Britain's debt and basic economics...

dopester

nickj wrote: »

there was a letter in my local newspaper the other week from a pensioner saying how she was going to vote for brown because of the winter fuel allowance , she'd had her house insulated and then there were aanother 3 -4 things that she had recieved of of the govt . if you add all the other people claiming benifits , parents claiming child benifit and tax credits , and public sector workers etc + all the other things that drain from the pot then you don't have to be a financial genius to work out that if your expenses are more than your income then one day it will catch up with you and have to be repayed , something i believe that gordon hasn't quite got the hang of .

Gen summed it up so brilliantly on another thread today, I have to quote him on this thread, for those who missed it.

Generali wrote: »

Absolutely right.

Why are people earning well in excess of £50,000 a year able to claim family tax credit? So that more people feel beholden to the State for their income.

Thatcher's failure was that she never broke that mindset despite never standing on a platform of buying millions of votes by increasing spending. Every election since has been won by the party prepared to offer the most outlandish promises.

There was a very good article in the FT a few days ago saying that in the past 2 weeks, Labour MPs had promised to spend £7,000,000,000 on community projects. The politics of the UK are such that the Tories can't stand on a platform that says, "We'll not buikd a new village hall" (or whatever).

dopester

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.

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.

Why did Iceland not just taking this easy option of printing money and QEing on top of the debts they had?. Because the markets recognised how deeply it was overextended and downgraded their credit rating.

The same would happen for the UK if it continues to push it too much.

There are two major variables: 1) Regular repayment of debt, and 2) Sound money.

You can't just go on spending beyond your income, and the debts you've already racked up. If we were to push it too much, creditor nations may perhaps do as the UK did against Iceland, and use their own version of the Terrorist Act against the UK; seizing assets, refusing trade ect.

Being able to accessing sound credit - foreign investment - is so vital to a modern economy. We'd be left in a much worse position than the alternative of deflating and letting the market sort it's own way out. Even default would be preferable to trying the cheat the system.

Spain was bankrupted in 1596 when interest on the national debt took a large fraction of national reserves, variously reported as from 40 percent to 66 percent. The result was that Spain was forced to withdraw from wars it could no longer afford. The bankruptcy of Spain produced a period of peak known as "The Breathing Spell."

Dutch finance was the strongest in Europe even before the Dutch became militarily predominant. Dutch capital continued to play a major role in financing British wards. When Britain allowed its creditworthiness to decline during the time of the American Revolution, the Dutch withdrew their financial support, with unfavourable consequences from the British point of view.

dealsearcher

kennyboy66 wrote: »

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

I thought it self explanatory really. If people as individuals overspent on their credit cards they were soundly castigated for it and told that they had to live within their means. The government does the same thing and we are told that it is fine, we shouldn't pay back our creditors too quickly, we just need keep borrowing and to make sure there is plenty of borrowed money sloshing around in the country. Well that's alright then. :whistle:

amcluesent

>The government does the same thing<

Plus prints more money so the BoE can buy that govt. debt...

Default, devalue, start again...inflation at 10% should make that debt disappear as if by magic

kennyboy66_2

dopester wrote: »

Why did Iceland not just taking this easy option of printing money and QEing on top of the debts they had?. Because the markets recognised how deeply it was overextended and downgraded their credit rating.

1) Because their situation was worse by a magnitude of perhaps 5.
2) Their external debt was perhaps 7 times GDP.
3) A higher % of their debt was in foreign currency
4) The market thinks that HBSC, Barclays and even Lloyds and RBS, 3 of which are truly international worldwide banks have a better future than Landbanski, Glitnir et al.

This is not to say that we don't need to get our economy in balance.

ninky_2

dopester wrote: »

Why did Iceland not just taking this easy option of printing money and QEing on top of the debts they had?. .

their economy was under the charge of a right wing conservative.

Generali

dopester wrote: »

Why did Iceland not just taking this easy option of printing money and QEing on top of the debts they had?. Because the markets recognised how deeply it was overextended and downgraded their credit rating.

Because AIUI, much of its debt was in foreign currency so the option wasn't open to them.

Don't get me wrong, I don't think printing money to repay your debts is a good thing. However, a poster asked a factual question and I gave what I felt was a factual answer.

The examples from C16th & C17th Spain and Holland are also flawed as the money they owed was effectively gold and they couldn't print more of that!

HAMISH_MCTAVISH

Harry_Powell wrote: »

It's always amusing to see the National Debt equated with personal debt (i.e. credit cards). It's like comparing apples and oranges, but people continue to do so. It shows a complete lack of economic knowledge.

It's Forumnomics, innit....:D

StevieJ

dealsearcher wrote: »

I thought it self explanatory really. If people as individuals overspent on their credit cards they were soundly castigated for it and told that they had to live within their means. The government does the same thing and we are told that it is fine, we shouldn't pay back our creditors too quickly, we just need keep borrowing and to make sure there is plenty of borrowed money sloshing around in the country. Well that's alright then. :whistle:

I won't bother with the unemployed fellow who is down on his luck with big debts that needs to borrow to buy a suit for a job interview then.

leveller2911

StevieJ wrote: »

I won't bother with the unemployed fellow who is down on his luck with big debts that needs to borrow to buy a suit for a job interview then.

Should have got his priorities right and brought the suit on his CC....no excuse especially if they have "Big Debts" on CC

Strangely enough a distant relative of mine who has been on the dole for 23 years mainly due to his mum and dad pampering him has just started a training coarse and the DWP have paid for his push bike to get to the training centre, but the strange bit is he has a full driving licence and a car......... You gotta wonder about the thinking behind that...

I think im right in saying the DWP will pay for a suit.......