Is the big one coming?

Harry_Powell

This debt has to be paid back at some point, probably through higher taxation.

I keep hearing this but it's not strictly true. Personal debt has to be paid back at some point because people have a finite lifetime. Nations do not have a finite lifetime and so debt can be rolled over from one generation of tax payers to the next. National debt is not the same as personal debt.

We need to pay it down somewhat to get the interest payments back into a comfort zone, but again this does not have to have a specific timescale. It could just wait until the next economic boom. Hopefully the incumbent government will do what Labour should have done in the last boom, which was to fix the roof while the sun shone.

Reaper

You are right that National Debt does not have to be cleared. The USA owe much of their long term economic success to spending more than they bring in year after year. However that can not continue for ever. In America the National Debt is equivilent to over £23,000 per person.

A prudent thing to do is to spend during the bad times and pay off the debt during the good times, something Brown claimed to be doing. However the economic cycle he was looking at was a ripple on a tsunami and when the real wave arrived the national finances were in a poor state ("nothing in the cupboard" as the Torys put it).

So now we have a big national debt (about £13,000 per person and growing last I heard) and nothing will be done to tackle it before the next election. After that comes the belt tightening and I think the booming market will realise it is standing on thin ice.

I have only a little invested in the UK and USA. Most of my money is in emerging markets as I think their recovery will prove to have firmer foundations in the long run.

EDIT: P.S. More stats for you.

Simply paying the interest on the national debt will cost taxpayers £42.9 billion in 2010/11. That is more than the annual budget of the Ministry of Defence.

http://www.telegraph.co.uk/finance/financetopics/budget/5202037/Britains-national-debt-to-reach-1.4-trillion-under-2009-Budget.html