Where will the cuts fall

CLAPTON

cells wrote: »

its nowhere near the argument of digging holes to fill them in again


if you cut £100M this week from handouts to the poor/old, you find that next week business sales have fallen by £100M

apart from the obvious things like less VAT less corporation taxes less employment etc from the lost sales you would also find that businesses would have to rise prices

so although the government gave you a £100M tax cut (now not going to said poor/old people) that £100M will mostly be eaten up by higher prices

well yes and no

if you cut 100M from handouts to the old /poor and give that to young teachers, utility workers etc instead then the net macroeconomic effect will be similar (maybe called tax cuts)

also of course your proposed course of action, incentivises further benefits claimants and discourages working for a living.


also it is not a universal law that a drop in sales causes companies to increase prices (well not in a competitive market )

Thrugelmir

cells wrote: »

Why is it unsustainable its been going on for the best part of 200 years

The heyday of the British Empire was some decades back.

Thrugelmir

cells wrote: »

I don't know, its a bit like a continuous loop on a programming error

cut the deficit and you cut that much flowing into the economy countering some/most/all of that saving so that is not good

but the reverse of just spend more and more and live happily ever after just intuitively doesn't seem like it could be right

so i am stuck in the middle of I just don't know



I lean ever so slightly to the "spend spend spend" camp as I think maybe taken to its simplest form deficit spending like like promising yourself a vacation later for doing work now. it brings forth production to now and a bird in the hand is worth 1.02 birds next year........

I recommend a very readable book. "Why an economy grows and why it crashes" by Schiff and Schiff. May help you gain a better picture of the macro view.

Generali

cells wrote: »

I don't know, its a bit like a continuous loop on a programming error

cut the deficit and you cut that much flowing into the economy countering some/most/all of that saving so that is not good

but the reverse of just spend more and more and live happily ever after just intuitively doesn't seem like it could be right

so i am stuck in the middle of I just don't know



I lean ever so slightly to the "spend spend spend" camp as I think maybe taken to its simplest form deficit spending like like promising yourself a vacation later for doing work now. it brings forth production to now and a bird in the hand is worth 1.02 birds next year........

The problem is Crowding Out.

Generally speaking, the UK Government can borrow all the money it wants, more cheaply than anyone else. However, without QE there is a finite amount of money available to be borrowed.

Each pound the Government borrows reduces the money available for business to borrow by a pound. If business can't borrow it is very hard for it to invest. If business can't invest it won't employ people.

cells

Generali wrote: »

The problem is Crowding Out.

Generally speaking, the UK Government can borrow all the money it wants, more cheaply than anyone else. However, without QE there is a finite amount of money available to be borrowed.

Each pound the Government borrows reduces the money available for business to borrow by a pound. If business can't borrow it is very hard for it to invest. If business can't invest it won't employ people.

there isn't a fixed amount of debt/credit though, it can grow and shrink

The government borrowing £1B that just means debt/credit grew by £1B no one lost out



Think of it this way,

Mr A can arrange a contract with Mr B so that A gets B's house in return for £1,000 per month payment for 25 years.
That is effectively a sale and mortgage agreed between two parties. Generally this doesn't happen instead we go through a bank. The bank creates two data entries. on one it credits £250,000 and on the other it debits £250,000 so the net sum is still zero. It pays the interest to the seller and collects the loan from the buyer.

Effectively a bank is a middle man between promises. A very useful way to make very liquid a loan/contract.

Promises aka loans, can grow and shrink and can be infinite or zero

same with the bank or with QE

CLAPTON

cells wrote: »

there isn't a fixed amount of debt/credit though, it can grow and shrink

The government borrowing £1B that just means debt/credit grew by £1B no one lost out



Think of it this way,

Mr A can arrange a contract with Mr B so that A gets B's house in return for £1,000 per month payment for 25 years.
That is effectively a sale and mortgage agreed between two parties. Generally this doesn't happen instead we go through a bank. The bank creates two data entries. on one it credits £250,000 and on the other it debits £250,000 so the net sum is still zero. It pays the interest to the seller and collects the loan from the buyer.

