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hello and welcome to another event on the spectators alternative conference um we today are going to be looking at a topic that kate andrews wrote about back i think we've now left the summer so back in the summer and at the time she posed the question about magic money now when she wrote this the figures were pretty stark we had we're looking at a deficit 300 billion made possible by 200 billion of quantitative easing and at the time one senior tory mp as she created her cutter piece said we fought the last election saying there was no money tree now we say there is one and it's in the garden of the bank of england since then the sums have got even more vast and we had the chance then add small measures in his winter economic package however rishi sunak has indicated that one day he may have to balance the books something no one in the country has done for quite a while now so to discuss how the current situation looks how long it can last and rather the tories are on cause for a nasty surprise i'm delighted to be joined by a panel of kate andrews all for herself uh liam harrigan who writes for the telegraph on economics and also the spectator and our editor fraser nelson and kate we'll go to you first uh can you just give us an update of how the magic money tree is looking is it in full bloom so it's still growing as you said katie when the cover piece was written over the summer we had 200 billion pounds worth of quantitative easing being pumped now that's gone up to 300 billion since then we've had an extra 100 billion and also estimates to how big the uk's deficit will be this year have also increased i think the official ones from the obr are now almost at 400 billion while some independent estimates have put it over 400 billion now we have been told all year that this is a one-off spending spree that you should think of it as wartime spending that this is not normal behavior that we're not going to create a structural deficit that is increasing day-to-day spending that you then have to tackle down the road i think the problem we have here is well it's twofold when when the piece was written back in the summer it seemed as if the governor of the bank of england andrew bailey was going to be extremely cautious about not mixing up covert emergency spending and day-to-day spending um reports that he was making very clear in fact he made clear on sacha javid's podcast that he was happy to fund the treasury to the point of helping with coronavirus but he wasn't going to be subsidizing railways he wasn't going to be contributing to the green agenda that that was something that government had to decide and raise revenue accordingly but last week we saw the governor make another intervention and it was to the tune of rethinking the furlough scheme specifically the furlough scheme coming to an end and then almost immediately we had the chancellor updating us with the job support package now that costs a lot less money or is estimated to cost a lot less money than the furlough scheme did but i think it was an indication that perhaps the bank of england is going to be quite happy to continue to directly finance the treasury for these kova schemes well past 2020 and that raises questions about whether or not this is a one-off spend or if we are starting to create a structural deficit and uh that's a that's a very different uh ball game really because it puts the uk on much shakier financial ground now in this discussion we will be taking questions so if you do have any questions write them into the zoom chat function and we'll try and get in as many as possible and particularly if you want to uh come out in defense of the magic money tree we're ready to hear that um liam when we're looking at quantitative easing something you often hear from troy mps these days is actually we should all chill out about borrowing their historically low rates and you know we might have talked about a long-term economic plan a while ago but this is quite a vote because the circumstances have changed and so have we so do they have a point um yeah it's different this time the most dangerous words in the english language everybody wants to believe it's different this time but of course it isn't let's just consider where we are katie so the ftse 100 is 20 up since uh lockdown in march that's bull market territory and even though the uk government has borrowed 175 billion pounds so far this year and is heading for a 20 of gdp budget deficit borrowing costs are actually down have the laws of economics been suspended no they haven't the reasons stock markets are so dangerously bloated bond markets are so dangerously bloated with bond prices high which makes yields low is because of course quantitative easing now back in 2009 the global banking system was on the brink of collapse there was a justification for emergency monetary measures but that post-crisis uh necessity it should have been used as a crash pad to sort of restructure our banking system instead it became a comfort blanket so the kind of emergency measure has become medicine has become like a sort of lifestyle choice back in 2009 our qe program was billed as a 50 billion pound program egged on by city financiers who wanted share prices to keep going like the clappers egged on by governments who wanted to keep borrowing money as much as they wanted to uh and keep bomb prices low with the bank of england buying bonds qe rather than 50 billion it went to 450 billion by the end of 2019 so that's a nine times bigger than it was uh billed as and it's not just the uk of course the fed is doing this the bank of japan is doing this the ecb is doing this but since march our 450 billion quid of quantitative easing has become 745 billion quid of quantitative easing and where the government the bank of england is buying bonds now at twice the rate that it was during the financial crisis now as you say much of our media class our political classes convince themselves that this will all be fine you know you get westminster sages who never really taken any notice of bond markets saying oh debt service costs are low it will all be fine but it will you know in the end the markets will decide what the rate of interest is whatever the bank of england says and does and that's one of the cardinal lessons of history and i'd say and i've written in the spectator in the past that i think quantitative easing now is well past the point where it's actually counter productive financial markets have lost their ability to correct because of this so they're taking bigger and bigger risks central bank bond buying means far too much money's locked up in zombie cut companies that wouldn't survive without quantitative easing and that means we're getting low productivity this distorts basic economics if you don't get a return on your savings and you're paid to borrow with very much through the looking glass and people often accuse me of overstating this where's that inflation you spoke about they say to me and i suspect that will come up in this um uh meeting too and what i say is look we have seen enormous inflation in stock prices in bond prices in property prices but a lot of the qe money has stayed inside the bank banking system the the commercial banks have given it back to the central banks as as reserves so the commercial banks that were insolvent look solvent even though they've relied on quantitative easing and what i'd say is