Do British voters think they can just go on spending more than they earn forever?

pqrdef

We've been doing it long enough. Balancing the budget has rarely been an election issue. Even now, most people think cuts and austerity are just something we have to do for a few years until we've paid off our debts.

Overspending by governments isn't a problem because they don't have to pay it back. They just roll it over. Nor does the next generation have to pay it back, they just roll it over as well.

In the early 70s we worried about a national debt of £4bn, when we'd nothing better to worry about. Now we reckon it in trillions. That awful £4bn is still in there somewhere.

And then there's the Americans, who politically worry far more than we do about how spending is going to be paid for, and still end up borrowing like there's no tomorrow.

Same for the Greeks. Well, if there's free money going, it's hard to justify a policy of not taking it.

The trouble only starts when lenders want silly interest rates. The Greek problem isn't repayment, it's servicing.

But everybody knew that bond yields had equalised across the eurozone, allowing countries like Greece to borrow at 3%. So far as the markets were concerned, every eurozone country's credit was as good as every other's.

Even the ECB was under that illusion, and perpetuated it, by accepting all eurozone government bonds equally as collateral.

And nobody did anything about it. Nobody explained to the markets that government bonds were only backed by the issuing country. When the French banks were buying Greek bonds at 3% yields, nobody told them that haircuts were part of the eurozone political model. Nobody said a word. Bond yields were just left to stay equalised so the Greeks could carry on borrowing at 3%.

It's like a rich man's daughter running up an overdraft. If daddy knows how much she's spending, and he knows the bank knows he knows that they're relying on his credit, because she hasn't got any, and he isn't intending to take responsibility for her debts, he really has to say so. He may not have given an explicit guarantee, but he knows an implicit understanding exists if he doesn't say otherwise.

But the Germans have reneged on their over-indulged daughter, and decided retrospectively to let the bank - and the daughter - know that she was spending their money, not his.

OK, it was her that was doing the over-spending. But it makes a difference whose money she thought it was. She probably wouldn't have set out to default on the bank. But she thought she was spending daddy's money, and he'd got plenty, and he'd never given her any indication that she wouldn't be forgiven.

Well I think the bank might be forgiven for feeling that it's daddy who's defaulted, not daughter.

One possible outcome of all this is a general downrating of sovereign debt, as markets realise that democratic governments and their voters, though they have the most resources, are without honour and can't be trusted.

If we arrive at a situation where mega-corporations and oligarchs can more easily finance their operations than governments, there could be a major shift of power. Ultimately, money is power, and kings haven't always been the richest or most powerful in the land. The centralisation of power in governments has been a feature of the last few centuries, but constitutions are a figleaf for the real power of governments, which derives from their ability to raise taxes and to leverage them with cheap credit. We might be seeing, not the end of capitalism, but the beginning of the triumph of capitalism as power moves back into private hands.

oldvicar

Interesting post. Is it all your own work pqrdef?

ruggedtoast

If countries dont run up debts then our financial system doesnt work. Currently we have a massive deficit and China has the surplus, but there still isnt enough money in the system anywhere to pay back everyone's debts, unless people borrow some more, oops.

Unless the Chinese have got a more sensible financial system not based on compound debt up their sleeves then the West's bust is their bust sometime down the road.

roddydogs

Wat do u mean "WE" I havent.

Wookster

If you read some of the more moronic posts here (eg hamish) then it's pretty clear that the less financially astute think you can live beyond your means indefinitely.

MacMickster

roddydogs wrote: »

Wat do u mean "WE" I havent.

You may think that, but the government has been doing it on your behalf, borrowing money rather than getting you to pay your way by taxing you far more heavily to pay for public expenditure.

In addition, a proportion of the money that you, and the rest of us, have earned has been based upon others spending imaginary (borrowed) money, which gave the impression that the economy was doing far better than it actually was. Had we all spent within our means then few of us would have been as "wealthy" as we currently think we are.

That said, however, we may still have had many of the same "things". Without this illusion of a booming economy house prices would not have boomed. The majority of homeowners would probably still own the homes that they own now, but would have paid less for them, and hence owe less to the banks. People may have taken a few less foreign holidays (which move money out of the UK economy) and chosen a week in Bournemouth or Scarborough instead. We may have become used to seeing more Kias and less BMWs on our roads. The flat screen TVs in our houses would have been bought only when our current TV gave up the ghost (rather than because we just had to have one now) and may be a few inches smaller than the ones that we actually bought. Why do people want to see Jeremy Kyle's face that size and in HD? We may have had to choose between the movie and sports channels oin Sky rather than taking their full package. We may have got used to keeping mobile phones until they stopped working, instead of just having to upgrade every year.

