Current Affairs The Labour Party

[Number_25]

Don’t try and read several pages in one sitting from this morning onwards. It all rolls into one, especially when there’s nobody claiming otherwise.

I guess people are just bewildered about what has been reported on today.

The last person you'd have thought to be a committed racist is a guy that has spent the entirety of his adult life fighting against racism.

 

[Khalekan]

 

[Zatara]

He told Neil that replacing the shares in water and rail etc with government bonds isnt borrowing.

Well, it is true in a narrow technical sense that issuing bonds is borrowing, but in the case of purchasing state assets it is a highly securitised form of borrowing because the value of the assets that are purchased are credited to balanced the ledger.

There was a very good article that explained this awhile back: https://www.grandoldteam.com/forum/threads/the-general-election.108019/page-199#post-7417882

Critiquing the premise that the state could do a better job running the railways is more plausible charge (although hands up those of us who even noticed when the state took over LNER for the second time in three years?)

But reporting on the 'cost' to the state of purchasing assets has been very misleading, 25% due to Corbyn hysteria getting clicks and 75% due to the press itself not understanding how macroeconomics work.

The actual fact is that it IS borrowing. Government debt would rise to cover the cost of purchasing the shares and of course the interest cost on the equity financing.

Im not sure what else it would be called if not borrowing...

Yes they would hold the assets on the balance sheet BUT the companies would need to run at a higher profitability than they are currently doing to cover the cost of the interest payments (unless of course they purchase the shares for pennies on the dollar).

In that respect, would the Government be able to run these companies in a far superior way and at a higher profitability than private companies?

Thats a high probability of a no.

If theres an explanation on how this is not borrowing I would love to read it from a respected independent source...that NEW STATESMAN appears to be a load of nonsense to me...is it a labour party paper?

 

[abelard]

The actual fact is that it IS borrowing. Government debt would rise to cover the cost of purchasing the shares and of course the interest cost on the equity financing.

Read my first sentence.

Yes they would hold the assets on the balance sheet BUT the companies would need to run at a higher profitability than they are currently doing to cover the cost of the interest payments (unless of course they purchase the shares for pennies on the dollar).

Once again:

Suppose that we imagine that Labour acquire controlling stakes, or the entirety of these companies, by issuing government bonds. And that they run the companies as passive shareholders, overseeing them as commercial entities.

In this case, although government debt would rise by the amount needed to acquire the shares, the government would also acquire assets on its balance sheet. Although it would pay interest on the debt used to finance the equity purchase, those interest payments would be offset by a dividend flow from the businesses.

Thinking further ahead, one could imagine a subsequent government reprivatising the assets, selling off the shares at market value, and paying down the debt. The government finances would then be back to square one.

Interest rates in the UK are currently 0.75%, about 1/3rd the rate of inflation.

If theres an explanation on how this is not borrowing I would love to read it from a respected independent source...that NEW STATESMAN appears to be a load of nonsense to me...is it a labour party paper?

The author is a Professor of Economics at the University of Birmingham.

 

[Zatara]

You clearly don't understand securitisation. Borrow now and secure against future income. The assets you mention will require significant amounts of capital unless you propose it all goes on the P&L and who will cover that? Customers? The state?

I think you are assuming that this is a choice between the state spending nothing and the thing in question continuing in the private sector, or the state taking it over and having to fund / support the thing in question.

For a lot of what they want to do - the railway for example - the state is spending more to subsidize and expand it now than it did in the past (and probably would on a unified system after nationalization) - so the issue isn't whether the state should put its hand in its pocket, its whether it should own the things it is spending its (our) money on and look to get a return from them, or not.

All that is true, not arguing from a political point of view, just with funding by securitisation, a discredited model which brought down the American mortgage market, and hence the banks and was instrumental in causing the financial crash.

Doing it that way would be daft - indeed PFI is not dissimilar to it and that has been a disaster.

Agreed.

I thought I heard that correctly. It's crazy.

And that was a terrible interview from Corbyn.

His only solace is Andrew Neil is a tremendous broadcaster and will give Boris a nightmare of a time too.

Lets say the state acquires the companies in question...the state then carry the debt (including interest payments) which is a securitized form of borrowing...

Its all well and good saying a private company is different and this is a state BUT it is borrowing.

Corbyn stated that there would be no borrowing to do this...

Now, admittedly I dont like the bloke but how can he even get a single vote as Prime Minister when he has no clue about the funding of one of the major issues he wants to be voted in on...

Im with @Eggs on this, if the public had someone else in his place who was able to explain (in detail) how these items would be funded (borrowing) and how the cost would be covered (revenue generation and profitability) then surely it makes the Labour party more votable.

 

[Zatara]

Read my first sentence.



Once again:


Interest rates in the UK are currently 0.75%, about 1/3rd the rate of inflation.



The author is a Professor of Economics at the University of Birmingham.

1: Your first sentence stated that 'in a narrow technical sense issuing bonds is borrowing', come on mate, its black and white borrowing.

If the state ticks off a box stating 'borrowing' or 'not borrowing' in order to finance the acquisitions...

It ticks off borrowing. It isnt a 'narrow technical sense'...

Sorry mate agree to disagree


2: Yes that is all correct IN THEORY up until the final part which comments on 'the Government finances being back to square one'....is the writer mystic meg? Do they not see any element of risk here..surely this sends off red flags...no risk matrix...dear oh dear.

3: Im assuming that the paper is indeed a labour mouthpiece. Lets ignore that and focus on the author, what working background do they have -- anything in banking or finance or something, anything in the 'real world' or just a theorist? The reason I ask this is because they seem to be focusing on theory rather than reality or probability...ive met a lot of PHDs who are very good at theory and looking at risk and probability. I wonder why the author hasnt included those theories in their article...

