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A Tale of Two Borrowers

Stephanie Flanders | 14:33 UK time, Tuesday, 21 September 2010

Treasury officials are saying that a record UK deficit for August is further evidence that the coalition is right to press ahead with cuts. But they might be on stronger ground pointing to this morning's sovereign debt auction in Ireland.

Whitehall plaque

 

Today's figures show that the government borrowed £15.9bn last month - the highest August deficit on record. Net debt, relative to GDP, rose to 56.3%. That borrowing figure was about £3bn more than City economists expected, and had some worrying that the Treasury would miss its borrowing targets for this year.

Of course, it is far too early in the fiscal year to draw that kind of conclusion. In fact, before this month, the borrowing figures had come in below expectations in nine of the previous 12 months, with revenues coming in surprisingly strong. These numbers don't change that basic picture - revenues always tend to be weak in August, and so far they are still 9% up on last year, compared to a Treasury forecast of 6.6% growth in 2010-11. If nothing changes, total borrowing this year would still come in several billion below forecast.

The disappointment in August was on the spending side - and entirely accounted for by the fact that a year ago the retail price index (RPI) was negative, and interest spending was freakishly low. (To see how freakish: the Treasury paid out just £1.3bn in debt interest last August, in a year in which the total cost of servicing our debt rose to £32.3bn).

Nick Clegg made much of the rising cost of debt interest in his speech yesterday: "Already we are spending £44bn a year on interest alone. Under Labour's plans, that would have risen to nearly £70bn. A criminal waste of money that shouldn't be lining the pockets of bond traders. It should be paying for police, care workers, hospitals and schools."

It's a strong line of rhetoric - which Labour politicians like Ed Balls will recognise from their time in opposition in the 1990s. He used to say the same thing about Conservative borrowing.

It's worth pointing out that debt interest costs will not be far off £70bn under the coalition's plans either, increasing to £66.5bn in 2015-16. Under Labour's plans, the Office for Budget Responsibility (OBR) reckons it would have reached this level just one year earlier, in 2014-15. That is a lot of money: for reference, total public-sector net investment this year will be just £39bn.

Nick Clegg

 

But Mr Clegg said that the last government's borrowing had taken the country "to the brink of bankruptcy". That is similar to rhetoric that Chancellor Osborne has used - but it is simply not true.

As it happens, governments can't go bankrupt - they can only default on their debt. But I'm not just being pedantic. The facts are that on the eve of the election, the UK still had an uncontested triple-AAA credit rating, and the market was demanding an interest rate of just 3.9% to lend the government money, compared to 3.7% for US bonds and 3.1% for Germany. (That UK rate might have been higher had investors not been expecting a Tory victory, but the average yield for the previous 12 months was about the same.) Whatever you think about the fiscal mess that the coalition inherited, these are not the characteristics of a country on the "brink" of bankruptcy or default.

No, if you want to get a sense of what that feels like, you have to go to Athens. Or, perhaps, to Dublin, where the government was relieved to raise 1.5bn euros in the sovereign debt markets this morning, but had to pay an implied interest rate on the longer-term debt of just over 6%. In June the yield on a similar bond was 5%.

The growing suspicion in the markets is that sooner or later, Ireland will become the second country to borrow from the new European Financial Stability Facility. That's not the same as admitting bankruptcy. But in today's eurozone, it's the closest that governments will get to admitting they can't cover their debts.

Patrick Honohan

 

Ministers in Dublin swear this will not happen, and they do have some protection against market storms in the next few months: they have pretty much issued all the new debt the government needs for this year, and they have relatively little existing debt coming up for maturity. In addition, Credit Suisse reckons the government has about 20bn euros in cash reserves squirrelled away which could well come in handy.

But the risk of a full-blown loss of confidence is clearly there, in a country where nominal gross domestic product (GDP) has fallen about 20% since the crisis began and government debt has risen by 60% of GDP.

What's fascinating about the Irish situation is that it has rather little to do with the size of the deficit - or a government failure to take tough action. In fact, as I have written in the past, Ireland was the first country in Europe to announce massive spending cuts and tax rises.

What's worrying investors now isn't the deficit in itself but the huge debts sitting in the financial sector - and how many of them the government will ultimately be forced to honour. At the last count, the government's "contingent liability" in the banking system - the stock of debts that it has guaranteed stood at 153bn euros - nearly 95% of Irish GDP.

So if you're a Liberal Democrat activist who wonders whether Britain really needs to get a handle on its debt - Ireland is indeed a great cautionary tale. The government has lost control of its balance sheet, and in the process lost a great deal of its national autonomy. That might have happened to the UK if we had continued to borrow more than 10% of GDP a year. But Ireland is also a reminder that bringing down public borrowing is only part of the problem - government has to worry about what's going on the private sector as well.

Comments

Page 1 of 2

  • Comment number 1.

    Walk away from your Debt Ireland and return to the beloved Punt.
    Print your own money though this time.

  • Comment number 2.

    The old saying "when PIIGS fly" comes to mind. Crash and burn seams to be more order of the day.

  • Comment number 3.

    I think there is a worry here of the interconnectedness between Ireland and the UK.The BIS Quarterly report in June stated that banks headquartered in the United Kingdom had larger exposures to Ireland ($230 billion) than did banks based in any other country. More than half of those ($128 billion) were to the non-bank private sector.I think its true that some of the Irish bank loans causing difficulty to them were advanced here on the mainland, perhaps against UK collateral. I dont think we can claim Ireland is a hypothetical threat based on these facts.Perhaps the UK government is insuring some of this exposure?

  • Comment number 4.

    Putting the economy into a public sector spending lead nose dive is not going to help reduce the deficit or the level of debt in the private sector. Ireland represents a spectacular failure of the Micawber moneynomics a policy of which the coalition says "There Is No Alternative"

  • Comment number 5.

    Ireland's yields are going up because it has default risk. For sake of normal functioning of the economy government debt should be absolutely default-risk free. Desire to have "market discipline" on public finances is just neoliberal nonsense.

    Any country that is sovereign in it's own currency can always honor it's domestic currency liabilities, and the yields won't go up. Markets don't price in default-risk and taxpayers will save great deal of money in interest rates. This is a design flaw in eurozone and needs to be fixed, or sooner or later distressed countries will simply calculate they are better off abandoning euro. Complete disintegration of the eurozone is in the cards.

  • Comment number 6.

    £44bn interest increasing to £66.5bn in 2015-16.

    for reference, total public-sector net investment this year will be just £39bn


    Stephanie, your tone is quite "laid back". Yet your own figures are showing that the increase in interest payments will be equal to HALF of the total public sector net investment.

