Bank of England - Government interest

[mancroft]

Question for the Economics geeks:


As a public organisation, wholly-owned by Government, and with a significant public policy role, the Bank is accountable to Parliament.

http://www.bankofengland.co.uk/about/parliament/

If the Bank of England is "wholly-owned by Government", why does the Government charge itself interest to borrow its own money?

[MacGuffin]

Question for the Economics geeks:



http://www.bankofengland.co.uk/about/parliament/

If the Bank of England is "wholly-owned by Government", why does the Government charge itself interest to borrow its own money?

Because that's how the financial system works.

Don't charge interest and watch what happens.

[Ferrus]

If the Bank of England is "wholly-owned by Government", why does the Government charge itself interest to borrow its own money?
It doesn't - it charges interests to commercial banks through the discount rate. And it raises capital for the government by selling bonds at a rate of interest sufficient to tempt individual investors to put their money into them much as a private company would too.

[avolkiteshvara]

I'm not sure exactly what you're talking about.

But even if it did charge itself, in the aggregate, wouldn't it just be a wash.

[Chunes]

Question for the Economics geeks:



http://www.bankofengland.co.uk/about/parliament/

If the Bank of England is "wholly-owned by Government", why does the Government charge itself interest to borrow its own money?

As MacGuffin is hinting at, if it didn't charge interest the economy would implode.

I'm not saying that a sane system would be a bank charging the government interest—it obviously would not. But to change the core of the system without changing the periphery to suit would literally implode the economy.

[Lee]

If the Bank of England is "wholly-owned by Government", why does the Government charge itself interest to borrow its own money?I don't understand.

Unless BoE buys a U.K. Government bond, and that bond matures while in the BoE's possession, what interest would the Government be charging itself?

In any case, the U.K Government is a hydra; just because each head is part of the same beast doesn't mean that what benefits one benefits all. Even when it "owes money to itself," different departments don't necessarily see it that way. Of course, from the taxpayers point of view the differences are usually trivial.

[Huston]

As MacGuffin is hinting at, if it didn't charge interest the economy would implode.

The economist Michael Hudson says differently.

Why the “Miracle of Compound Interest” leads to Financial Crises (http://michael-hudson.com/articles/financial/070827CompoundInterestCrises.html)


The financial counterpart to increasing returns in the production sector is the “magic of compound interest” – the tendency of debts to multiply by purely mathematical principles, independent of the “real” economy’s ability to pay. Early analysts of compound interest pointed out that the debt overhead tends to expand autonomously, eating into the “real” economy, slowing it down and polarizing property and income by diverting revenue away from production and consumption to pay creditors.

[Chunes]

But central banks control the money supply. The money supply is also exponentially increased, but always lagging debt. This is what created the basic game of musical chairs. This is the key to enforcing productivism.

[Kleptocracy]

As MacGuffin is hinting at, if it didn't charge interest the economy would implode.

I'm not saying that a sane system would be a bank charging the government interest—it obviously would not. But to change the core of the system without changing the periphery to suit would literally implode the economy.

Huh? The economy wouldn't implode if the BofE didn't charge itself interest on the money it owes itself... It's just fictional numbers, the economy would be completely unaffected if the BofE stopped charging itself interest.