Deficit growing again...

moneyinmypocket

You have to spend a little to make a lot

Those are the wisest words you will here from me on here

mystic_trev

moneyinmypocket wrote: »

You have to spend a little to make a lot

Those are the wisest words you will here from me on here

Are you sure it wasn't one of your 'friends' ?;)

moneyinmypocket

mystic_trev wrote: »

Are you sure it wasn't one of your 'friends' ?;)

Could well have been :money:

Hoopie1

We borrowed and spent our way to/through a boom - and not in a way that I'd describe as investment. I don't think the Tories have played their hand well, but they have inherited a real mess to sort out, and massive further borrowing isn't really an option.

Loughton_Monkey

HAMISH_MCTAVISH wrote: »

......But seriously, trying to cut your way out of a recession was never going to work.

Still, at least now we know the price of Tory ideology.....

I said recently on another thread, that I didn't have you down for a Keynsian. The above proves not only that you are a Keynsian, but a raving marxist, pinko, namby-pamby, liberal, wet socialist.

We got into recession not mainly because of 'simple' catastrophic large blip in unfortunate spending! Like a war, that sucks huge amounts of money from the coffers.

This recession had its roots in governments propensity to spend money they didn't have on revenue. Benefits mainly. Largesse to the undeserving poor. Meanwhile the population followed suit and spent money they didn't have either.

We were not technically bankrupt, but strongly heading that way.

Then, because of ill-discipline in consumer debt, an awful situation was made impossible. Banks went bust. The money (and more) that your Keynes would have told you to spend on infrastructure went on bailing out the banks.

Ultimately, the economics of governments are not too different, in principle, from the economics of a corner shop. Compare these two scenarios.

Scenario A: Mr Keynes owned a corner shop that was once profitable. Then things went bad. A shop appeared down the road. They undercut him. He paid his staff more to keep them in fear they would defect to the other shop. Month by month he lost revenue and profit. He had to borrow. He was getting deeper and deeper in debt. He got to the stage where he almost couldn't pay. He was in recession. But the other shop was even more unprofitable and closed down. He could put his prices up slightly. He could pay his staff a bit less. He spent money he didn't have to advertise, refurbish the shop, introduce new lines..... Before too long, he was profitable again and recovered.

Scenario B: Mr Brown owned a corner shop that was once profitable. He then recruited more staff than he really needed. He paid them good increases every year as well. He contributed to local charity. Year after year after year, his accountant was telling him he was losing money. He was living on bank loans. He and the staff had food on the table but the business was worth a negative amount. Just when he should have noticed this, he arrived one morning to find a huge flood. His insurance had run out. He was another month's takings in the red.

Now Mr Brown seems to have given his shop to Mr Cameron who is trying to rescue it. In a case like this, he cannot simply spend more money. He hasn't got it and nor can he borrow it. The shop had an operating model that was simply unworkable.

All he can do is slash the costs. Get rid of some staff. Stop giving them pay rises. Stop giving as much to charity. He has to recover the operating model in which the shop is profitable again. He needs to pay off a lot of his debt. Only then can he afford to spend a bit on refurbishment, advertising, or investment in the business so that he can get growth with profitability.

In summary, our governmnet (and others) have the wrong type of recession to deal with. One where Keynsian spending will simply make it worse. It is quite clearly one in which austerity [even more drastic than we have now] that will get us through. And printing money.

moneyinmypocket

Loughton - what's your views on house prices if you had to bet where do you think we will be in 5 years and in 10 years?

Loughton_Monkey

moneyinmypocket wrote: »

Loughton - what's your views on house prices if you had to bet where do you think we will be in 5 years and in 10 years?

I remember the last major price 'adjustment'. I bought in Solihull for £170K August 1988. I sold December 1997 for £173K

From the highs, it took 9 years for average prices to return to that high [Nationwide figures]. There are enough similarities, in my view, in the pattern to assume that this time it will be pretty much the same.

Luckily, I moved from Solihull to Loughton, and the South always does better than Midlands. My current house more than trebled between purchase Q2 1998 and Q3 2007 (I got a brilliant deal). Then we crashed about 20% in one year, and on average, I've clawed back 4% a year so am only around 5% 'short' of the high after 5 years. I reckon in the order of only 1% or 2% per year for another 3 or 4 years. So 5 years from now, they should just have got to "all time high"

Then they'll take off again.

Just my opinion.

Generali

This probably hasn't helped the UK's economic position:

http://www.guardian.co.uk/business/2012/aug/14/eurozone-brink-double-dip-recession-gdp

nor this:

http://www.bloomberg.com/news/2012-09-20/bullard-says-u-s-growth-path-may-be-reduced-for-years.html

It's hard to grow your economy when your customers are broke.

StevieJ

Masomnia wrote: »

So why was the deficit revised down for last fiscal year from £125 billion to £119 billion, thus beating the target by £7billion? If cutting can't work?

It was £155billion pre-austerity, for comparison.

How many examples of governments increasing borrowing to get out of a debt crisis are there in the past?

I suppose that WW2 was a good example of 'non productive' expenditure kick starting the world economy especially in the US.

HAMISH_MCTAVISH

Masomnia wrote: »

How many examples of governments increasing borrowing to get out of a debt crisis are there in the past?

We don't have a "debt crisis". Therefore we're obviously not borrowing to get out of one.

We should be borrowing to invest in long term infrastructure, which would create jobs and increase competitiveness in the future.

It has literally never been cheaper for the UK government to borrow money. The markets are begging us to borrow. We should not pass up that opportunity.