    So this means that FOREVER (assuming we will never actually run budget surpluses of any significance in my life time) we will have to survive with the equivalent of half the public sector investment, or raise extra taxes to this amount.

    Clegg talked about "the slate being wiped clean" at the end of 5 years. But this is simply not true. Not having a budget deficit in 5 years will just mean we will not be adding any extra to the debt. But the total will have increased to about £1.3 Trillion at that point. That is why the interest bill will have increased by this £20 Billion every year. I don't call having £20 Billion less to spend each year as having wiped the slate clean, do you?

  • Comment number 7.

    [Unsuitable/Broken URL removed by Moderator]

    Page 7: Expansion of debt in financial companies in UK in last 20 years.

    We have problems of our own.

  • Comment number 8.

    This is wonderful news. The markets believe in the UK which demonstrates how wonderful a job the new government is doing.

    Hopefully the government will use this cuts as an excuse to also engineer society away from the mother's milk of welfare handouts.

  • Comment number 9.

    With the exception of notes and coins all money is created as debt bearing interest.
    More debt has to be created each year to satisfy repayment of interest.
    If more debt is not created the supply of money available to satisfy existing debt gradually falls.

    Year 2007 – 2008
    Tax receipts £549bn; Gov’t expenditure = £583bn; Difference 6%

    Year 2008 – 2009
    Tax receipts £534bn; Gov’t expenditure = £621bn; Difference 14%

    Year 2009 – 20010
    Tax receipts £508bn; Gov’t expenditure = £674bn; Difference 25%

    Over two years government expenditure rose 15.6% and tax receipts fell 9.3%.
    And unless there’s a very dramatic change in the very near future, the games up.

    Now the good old Office of Budget Responsibility predicts that household debt will increase from £1456bn to £1823bn over the next five years (25% increase). And if it does, then hopefully enough new money will be created to keep the system going.

    Now you’ve got to ask yourself, is that really likely?

  • Comment number 10.

    I am a little confused by your change of views Stephanie. After your trip to the hedge fund seminar last week you told us this.
    "The upshot is that even if an asset manager has got an elaborate econometric model showing that Portugal, say, is a good investment - if the client says they don't want Portugal, the manager gets out of Portugal. End of discussion."
    This implied that those hedge fund people who attended the conference felt that the peripheral euro zone countries were a good investment.Now "Ireland is indeed a great cautionary tale"

    As your views seem to have done an about turn I am confused as to what they are now.

  • Comment number 11.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 12.

    5. At 3:50pm on 21 Sep 2010, zfvr

    I never thanked you for posting that original link to the vid.
    Appreciate it.

  • Comment number 13.

    Debt 'Home' Truths

    We have too much private debt. The public debt problem is relatively easy to fix it is the private debt that slaughtered Japan and is slaughtering us. This is the problem.

    All the tosh that is talked about public debt levels ignore the real problem of the incipient poor quality of much of the UK private debt. This has already destroyed our banks (just as it destroyed huge number of US savings and loans and fro exactly the same reason.)

    I must repeat the facts (yet again! I am afraid) When interest rates rise to rational long term levels the avalanche of poor quality loans (debt) will crystallise. And make no mistake interest rate will rise by probably 10 times their present levels and quite quickly. (If they don't we are stone cold dead as a country.)

    We cannot run a society/country where the houses cost 12 times the average income in the capital city. You also cannot run a society/country where individuals will have to save for a deposit until they are 52 (for men ) and 59 (for women). (The fools at the Bank of England who stood by whilst creating the devastating problem must also go as they are completely incompetent and totally unfit to manage the recovery.)

    What we have is a, presently hidden, gigantic problem of poor quality debt. It will become apparent, no matter what the Bank of England does, as other events will cause a rise in interest rates. (Presently I see food price inflation as a huge risk as is clothing inflation.)

    We don't have a choice whether to face the problem or not - if we do not face it the unavoidable consequence is hyper-inflation which will burn the debt mountain and far far more besides.

    We must engineer a controlled debt-deflation and the longer we delay the worse it will be. History shows us that this is inevitable and it also shows us that the sooner we face it the shorter and less deep the depression that results. We have already wasted 2 years. In these 2 wasted years the problem has only got worse. It has to be faced. It must be faced NOW.

  • Comment number 14.

    8. At 4:26pm on 21 Sep 2010, Lindsay_from_Hendon

    Lyndsay
    Can I apologise on behalf of the nation for the failures of our education policies over the last 20 years?

  • Comment number 15.

    13. At 5:27pm on 21 Sep 2010, John_from_Hendon wrote:
    We have too much private debt. The public debt problem is relatively easy to fix it is the private debt that slaughtered Japan and is slaughtering us. This is the problem.

    I agree but don't you think

    a) that private debt is falling now, partly because the banks need to sort out their balance sheets and partly because people are wising up?

    and b) that what would assist greatly is the debunking of the myth about public debt and the fact that it is being used as an excuse to cut when wise investment now in jobs and productive resources via govt spending would ease the whole process of private debt reduction.


  • Comment number 16.

    "...the government's "contingent liability" in the banking system - the stock of debts that it has guaranteed stood at 153bn euros - nearly 95% of Irish GDP"

    Anybody who is a Bank of Ireland customer will have had a letter recently explaining how the UK operations will become a UK bank.....and the deposit protection liability drops from 100,000 Eu to £50,000/per customer as it passes to the UK taxpayer.

    Nice bit of offloading...

  • Comment number 17.

    I seem to recall about this time last year warning about the debt interest to which some contributors talked down.

    It is now pretty clear that annual debt interest will be £70 billion without taking into account any further downside risk re various variables that could happen.

    Either way I'm still amazed at the lack of anger at having to pay £70 billion in interest becasue of this country's largesse.

    That's £2500 per taxpayer just for the interest.

    How long before a taxpayer's revolt........?

  • Comment number 18.

    13. John from Hendon,

    Good post I totally agree.

    I would say the problem is even worse though for two reasons:

    1) Very few people (Government and populous) are prepared to voluntarily give up on their materialistic high house price dream voluntarily so it will unfortunately be forced upon us by reality.

    2) The food and other commodity prices issue will be seriously amplified by the fact that we are at or about "peak oil" and certainly well beyond the era of cheap oil.

    Oil is around $76 today up from a decades long price of below $30 in 2003 on a very linear annual increase of around 15%. This will continue until it becomes commonly realised that demand can no longer be met and then the price will sky-rocket.

    This will lead to a multitude of problems, none of which in the short to medium term will be good.

  • Comment number 19.

    The Greek and Irish problems are as zfvr (5) points out cannot happen to the UK. They are simply the result of the silly rules devised for the Eurzone, by those who believed the then fashionable nonsense that markets could be relied upon to control almost anything.