Unfortunately, as a nation and as individuals, we are now either having to repay our debts or get used to lower income due to less funny money floating around in the economy to pay us. During this process we may even have to do without a holiday each year. Some will have to use the bus as they won't be able to afford a Kia. We may even have to do without any of Sky's premium channels.

Eventually, however, as a nation and as individuals, we will start to see our standard of living growing again. We will once again feel quite well off, but hopefully this time learn from past mistakes and live within our means.

kabayiri

The idea that the public somehow stumbled into debt is flawed.

Selling debt is one of the major things which have made the elite in the West rich. The financial brokers behind this have long since taken their profit cut upfront.

They couldn't have done this without a compliant culture which accepts an indebted state. Look at the amounts of advertising to support the loans business.

This culture has been engineered, make no mistake.

StevieJ

MacMickster wrote: »

Unfortunately, as a nation and as individuals, we are now either having to repay our debts or get used to lower income due to less funny money floating around in the economy to pay us. During this process we may even have to do without a holiday each year. Some will have to use the bus as they won't be able to afford a Kia. We may even have to do without any of Sky's premium channels.

Eventually, however, as a nation and as individuals, we will start to see our standard of living growing again. We will once again feel quite well off, but hopefully this time learn from past mistakes and live within our means.

Must be ahead of the game with a non flat screen tv, 10 year old car, mobile from 2004 etc, sadly though I am not doing much for employment in Korea and China. BTW you are correct I do feel quite well off

The_White_Horse

i think that as long as the public sector get their pay rise and massive pensions, all will be well with the world. the fact there is no money, is irrelevant. gotta love the lefties.

grizzly1911

I think the title of the post is flawed.

The majority of voters know they can't.

Some can't help themselves.

Many don't really care they are easily led.

A few see it as a challenge to take all they can.

Governments set the framework within which those voters have to take their chances.

Those governments have presided over the demise of GB and have sold out their voters. Without an engine we are a ship at the mercy of the waves and tides.

I am sure that we will rise to a shadow of our former glory - but it won't be the politicians that solve the problems but they will want to take credit for it. You can have all the officers you want but it will be the stokers and engineers who save the day.

michaels

Good.

But extending your analogy, Daddy is 'rich' because he is making all the things daughter is buying, selling them to daughter and not spending all his income - some goes to the bank who lend it to daughter who spends it on Daddy's output.

Thus the only way Daddy has been able to build up his bank balance is by daughter buying his output borrowing the money he saved in the bank.

This is where Germany's exhortation for everyone to follow their export driven model is obviously impossible.

pqrdef wrote: »

Same for the Greeks. Well, if there's free money going, it's hard to justify a policy of not taking it.

The trouble only starts when lenders want silly interest rates. The Greek problem isn't repayment, it's servicing.

But everybody knew that bond yields had equalised across the eurozone, allowing countries like Greece to borrow at 3%. So far as the markets were concerned, every eurozone country's credit was as good as every other's.

Even the ECB was under that illusion, and perpetuated it, by accepting all eurozone government bonds equally as collateral.

And nobody did anything about it. Nobody explained to the markets that government bonds were only backed by the issuing country. When the French banks were buying Greek bonds at 3% yields, nobody told them that haircuts were part of the eurozone political model. Nobody said a word. Bond yields were just left to stay equalised so the Greeks could carry on borrowing at 3%.

It's like a rich man's daughter running up an overdraft. If daddy knows how much she's spending, and he knows the bank knows he knows that they're relying on his credit, because she hasn't got any, and he isn't intending to take responsibility for her debts, he really has to say so. He may not have given an explicit guarantee, but he knows an implicit understanding exists if he doesn't say otherwise.

But the Germans have reneged on their over-indulged daughter, and decided retrospectively to let the bank - and the daughter - know that she was spending their money, not his.

OK, it was her that was doing the over-spending. But it makes a difference whose money she thought it was. She probably wouldn't have set out to default on the bank. But she thought she was spending daddy's money, and he'd got plenty, and he'd never given her any indication that she wouldn't be forgiven.

Well I think the bank might be forgiven for feeling that it's daddy who's defaulted, not daughter.

One possible outcome of all this is a general downrating of sovereign debt, as markets realise that democratic governments and their voters, though they have the most resources, are without honour and can't be trusted.

If we arrive at a situation where mega-corporations and oligarchs can more easily finance their operations than governments, there could be a major shift of power. Ultimately, money is power, and kings haven't always been the richest or most powerful in the land. The centralisation of power in governments has been a feature of the last few centuries, but constitutions are a figleaf for the real power of governments, which derives from their ability to raise taxes and to leverage them with cheap credit. We might be seeing, not the end of capitalism, but the beginning of the triumph of capitalism as power moves back into private hands.