we're building up huge debts because of quantitative easing that will come back to haunt us and as the final thing you know we've got interviews now soft soap interviews from uh bank of england monetary policy committee members saying oh it'd be fine if we if we yank interest rates into nominal negative territory interest rates of course have been in real terms negative territory for a long time into nominal negative territory look outside of the city of london outside of the financiers real world investors they're not not investing because interest rates are too high taking interest rates negative aren't going to make people build more factories and employ more people out there in the real world in the 90 percent of the economy that isn't financial services in fact this kind of extreme monetary policy is really spooking most run-of-the-mill business owners and business leaders and i think if we go to negative interest rates which will be solely duplicate financial markets solely so everyone can keep dancing then that will mean that the real world investors leaving more money on the table we should be implementing a monetary retreat we should be trying to cool financial markets rather than keep stoking them up and the prerequisite of that is having the debate the argument that we're having today in saying that even though everybody's got a vested interest in wanting this thing to continue in the end it has to end fraser liam mentions that many are quick to say well we haven't seen that change in inflation and can you see any positives in the current magic money situation yeah you bet and um it's like 10 years ago i would have been lining up with liam absolutely i made the same predictions as he did about quantitative easing basically look saying you can't get money for nothing it will all end in tears well you know what it didn't end in tears i made predictions about how inflation would be and at some point or another rising away he said we've seen hardly any inflation and it has led me to begin to do something i don't very often do which is to change my mind and i'm not now saying that i'm now basically going to advocate the government keeps spending like a drunken keynesians um all day around um i instinctively feel that something is going wrong when the government's solution to every problem is suspend and borrow money but i find it harder now to argue with those who say to me look you guys said 10 years ago the qe lent a disaster it didn't you've been saying for 10 years the interest rates are going to go back to normal they haven't and in fact the whole of austerity was based on this assumption that if governments didn't balance their books then the bond markets would come back and punish us in other words if governments didn't manage to and get their deficits under control the cost of borrowing would be really high it would be like five percent seven percent and we would be punished in a way that italy was being punished ten years ago but let's just have a look at what's happened recently so i think we can all agree that in the last 10 years um the british government has not particularly behaved itself when it came to debt we entered the last decade with debt of about one trillion pounds now we're at debt of about two trillion pounds we've national double the national debt over that period then we hit a genuine crisis in coronavirus we see economies collapse we see the biggest contraction in economic growth that any of us will ever live through we've seen and landlords unable to collect rent we've seen shops unable to collect customers in a massive shock to the financial system and what happened were they living on the edge did they collapse no they all the banking system managed to get through this pretty well because they had been stress tested ever since the last tech crash the regulators were coming and they were saying okay let's see make sure you guys have got enough capital so if there is a recession if these following that bad things do happen that you're ready to withstand the shock all of those stress tests seem to have worked we haven't seen any failed banks and we've seen the most incredible financial upheaval that anybody can remember we've also seen the british government borrow i think something like 130 billion extra pounds in borrowing and it seems the markets are quite happy to do that right now the rate of interest is in zero is zero point two percent now i know what um liam and kate will be itching to say yes the interest rates are only so low because the um the bank of england is printing money right now it's artificially depressing the guilt markets these aren't real market rates you wait to see what happens when they start printing money and yes i accept all those arguments they could well be true i'm just saying that right now the thing that hasn't happened is the financial domino has not fallen over a decade's worth of debt and pretty high spending has not rebounded in britain right now so you have to ask has something changed now i tell you what has been niggling away at my mind and i'll be interested to know um how liam and kate's um explain this you can look at the um the interest rates not just for the last few years we all know it's been crazy these last few years but we look back over decades you can see a steady decline in global interest rates heading towards zero now they're going beneath zero we're getting negative real interest rates were being paid to borrow and yes it sounds crazy but it's not so crazy that it has led to economies toppling over so might it just be that we're in a new monetary era that there is such a thing as new monetary theory they could be written off by conservatives as the magic monetary but right now there's a glut of asian savings there's a huge amount of money looking for a home and we're living through a period we're simply the safe keeping of money the knowledge that you'll return the money that you lent is enough for you to actually be paid to keep that money it sounds crazy but it's not happening in enough countries for it to be true so this is why i think there's been a fundamental change in the monetary weather now things might i know i can also hear liam thinking ah fraser you're saying this time is different this is the refrain that we've heard throughout history before every single time things go pop now that's right but we also ought to keep our minds open i think to the idea of at this time it really is different and there's something here that the classic economists that the um the bond vigilantes haven't quite worked out and perhaps boris johnson's on to something when he actually says that yes you can borrow because the markets do want to lend and with interest rates so low it would be frankly rude not to now i'm going to go to the other panel of this for their response to that phrase but just quickly first so you're in rishi sunak's shoes and you're looking ahead do you think that responsibly he can shake that money tree for a little bit longer oh you bet i mean there's i wouldn't be surprised because the bank of england does another 100 billion of money printing he can keep shaking it so it can keep producing this fruit the question is whether it will all turn to ashes at some point and and if i were issues i would be thinking to myself like you simply cannot run an economy on the gamble and it is a very big gamble that we're in this new monetary era what sahaja yoga is predecessor called the low prolonged