I know the topic has been done to death, but here's a nice one-paragraph summary from the FT:
This financial year, the government is on course to borrow £95bn with one month of data to be published. City forecasts and those from the IMF suggest borrowing of £140bn-£170bn in [each of] the two following years. Together the total increase in national debt over the three years between 2008-09 and 2010-11 is set to be far higher than the £356.4bn inherited by Labour in the spring of 1997.
Yup, you read that right. The next three years of Labour/Tory profligacy* will cost more than all the other debts that governments had managed to build up (minus repayments**) over eight or nine centuries prior to 1997.
Just sayin', is all.
* Loosely defining 'profligacy' as spending in excess of tax receipts. You could argue that even a lot of spending out of actual tax receipts is wasted as well, I suppose.
** I'd be surprised if any UK government has ever actually repaid very much in nominal terms, they rely on inflation and GDP growth to stop it getting too high.
Monday, 23 March 2009
Statistic of the day
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17 comments:
Only if you're disingenuous enough to use nominal figures rather than the correct figure of % GDP (ie how much we can afford to pay it back), of course.
Fair enough, in which case I would say that Labour will have borrowed more in the ten years 2002 (debt = one-third of GDP a third) to 2011 (debt = two-thirds of GDP) than in the preceding eight or nine centuries (which had grown to one-third of GDP by that 2001).
We are so screwed its unbelieveable. There are only 2 ways we can get out - massive tax rises and spending cuts for years to come, or massive inflation to wipe out the debt. I know which my money's on.
I am with sobers, the only 'sane' way out of this mess is with inflation; i mean stagflation.
bad luck to everyone who can't invest their way of the mess created.
There's also sovereign default. As Mises said (to paraphrase): there is no moral obligation on future taxpayers to pay a burden entered into by a theiving government and a bunch of creditors who are banking on looting of future taxpayers under the full violence of the law.
It's just like two muggers arguing how best to fleece a victim
150% in 1938, rising (understandably) to more than 300% in 1946.
Nick Von M et al.
Eggsaktly. I hate the thought of the UK defaulting on our foreign obligations by either straight defualt or inflation. Really, we should make Brown - or any chancellor and government come to that - personally liable. Even if we could not get the money back at least we'd have the Bernie Madoff moment as Brown was carted off to gaol.
And personally, as I have been saying 1997 that this would all end in tears and have not really in anyway benefited from the boom, I do not see why I should pay back any of it.
Another move could be the nationalisation of all sterling deposits and their compulsory exchange for low yielding undated Gilts. Don't say you haven't been warned.
JB, fair point, but was any of that 300% really ever repaid, or was it inflated away and/or kept stable while GDP grew?
L, re your last suggestion "Another move could be the nationalisation of all sterling deposits and their compulsory exchange for low yielding undated Gilts. Don't say you haven't been warned."
What if they swap all deposits for non-interest bearing undated securities, i.e. bank notes? That wouldn't make much difference as the first thing that would happen is that people just put the money back in the bank.
MW - I knew you'd point that out! I think the purpose is to mess about with the UK's balance sheet and remove 'money' from it - that is reduce the money supply. I am not informed enough to be able to argue this, but it has been threatened before and used in the case of War Loan - although that was voluntary. It might go along with inflation as a way out of this mess. Anyway Brown is witless enough to try anything under the guise of a national emrgency.
I don't think any govt would go for the 'nuclear' option of defaulting on their debt, because it would immediately force them to live within their tax revenue, as no-one in their right mind is going to lend money to a country that's just defaulted.
In how many years out of the last 50 have the govt run a budget surplus? I'd be surprised if it was as many as 15. Yes, there would be a bonus from not having to pay the interest on the current debt (in the tax year 2006/7 it was £28bn - prob a good bit more now). But thats not going to cover a deficit of £120bn+ for the next few years. So huge spending cuts (of an order never seen in UK history) would be required. As well as massive tax rises - base rate in mid 30s, higher rate mid 60s. Its not going to happen, electoral suicide.
Rather let inflation do the work for you by stealth, the average Joe will not realise the govt has caused the inflation to start with, and as there are plenty of people with hefty debts, it would actually be electorally popular. The losers with their savings and fixed incomes, well they're not the rioting kind. They'll take the shaft quietly just like they did in the 70s.
Time to buy assets that withstand inflation - houses, certain shares (ones that can pass on the inflation ie food retailers, utilities, possibly commodities too), index linked gilts, maybe a bit of gold even.
Forget deflation, the old inflation genie is getting out of jail soon.
S, you know what, you're probably right, but I still think we're far from the bottom of house prices, shares etc.
MW - I agree with Sobers - in general. Houses are far off the bottom. The problem with houses is that the fuckwit gummint will persist in trying to support prices, and cost us a shed load more dough. Shares I reckon are nearer the bottom. Oh, I don't mena by that that they will not go lower, I mean that there are a lot of good stocks out there at a very favourable price indeed. Companies with good free cash flow with good barriers to entry - telcos fr'instance.
Mind you stocks are not a pefect hedge against inflation.
Wage inflation erodes debt, other inflation just makes debt servicing harder.
How do UK citizens buy gold? As always I am totally depressed by this posting and series of comments - but I would add that all the proposed solutions are purely economic. It must surely be as likely as national default that we had a change of political system... Also, if we are defaulting, isn't everyone else?
Charlie B: Google "buy gold bullion" and limit search to UK pages. You'll get stuff on buying physical gold (coins or bullion) you can take delivery of, buying physical gold held on account, or buying gold through ETFs. Plus a whole lot of other stuff.
Here's your starter for 10 :-)
Have fun!
former tory: Many thanks. Bling! (btw - I love the shock, horror, deflation news, in which, it turns out, RPI inflation is down to minus points because of the CUTS IN THE COSTS OF MORTGAGES, while the CPI is +2.6% , which is enough for me to feel at Sainsbury's. W***ers)
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