Realist, not conformist analysis of the latest financial, business and political news

You’re Right, Government Investment In Stuff Is A Disaster

Isn’t it just so lovely that modern monetary theory means that government need never run out of money to do stuff with? They can invest in all sorts of things to create paradise upon this Earth and we’ll all be so very grateful. Yes, it’s entirely true that governments can indeed just print more fiat money and spend it – monetisation of fiscal policy has been around since Henry VIII debased the coinage at least.

The bigger problem with this being well, politics isn’t a good way of working out what to spend money upon. Yes, a tragedy for all those who think that getting the smart people to plan our lives for us works etc but there it is. Henry spent that silver on gold to make tents from, not known to be a hugely productive use of societal resources. And today? Well, give those local councils access to lots of investment cash and what do they do with it?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]KPMG alarm over £1bn property spree that made Surrey council BP’s landlord
Accountant warns over valuations by local authority[/perfectpullquote]

Buying commercial property at the top of the market? It’s almost like they’re Japanese isn’t it?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] KPMG said Spelthorne council in Surrey, which has borrowed £1bn from the Treasury to build a property portfolio, may have “overvalued” its investments. The alert is significant because Spelthorne became the poster boy for councils taking risky bets on commercial property, borrowing at a low rate of interest from the government’s Public Works Loan Board (PWLB) and using rental income from the sites to shore up their finances. Critics have said local authorities are “behaving like hedge funds exploiting a financial arbitrage”. [/perfectpullquote]

The problem with such arbitrages being that they’re like picking up pennies in front of a steam roller. The income comes in for some unknown period of time then the position gets flattened.

When people are doing this with their own money then so what? When they’re doing it with ours then perhaps we might be slightly more concerned.

As to the larger picture, that heuristic of government investing to enrich us all, it does rather fail when we look at what government does in fact invest in, doesn’t it?

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Samarkand Tony
Samarkand Tony
5 years ago

If the government borrows £100m to give to a council, that’s bad. But if they borrow £1bn to lend to a council at preferential rates, that’s fine.

The only moral solution is for them to hang themselves from the lamp-posts so that we don’t have to.

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