era and because we don't the thing is the conventional economics does not explain the monetary situation that we find in ourselves in right now the old textbooks would tell you as liam and kate will tell you that we ought to be paid a big financial price for this now the old laws of gravity might reassert themselves at any point so if i were if you seem like i would absolutely be trying to get s reconcile taxes and spending to a level where they ought to be right now but i can see why rishi sunak why sasha javid why even chancellor and liam halligan would struggle to win this argument against the number 10 that would basically say look you guys have been saying this for 10 years it hasn't happened the market's willing to lend us money so let's just keep doing it because right now we need to build these roads and sasha javid by the way he's no um he's no lefty economist he's a former financier and he was saying look on a basic financial um prognosis here if you can borrow money at 0.1 percent in a project that will give you a two percent return then you do it you cover your costs you do it and for as long as people are willing to lend money to the government at this low levels it makes economic sense to invest that money on projects that will deliver a positive return on that borrowing kate let's go to you first what do you say in response to fraser are there laws of gravity changing on this gosh a lot um i have a lot to say but i i guess to come back very quickly on the point that fraser just raised about uh the former chancellor um it's one thing to say look we can borrow this money so we can spend this money and let's invest it i think the follow-up to that would always be is it a good investment you're still using resources and are they best spent in in the public sector as opposed to the private sector is it really the case that this is going to create the money create the jobs that you think it is very often government is bad at picking these projects so just because you can spend money in a moment doesn't necessarily mean that you should but to the broader point that fraser raised are we just in this new monetary era i mean possibly i wouldn't rule anything out these days it's impossible to say really where we're going and whether or not the uk government and indeed governments around the world will be punished for printing this money and borrowing at such high rates but people often point to japan to say look you can do qe successfully it's fine to have negative interest rates but you can't just compare these countries monetary policies without looking with what's happening on on beneath the surface i should say um japan is thought to be a real exception here and that actually the savings and the money is in the japanese economy that private individuals save so much more compared to here in the uk that if somebody ever said you know what we're gonna we're gonna build them we need to find this money that it actually is there in the japanese economy and the way that it really isn't in the uk i think another issue you have is that it may well be that the uk isn't punished this time but as i said in the beginning our financial situation is becoming increasingly shaky the office for budget responsibility estimated that without coronavirus in the next 50 years the uk's debt to gdp ratio ratio would be a staggering 275 percent that's without a pandemic without emergency spending for decades now the uk government has been spending money it doesn't have it's been making promises around pensions and health care uh and and and many other giveaways in society that it really can't afford and i think that coven 19 may not be the breaking point and i don't know what the breaking point will be i don't think anybody on this panel could possibly say but one of the major issues and what i'm really nervous about isn't that printing money to help tackle cove in 19 is the problem but the fact that we were on such shaky ground to begin with at some point there's going to be nowhere else to go and it might not be this pandemic we might just about get through but i think it's notable that our debt finance spending is higher than it is in italy or greece or spain britain's having to borrow more than almost any other developed country so all the western countries may look quite ugly at the end of this but if britain looks ugliest that's going to be quite a serious problem not not not just in in the short term but in the medium and long term for paying off this debt eventually you need to inspire confidence you need to be the country where people want to invest and britain at the moment isn't looking as good as it could liam what do you say to that and what fraser was talking about i mean as he says we've been expecting us all told this might be coming for some time so is it enough to just say just wait a bit longer and then i'll be right um i mean what i'd say about inflation since 2009 is that we have had inflation we've had really big inflation in asset markets in bond prices in stock prices in property prices it's almost as if the the way we measure inflation around the western world for nerds who me like me who follow things like cpi baskets it's almost as if the measurement has been deliberately altered in order to make sure that things prices are going up aren't actually included in the headline measures we've also had since 2008 nine the kind of one-off impact of much much cheaper chinese imports china imports from china and chinese exports now are much getting much more expensive and that's a one-off uh historic impact that helped us to keep inflation low that drops out of the numbers um also we should we should remember what happened with a lot of this quantitative easing money after the financial crisis as i as i explained briefly in my opening remarks uh the bank of england bought bonds off market participants and those often investment banks and other financial services companies and they then returned the proceeds to the central bank in order to bolster their balance sheets as reserves and a lot of our bank restructuring wasn't actually when the banks issued more more equity uh which is a more conventional way of banks uh restructuring and facing the music they literally used money that the bank of england had given them that was created from nowhere and that money is still held on reserve in the central bank so for the students of economics you've got like friedman's v the velocity of circulation has been on the floor for the last 10 years and that's a big reason why we haven't had inflation uh you know measured in a conventional sense but if the bank's banking system does start lending again as the government wants it to then that that inflationary toothpaste will come out of the tube and you won't be able to get it back in it's you know it's it's it's difficult to um make these arguments in a sort of political forum because they are quite technical arguments but many people in financial markets understand them and let's not and let's not think that the austerity that we did practice uh between 2010 and 2018 didn't help us to ride the financial waves if you like yeah phrase is completely right that we went from like 800 billion of borrowing when osborne came in national debt to over 2 trillion now but we did show that the uk on a day to day on a year-to-year basis could broadly live within its means and and kate anderson is right it is currency markets are an ugly contest we're going