Effectively a bank is a middle man between promises. A very useful way to make very liquid a loan/contract.

Promises aka loans, can grow and shrink and can be infinite or zero

same with the bank or with QE

that explains very clearly why no-one every gets refused a mortgage
or why no business loan is every declined
or why banks have never been instructed to 'strengthen' their capital ratios
or why Greece has no trouble borrowing more money and can put two figures to Germany
or why there is never a liquidity crisis
or why no company ever goes bankrupt

all sorted !

cells

CLAPTON wrote: »

that explains very clearly why no-one every gets refused a mortgage
or why no business loan is every declined
or why banks have never been instructed to 'strengthen' their capital ratios
or why Greece has no trouble borrowing more money and can put two figures to Germany
or why there is never a liquidity crisis
or why no company ever goes bankrupt

all sorted !

if I was a person of good standing and high income and lots of assets and a secure job you might consider giving me your house in exchange for a monthly payment of £1000 over 25 years. effectively a mortgage agreed between the two of us

If I was a drunk jobless thief I doubt you would consider it


banks act as middlemen between buyers and sellers of homes so they dont have to contract between themselves (some 80% of loans are on on homes, probably more if you count unsecured loans which are only given to home-owners)

There is no limit to how many promises can be made and issued, aka debt/credit. Thats not the same as saying that the banks/sellers will agree to anyone and everyone in any quantity they want

CLAPTON

cells wrote: »

if I was a person of good standing and high income and lots of assets and a secure job you might consider giving me your house in exchange for a monthly payment of £1000 over 25 years. effectively a mortgage agreed between the two of us

If I was a drunk jobless thief I doubt you would consider it


banks act as middlemen between buyers and sellers of homes so they dont have to contract between themselves (some 80% of loans are on on homes, probably more if you count unsecured loans which are only given to home-owners)

There is no limit to how many promises can be made and issued, aka debt/credit. Thats not the same as saying that the banks/sellers will agree to anyone and everyone in any quantity they want

there is clearly a very finite limit : that determined by the people who have an income sufficient to pay the price
and those with assets to 'sell'

banks of course have to maintain capital ratios

there is, of course, nothing to stop the UK government from printing an infinite amount of money : however this would simply produce an infinite price for scarce resources and would do nothing to produce more goods and services.

antrobus

cells wrote: »

..There is no limit to how many promises can be made and issued, aka debt/credit. Thats not the same as saying that the banks/sellers will agree to anyone and everyone in any quantity they want

That would be the point wouldn't it?

Whether you are an individual or a nation, the promises you make have to be believable. If you keep spending more than you earn, and borrowing to make up the difference, there always comes a point in time when you have borrowed so much, that no one believes in your promises of future payment, and you find you can't borrow any more.

At which point the shutters come down and you have no alternative other than to reduce your spending to match your income.

See Greece.

CLAPTON wrote: »

...there is, of course, nothing to stop the UK government from printing an infinite amount of money : however this would simply produce an infinite price for scarce resources and would do nothing to produce more goods and services.

And of course, if you resort to simply printing the money instead, the inevitable consequence is that money will cease to have any value whatsover and will cease to exist.

See Zimbabwe.

N1AK

cells wrote: »

A few things could happen at that point. One is that the price of labor goes up. Eg the government gives the old folk their promissed zillions but the price of bread and milk and whatever else it is they like goes up through wage --> goods inflation

another is that we return to imo a better system of work where boys and girls start employment at age 15 instead of age 22. Thats a huge pool of largely wasted labor.

In a world where the UK was entirely isolated from external markets some of what you say would approach reality, however we aren't. Companies aren't going to pay a UK box packer £75k a year, so that the state can take £50k of it to give to his 5 retired relatives, they'll box stuff elsewhere. I've assumed box packing due to your equally bonkers suggestion that cutting average education back to around 15; one only hopes if you'd been given an extra 7 years education you'd be able to come up with something less astonishing complete in it's ineptness.