Tough on debt, tough on the causes of debt

Ed Balls has surpassed himself and made the emptiest promise of all time*

Ed Balls will bid to boost Labour's economic credibility by vowing to spend any windfall from the sale of bank shares on paying off the national debt.

Genius.

We know that it was Labour who a) allowed the banks to get into such a mess and b) made the decision to throw taxpayers' money at them and that as things stand, the taxpayer has suffered a huge loss from his or her forced investment in banking shares.

We also know that some pol's have been merrily promising to give the shares back to the taxpayer, or to create a People's Bank etc. So Blinky isn't promising this sort of thing, but under what circumstances will bank shares rise above the price that his government paid for them?

If the government were in a hurry to show a profit on the bank shares, what would it have to do? It would have to allow the banks to become much more profitable, by encouraging households to take out much bigger mortgages and get deeper into debt. But beyond a certain point, bank profits aren't profits at all, they are just rental payments extracted from mortgage payers. It's a negative sum game.

So it would be a lot cheaper and effective to increases taxes to repay the debt, rather than to blow another credit bubble, siphon vasts amount of money to the banks, a small part of which goes into increasing the share price in order to pay off a tiny fraction of the national debt.
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In any event, the total cost of the taxpayers' forced investment in RBS and Lloyd's is widely quoted as being £66 bilion, and they are currently standing at about half that; so even if they were to treble in value from today's date, the book profit would only be equal to six months' worth of deficit spending (or about five per cent of outstanding UK public sector debt).

* Since the last one and until the next one, at least.