to make sure we're not the ugliest baby and just because everyone else is doing something doesn't mean it's okay if you're doing it more than others now the you the way the uk economy is structured let's get down to the brass tax here we are a globally oriented service-driven gig economy uh country uh with a huge emphasis on social interaction and cultural assets and all the rest of it we with london as the global hub we have been hit by covid much much more than almost any other major economy in the world and our borrowing is really a lot more uh hyped up in the last three to four months than other economies in the world so we are particularly vulnerable we also have within our establishment if you like within politicians and people even at the bank of england i've talked to over the years you know they don't quite get that sterling isn't a reserve currency anymore if you're if you're america you can just about kind of do this that's the exorbitant privilege of being able to print hard currency which wound the gall up so much and is a big motivation for the single currency by the way of the sort of moneyists of the 60s and the 70s but we are not a reserve currency and we have a stonking trade deficit and no number of liz trust is doing a good job but no number of free trade agreements around the world is going to mean that our trade deficit suddenly disappears and if we start getting if our political class starts you know carries on with this kind of language that it's all fine then currency markets are going to notice that i mean i read the glasgow herald often fraser will be pleased to know and um yeah there's a there's a senior politician from the smp in there just this morning a former aide to alex salmond i mean what he says is the state literally creates money it does not need our money the idea that the state needs to raise taxes this guy said in order to spend is simply not correct i mean that's we're going down this rabbit hole of of intellectual uh nonsensical statements and we have to realize that yeah we've been getting away for this for a while during a period when we've been controlling our spending and being responsible and the the whole kind of thrust of the political debate is about bringing our spending under control and our very broad and deep financial markets have been able to you know understand and get their minds around a situation where the bank of england owns a third of all outstanding government debt in this country which it does but what is unsustainable in the end will not be sustained and that's an easy thing to say but it's it's a truth that it's very hard it's very hard to deny you can't keep on doing this stuff and of course everyone will want to pretend you you can and any number of economists will line up and be paid to show you the graphs that prove you can do this but it just doesn't pass the common sense sniff test and in the end financial fundamentals will prevail however much politicians talk and however much central bankers show you spreadsheets saying otherwise and a country like the uk that is so exposed to these coveted lockdowns and our economy our hyper global hyper service driven hyper-connected economy is really exposed we should be kind of proud of that in one sense but we should be mindful of it in the other and so i think unfortunately and i don't say this lightly i think the uk is uniquely exposed in this ugly baby competition going forward fraser let's talk about that ugly baby competition around the world and how are we comparing at the moment are we the ugliest uh other countries are shaking their magic money tree uh any looking pretty that's good there's no ugly babies on this call katie come on well we'll look around the world actually you can see the shaking of the magic money tree is now an olympic sport i mean the brits are good at it but others are also just as good i i mean we might say look at this same look at this basket case economy of ours we've now got a massive deficit it's um it's something like um i think it's 18 of gdp deficit right now but that is while huge and historic and by the way for scotland it's closer to 25 and so good luck to an independent scotland financing that in an open market but in america it's um it's 15 in japan it's 11 percent in canada it's thirteen percent in singapore is fourteen percent these massive deficits are being run up everywhere absolutely everywhere right now in fact the only um economy which is behaving itself is the chinese one and they've got a deficit closer to four to five percent and they actually look like being one of the few economies in the world that will grow over the course of this year having covered so fast from the virus so we ought to bear in mind that we're discussing here not a kind of a crazy theory cooked up by spencer of people in number 10. this is the standard way in which large governments are borrowing and governments with the central bank are using the central bank to print money so yes the bank of england is printing money but so is the ecb so is it japan japan's national banks or the swedish national bank the same tactics same devices are being used everywhere and they are so far working so we should put this in context this isn't something of this isn't britain taking leave of its senses this is britain walking pretty much in lockstep with other major economies in the world right now now obviously i'm not sure if you look around the world there actually is a country with a bigger uh deficit gdp ratio than britain and i think our 18 19 percent might be at the very top but is not so far away from from other countries so again this normally i would be very critical of the government my instinct is to say look you you simply can't i mean of course we know we have to do covet spending we know but and i do get quite disconcerted when um when matt hancock does seem to sail for example a few days ago he was saying of the care homes don't worry we've bought an ipad for every resident member of the care homes now that's you know okay not the most expensive thing in the world but it was like a gut reaction something's going wrong let's spend lots of money let's continue with hs2 an incredibly expensive project which is absolutely no chance of returning the capital in its investments and i increase in deficits probably only about half of it is directly related to cobit the rest will be other things that the government is just letting rip over this general time so that's why i think rishi tsunak will have a difficult path if he does intend to plot his way back to to fiscal balance um but right now i have to say but the markets the world the investments of the world are looking like the stock mark the stock markets are not doing brilliantly right now i mean they've recovered to you know pretty much where they were and pretty crash in america they've been better in britain a little bit worse but they're still looking relatively shaky and investors still looking for security that security still comes from lending to governments and if you want to call that a magic money tree then fair enough but those governments can borrow at a negative rate of interest rates it's not just britain this is something which you can do in countries right around the world right now now i want to talk before this air ends ultimately about how the chancellor might plot some route back to eventually balancing the books send a signal to the market so they don't get scoop unspooked but before