Public sector borrowing soaring

Generali

tomterm8 wrote: »

Growth in the economy as a whole. You can achieve this through a mixture of fiscal and monetary stimulus, and quantative lending targets to banks. Given the economy is now growing, the urgent thing is to get it growing near its trend growth as quickly as possible.

Fiscal stimulus doesn't create growth. It takes private investment funds from the future and spends them on current (Government) consumption and investment. As a result it raises GDP today but reduces GDP by a higher figure tomorrow.

Monetary stimulus creates growth at the expense of inflation. Inflation doesn't appear to be a problem right now so is an excellent policy response.

tomterm8 wrote: »

Look, there are four causes of the deficit:

1. A structural deficit, caused by bad demographics (in particular, pension requirements)
2. A cyclical deficit, caused by the recession and
3. A banking sector deficit, caused by a huge wealth transfer from the taxpayer to the banking sector.
4. A war deficit, caused by the ongoing wars in afghanistan, and former war in iraq.

Of these, 1 is the hardest to fix. 2, will fix itself given time.

The banking sector deficit is an interesting case, since by its nature, it is caused by spending money on financial assets that are likely to eventually produce a profit, after the cost of the investment. If you exclude the cost of the bailout, the debt burden is still high but not historically so, and well within the affordable bracket.

So, the shareholdings and special liquidity fund need to be operated to make a profit larger than the interest cost to the government. And, inherantly, over a long term that should not be difficult to do. The government is acting as a bank, borrowing for low interest, and loaning money at high interest. Banks are often very profitable, as long as they lend wisely.

Personally I find the idea that the 'investments' in the banking sector are going to produce a profit quite interesting. After all if they were that certain to make a profit, why didn't private investors buy the investments? It was the inability of Northern Rock to sell assets in the market to fund itself that caused its failure after all. Do you honestly believe that HM Government is better at spotting value than the thousands of people that earn a living from analysing investments?

CLAPTON

Generali wrote: »

Fiscal stimulus doesn't create growth. It takes private investment funds from the future and spends them on current (Government) consumption and investment. As a result it raises GDP today but reduces GDP by a higher figure tomorrow.

Monetary stimulus creates growth at the expense of inflation. Inflation doesn't appear to be a problem right now so is an excellent policy response.




Personally I find the idea that the 'investments' in the banking sector are going to produce a profit quite interesting. After all if they were that certain to make a profit, why didn't private investors buy the investments? It was the inability of Northern Rock to sell assets in the market to fund itself that caused its failure after all. Do you honestly believe that HM Government is better at spotting value than the thousands of people that earn a living from analysing investments?

The government didn't 'invest' with a view to spotting an investment opportunity but because it saw no alternative given the circumstrances.

Howevder, Lloyds have already redeemed the B shares and I have made a substantial profit (inrealised as yet) so it certainly remains a possibility that some profit or at least a much reduced loss will be the final outcome for the public funds.

mbga9pgf

You are ignoring the 225 billion deficit though.... That is seperate to the other stuff and doesnt get the population out of the horrendous debt they are in.

As a genuine question clapton, are you looking forward to, or dreading the Q3 banks figures?

CLAPTON

mbga9pgf wrote: »

You are ignoring the 225 billion deficit though.... That is seperate to the other stuff and doesnt get the population out of the horrendous debt they are in.

As a genuine question clapton, are you looking forward to, or dreading the Q3 banks figures?

I take into consideration

-the debt levels relative to GDP were much higher after the war than now..ask your grandmother whether people were really stressed about it then or did they just do the best they could

-to my mind the levels of GDP and unemployment are also very important indicators .. in fact to my mind more imprtant than debt levels

- increases in debt levels have been widely predicted so come as no surprise and so have been largely discounted by the financail markets (although not by the press of course)

- and of course these debt level ignore the asset levels (if you believe the government stakes in the banks have any value whatsoever.)


so in answer to your question... no, I'm not dreading it as broadly I'm expecting it to be largely in line with forecast

JayScottGreenspan

CLAPTON wrote: »

:silenced:

wageslave wrote: »

I doesn't take a Micawber to see that if we are spending more than we bring in the result is abject bliddy misery.

Indeed. To put August's £16bn deficit in context, that is approx £600 per household they've borrowed in just one month! Now, I don't know about you lot, but I think that's quite a lot - it's about six times what council tax is.

If my household was sinking into debt by £600 per month I'd have trouble sleeping.

Thrugelmir

CLAPTON wrote: »

I take into consideration

-the debt levels relative to GDP were much higher after the war than now..ask your grandmother whether people were really stressed about it then or did they just do the best they could

The welfare state didn't exist until after the war. My mother remembers food rationing which went on for some commodities until 1954. 9 years a long time of austerity.

Back then though peoples expectations were lower. Just surviving the war was sufficent. Doubt that many were concerned about the value of their houses, thats if they hadn't of been damaged or destroyed in the Blitz.

tomterm8

Generali wrote: »

Fiscal stimulus doesn't create growth. It takes private investment funds from the future and spends them on current (Government) consumption and investment. As a result it raises GDP today but reduces GDP by a higher figure tomorrow.

That's a very controversial view, Generali. And, frankly, I think it is one I firmly disagree with.

Generali wrote: »

Monetary stimulus creates growth at the expense of inflation. Inflation doesn't appear to be a problem right now so is an excellent policy response.

I think it depends on which economics theory you decide to bet the house on... Monetary stimulus is fairly noncontroversial in normal times. There are fairly good models of what effect monetary stimulus has on an economy where the monetary transmission mechanism is functioning "normally" (read: the banks aren't insolvent, or liquidity restrained). I think its more controversial now because there is the idea we are in a liquidity trap, and because conventional monetary stimulus has not been sufficient and we are into the zone of QE, where there are higher risks to central bank balance sheets and poor models mean we don't know what the risks are of inflation or even deflation/disinflation.

Generali wrote: »

Personally I find the idea that the 'investments' in the banking sector are going to produce a profit quite interesting.

I am not a believer in the efficient markets hypothesis. I don't find it difficult to believe that the investments in the banking sector could be managed in such a way as to produce a profit. The reason for this is that I believe markets are often wrong, that bubbles and panics exist, and that many of these assets were aquired during a panic. But, in any case even if the government bought these assets at market rate, in an efficient market, it could still make a profit on them.

Generali wrote: »

After all if they were that certain to make a profit, why didn't private investors buy the investments?

Any government can borrow cheaper than a private investor, and so financial assets that would be unprofitable for a private investor, could easily be profitable for a government.

Generali wrote: »

It was the inability of Northern Rock to sell assets in the market to fund itself that caused its failure after all.

There is a difference between acounting value as a going concern, and accounting value as a liquidated company. Northern rock hit the buffers because of a liquidity shock; it couldn't fund its day to day needs on the wholesale money markets. Like any bank, it had illiquid assets. That doesn't mean that over a number of years, operated properly it wouldn't make money.

Am I saying the government needs to beat the market? Of course not.

Generali wrote: »

Do you honestly believe that HM Government is better at spotting value than the thousands of people that earn a living from analysing investments?

I believe that since I bought the shares in RBS during the panic my shareholding has increased quite a lot... pity I sold them a month later for a nice profit, and didn't hold on to them like the government has. Share prices have risen around 40% since the crash.

Did I mention, Sweeden made a profit on their bailouts?