Britain's debt and basic economics...

dealsearcher

kennyboy66 wrote: »

There isn't a coherent plan, because it is next to impossible.

Cutting spending (or increasing taxes) by such an amount would plunge us back into servere recession.

Halving the deficit in 4 years will be hard enough, although I accept that it is only a start and that at the peak of an econmic cycle we should run a surplus.

So all those people who spent beyond their means on credit cards were right to do so after all?

Pete111

amcluesent wrote: »

The old folk are the lucky ones shuffling off this mortal coil; anyone still alive in around 10 years time will know only grim austerity, scrimping and getting by, grow-you-own, powercuts and living under the cosh of a para-military police acting on the say-so of a government of national emergency.

As all the assumptions about a comfortable lifestyle based on the 'never never' come crashing down, there will be millions of frightened, angry people demanding that something be done as they are jolted out of their la-la land of 'entitlement'. All too late, too late...

"A man, he’s like his father
Wishes he was never born
He longs for the time when the clock will chime
And he’s dead for evermore"

Yep, it's another tin foil hatted communique from the bunker.

Given we managed to survive to world wars in the last century (you know, with actual REAL fighting to the death and all...as well as near invasions by foreign powers, mass bombing of cities and many years of hardship following our eventual victories) without our entire society going down the pan I fail to see how an economic decade of austerity whilst we rebuld the countries finances is suddenly going to make everything go all Mad Max.

Is it not even slightly possible we will all just grumble a bit more, go on holiday a bit less and crack on with life as we find it?

I also can't decide whether Amlucesent is actaully looking forward to his 'vision of the future' becoming reality or not....

CLAPTON

dealsearcher wrote: »

So all those people who spent beyond their means on credit cards were right to do so after all?

We are where we are; the issue is what is best to do for the future and not be vindicative about the past.

There is no solid evidence that a large national debt is incompatible with a growth in GDP... in the period after the second world war we had a national debt of 250% of gdp but we then went on to have fairly steady growth for the next 60 years.

Thats not to say debt doesn't matter or that we dont need to reduce the deficit. The issue is that if we try reduce the deficit too quickly we may create massive unemplyment which will cause enormous problems both in the public and private sector ; and due to the fall in tax take and the rise in benefit payments may well not actually reduce the deficit either.

So think ... is your own unemployment and that of your family and friends (only for 2 or 3 years ) a prize worth paying?

kennyboy66_2

dealsearcher wrote: »

So all those people who spent beyond their means on credit cards were right to do so after all?

Not sure of the relevance of this statement to be honest. Can you give me a clue.

Generali

poppingjay wrote: »

Forgive my naivety, but I have a couple of questions. Who does the government borrow money from? and what would happen if we defaulted on the debt - i.e. who would send the bailiffs/army round?

And, in this instance couldn't the government then just print it's own currency and spend our taxes on beneficial things? I suppose I'm under-complicating things here....:think:

Back in the real world, the UK would be highly unlikely to default entirely on her debt. The reason? Virtually all of the debt is in Pounds so if the Government runs out of money to pay her creditors she can just print some more to pay them.

That would even work for Index Linked debt as AIUI at least, they pay a rate of interest being the RPI + x%. Who decides what the RPI is......? The Government!

There's a reason the UK has a AAA credit rating you know.

Now clearly, if the Government routinely prints money to pay back her debts then that will have further consequences: inflation and having to borrow money in foreign currency which they can't print in future are the obvious ones.

tomterm8

Generali wrote: »

Back in the real world, the UK would be highly unlikely to default entirely on her debt. The reason? Virtually all of the debt is in Pounds so if the Government runs out of money to pay her creditors she can just print some more to pay them.

Realistically, though, money is only worth anything if people are willing to accept it in exchange for goods. The second the Zimbabwe option is carried out, your currency is dead. So, its still a kind of default.

Generali

tomterm8 wrote: »

Realistically, though, money is only worth anything if people are willing to accept it in exchange for goods. The second the Zimbabwe option is carried out, your currency is dead. So, its still a kind of default.

True.

What a lot of people seem to miss though is that this isn't an all-or-nothing thing. The Government has just printed quite a lot of money and used it to buy her own debt without a T-Shirt costing a trillion quid or whatever. Clearly there are limits to how much money can be printed however as Mr Mugabe has so helpfully demonstrated, albeit at considerable cost to most Zimbabweans.

tomterm8

That's true, Generali, but in my view there is a definite tipping point; what was so devistating for Zimbabwe wasn't the printing money, it was more the fact that they couldn't borrow any more on the open market because they had lost all credibility.

The reason for the UK government printing money wasn't so much to pay debts, as the money supply was plumeting without QE. So it was really a move to keep the money supply broadly stable.

It seems to me, that broadly speaking, it wasn't about funding government debt, although that was a rather handy side effect. Or, in other words, it didn't cause inflation as the measure was broadly speaking intended to stop a risk of serious deflation.

Generali

tomterm8 wrote: »

That's true, Generali, but in my view there is a definite tipping point; what was so devistating for Zimbabwe wasn't the printing money, it was more the fact that they couldn't borrow any more on the open market because they had lost all credibility.

The reason for the UK government printing money wasn't so much to pay debts, as the money supply was plumeting without QE. So it was really a move to keep the money supply broadly stable.

It seems to me, that broadly speaking, it wasn't about funding government debt, although that was a rather handy side effect. Or, in other words, it didn't cause inflation as the measure was broadly speaking intended to stop a risk of serious deflation.

There has been a second and little commented on side effect of QE. The biggest sellers of Gilts into the QE program were non-UK financial institutions. It is much easier to force your own population to buy your debts than it is foreigners (eg change risk rules on pensions, pay Government employees in debt like has happened in the US).

Pennywise

Generali wrote: »

True.

What a lot of people seem to miss though is that this isn't an all-or-nothing thing. The Government has just printed quite a lot of money and used it to buy her own debt without a T-Shirt costing a trillion quid or whatever. Clearly there are limits to how much money can be printed however as Mr Mugabe has so helpfully demonstrated, albeit at considerable cost to most Zimbabweans.

But printing the money or issuing the debt notes is only the start isn't it? What about when the money needs to be repaid, or our exchange rate dive-bombs, or interest rates rise, or we have rampant inflation or deflation. The whole process of debt issue can only be considered to have been a success once it's been repaid or renegotiated.