Question about the defecit?

Generali

drc wrote: »

Ok, so we apparently have a deficit of approx £170 billion per year or thereabouts. The deficit has been increasing every year and after the credit crunch really exploded. What I don't understand is why the deficit will suddenly need to be dealt with or whether it can be prolonged indefinitely. If there wasn't an election this year, would the Labour party actually have to deal with the deficit or would they keep putting of dealing with it? What factors actually necessitate the reduction of the deficit (i.e. what would actually happen if nothing was done and borrowing kept increasing)? At what stage would external forces step in to do something if the party in charge refuses to and what are these forces (i.e. the IMF, the markets etc)? Perhaps someone knowledgeable in economics could help? Generali?

Here I am!

IMO the deficit will have to be brought under control pretty quickly although the UK can live with the current levels of debt in the medium term. The reason?

Well until recently, everyone thought that there was a risk that the world was going to hell in a handcart. Now the risks may be receding and if recovery continues or even gets stronger, people aren't going to be that interested in lending money to the Government at 3 or 4% when they can lend it to a housebuyer at 6 or 7% or possibly buy some shares and potentially even get some capital growth on their investment as well as a decent income.

So what happens? Well either the Government has to increase interest payments to new borrowers so the interest bill faced by taxpayers rises or they won't be able to borrow the money.

There is also a further problem known as 'crowding out'. Put simply, if the Government borrows a pound then that pound isn't available for productive investment. If companies aren't investing as much in new projects then they don't need as many employees and don't produce as much output reducing GDP and so prolonging economic problems. If the Government is borrowing 12% of GDP each year then there will be very little money available for productive investment or for lending for mortgages and consumer credit. These tensions haven't really arisen yet but they will soon IMO.

StevieJ

Generali wrote: »

That is true but it required a program of austerity to bring the debt under control after the war. AIUI, things were pretty tough for over a decade after the war was won.

Is that not when we introduced the NHS? some austerity.

Radiantsoul

StevieJ wrote: »

Is that not when we introduced the NHS? some austerity.

I believe rationing increased after the war ended and continued into the 1950s.

Generali

StevieJ wrote: »

Is that not when we introduced the NHS? some austerity.

Rationing was stricter than during the War and of the 10 years of Government surpluses in the 65 years since 1945, 4 came before 1951.

In the other 55 years, the Government ran a deficit. I guess it shows how popular it is getting your kids to pay your bills.

JamesU

Somerset wrote: »

I watched This Week hosted by Andrew Neil after the 'leader's tv debate'.

He asked Michael Portillo why none of the contenders were really addressing the deficit question, merely skating around it.

Answer '' Because they wouldn't be elected''.

If that is true, people don't want to hear/believe that public services will be annihilated. But it's fairly inevitable.

Agree with Michael Portillo's answer and reasoning, but do not agree with the inference that followed here that "people do not want to hear or believe." The general public is being duped and I am sure that the majority of the population would like to understand the magnitude and nature of the deficit and what any future government would try to do to bring this under control. The majority of the public may not fully understand the finer detail and future implications of the current and projected deficit and debt, but we are not stupid. If the government cannot disseminate this to the public in an understandable form they should not be in their jobs in the first place. And what about the politicians that skate over this issue? Firstly they are not meeting their reponsibility to inform the electorate. Secondly they are putting their self-interests in becoming elected ahead of the electorate's needs. Thirdly it is all pretty condescending for the politicians to act like this in front of the electorate and assume the public accept this attitude. I doubt whether people really do, I certainly find it all a disgrace. After the expenses scandle, and now not coming clean over the deficit, potential taxes and cuts to public services, it is no wonder why the electorate do not trust politicians or have faith in them. Why should the electorate have trust and confidence in the politicians any longer when they behave like this? Perhaps a hung parliament is the best compromise.

