debt just represents private sector savings, deposit at NS&I represent government debt owed to the depositors, and savings deposits at banks represent bank debt owed to depositors.
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