    The banks are no longer gearing up the money supply as much as they did before the crunch, and Basel III means that they will not be allowed to return to their old ways. A consequence is that more money must be printed by governments if employment is to return to former levels. This requires continuing unfunded public deficits for several more years to come.





  • Comment number 20.

    14. At 5:30pm on 21 Sep 2010, Morpheus wrote:

    8. At 4:26pm on 21 Sep 2010, Lindsay_from_Hendon

    Lyndsay
    Can I apologise on behalf of the nation for the failures of our education policies over the last 20 years?

    You mean because you can't even copy the word "Lindsay"?

  • Comment number 21.

    #12 John-from_Hendon wrote
    You also cannot run a society/country where individuals will have to save for a deposit until they are 52 (for men ) and 59 (for women).
    =======================
    You have made this assertion many times. Can you please explain how you arrive at this seemingly unlikely conclusion

  • Comment number 22.

    20. At 7:30pm on 21 Sep 2010, Lindsay_from_Hendon

    Fair dinkum

  • Comment number 23.

    13. At 5:27pm on 21 Sep 2010, John_from_Hendon wrote:
    Debt 'Home' Truths

    We have too much private debt. The public debt problem is relatively easy to fix it is the private debt that slaughtered Japan and is slaughtering us. This is the problem.

    ............
    Straight to the point as usual John. My view is the problem is caused by the fractional reserve banking system and a debt based monetary supply, requiring perpetual expansion of the money supply to service the interest on the debt. Even if we engineer some level of default to reduce the debt burden, unless we move onto a debt free monetary system the problem will simply resurface again the future.

  • Comment number 24.

    So Steph, we can say without any shadow of a doubt that the ECB had nothing at all too do with the successful Irish bond sale today can we?
    ..and "Lindsay"...jog on

  • Comment number 25.

    #15 Morpheus

    Agreed. If I hear one more right wing pro-US free market fundamentalist point at a public GDP-to-debt ratio under 125% and shout "Socialism!", I will probably move to Kuwait and start a business selling oil barrels for Deutschmarks. That should put a spanner in the damn works.

    The market is going to fix itself to precisely the same degree that a slushy snowball will roll itself out of hell.





  • Comment number 26.

    #23 averagejoe said
    a debt based monetary supply, requiring perpetual expansion of the money supply to service the interest on the debt
    =======================
    could you please explain why you and others keep aserting this.
    Most private debt is mortgages, instalment credit and credit cards. For the first two the interest is included in the payment each month; in the first few months most of the payment is interest. For credit cards the minimum payment is more than the amount of interest.

    I and many others have paid off all our debts by forgoing consumption, not borrowing more!

  • Comment number 27.

    #23
    AverageJoe wrote
    The public debt problem is relatively easy to fix
    =====================
    pray tell us how (i words not links to cartoons)

  • Comment number 28.

    Has anybody ever wondered what the markets will make of a double dip recession, or weak growth leading to a fall in government revenues because of higher unemployment and increased welfare payments (dole), coupled with reduced consumer confidence, and hence lower spending.

    I can't see bond markets responding to that with cries of glee, and the offer of bargain basement interest rates on new government debt.

    Any government facing our budgetary problems would need to develop a coherent strategy to bring the National Accounts into balance. However, the timescale set out by Mr Osborne is actively discouraging the likelihood that the measures to be announced in October will demonstrate "joined-up thinking", let alone coherence. This is not just my view, but those within the government, as expressed, off the record, by worried insiders. The fear is this will be a "slash and burn" exercise, that will end up throwing the baby out with the bath water.

    Just as importantly, where are the strategic plans to get the private sector up to speed to fill the gap left by public sector disinvestment. Nobody, neither this government, nor its predecessor, have been able to get the banks to lend to SMEs in sufficient breadth and depth. For the private sector to gear up to the challenge, where are the funds to come from? Similarly, does Mr Osborne think a brief sojourn in India in July will suddenly open the sub-contitnent to British exports overnight? In fact, where is the government plan to develop new export markets through an aggressive schedule of visits and networking in asian markets? Anybody?

    One of the most important features, if not the most important, of German, Japanese, and Chinese export success is the role their governments have played in opening up (nay softening up) new markets - often involving conspicuous aid and economic assitance. May be we should consider the USA model where all aid provided by their government has to be spent with USA companies.

    What we seem to get from Mr Cameron and co is polite disdain when it comes to anything that might involve rolling up their sleeves and doing some real work. The idea from Mr Osborne seems to be - slash the public sector, and wait for the private sector to flourish in its place. A prime example of an invocation - and reliance - on the Micawber principle, if ever one was needed. Frankly, it's not good enough to risk the entire economy, and the welfare of the nation, on such a flagrant gamble.

  • Comment number 29.

    13. At 5:27pm on 21 Sep 2010, John_from_Hendon wrote:

    We cannot run a society/country where the houses cost 12 times the average income in the capital city. You also cannot run a society/country where individuals will have to save for a deposit until they are 52 (for men ) and 59 (for women). (The fools at the Bank of England who stood by whilst creating the devastating problem must also go as they are completely incompetent and totally unfit to manage the recovery.)
    ----------------------------------------------------------------------------------------------------
    Interest rates affect house prices but not affordability because demand still outstrips supply. Demand is higher because there are more one parent families, more students living away from home, more immigration and more people buying houses to let and make a profit. This last one is interesting because by buying a house to let you are preventing one more family obtaining a house to live in and thus generating one more family that needs to rent.

    The only way of increasing the number of people who own their own houses is to reduce the demands indicated above and/or to increase the number of houses built. To increase the number of houses built, I think that planning laws and land ownership need to be changed. It should not be necessary to obtain planning permission for standard design of houses and, as with developments such as airports and motorways, compulsory purchase should be used to obtain land. Why should second-hand house prices increase. Should they not be similar to other second hand goods and depreciate but at perhaps a slower rate.

    Other than that, you will have to wait until something like the Swine Flu wipes out millions. Hey, if all the people who were wiped out were the ones with high personal debts, that would solve our debt problem as well.


    I wonder what proportion of our private debt problem is actually mortgage debt. If it is a big proportion, then does the debt matter because it is backed by assets. The assets may be overvalued, but as long as people keep paying what they have been paying, the debt should not be a problem. High unemployment would cause a problem.

  • Comment number 30.

    27. At 8:15pm on 21 Sep 2010, AnotherEngineer wrote:
    #23
    AverageJoe wrote
    The public debt problem is relatively easy to fix
    =====================
    pray tell us how (i words not links to cartoons)


    Don't issue any more gilts.

  • Comment number 31.

