Cons Increase Deficit & National Debt Targets Missed

PaulF81

Have you ever considered that the Labour government brought forward spending through a number of means thereby hiding the true state of the deficit, something that didnt become apparent until the means by which that spending that was being brought forward and generating huge tax revenues stopped overnight? If you strip out consumer spending and the addition of liquidity through mortgage equity withdrawl, we would have been in recession from 2002 onwards. The deficit is a result of collapsing tax revenue and the end to record MEW, credit card lending and sugar rush growth in house prices.

Might want to comment on the position the UK held as a result of labours complete mismanagement of the city, through introduction of the tripartite system, the hamstringing of the Bank of England and preventing a truly independent FSA.

Lets not forget Gordon Browns boasts of the "end to boom and bust" and how through laissez faire regulation, the government were responsible for a banking system that was the envy of the world?

lvader

DecentLivingWage wrote: »

Here's why the deficit increased (from Ramesh Patel Huffington Post) :

' in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget ) and by 2008 it had fallen to 2.1% - a reduction of a near 50% - Impressive! Hence, it's implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crises after 2008. See HM Treasury. Note, the 1994 deficit of near 8% haaaaaah!

Thirdly, the IMF have also concluded the same. They reveal the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It's basic economics: when output falls the deficit increases.'

http://www.huffingtonpost.co.uk/ramesh-patel/growth-cameron-austerity_b_2007552.html?utm_hp_ref=tw

So the increase in GDP had nothing to do with huge over inflation increases in government spending, nearly unlimited cheap consumer credit and people spending equity on homes due to very high house price inflation? How was this ever sustainable, global crisis or not? The crisis saved thecrounty just it time from something far worse.

DecentLivingWage

Soooo, staying firmly on topic, I prefer to comment on the present and future not be blown off course by the headwinds of the past - so back onto the rising deficit. Even Christine LaGarde has warned Osborne that cuts alone won't work and he needs growth as well to break the vicious cycle of cuts=poverty=fear=even less spending. If it's good enough for her.... Impoverishing the populace is an outdated passe strategy that won't cut it in 2013 Cameron and Osborne are stuck in an eighties groove,even in the language they speak straight out of an eighties dorm - for heavens' sake they cant even do twitter - theyre scared of it! Canny Voters wont have it - Lynton Crosby'll have to think of something else - there just arent enough nasty voters to save the nasty party - that was then,this is now!

PaulF81

Keep digging DLW.... Labour ruined the economy, cant be trusted, lazy people are going to have to suffer that little bit longer.

get used to it.

Thrugelmir

DecentLivingWage wrote: »

Here's why the deficit increased (from Ramesh Patel Huffington Post) :

A quick search revels am interesting dissection of the article.

Did Ramesh Patel Get Paid For This?

If you're active politically, you'll probably get sent this article today, from The Huffington Post. Ramesh Patel describes himself as
Economist, worked in media and the financial sector

Which means he studied economics at university and has worked in the financial sector. It doesn't mean he's got any understanding of macro-economics. His more detailed bio is as follows.

Ramesh Patel worked in finance from investments adviser with JMC Finacial Assets, to comodities brokers in metal and currencies with Capital Assets. As well as a CEO for Proactive Internet Marketing and Brown Pound Publishing. Current working on a book on the UK deficit Myth and the real agender from the right and left.
*Agenda* *Commodities* *Financial*. 3 Spelling mistakes in his Huffington Post BIO! How embarrassing Which means he's barely literate, and I won't be buying his book. Anyway, enough of playing the man, let's get back to his article and play the ball. I'll fisk it so you don't have to. Basically it's a badly spelled rehash of Labour's claim that the UK public finances are OK because our stock of public debt is low by international standards.

CLAIM 1 The last government left the biggest debt in the developed world. After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7? Watch: Also, confirmed by the OECD

Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.
No-one credible is claiming that. True, politicians do have an unfortunate tendency to use "debt" and "deficit" interchangably, when it suits their purposes. Ed Balls is at least as guilty as Cameron and Osborne. The UK's debt is fine. The problem is that we are accruing debt faster than any country in the developed world and will almost certainly overtake Germany and possibly France before the crisis is resolved.

Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crises 2008 the debt had fallen to 35% - a near 22% reduction page 6 ONS Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down?

These figures are simply wrong, and completely ignore context. In 1997, debt was, yes 42% and FALLING FAST the UK having come out of the recession of the mid 90's, reaching 35% or so at which point Gordon Brown ABANDONED TORY SPENDING PLANS. IN 2008, the stock of debt was RISING despite there having been 16 years of uninterrupted growth.