we get there i just want to take a few audience questions and do selling more you have in on the chat function of this now the first one we have here is would the uk government have been able to borrow such staggering sums without quantitative easing kate there's no doubt that in order to get through the copic crisis the bank of england had to directly finance the treasury um you know we're talking about hundreds and hundreds of billions of pounds that it's needed to finance this so far um and the bank of england knew that it's interesting to look at the boe's response as soon as it was clear what was about to happen in the uk and that we were going to be going into this lockdown and the bank of england made it very clear that it would support the treasury and it also slashed interest rates from a record load to an ultra record low and there were reports that the bank of england knew that if interest rates even crept up towards one percent that the government would really struggle to finance its debt again it speaks to the shaky ground but also the extent to which the government is absolutely relying on the bank of england when we talk about the magic money tree we have to be very clear about where it is i think it was you katie who mentioned that it's in the bank of england's backyard and that the governor has a lot of control right now and i think that's why his interjection last week was so vitally important and it came right before the job support scheme which is estimated to only be about 5 billion pounds over the next six months but it just indicates the fact that more firepower is probably being withheld and that a lot more money could be spent if the uk has more restrictions coming in and frankly it's hard to see how that doesn't happen because we seem to only be going in one direction almost regardless of what the infection figures do whether they're high one day or dipping the next it seems we're only getting more restrictions and you know i mean the government unless it wanted to do something extremely painful when it comes to tax revenue or tax rises which would be very harmful to the economy which is on its knees right now and we said the wrong signal to business it it's desperately relying on the bank of england let's talk about that fraser because the bank of england governor last week and suggested that it was time for a fairly rethink uh making it i would say unusual but i think the current bank of england governor has done a few of these things where it seems to define conventions slightly in terms of the relationship between the bank of england and the chancellor so it made a public intervention suggesting there could be more furlough needed or targeted interventions do you think that was a sign that the bank is supportive of more kiwi are we reading too much into that or was it actually coordinated with the treasury potentially it's an interesting question and right now there is not that much love between the bank of england governor and the prime minister it's an open secret that boris johnson didn't want em griffith to be the the um the bank of being governor he wanted andy hold aid instead of javed who was then chancellor made a big fuss about it saying look i'm a chancellor i get to appoint it and that was one of the rifts which led to java's eventual departure from government so we've got a bank of england governor who knows he's there in spite of the prime minister not because of him that i don't know whether that makes him less inclined to be um helpful to the government or not and now perhaps he is also thinking that not so much resistance but the institutional treasury will right now be trying to win an argument with government saying look we can't go on spending like this it's going to end in tears we need to reign you in and number 10 says look who's squealing right now the markets aren't squealing so perhaps the bank of england is trying to let out europe's helpful squeal um a few months ago there was actually interestingly enough assassin did a podcast in his one of his many post chancellor and career departures and where he interviewed the bank of england governor and was told that the whole point of his quantitative easing is not to support the government this isn't the bank of england's job the bank of england's job is to sustain stability in the economy not to write endless checks for for number 10. now um that was broadly taken to be a shot across the bows of number 10 thinking look don't think that you can just keep on spending like this because we'll turn off the taps eventually but mind you that was then that was about 10 weeks ago and now things have changed it's getting ready to do most city economists imagine there's going to be several tens of billions more of quantitative easing that the bank of england is going to do um and now it's interesting that the bank of england's also intervening and things like the furlough scheme not really its direct responsibility but it's chucking his or in the thing is what we're not hearing is that is the bank of england really saying louder right unfortunately and this has got to come to an end the the voice the message that boris johnson will get is that yes it is there to give support for for quite some time and even in britain's interest rates of about 0.2 percent these are still a lot higher than those of france germany austria belgium which are a negative territory so it doesn't you don't have to look abroad just you basically have to look to i don't know turkey to south africa to malaysia to find a country which is in serious trouble with interest rates right now because the rest of europe certainly doesn't seem to be what do you make of it liam in terms of that relationship because fraser mentions how that podcast interview was read in some quarters i don't think he was universally welcomed in government it's fair to say we all said andrew bailey is speaking before or due to speak for toriyama mps bit delayed eventually happened do you think there's any reason to think the bank of england isn't uh prepared to print money for quite a long time to come is there any sign that could be kicked back i think the general uh trend uh is that central banks around the world want to try and pass the buck back to politicians to fiscal policy because monetary policy is so stretched and at such ultra extreme levels and there is of course tension between um number 10 and thread needle street as fraser as fraser said andy haldane was off obviously a candidate so was you know suspect well known to the spectator my co-author on a book i wrote jerry lyons boris's former chief economic adviser when he was mayor for london um but again fraser's right in the sense that you know we are heading for serious unemployment in this country when i was a kid you know ub40 was singing about one in ten um um we're looking you know the obr even is estimating 13 unemployment uh and that was before the latest lockdown measures and in that kind of environment then there will be an enormous pressure to keep looking to the bank of england and there'll be enormous pressure on the bank of england to keep delivering and this is why i guess i've been you know i've constantly put my head on the chopping block to say that we need to be mindful of what we're doing because there is going to be such pressure to just keep going on and on and on with this stuff we're already spending 50 odd billion quid a year on debt service costs and that's at