    So public sector borrowing hit a record of £15.9 billion for August and interest payments on the national debt almost trebled to £3.8bn last month, compared with £1.3bn for August a year ago. That’s £3.8 billion not being spent on schools and hospitals.

    So let me get this straight; this year we will borrow £150 billion and pay £44 billion in interest on Labour’s previous borrowing. That’s a total of £44 billion this year not being spent on schools and hospitals.

    So a large part (30%) of what we are borrowing this year will be used to pay the interest on what Labour borrowed in previous years.

    Then, of course, we will have to pay interest on the money we borrowed this year to pay the interest on the money Labour borrowed in previous years.

    And there are actually Labour (and some Lib Dem!) people out there who want us to continue with this economics of the mad house?

  • Comment number 32.

    Stephanie said 'At the last count, the government's "contingent liability" in the banking system - the stock of debts that it has guaranteed stood at 153bn euros - nearly 95% of Irish GDP'. The contingent liabilities of the UK banks - and by default the taxpayer -are still largely unquantifiable as much of the dross stills lies unaccounted for in offshore vehicles. With the continued conversion of private debt into public debt the poison will continue to be dripped into the economy for years to come as every sign of progress and improvement will be taken as the trigger to disclose more and feel the taxpayers pockets even deeper. All the while the insane gambling will continue with little or no regulation as the addicts convince themselves that they can eventually wipe the slate clean by taking even bigger risks. Like John from Hendon I fear that not only have we wasted two years already but now look to spend a further five going nowhere but backwards as and attempt to re-invent the past is undertaken rather than striding into a bold new future where 'sensible money' rules.

  • Comment number 33.

    17. At 6:23pm on 21 Sep 2010, Rugbyprof wrote:

    I agree. I am angry at the £70 billion interest and even more angry that some people still seem to have their heads in the sand and refuse to acknowledge it is time to cut the credit card up. I dread to think what will happen if interest rates start to rise as they will have to eventually. As many other posters have said private debt will also be a problem. Time for us as individuals and as a government to live within our means.

  • Comment number 34.

    28. At 8:18pm on 21 Sep 2010, PaulRM wrote:

    It is generally thought that a double dip recession is not likely but I agree encouragement by the government is needed to stimulate the private sector. I remember seeing in one of Cameron directs that one thing DC wanted to do was make sure the government used SME's for a percentage of business put into the private sector. Getting the greedy banks to lend to them again without punitive interest rates. I also don't think Osborne thinks a trip to India will suddenly stimulate exports but it is at least a start. More than the previous government ever did.

  • Comment number 35.

    Does Ireland really have any sovereign debt when it is a full EU member and issues bonds in Euro currency?

    All EU member state national debts are just really EU debts for the ECB central bank?

    Britain has sovereign debt as it has its own currency ... when this is weighed in the balance ... Britain is less secure than Ireland if the proportionate currency exchange values of the respective national debt were to be the same?

    Ireland may have the backing of the ECB for its own debts if the currency becomes an issue ... Britain stands on its own.

    I'm just stating the obvious, I suppose ... Britain may look more secure on paper but probably has no prospect of any ECB help with its debts and deficits if its position deteriorated significantly as in contrast with and as unlike other EU members with EU currency and which expect some measure of ECB support in last resort... the GBP pound is probably less secure than the Japanese Yen, US $ and many other countries because our country and 'national wealth' is smaller?

    The UK is on a narrow and difficult path and complacency is something to be avoided regarding debt and deficit management ... are we any more or less fiscally 'safe'/stable than Ireland? I don't think so as there is no simple answer.

  • Comment number 36.

    It is worrying that NS&E have withdrawn Index-linked bonds as it is indicative that inflation is (already) out of control.

    Interest charges on national debt, at a modest 3½% currently, are now about £32bn p.a., rising to about £65bn (assuming interest rates stay where they are) over the next 5 years, compared to a GDP of either £510bn or £680bn depending whether you regard gross tax receipts or total spending as the more useful indicator.

    Actually interest rates will rise, probably by 3 percentage points over the next few years. So we need to cut at least £20bn each year - that is £20bn in year one, then a further £20bn in year 2 just to stand still.

    Phew!

  • Comment number 37.

    #30 Morpheus wrote
    Don't issue any more gilts
    ====================
    I would say that was a good idea if I thought you meant that the government should live within its means, but I suspect that you mean print money!

  • Comment number 38.

    To Morpheus and anotherengineer

    Average Joe has a point.

    In fact what another average Joe (which is me) hopes for, is for the next generation to inherent a level playing field, as opposed to a mountain of debt to climb.

    The plain truth is that I'm a father of three, why in God’s sweet mother earth would I wish for anything different.

    I believe that there are some, whose hopes and expectations of wealth have left them with little regard for the younger generation, and because of the same, are quite content to see them struggle through life so their expectations can be realised.

    I do not believe that this is a fair and reasonable way forward.
    And that is why I support the following:
    http://www.positivemoney.org.uk/

  • Comment number 39.

    Borrowing money to pay interest. The snake eating its own tail. Zombie Nation.

  • Comment number 40.

    So the equation I keep coming back to is:

    Money in country = bank loans + balance of payments + gov debt.

    If the gov borrows and that money goes into our economy, we all get richer. When they reduce the borrowing, we all get poorer. Ditto banks.

    Ultimately, while JFH is correct on houses ( mainly because they distort reality, imobilise the workforce and crucify our competitiveness), we have to achieve a neutral balance of payments. Please note that we can't have a sustainable positive balance. You can do it for a bit, but it relies ultimately on the States printing money. Neutral is good, and what we need to aim for.

    So cutting the gov debt may have to happen to appease the markets short term, but unless we grow exports in the private sector (or a miracle, import less), we'll just get poorer.

    I've yet to see how the gov put the same energy into growing as to cutting.

  • Comment number 41.

    #21. AnotherEngineer wrote:

    "#12 John-from_Hendon wrote
    You also cannot run a society/country where individuals will have to save for a deposit until they are 52 (for men ) and 59 (for women).
    =======================
    You have made this assertion many times. Can you please explain how you arrive at this seemingly unlikely conclusion"

    I cannot agree with you that the conclusion is unlikely for some very very basic human reasons. To breed a nest is required. Breeding without a nest is less than optimal indeed undesirable. Breeding ends by about the age of 40 and in consequence if the deposit for a nest takes between 12 and 19 years more then nesting is depreciated almost to the point of extinction! Capiche?

  • Comment number 42.

    @ 39 truths33k3r

    You couldn't make it up could you. In Ireland the cost of borrowing keeps getting higher each time. Am I stupid or is this unsustainable?

    It's like a snake eating its own tail and getting hungrier with each bite.