The reality is (at least to me) that the potential prime minister stated it isnt borrowing -- when it clearly is.

The evidence provided from 'New Statesman' article clearly shows as fact that it is borrowing with a theoretical argument that its a no-lose situation.

Also, you omitted 'current' interest rates and 'current' inflation. Its guessing where future interest rates and inflation will be if labour proceed with these policies which involve a huge level of borrowing which involves a risk matrix that the author hasnt considered...or just hasnt bothered to publish.

Thats added risk factoring...reality not theory.


Im not really bothered about the broader issues here, the theory or the reality aside from Corbyn stating that it wasnt borrowing lol

Did he lie or does he not know ? Thats the key takeaway for me...

 

[gonetomorrow]

Is the Chief Rabbi a mate of Boris Johnson?
I see it all now.

 

[Eggs]

Another genuine question Eggs, and I hope you don't think I'm getting on at you, but what vote share do you think would be a success for Labour this election? What is the figure he needs to get to for you to consider, maybe this guy is appealing to larger numbers of people than we had before?

....good question. Given the state of the Country’s public services and this Conservative Party, if Labour end up with less seats than they currently have, it’ll be a disastrous election for them. For it to be a success, they’ll have to eat into a chunk of the Conservative’s already slight majority.

 

[abelard]

2: Yes that is all correct IN THEORY up until the final part which comments on 'the Government finances being back to square one'....is the writer mystic meg? Do they not see any element of risk here..surely this sends off red flags...no risk matrix...dear oh dear.

The reason I ask this is because they seem to be focusing on theory rather than reality or probability...ive met a lot of PHDs who are very good at theory and looking at risk and probability. I wonder why the author hasnt included those theories in their article...

You're wondering why the author hasn't provided a detailed 'risk matrix' and a detailed overview of economic theory in a 1000 word article designed for non-specialists?

Would you like to share your risk matrix with us then? Or outline some of the 'theories' that have informed your detailed understanding of the matter? Or perhaps you just like saying 'risk matrix'?

What, specifically, do you see as long-term risks to rail and utilities ownership in the UK?

One poster has already compared state ownership of UK rail and electricity to Leeds United and then the American speculative housing bubble, which is quite... boutique

3: Im assuming that the paper is indeed a labour mouthpiece. Lets ignore that and focus on the author, what working background do they have -- anything in banking or finance or something, anything in the 'real world' or just a theorist?

Why spend thirty seconds doing your homework when you can just lob idle self-serving assumptions instead? What have you uncovered about the author's background or experience which calls his judgement into doubt? Why, specifically, should we distrust him? Or just baseless speculation then?

The New Statesman editorial line has been hostile to Corbyn since day one, incidentally.

Also, you omitted 'current' interest rates and 'current' inflation. Its guessing where future interest rates and inflation will be if labour proceed with these policies which involve a huge level of borrowing which involves a risk matrix that the author hasnt considered...or just hasnt bothered to publish.

Interest rates in the UK are currently 0.75%, about 1/3rd the rate of inflation.

Interest rates likely would go up as result of Labour's programme, and as I've explained several times elsewhere and can't be bothered to get into again, this is a feature not a bug, because without sensible interest rates, pensions and eventually banks are in grave danger and capital is forced into high-risk speculative gambits of the sort that caused the last crash

On the other hand, I might be wrong, because of 'risk' and 'theories'

 

[Bruce Wayne]

Listening to the Labour chap on radio 4 just now arguing that the £58bn payment to female pensioners was right because 'they had paid in' for so long and therefore it's justified. That's not how the state pension works ffs. It's funded by tax payers at the time, it's not a scheme that people pay into with their taxes.

 

[Tubey]

I don't think Corbyn is an anti-semite.

However, I do think that his loathing of Israel is so extreme that it makes him unable to take a backward step and admit any fault - and he is at fault because he has enabled anti-semitism to thrive because he hasn't distinguished well enough a distaste for Israel with a hatred of Jews in general.

He was asked to apologise. He should have apologised. He didn't. Because that's who he is - an ideological extremist who won't take a backward step. It's why he incomprehensible challenged the IHRA definition of anti-semitism and it's why Neil decimated him in that interview.

He scores spectacular own goals over and over again, and it's why he's not electable. Five years of Boris Johnson is going to be painful, but at least the end of Corbyn is a decent consolation prize in two weeks.

 

[orly]

Listening to the Labour chap on radio 4 just now arguing that the £58bn payment to female pensioners was right because 'they had paid in' for so long and therefore it's justified. That's not how the state pension works ffs. It's funded by tax payers at the time, it's not a scheme that people pay into with their taxes.

Astonishing really how many parlimentarians have no clue at all about core national structures. The first debate on May's "deal" was mesmerising.

 

[Bruce Wayne]

Astonishing really how many parlimentarians have no clue at all about core national structures. The first debate on May's "deal" was mesmerising.

Perhaps even more worrying that Nick Robinson didn't pull him up on it.

 

[tsubaki]

It is, but that’s why the “reform” was so manifestly unfair.

People were paying for pensions for other people that it turned out they themselves would not be getting, on the grounds that people who had already gotten the pensions were living too long and because successive governments had boosted the money spent on those pensioners in order to get their vote.

 

[Bruce Wayne]

It is, but that’s why the “reform” was so manifestly unfair.

People were paying for pensions for other people that it turned out they themselves would not be getting, on the grounds that people who had already gotten the pensions were living too long and because successive governments had boosted the money spent on those pensioners in order to get their vote.

How is that valid? I pay for the pension of retirees via my taxes today. When I myself receive a state pension is irrelevant to that. His argument was that people had been paying into their personal state pension pot for years and now wouldn't be able to get their annuity until a few years later. It's fundamentally misrepresenting how the state pension works.