ultra low interest rates if you go from half a percent to one percent that's 100 increased in your borrowing costs right there you know soon a tiny incremental rise in market interest rates and suddenly we're spending more on debt interest than we're spending on schools i mean that's a and when you have a sort of political dynamic where both major parties are in a kind of dutch auction of who can outspend the other one that's when markets start getting really concerned that's when financial markets start reaching for tangible assets um physical assets or indeed for the dollar look during the the us presidential election you know you're going to have acolytes of modern monetary theory isn't interesting that the kind of economic the academic uh fashionable theory uh has the same initials as magic money tree we're going to be hearing a lot about you know professors like stephanie kelton extremely articulate people who have you know good academic credentials who in recent years she started out with bernie sanders but have really been honing these arguments for the political marketplace in order to make them sound really credible and those arguments will jump over the pond to here i just cited aid to former aides alex sammons senior smb figure basically talking complete nonsense um about economics and when you have the labour party saying to the tory party which they will oh well you did qe to bail out the bankers why can't you do qe just to keep spending more and more and more and more money so when even the more prudent side of politics here and then the u.s gets you know engages on this kind of turf when the language becomes so extreme when there doesn't seem to be a grown-up in the room anymore that's why when financial markets will get deeply concerned and there will be a flight to quality and i'm afraid again i say this with regret in that flight to quality the dollar will benefit and tangible assets will benefit um land will benefit but sterling will not benefit um and when you have a real run on a currency that's when you get a spike in inflation and interest rates go up whatever the bank of england says or does um and that's when you get real you know that really stymies investment and it's the poor that suffer most during this so i don't really see anything within our sort of political culture at the moment within our kind of economic debate to stop us getting to a situation where there is just a complete free-for-all where the only reason you're not spending money uh is because you're a bad person um and when the political debate gets to that level which is where we're headed and we're going to see it in the states and it will come here then that's you know that's when you know history starts repeating itself and you're sparking crises now we have a question from gina saying have any of the political parties find a better money tree are there alternatives phrase let's go to you first on this because you were probably speaking the most positively of qe and i think that i wonder whether it's made you rethink corbinism for example it does sound as good as though we are if we're going back to the various manifestos we've seen we're mirroring one a little bit more these days even even if it is down to a pandemic well first of all i wouldn't say i was speaking positively about qe i i i my position is that the arguments against it that i used 10 years ago and and that we hear a lot from me and now are a lot harder to make in the absence of any sort of that hard evidence sure i mean liam can talk to the to to asset price inflation we do know that qe does push up assets um one of the things that when the latest badge of qe came along i thought to myself well that would be come through pretty quickly onto house prices and just to shop stock prices as i did last time around that is needless to say that exacerbates inequality it makes and the whole economy rigged against those with assets it's a deeply unfair system whose side effects are absolutely not properly discussed what it doesn't do though is end or what it hasn't done so far is then to massive consumer price inflation as ended to a massive increase in debt interest and the kind of a reckoning which you've had throughout most of our our economic history i have to say though that when i look back on them on corbinism and the attacks being used against corbinism magic monetary let's not forget was a theresa may phrase used to describe the economics of the labour party and i remember that this was a great battle that sanji javed and boros johnson had during the campaign there was assassin javed was saying look we have got to be the party of fiscal responsibility we need to attack labor as a spencer party we need to say to them these guys will spend spent and you know in your heart there will be a price to pay your voter because it does stand to reason it is common sense but as soon as they won that election the tories tore up they have formally abandoned the um the balance your budget pledge which was in the last tory manifesto once they did that it became a lot harder to say what was the big difference between them between labor and the tories if jeremy corbyn and john mcdonnell were in power right now would they be borrowing just as much as the british britain is now and remember given that our deficit is right now almost literally the biggest in the whole wide world it's hard to think that labor government would be borrowing that much more so i do actually think there ought to be a mini kind of apology tour of conservatives to labor economics teams under corbyn to the effect of saying look we said there wasn't a magic money tree we've actually found out but there is and we intend to use it for the foreseeable future we'll take that as the beginning and liam if we're looking at we've got a scoop liam if we're looking at the political parties so if they've got better money trees and do you think there is any do you look around and see anywhere any other party doing it better labor don't say tend to say too much actually on the economy at the moment ever since they came up for wealth tax and then seem to fight about it for a while um but is it is it more that the conservatives have taken other parties money trees and people have alternatives i think the battle will become i mean if if if it does just become um you know who's got the biggest printing press um um then the battle will become and and kate put her finger on it um how you actually spend the money the only kind of modicum of sort of respectability about your financial position will then be ah and you can already hear it in the political debate but we're spending our money we're spending the money on things that are productive so it'll actually boost the supply side and even i would and even i would um put some store by that argument you know i've i've in in my latest book home truth i wrote that the government should borrow in order to build social housing um and then you can use resource accounting to put those new social homes on the government's balance sheet uh rather than spending 25 billion pounds a year on on housing benefit to house vulnerable families lower income families who need social housing with private landlords often substandard unsafe homes not always but but disproportionately so you know clearly we are entering a period in our economic history where everybody has to be pretty intellectually agile with their with their views and that's only right that's