  • Comment number 43.

    The problems aren't over because the problems were never fixed. Giving money to banks at 0% and borrowing it back at from 4% - 6% is not an action of the quick witted. It is great for bankers but just adds debt for the taxpayers to assume..and no one in government really cares about them.
    As the financial problems continue, and they will because the governments have avoided actually doing anything other than giving money to banks, this will be a reoccurring event. Apparently there are economist that will provide whatever forecast the governments would like...might as well be asking the Palm Reader in council housing.Listening to bankers and economists is the belief that riding two dead horses will give you a better chance to win the race.

  • Comment number 44.

    This is a laugh. He's bankrupt. the banks nationalised, the government paralysed but his wife and kids did alright.

    If I was to rob a bank tomorrow and give it to my wife and kids, would they get to keep it? I wonder.

    http://www.rte.ie/news/2010/0921/fitzpatricks.html

  • Comment number 45.

    The absolute paupacy of any clear political direction of economic policy is what will lead us all down the road to nowhere.

    Cutting the deficit for cutting the deficit's sake is not going to address the true problems that exist within our economy. Please note that I am NOT saying that we should not take steps to reduce the deficit over time but slash and burn will not have any positive effect.

    So, we stop providing service in the pulic sector and hence provide an opportunity for the private sector. To what effect? Well it may appear to increase GDP but it will not add any true value and hence wealth to our economy. It will merely increase velocity.

    As some commentators have already stated above, we need a real plan to actually invest in strategic areas of the economy and assist companies in opening up export markets. Another major concern should be a plan to spread both public and private activity around the country and away from the South East.

  • Comment number 46.

    Morning Stephanie,
    nice article, well explained but surely this is all old news for an economist?
    I thought you guys were dynamic and forward looking!
    Please spare a bit of your time to look at the crisis in Japan, the potential meltdown in the US with 2-3 Trillion QE proposed in US to kick start their jobs situation, potential trade wars and protectionism because of vested interests, all banks around the world (esp Germany, China) trying to raise more capital (where will this additional capital come from)? The UK daydreaming into their next crisis where we have food price inflation going mad, consumers borrowing money on credit cards to pay their shopping bills and not paying it off(utter madness).
    Councils slashing budgets and making people redundant but not the high wage takers eg Chief Execs and the like. Same with NHS spending totally out of control. Apparently we had to destroy £73 million of vaccines because they were not stored properly (sack those responsible for that I say). Energy policy (if we ever had one) seems to be in tatters with the CONDEMS promising the greenest government yet! I tell you, I couldn't care less about green policies because the ordinary man in the street can't afford them. I don't care what our masters in the EU come up with either because 25 years of their largesse have produced nothing but increasing costs to businesses and increased taxes.
    You are well aware, Stephanie, of the old saying that when America sneezes, we all catch a cold, well I can tell you that Obamas latest wheeze is to issue snuff to all his political advisers so watch out.
    The next 18 months will be interesting times which will make the western world banking crisis look like a petty cash problem.
    Put the pieces together Stephanie, this is predictable.

  • Comment number 47.

    The reason there is a structural deficit is that the economy has not really recovered yet.
    Let it get back to where it was and the deficit will shrink.
    We need a car scrappage scheme equivalent that will do for our construction industry what id did fior the motor trade ..... a temporary return to no stamp duty for first-timers, and what about a temporary MIRAS like window, a cgt reduction for developers,tax breaks for banks upping their lending, a new government-owned building society, and reduced VAT on building materials?
    We need council tax holidays on longvacant shops in their first 2 years of occupancy,and we need to get smart with variable cgt and property tax to offset property bubbles.
    We need to open our doors again to non-doms....we need their roubles and yuans and rupees.
    We also need to say to China.....ok so you have so many billion quid in cash in sterling .....why not come over here and spend it?

    Think new, think smart.

  • Comment number 48.

    OK I have to say this........
    Never mind soaking the rich,there's not that many of them in the UKand they are not that rich anymore either.... it is the Average Jimmy who needs to get real.
    Best way to reduce the deficit is to put up income tax for everyone earning over £10k to 40%.
    It would work wonders and would let people know how much public services really cost.
    PUBLIC FINANCES STARTED TO GET WONKY WHEN WE STARTED CHOPPING DOWN THE INCOME TAX OF THE MASSES.Could this be reversed?
    Bet nobody in any party has the guts to do it!

  • Comment number 49.

    48. At 05:07am on 22 Sep 2010, onward-ho wrote:
    Best way to reduce the deficit is to put up income tax for everyone earning over £10k to 40%.

    A better way of reducing the deficit is to put down income tax for everyone earning under £10K to 0%

  • Comment number 50.

    #49 Morpheus

    ..and to nationalise/regulate the banks such that the interest rate on all commercial loans gets reduced to zero, while monthly repayment rates remain fixed in order to accelerate private debt reduction.

    Tax income would rise, and this would be used to spend on developing a transport infrastructure that allows entirely electric vehicles to travel everywhere.

  • Comment number 51.

    50. At 08:23am on 22 Sep 2010, Oblivion wrote:
    ..and to nationalise/regulate the banks such that the interest rate on all commercial loans gets reduced to zero, while monthly repayment rates remain fixed in order to accelerate private debt reduction.

    I like that one ! Perhaps for existing loans iro mortgages and businesses and for a fixed period only.

  • Comment number 52.

    #49 Morpheus wrote
    A better way of reducing the deficit is to put down income tax for everyone earning under £10K to 0%
    =================
    how would that work then? I would have thought that it would thought that there would have been a small increase (people at that income level pay very ltlle tax)

  • Comment number 53.

    #49 Morpheus wrote
    A better way of reducing the deficit is to put down income tax for everyone earning under £10K to 0%
    =================
    how would that work then? I would have thought that it would thought that there would have been a small increase (people at that income level pay very little tax)

  • Comment number 54.

    "But Mr Clegg said that the last government's borrowing had taken the country "to the brink of bankruptcy". That is similar to rhetoric that Chancellor Osborne has used - but it is simply not true.

    As it happens, governments can't go bankrupt - they can only default on their debt. But I'm not just being pedantic."

    Er..yes you are. A definition of bankruptcy is

    "Bankruptcy is where an individual is declared insolvent because they have insufficient assets and income to adequately repay their debts""

    Which perfectly describes a defaulting country.

  • Comment number 55.

    24. At 8:02pm on 21 Sep 2010, dudeHangingon wrote:
    So Steph, we can say without any shadow of a doubt that the ECB had nothing at all too do with the successful Irish bond sale today can we?
    ..and "Lindsay"...jog on


    - Typical reaction of the left. If you disagree with someone, silence them.