JamesU

CLAPTON

JamesU wrote: »

Agree with Michael Portillo's answer and reasoning, but do not agree with the inference that followed here that "people do not want to hear or believe." The general public is being duped and I am sure that the majority of the population would like to understand the magnitude and nature of the deficit and what any future government would try to do to bring this under control. The majority of the public may not fully understand the finer detail and future implications of the current and projected deficit and debt, but we are not stupid. If the government cannot disseminate this to the public in an understandable form they should not be in their jobs in the first place. And what about the politicians that skate over this issue? Firstly they are not meeting their reponsibility to inform the electorate. Secondly they are putting their self-interests in becoming elected ahead of the electorate's needs. Thirdly it is all pretty condescending for the politicians to act like this in front of the electorate and assume the public accept this attitude. I doubt whether people really do, I certainly find it all a disgrace. After the expenses scandle, and now not coming clean over the deficit, potential taxes and cuts the public services, it is no wonder why the electorate do not trust politicians or have faith in them. Why should the electorate have trust and confidence in the politicians any longer when they behave like this? Perhaps a hung parliament is the best compromise.

JamesU

ok
two parties ... one has the right policies and tells the truth so won't become elected
the second has the wrong policies and tells lots of lies so becomes elected

is the first party acting in the best interests of the country?

JamesU

CLAPTON wrote: »

ok
two parties ... one has the right policies and tells the truth so won't become elected
the second has the wrong policies and tells lots of lies so becomes elected

is the first party acting in the best interests of the country?

Even if the first party cannot get elected, but is acting in the best interests of the country by telling the truth, for sure this is what they should do. If by inference you are suggesting the first party should also mislead, then they should not be voted for either. I find the question irrelevant.

JamesU

Somerset

JamesU wrote: »

Even if the first party cannot get elected, but is acting in the best interests of the country by telling the truth, for sure this is what they should do. If by inference you are suggesting the first party should also mislead, then they should not be voted for either. I find the question irrelevant.

JamesU

JamesU, I sincerely mean no offence but I think you are being naive. The first duty of any politician is to maintain the party line and state his/her party is the only one that can blah blah blah. It's wrong but it's the way it is.

A large proportion of the electorate are stupid. A large proportion are selfish (vote for the party that will do X). A large proportion think all politicians are liars/on ego-trips/corrupt. A large proportion are completely disfranchised and won't vote.

We all say we want honesty in politics - politicians have decided we don't. I think they are probably right. Enough voter's don't want honesty to make dishonesty the winning format.

If you recall Brown (in the leaders debate) was taunting Cameron that he wouldn't state that there would be no cuts to the education and another budget (can't remember which). Cameron had specifically said only the NHS was being ring-fenced. It was painful to watch. Rock & hard place.

mbga9pgf

Curious to see what the effect of dealing with all this debt will be on long term interest rates. All this extra tax and job cuts are going to cause a serious flood of supply, not good for price stability.

I wonder if thats why Merv is dead cert that CPI will be falling later this year?

If the government grip the deficit (they will have to, or default) then the pound should stabilise.. but then again, if labour get in, thay will probably be weak and F*ck it.

JamesU

Somerset wrote: »

JamesU, I sincerely mean no offence but I think you are being naive. The first duty of any politician is to maintain the party line and state his/her party is the only one that can blah blah blah. It's wrong but it's the way it is.

Presumably the leaders of each party actually define their party line? Two majors have defined the way they want to treat the electorate, a minor has chosen to do it differently. And guess what? Recent Cleggism in the polls speaks for itself (for what it is worth), and Vince Cable’s merit has been recognised for the same reasons for a long time.

A large proportion of the electorate are stupid. A large proportion are selfish (vote for the party that will do X). A large proportion think all politicians are liars/on ego-trips/corrupt. A large proportion are completely disfranchised and won't vote.

[FONT=&quot]

Reasonable appraisal for sure. [/FONT]

We all say we want honesty in politics - politicians have decided we don't. I think they are probably right. Enough voter's don't want honesty to make dishonesty the winning format..

I do not subscribe to this view. When Portillo said the politicians will not come clean on their plans because they will not get elected if they do, he was right. But where is the objective evidence that the electorate prefers to be manipulated and mislead in such a condescending manner? If there was proportional representation right now, do you really believe dishonesty would be the winning format?

If you recall Brown (in the leaders debate) was taunting Cameron that he wouldn't state that there would be no cuts to the education and another budget (can't remember which). Cameron had specifically said only the NHS was being ring-fenced. It was painful to watch. Rock & hard place.

Yes, painful to watch, every day.


JamesU