that's the national debate that's that that's democracy but there is a danger i would say so pulling the telescope back and looking at the big picture there is a danger when you've got even very fiscally prudent instinctively uh prudent political parties political parties that have you know their brand is um you know solid housekeeping and and growing up economics uh like the conservative party um i mean there was quite a lot of um polling evidence even during the real tough years of sort of austerity that we had where osbourne on cameron and you could never take this away from them they did get their spending under control to a degree even though there was an awful lot of borrowing going on on the other side of the balance sheet there were lots of polls showing that was actually quite a popular policy of course you had interest groups who were rightly screaming about lack of money at local government and lack of money for the justice system and at the sharp end you know some social policies were curtailed and those genuine human suffering of course but actually that was broadly popular from a political point of view so i mean i think if we look back in sort of 10 years time on the situation we're in now and you know we hear um all political parties agreeing that yeah it's different this time you know who who needs to read the history of the roman empire or the history of the weimar republic or you know the history of mankind frankly because it happens every every 100 years or so and we suddenly believe we've got a better system and we can just basically spend as much as we want and and then there's a collapse because of that in which ordinary people suffer most and none of the people advocating these policies that the sharp end is going to suffer of course because you they'll be they'll be well well healed then you could really have a crisis actually of of of of consent for capitalism you can have a crisis of consent for the clever people who are meant to be looking after us and they've caused like three mega financial crises in 10 15 or 20 years and so i think an awful lot is at stake here if we just carry on doing this the logical conclusion is that we're going to end up in a really big mess and it won't just be a one-off financial collapse when you've had a big financial collapse so soon after an earlier financial collapse so soon after the dot-com collapse you know then suddenly the the the our time on earth as as adults and opinion formers starts to looks pretty bad and there will be a political backlash from that and it won't be pretty and broadly liberal-minded people like all of us on this call who disagree about most things but agree fundamentally about representative democracy and all the rest of it you can have a lot more extreme politics if we end up going down a financial cul-de-sac because of this policy and now i just want really about 10 minutes left so if you have any last-minute questions do you send them in but otherwise i want to touch on a few we've got in which is almost how does rishi see that get us out of this so i wondered in terms of closing remarks i'd be good to hear from each of you what you think you know you were the chancellor if you're looking at the fact and everyone here has agreed that whether or not this position is sustainable as chancellor you have to be responsible and presume it's not what do you think the step is to getting to a place where not balancing the books perhaps but on at least on the path to it because all the restrictions with the habits we've got into it can seem quite hard to find that particularly when there seems to be a general consensus at the moment which as fraser you were touching on we would almost be there the outlier of if we broke it and who would like to go first i would um say that the step rising sunny needs to take if he wants to do that is a step next door into number 10 because right now i am under boris johnson he the prime minister is you know he once described his political philosophy as being uh as cake as a pro having cake pro eating it now that is what you do with deficits you decide you know when faced with a choice of spending as much as a continental european country or taxing as little as britain has historically you want to do both thinking that the magic money tree will come in the middle and his political careers tended to be defined by the rejection of choices which lesser mortals have had to make and and i think it will take quite a lot to persuade him i mean he by the way he's already ruled out and going back to what we used to call austerity he ruled that out in one of his speeches in addition by the way to ruling out um vat tax increases to on income tax increases his manifesto basically um rules out raising taxes he's ruled out spending less uh so the only thing in the middle of that is a magic monetary now once those major decisions have been taken by the prime minister the job of a chancellor really is to keep on finding the money um i suspect that russia sunk would quite like it if the conservatives were talking about the need to balance the budget a bit more if it were a discussion held by a few more voices than the ones around this this panel today the problem is that the tories who used to be so the most keen on balancing budgets are now mad keen for brexit and they don't mind about quite a lot of borrowing because it's more important to them that the bill is written to get the brexit transition done so the john redwoods of this world are basically not back in formation in the same way that they were under david cameron to get the balanced budget and therefore boris doesn't really face the political pressure or the economic pressure to to stop shaking that tree liam what do you think is there a way to get on you know half of the straightener now without uh losing boris johnson as prime minister i i agree with i agree with uh the phrase that a lot of the more hawkish people their eyes are elsewhere uh at the moment um i mean i i'd stress that you know if you look back to 2009 the uk was disproportionately impacted because it was a global banking crisis and we got a lot of banks a big financial services industry and we're similarly disproportionately impacted by this pandemic because as i said at the opening we're a service driven economy an outward-looking hyper-globalized um economy i do think it is going to be difficult for uh rishi sunak he is a very financially sophisticated person and i'm sure you know he has the same kind of concerns about fiscal realism that sajid javid has you know they're from similar backgrounds before politics they were you know genuinely involved in financial markets at a high level and once you've done had that kind of experience it never really it never really uh leaves you i think we are going to see though a a continuation we're going to sort of suck and see aren't we over the next six months and hope that we can manage to grow our way out of this crisis um uh what i'd really like to see from the chancellor and i gave him a little bit of a hard time in my column at the weekend i'm i'm sure he was concerned about that um i'd like to see much more of a of a vision thing and this isn't just soaring rhetoric look investors real world investors not financial market investors but real world investors they're sitting on a lot of cash because they're really spooked by what the political and media class basically is saying and doing about with monetary policy and