    I think the ECB were too busy dealing with the Pakistan tour to be honest.

  • Comment number 56.

    26. At 8:13pm on 21 Sep 2010, AnotherEngineer wrote:

    #23 averagejoe said
    a debt based monetary supply, requiring perpetual expansion of the money supply to service the interest on the debt
    =======================
    could you please explain why you and others keep aserting this.
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    While I have not asserted this, I believe it for the probably naive reason that I think the payment of interest increases the money supply and causes inflation, all by itself.

    e.g. You borrow GPB100 at 5% over 10 years. You pay back GPB150. In 10 years time, there is going to be GBP150 pounds where today there is GBP100.

    Now,the question arises, where did you get the extra GBP50 ?

    Answer: To service the debt you needed to "buy" more money. And that extra money was also created as debt.

    i.e. non zero interest rates will always increase the money supply.

    As a consequence, I think that if the asset for which you paid GBP100 today were to be priced in 10 year's time, it would be priced at the GBP150 that it cost you, because there is that much more money in the economy, so the prices of assets (all else being equal) will follow the supply of money.

    One facile example of this back in the 1980's was that I could never quite save up enough to replace our family washing machine. Over a 5 year period, I watched the price stay "just out of reach". Until one day it dawned on me that the goods in question were being priced on the payback-date of the credit scheme that I was supposed to use to buy it, and not on the date that I actually went into the shop.

    I got myself a credit card, did the sums, and lo, the washing machine was suddenly in reach!

    Thus were the sheep led to the slaughterhouse.

  • Comment number 57.

    29. At 9:16pm on 21 Sep 2010, Fairsfair wrote:
    ...The only way of increasing the number of people who own their own houses is to reduce the demands indicated above and/or to increase the number of houses built.
    --------------------------------------
    Isn't much of the problem in Ireland (and Spain) down to the lending to facilitate too much building?



    47. At 04:43am on 22 Sep 2010, onward-ho wrote:
    ...We need council tax holidays on longvacant shops in their first 2 years of occupancy,...
    -------------------------------------------
    Shops do not pay council tax. Business rates are however a large burden on all business, especially when you consider that many services provided by councils (such as standard refuse collection) are not included in the business rate.

  • Comment number 58.

    #35 "Does Ireland really have any sovereign debt when it is a full EU member and issues bonds in Euro currency?

    All EU member state national debts are just really EU debts for the ECB central bank?

    Britain has sovereign debt as it has its own currency ... when this is weighed in the balance ... Britain is less secure than Ireland if the proportionate currency exchange values of the respective national debt were to be the same?

    Ireland may have the backing of the ECB for its own debts if the currency becomes an issue ... Britain stands on its own.

    I'm just stating the obvious, I suppose ... Britain may look more secure on paper but probably has no prospect of any ECB help with its debts and deficits if its position deteriorated significantly as in contrast with and as unlike other EU members with EU currency and which expect some measure of ECB support in last resort... the GBP pound is probably less secure than the Japanese Yen, US $ and many other countries because our country and 'national wealth' is smaller?

    The UK is on a narrow and difficult path and complacency is something to be avoided regarding debt and deficit management ... are we any more or less fiscally 'safe'/stable than Ireland? I don't think so as there is no simple answer."

    ==================

    Where to start.

    If Ireland issues bonds Ireland owes the money.

    Irish bonds are not backed by the ECB. Technically each country should stand on its own in the Euro but this has been somewhat muddied by the EU rescue fund. The actual answer now is that there may be some support from other EU countries (much like IMF may support countries) but nothing is guaranteed.

    UK debt is virtually all denominated in sterling. UK is the sole issuer of sterling so UK could pay off all its debt by simply printing more sterling - of course the exchange rate would collapse and inflation sky rocket as a consequence but it does mean that UK need never go bankrupt.

    Ireland does not issue its own currency and therefore could go bankrupt.



  • Comment number 59.

    #35 "Does Ireland really have any sovereign debt when it is a full EU member and issues bonds in Euro currency?

    All EU member state national debts are just really EU debts for the ECB central bank?

    Britain has sovereign debt as it has its own currency ... when this is weighed in the balance ... Britain is less secure than Ireland if the proportionate currency exchange values of the respective national debt were to be the same?

    Ireland may have the backing of the ECB for its own debts if the currency becomes an issue ... Britain stands on its own.

    I'm just stating the obvious, I suppose ... Britain may look more secure on paper but probably has no prospect of any ECB help with its debts and deficits if its position deteriorated significantly as in contrast with and as unlike other EU members with EU currency and which expect some measure of ECB support in last resort... the GBP pound is probably less secure than the Japanese Yen, US $ and many other countries because our country and 'national wealth' is smaller?

    The UK is on a narrow and difficult path and complacency is something to be avoided regarding debt and deficit management ... are we any more or less fiscally 'safe'/stable than Ireland? I don't think so as there is no simple answer."

    ==================

    Where to start.

    If Ireland issues bonds Ireland owes the money.

    Irish bonds are not backed by the ECB. Technically each country should stand on its own in the Euro but this has been somewhat muddied by the EU rescue fund. The actual answer now is that there may be some support from other EU countries (much like IMF may support countries) but nothing is guaranteed.

    UK debt is virtually all denominated in sterling. UK is the sole issuer of sterling so UK could pay off all its debt by simply printing more sterling - of course the exchange rate would collapse and inflation sky rocket as a consequence but it does mean that UK need never go bankrupt.



  • Comment number 60.

    #35
    Where to start.

    If Ireland issues bonds Ireland owes the money.

    Irish bonds are not backed by the ECB. Technically each country should stand on its own in the Euro but this has been somewhat muddied by the EU rescue fund. The actual answer now is that there may be some support from other EU countries (much like IMF may support countries) but nothing is guaranteed.

    UK debt is virtually all denominated in sterling. UK is the sole issuer of sterling so UK could pay off all its debt by simply printing more sterling - of course the exchange rate would collapse and inflation sky rocket as a consequence but it does mean that UK need never go bankrupt.



  • Comment number 61.

    I don’t think they can tax their way out of this one.

    Look at the latest figures:
    RPI all items including housing August 2010 = +4.7%
    RPI all items excluding housing August 2010 = +5.0%
    Annual wage increase (all sectors)to July 2010 = +1.5%
    Source: Office of National Statistics

    The more you tax people, the less they’ll spend. The first thing that often goes is the foreign holiday, but after that, it’s likely eating out, a few pints in the local pub, Gym membership, etc. etc.

    Assuming you tax at the rate of 0% of GDP, clearly you will get no money in.
    Assume you tax at the rate of 100% of GDP, again you will get no money in, because no one is going to work all year for nothing.