CLAIM 2 Labour created the biggest deficit in the developed world by overspending. Firstly, the much banded about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was -7.7% - OBR Economic and Fiscal Outlook March 2012 page 19 table 1.2

It's difficult to untangle the syntax, but I think he's talking about the structural deficit. Whatever, he clearly doesn't have a clue what he's talking about. The UK has the biggest deficit in the developed world. From 2000, Gordon brown embarked on the biggest peace-time rise in taxation in British History. Tax as a share of GDP went from (depending on which stats you uses) 35% to 42% of GDP. This enormous tax rise happened during a long period of expansion. And all this extra tax on a strongly growing economy wasn't enough. Gordon Brown STILL ran deficits. Government spending went from around 38% of GDP to over 50% in 13 years. So the idea that Labour didn't overspend is a simple, complete and absolute lie.The last Government was running a structural deficit. No question about that at all.

Claim 3 Our borrowing costs are low because the markets have confidence in George Osborne's austerity plan and without it the UK will end up like Greece. Yes, the markets have confidence in our austerity plan and that's why PIMCO the worlds largest bond holder have been warning against buying UK debt. The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased.

This is a half-truth. Every politician will claim (when in power) that low interest rates are a sign of market confidence. And they are - at least insofar as the markets remain convinced the UK will repay. But ultra-low interest rates are also a sign of economic weakness, as investors seek safe assets over risky ones. Bill Gross at PIMCO has been warning against US debt too. Not as a comment on Bernanke or Osborne, but merely that the economy will pick up, and negative real returns on low-risk assets are unsustainable. Yields will rise, so developed market debt is not a great place to be long-term.

Secondly, the UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off - which increases the price of bonds and reduces the effective rate. Note, how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because, we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because, we haven't defaulted on its debt for over 300 yrs.

Let's leave aside the mangling of the English tongue. The UK will not default because the Bank of England can print enough money to meet its needs. Trivially true. This does NOT mean the UK faces no limit on Government spending. Small truth, Ramesh, Big error.
David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and I.

You and *ME*, Ramesh. All politicians use the household debt metaphor, to try to explain what is going on. Yes national debt is different to credit card debt. But most of the public will not understand why.

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it" Joseph Goebbels
You mean like the lie that as National debt isn't like a credit card, there's no limit?

So what are the limits to national debt? Well there's the observation that debt burdens over 80% of GDP (Like Germany had for many years, and as France has now) seem to depress economic growth. When debt reaches 120% of GDP, which is where Italy is now, it seems to kill growth entirely. Japan when confronted with its asset bubble collapse, attempted to "stimulate" it's way out of stagnation. It failed, and growth has been negligible for 20 or more years, and she bears a debt burden of over 200% of GDP. The only reason this is sustainable at all is most of it is lent to Japanese citizens. For those countries whose debt is more likely to be held outside the country, like the UK, our ability to sustain debt is much lower.

Ramesh Patel doesn't mention the difference between internal and external debt. The UK has very, very high external debt. Nor does he mention the effect of debt burdens on growth. Nor does he put the snapshots he gives of the debt into context. He claims to not be a leftie but he's written pure Labour propaganda. His assertions amount to nothing more than a racist saying "some of my best friends...".

In short, there are plenty of good economic bloggers out there. Tim Worstall on the Right, Chris Dillow on the left. Ramesh Patel isn't one of them.

Update, I can confirm that No. Ramesh Patel did NOT get paid by Huffpo, who I think asked me to write a response. Not unless paid. I'm a vicious capitalist you see.

DecentLivingWage

Why are the voters not buying that? Biggest mistake Cam ever made - to underestimate their intelligence! Labour 6/4 to win GE 2015 The deficit promise was a hole Osborne dug for himself!

PaulF81

Cameron cant help the fact a large proportion of the electorate are complete retards.

A._Badger

PaulF81 wrote: »

Cameron cant help the fact a large proportion of the electorate are complete retards.

And, to be strictly fair, vice versa.

By the way, troll - a word of advice. Quoting from Arianna Huffington's vanity project is just going to destroy any point you are trying to make. Both she and it are quite bonkers.

zagubov

I'm defffo looking forwards to Ben Goldacre's Bad Evidence on Tuesday Radio 4 8PM -where he explores the potential for evidence-based policies using randomised controlled trials in deconomics education etc.

It's what makes science work so well.;)
And other fields that don'tuse it, not so well

Wookster

DecentLivingWage wrote: »

Cameron & Osborne threw away Labour's plan to halve the deficit over 4 years hoping against hope that deeper and faster tax rises and spending cuts would clinch the recovery Labour began and also reduce the deficit. Labour says this blunder has backfired snuffing out the sparks of recovery and increasing long-term unemployment.Now the Cons need to borrow £212bn more than they budgeted for to pay for economic failures like a huge rise in claimants, joblessness and people too scared to spend and keep others in work. Now the fiscal deal is close in the US will their mistakes be spotlighted against US pulling ahead - that fiscal deal may not be such good news for the Cons here!

http://www.guardian.co.uk/politics/2012/dec/31/osborne-deficit-cuts-will-not-meet-labour-target

Only a total moron believes this rubbish. Let's see, that would be you and your fellow commie Bertie.