James May was suggested to be the governor of the Bank of England by an elderly gentleman sitting on a British racing green sofa (h/t to S. Angrick):
James May suggests to sort out the deficit: “I’d find out how much it was, and then I’d write a check for that amount from the Bank of England”. [Laughter in the audience]
People laugh because they don’t understand the mechanics of modern money creation and the answer sounds kind of plausible but also probably too clever, I assume. Actually, the British government could finance its deficit exactly the way James May describes it. The Bank of England “writes a check” to the government, which means marking up its account at the Bank of England. In return, the Bank of England gets treasury bonds of the same value. Problem solved! The government cannot go bankrupt because it is supported by the Bank of England. In reality, the Bank of England is not allowed to buy treasury bonds (gilts) directly from the government or the institution running the sale on its behalf (UK Debt Management Office). However, it can and does buy it when existing gilts are on the market. So, James May has said something funny that is also very clever…
For those who are interested in understanding modern money in the context of the eurozone (crisis) I can recommend my new book published last month at Routledge.