    Consequently there is a point between 0% and 100% tax rate of GDP where the Government tax receipts will start to fall if the overall rate of taxation is increased.
    Given that the simplest answer is usually the correct one; that point is likely to be 50% of GDP, and we’re closing in on that now.

    The amount of debt that has been created is beyond the capacity of the indebted to service it. Which is likely why:
    UK banks and building societies wrote off £10.9bn of loans to individuals in the last 12 months to end Q2 2010. In Q2 2010 they wrote off £3.47bn (£2.14bn of that was credit card debt). This amounts to a write-off of £38.06m a day.

    In addition in a system where all money (other than notes and coins) is created as debt bearing interest, more debt has to be created to satisfy future repayments of capital and interest.

    Which is likely the reason why the Office of Budget Responsibility hopes that household debt will increase from £1456bn to £1823bn over the next five years (25% increase).

    The only way out in a debt based monetary system, is more debt.

    Perhaps they should run an Ad campaign:
    ‘Your country needs you; to take on more debt’

  • Comment number 62.

    If you accept that there are 62 Million people in the UK (refer to Government web site ONS) only 36.6 Million are of a working age.
    7.7 million of these are economically inactive
    7.2 Million work part time
    6.65 million work in the public sector
    That leaves 16.7 million in full time employment in the private sector.
    Then subtract the low-wage,low tax(even subsidised)"Macjobs" from that 16.7 million to get to the real figure of people with sufficient non-state disposable income to power "growth" in the coming years.

    All the characteristics of a "country on the "brink" of bankruptcy or default"...........................................................

  • Comment number 63.

    "it is simply not true."

    I don`t recall you ever accusing any members of the previous "administration" of lying.

  • Comment number 64.

    Stephanie has done us all a BIG favour by pointing out that the Irish Government's austerity programme has not delivered in any respect - indeed it appears to have dug the Irish economy even deeper into trouble.

    I offer the following analysis of the mechanism that is at work:

    1. Cuts in government spending are by definition deflationary. To take huge amounts of spending power out of the economy rapidly in a recessionary environment is a high risk strategy - this is well known and has had long term negative impacts before - e.g. Japan.

    2. In an economy where the vast majority of personal wealth is invested in property, the value of that property is driven mainly by the level of demand for it (everyone has to live somewhere) and the ability of people to pay for it - ie their incomes - and many people in Eire & the UK have also come to see property as their main investment option too following large falls in equity markets - ie buy-to-let.

    3. The property market is funded predominantly by bank lending - so banks are heavily exposed to the property market and any fall in the market risks both defaults and absolute falls in bank net values.

    4. By slashing spending on the scale they did, the Irish goverrnment took so much aggregate demand out of their economy that the recessionary effect stopped the property market dead in its tracks, killed confidence in it, so tipping the banking industry into major writedowns: they have been left holding huge loses on their property lending.

    5. As mortgage lending is funded through geared capital, this magnifies the loses on the banks' core capital, thereby triggering the financial regulators to intervene and threatens a further banking crisis. for the Irish, the EuroZone offers currency protection, but it still drives up their cost of borrowing - sovereign and commercial.

    6. The Irish Government is the obliged to intervene to stop their banking system going bust with massive loans/capital injections.

    7. Through the overall gearing effect of financial services, this intervention is likely to be SIGNIFICANTLY HIGHER THAN THE VALUE OF THE SPENDING CUTS WHICH PRECIPITATED THE CRISIS.

    8. As well as drastically scaling back the level and quality of prublic services, the Irish people will also have seen massive reductions in personal wealth through the collapse in the value of their investments in housing.

    9. A lot of jobs in the construction industry depended on a growing property market - those jobs and the others supplying materials and services to it have also gone almost overnight, so reducing GDP sharply - nearly 8% last year in Eire - reducing tax income and raising welfare payments.

    10. The UK is not in the EuroZone - therefore if a similar outcome happens here from the impending cuts, then the logical risk is a run on sterling AND higher debt servicing costs. A sharp depreciation in Sterling would be massively inflationary to our imports, so precipitating a hard fall in living standards as fuel and food prices rise rapidly, whilst personal wealth expressed in house prices falls and personal debt levels rise.

    THIS IS THE PERFECT STORM IN THE MAKING.

    Time to realise our problems are not how much we spend on public services - our problems are caused by rigged global trade and allowing our manufacturing industries to be decimated. Stop those huge container ships from China docking in the UK - force industry to source goods and services here - the problem will go away as jobs are created, our balance of payments recovers and the need for welfare payments goes down and the tax take goes up.

    Slash & burn management of the public sector is irresponsible, counter-productive and damaging. Reform it - yes - seek to reduce the need for welfare payments - create jobs - get people back to work - these are no brainers - but the idea that all you need to do is cut public spedning to solve our problems is libertarian eyewash - it will not work.

    As I have said before, I simply do not believe the private sector in the UK will generate net 2m+ new jobs, invest £400 Bn in UK capacity and increase our exports by a third in this parliament - I see that the CBI have revised downwards their growth forecast by 20% for next year - the Scottish CBI are already on the record saying they will not be able to replace the public secotr jobs going North of the border - and that UK borrowing rose sharply last month.

    That IS an iceberg on the horizon - we ARE heading straight for it - we COULD change course now - STOP PLAYING WITH THOSE DECKCHAIRS!

  • Comment number 65.

    Stephanie has done us all a BIG favour by pointing out that the Irish Government's austerity programme has not delivered in any respect - indeed it appears to have dug the Irish economy even deeper into trouble.

    I offer the following analysis of the mechanism that is at work:

    1. Cuts in government spending are by definition deflationary. To take huge amounts of spending power out of the economy rapidly in a recessionary environment is a high risk strategy - this is well known and has had long term negative impacts before - e.g. Japan.

    2. In an economy where the vast majority of personal wealth is invested in property, the value of that property is driven mainly by the level of demand for it (everyone has to live somewhere) and the ability of people to pay for it - ie their incomes - and many people in Eire & the UK have also come to see property as their main investment option too following large falls in equity markets - ie buy-to-let.

    3. The property market is funded predominantly by bank lending - so banks are heavily exposed to the property market and any fall in the market risks both defaults and absolute falls in bank net values.

    4. By slashing spending on the scale they did, the Irish goverrnment took so much aggregate demand out of their economy that the recessionary effect stopped the property market dead in its tracks, killed confidence in it, so tipping the banking industry into major writedowns: they have been left holding huge loses on their property lending.

    5. As mortgage lending is funded through geared capital, this magnifies the loses on the banks' core capital, thereby triggering the financial regulators to intervene and threatens a further banking crisis. for the Irish, the EuroZone offers currency protection, but it still drives up their cost of borrowing - sovereign and commercial.