they think financial markets are overbloated both bond and stock markets and their rights to convince people business owners business leaders to put their money on to work again to build that extra production to build those factories to re-employ people after covid you need to you know keynes taught us about animal spirits you need to stir the natural entrepreneurialism of this country which we have in spades and is always i think our trump card in getting our our kind of skewed over financialized economy out of the hole again and again generation after generation and i was actually a little bit disappointed that there wasn't more of the vision thing we've had very little about the vision thing in economics from the prime minister and similarly from the chancellor and this kind of speech making and steering and leading is really really important to signal to investors real world investors where we're going to give them a kind of story a narrative that they can cling on to and i actually think it was a tactical error for the chancellor to rule out having a budget now some people would say oh we there's enough uncertainty and other people are saying oh we don't need a budget because that would have implications on our brexit negotiations and all the rest of it but look we just borrowed 35 billion pounds in one month right we've borrowed 175 billion since march we need to to declare and and and attempt to explain even in a situation of enormous uncertainty everyone knows there's huge uncertainty but you need to at least have the difficult discussions within government and between departments about how we can get out of this even under the current circumstances and assuming the current circumstances either get better stay the same or get worse in terms of lockdown and of course our lockdown policy will be key to all of this the fact that he delayed the budget to me it looked a bit like when a plc delays an audit right it always goes wrong it always leads to a reduction in the share price it's always because there's issues you don't want to face there's realities that you can't stomach and i think to delay a budget it risks signaling to the markets that the chancellor and the prime minister can't handle having these really really difficult discussions about fiscal policy and that is a concern to me because once you stop having those discussions and the big players in government put their heads down a hole like ostriches that's when markets start getting concerned so i hope it isn't but i hope we aren't looking back in in six months thinking that delaying that budget ruling out a budget or even a serious fiscal update uh this autumn uh i hope that doesn't turn out to be a big error thanks liam and kate you get the final word what is the best path out of this look i don't envy the chancellor either as fraser's already touched upon you can cut spending go for austerity uh but based on the reporting that you've done katie on the internal workings of the conservative party they don't want to touch that with a 10-foot pole the fact that they're pressing on with hs2 would suggest they really have no plans to cut spending i don't think your average member of the public public would think that scrapping that in very unpopular project would count as the traditional interpretation of austerity uh but there we go um the chancellor can raise taxes uh arguably another form of austerity uh but he can raise taxes but that has significant political costs potentially breaking manifesto promises as well they're in a very tricky position you can't go around looking at who did well in the age of coronavirus the businesses in particular that got us through that adapted that kept us fed and entertained sitting at home and say well done now we're going to tax you so if you look at those you might have a bit more money circulating around and in their back pocket it's not obvious you want to take it and then create you know a sense that if you do well in the age of kovid you're then going to be tax on it but i i would add and liam touched upon this a third way and that is going for economic growth i think if i were the chancellor one of the things that would deeply concern me are all these comparisons to world war ii one of the reasons the economy jumped back so quickly and we were able to get spending under control is because economic growth was very good now obviously this year we're looking at a a huge contraction we had a 20 contraction in the second quarter uh the economy is has fallen drastically this year but let's look at the past decade growth was on average roughly 1.8 percent i believe it has not been a pro-growth decade so if the chancellor wants to grow his way out of this public spending problem uh he's going to have to go for a lot of supply-side reform some of which are going to be politically difficult it's great to see that they're already tackling the planning system that should hopefully give britain a real boost when that gets underway but they're going to have to do more i suppose i would just end by going back to a question that you asked earlier katie about um corbinism and and does this justify it i suppose in a way i still think there are major differences you won't find an economist you'll struggle to anyway on the left or the right who would argue that during a pandemic when you have to hibernate the economy that is not the time to spend money virtually everybody agrees that is the time to spend a lot of money i think the difference is that well both parties in the 2019 election were looking at spending more than than was within their means the conservatives were going to overspend by tens of billions and the labor party was going to overspend in supposedly the good times by hundreds of billions of pounds uh no no plan to to get their house in order in the good times so i think the real criticism of the conservative party is where has that fundamental philosophy gone that you have to make sure that the books are in order when when times are good because when times get bad when you have a pandemic or something else horrible that happens that's when you need to spend the money and again if i were the chancellor i would be thinking about this new pledge to free school meals over the summer we're told that's a coveted policy but i suspect that won't go away next year the government's going to have to fund that in day-to-day spending quite a lot of measures that have come in in the name of kovit i think will last and the chancellor is going to have to be very strict unless he wants to fall into some kind of corbinous thinking that that money really has to be accounted for that day-to-day spending and theoretically the better times it's hard to think of a good time at the moment in the future but better times uh can be funded by the magic money tree brilliant thanks kate and perry to sleep we want to slightly uh adding to the pessimism perhaps uh interesting you mentioned planning reforms and supply side because speaking to tory mps today i think that in itself is going to be a battle to even get through so um very interesting times ahead and i'm sure we'll be having more discussions like this in the coming months and thank you to kate thank you to liam thank you frasier for joining us today and thank you for watching do join us tomorrow for the final day of the alternative conference time clearly flies when you're having fun um thanks for i'm now going to exit this conversation and end the chat