Forgive my ignorance, I'm aware that monetary theory has evolved but my grasp of economics is still stuck in 2012 and there are some concepts I am struggling to understand.
I've read the excellent thread here on "Bank of England to directly fund UK Government Spending".
Some of it I can grasp - but not all - and I think some of it I must have misunderstood.
It leaves me with further questions with regard to the decisions being taken by Central Government which I'd appreciate some help understanding.
I understand why theoretically the UK cannot become insolvent, there is a compelling argument here:
In short, the UK cannot become insolvent, because the BoE can just print more money whenever the government needs it, and keeps it off the government's balance sheet. (I've seen US investors disagree and say it's all part of the same system, so the semantics don't matter to them, but I digress)
I don't understand why the BoE isn't seen as a Special Purpose Vehicle. Ultimately it's still public debt - behind a facade. I seem to recall that when it came to the crunch, Bond Markets didn't agree to pretend NAMA didn't exist. Ireland had to turn to the Troika.
I understand that the UK doesn't have to go to the Bond Markets because it can print money.
I don't understand why they are then still bothering with gilts?
Is there a red line beyond which the BoE cannot go?
Also, I simply don't understand why this is not supposed to result in runaway inflation, if not HyperInflation. I've seen many UK economists claim that the government's plan is to inflate their way out of debt, but it's not working. The MPC keep writing letters to raise concerns over this.
If this is a viable method of financing that doesn't cause inflation, then why don't the ECB adopt the same measure? Spain still still to be selling 50 year bonds?
(Anecdotally, I am seeing what I believe is some real inflation here on the ground in the South East - particularly in food - but it's possible this is related to Brexit costs.)
There are reports that 60% of trucks returning to Europe are empty. Thus demand for the pound is decreasing rapidly.
I don't understand why is this no longer a threat to the UK? Won't a volatile pound and collapse in demand still risk a deflationary spiral?
Why are the Office of Tax Simplification suggesting eye-watering tax increases and contractionary measures during the worst recession in 300 years, if the debt technically never has to be repaid?
Why have the government killed off their flexible workforce of contractors through IR35 and set back industry by a decade, if the government can just plug the gap through borrowing?
If the government can run up endless debts - why do banks still have capital reserve rules?
Why are Councils going bankrupt if the government can just borrow money and bail them out?
If the debt arising from QE can simply be cancelled, then why don't the government simply do this in perpetuity and eliminate taxation?
If people start spending like crazy once the Covid restrictions are lifted, won't that result in huge inflation, especially considering the level of QE, which all seems to have resulted in asset price inflation (even though the FTSE is dead)?
That's a lot of questions and I guess some of my assumptions are based on misunderstandings, so I will pause there before I ask anything further.