Fiscal Cliff

Generali

Fella wrote: »

Giving Nobel prizes to economists is pretty much the same as giving them to astrologists.

No two economists ever agree & most of them get it wrong most of the time. I have no idea why anyone still talks about these people in tones of reverence. Monkeys & dartboards would do the same job.

To be fair, economics is great as a tool for analyzing history and not bad to frame policy. To use it for prediction is hopeless but that's not really the fault of economists.

It's a little like using literary criticism to forecast the weather. When the method used doesn't produce the required end product do you blame the tool or the person using the wrong tool for the job?

I'm as guilty as anyone else for using economics to make predictions but I do it for fun not profit and in fairness I did predict the current mess in 2005 and even got the timing about right.

thor

HAMISH_MCTAVISH wrote: »

Forcing house prices down artificially, through preventing millions of people from buying house thanks to mortgage rationing, is absolutely bonkers but that's what we've done.

And it's prevented more people from buying than higher house prices ever did.

I disagree. It is the low boe rate which is the most important artificial factor today. Sure banks and building societies are asking for larger deposits but if the boe rate was around the 5% mark like it was pre credit crunch then houses would have been repossessed in droves. People have have far less money these days and would not be able to keep up repayments. 4 years ago I thought house prices would go through the floor but not anymore. I did not reckon on the government stepping in to keep them afloat. They did so for two reasons:
1. The banks/building socities would be destroyed if prices collapsed.

2. MPs obviously have a lot more invested in property than cash.

WISHIWASRICH_2

Jnelhams wrote: »

At some point the debts have to be paid,

Why?

Most countries follow some sort of Golden Rule which requires it to keep debt at a "prudent level". This may be set at 40% of GDP say. Thus, the economy grows and then the debt grows (since it is a set percentage of the growing GDP) ....so the debt always grows and never gets paid back....

PaulF81

What happens when the miracle of forever growth stops?

MacMickster

WISHIWASRICH wrote: »

Why?

Most countries follow some sort of Golden Rule which requires it to keep debt at a "prudent level". This may be set at 40% of GDP say. Thus, the economy grows and then the debt grows (since it is a set percentage of the growing GDP) ....so the debt always grows and never gets paid back....

The problem with debt is that interest is charged. The taxpayers in the UK had to pay around £45billion in interest on our debts this year. That equates to around £1500 for every income tax payer in this country.

If we (who have benefitted from the economic boost that this borrowing paid for) don't pay it back then we are saddling our children with these continuing, and growing, interest payments. We are also expecting them to repay the debt, unless they want to encumber their children too.

Generali

PaulF81 wrote: »

What happens when the miracle of forever growth stops?

A bunch of people will die. Either they'll starve or die in wars. However, up until now people have shown themselves to be very ingenious at finding ways to get more out of a finite planet and people still use a tiny fraction of the energy that lands on the earth.

ILW

WISHIWASRICH wrote: »

Why?

Most countries follow some sort of Golden Rule which requires it to keep debt at a "prudent level". This may be set at 40% of GDP say. Thus, the economy grows and then the debt grows (since it is a set percentage of the growing GDP) ....so the debt always grows and never gets paid back....

Like Greece?
Seems to be no problem for them.

HAMISH_MCTAVISH

MacMickster wrote: »

The taxpayers in the UK had to pay around £45billion in interest on our debts this year. That equates to around £1500 for every income tax payer in this country..

No, that's not right.

The BOE owns a third of that debt, so one branch of government, the treasury, paid the interest to another branch, the BOE, who then gave it back to the treasury.

And most of the rest is owned by Pension funds, banks, building societies, etc. So any interest paid ends up back in the accounts of savers, pensioners, etc.

In the case of the small minority of debt held by overseas investors, you may have a point.... But the reality is that most debt is held domestically, and cannot therefore make society poorer as a result. At best you could try to make a case for redistribution from taxpayers to non taxpayers.

pqrdef

MacMickster wrote: »

The problem with debt is that interest is charged.

People with high incomes get big mortgages and high limits on their credit cards. If the wouldn't or couldn't, their income would be a lot less useful. The rich are the biggest debtors.

Businesses also grow by raising as much capital as they can pay interest /dividends on. How else? the whole economy runs on borrowed money.

Borrowing is what income is for. A business that's cutting back its operations to reduce its debts is a business in decline. A prospering business focuses on generating more income, even if it has to borrow more to do it. Why else does the government keep banging on about bank lending to SMEs?

MacMickster

pqrdef wrote: »

People with high incomes get big mortgages and high limits on their credit cards. If the wouldn't or couldn't, their income would be a lot less useful. The rich are the biggest debtors.

Businesses also grow by raising as much capital as they can pay interest /dividends on. How else? the whole economy runs on borrowed money.

Borrowing is what income is for. A business that's cutting back its operations to reduce its debts is a business in decline. A prospering business focuses on generating more income, even if it has to borrow more to do it. Why else does the government keep banging on about bank lending to SMEs?

UKplc is a business in decline. We are going to see a massive transfer of wealth from West to East. We are in danger of being saddled with a debt that we are unable to service, and will then find ourselves going the way of Greece.

Borrowing, in itself, is not a problem, provided that the proceeds are spent on infrastructure to make UKplc more competetive in the global economy. Borrowing, merely to pay more benefits to the workshy, has the opposite effect however.

You also refer to people with high incomes getting high mortgages. If those are repayment mortgages then they will eventually own a valuable asset. If they are interest only loans then they are effectively just renting while having a flutter on the housing market at the same time.