    6. The Irish Government is the obliged to intervene to stop their banking system going bust with massive loans/capital injections.

    7. Through the overall gearing effect of financial services, this intervention is likely to be SIGNIFICANTLY HIGHER THAN THE VALUE OF THE SPENDING CUTS WHICH PRECIPITATED THE CRISIS.

    8. As well as drastically scaling back the level and quality of prublic services, the Irish people will also have seen massive reductions in personal wealth through the collapse in the value of their investments in housing.

    9. A lot of jobs in the construction industry depended on a growing property market - those jobs and the others supplying materials and services to it have also gone almost overnight, so reducing GDP sharply - nearly 8% last year in Eire - reducing tax income and raising welfare payments.

    10. The UK is not in the EuroZone - therefore if a similar outcome happens here from the impending cuts, then the logical risk is a run on sterling AND higher debt servicing costs. A sharp depreciation in Sterling would be massively inflationary to our imports, so precipitating a hard fall in living standards as fuel and food prices rise rapidly, whilst personal wealth expressed in house prices falls and personal debt levels rise.

    THIS IS THE PERFECT STORM IN THE MAKING.

    Time to realise our problems are not how much we spend on public services - our problems are caused by rigged global trade and allowing our manufacturing industries to be decimated. Stop those huge container ships from China docking in the UK - force industry to source goods and services here - the problem will go away as jobs are created, our balance of payments recovers and the need for welfare payments goes down and the tax take goes up.

    Slash & burn management of the public sector is irresponsible, counter-productive and damaging. Reform it - yes - seek to reduce the need for welfare payments - create jobs - get people back to work - these are no brainers - but the idea that all you need to do is cut public spedning to solve our problems is libertarian eyewash - it will not work.

    I simply do not believe the private sector in the UK will replace the public sector with 2m new jobs, £400 Bn investment and 1/3 increase in exports.

    That IS an iceberg on the horizon - we ARE heading straight for it - we COULD change course now - STOP PLAYING WITH THOSE DECKCHAIRS!

  • Comment number 66.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 67.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 68.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 69.

    68. At 10:21am on 22 Sep 2010, richard bunning

    We had this posting bug a few weeks ago and it seems to have re-appeared. What is going on with the BBC's web technology bods?

    Refresh after posting to see if it has been successful.

  • Comment number 70.

    35. At 10:17pm on 21 Sep 2010, nautonier wrote:
    “ .............

    All EU member state national debts are just really EU debts for the ECB central bank?

    Britain has sovereign debt as it has its own currency ... when this is weighed in the balance ... Britain is less secure than Ireland if the proportionate currency exchange values of the respective national debt were to be the same?

    Ireland may have the backing of the ECB for its own debts if the currency becomes an issue ... Britain stands on its own.

    I'm just stating the obvious, I suppose ... Britain may look more secure on paper but probably has no prospect of any ECB help with its debts and deficits if its position deteriorated significantly as in contrast with and as unlike other EU members with EU currency and which expect some measure of ECB support in last resort... the GBP pound is probably less secure than the Japanese Yen, US $ and many other countries because our country and 'national wealth' is smaller?

    The UK is on a narrow and difficult path and complacency is something to be avoided regarding debt and deficit management ... are we any more or less fiscally 'safe'/stable than Ireland? I don't think so as there is no simple answer.”
    * * * * * *
    I take the opposite view to that expressed here. Ireland is enormously limited in its freedom of action by having to seek agreement from all the other member states; some will not want Ireland to take actions that might hurt their own country. UK is sovereign over its currency and has a floating exchange rate. OK, I know a fall in the value of the £ would hurt us, but at least we have freedoms that Ireland does not have. We must stay out of the euro at all costs.

    I notice there are other posts in the same vein as this now

    PS How do I get posts to show italics and bold; CTRL+I and CTRL+B don't seem to work

  • Comment number 71.

    68. At 10:21am on 22 Sep 2010, richard bunning

    Well said !

  • Comment number 72.

    68. At 10:21am on 22 Sep 2010, richard bunning wrote:

    I agree with the bulk of this post, but the one bit that I wonder about is the phrase "seek to reduce the need for welfare payments". The important bit to me is 'to reduce the need for' yes agreed, but not to reduce welfare payments. Many who receive these payments are not well off at all and all the money is spent in keeping body and soul together. The money spent by the government comes back into the economy immediately, its not saved.

    Also "but the idea that all you need to do is cut public spedning to solve our problems is libertarian eyewash" is interesting. Replace libertarian with either neo-liberal or mainstream economic then yes, yes!

    This post from Richard Bunning almost sounds like a plea for some, but not all, of MMT ideas to be put into practic; is it?

  • Comment number 73.

    Following my comment at 69 I expect that there is another attempt to go live with a new bit of code and that the IT contractors in question are making a point about their soon to be rescinded non EU work permits.

  • Comment number 74.

    68. At 10:21am on 22 Sep 2010, richard bunning wrote:
    -------------------------------------------------------------------------
    Firstly you should always compare apples with apples. Ireland is not an apple but more like a lemon. It is one of the elite club - the PIIGS. It has bank debt equalling its GDP alone and on top of this it has a crumbling economy which was built on a myth, the Celtic Tiger. It also now has another major problem and that is emigration. Unfortunately it is not the immigrants going home it is the indigenous which will have a major impact on their ability to emerge out of the recession.

    The UK has many issues and problems but nothing like that of Ireland.

  • Comment number 75.

    Guys there are a number of multiple posts - including me - my experience is that when you post there is a message coming back to the effect you are repeating yourself.

    BBC sort the problem it is at your end not ours

  • Comment number 76.

    61.At 09:50am on 22 Sep 2010, Dempster wrote:

    Agreed with the general direction of your points.

    My conclusion is that the government spending relying solely on money raised as debt needs to stop. The finance industry sees this as a nice little [or rather enormous] earner. We can have debt free money. We don't have it because everyone shouts that is 'PRINTING MONEY' and this scares because it is seen as inflationary. Yes it can be if it gets out of control, but at the moment with the unemployment and underemployment at current levels, I just do not see inflation starting except by a fall in the value of the pound. We need to control inflation by fiscal, rather than monetary, measures. We need active government funded programmes to reduce imports, we need an attitude change to eat home grown food [the farmers would love it], we could buy bottled water from the UK only [a drop in the ocean of the balance of payments, but many drops make a puddle etc ….]

    Do I need to continue?

    Oh yes and get rid of FRB

  • Comment number 77.

    63. At 10:05am on 22 Sep 2010, you wrote:

    "it is simply not true."

    I don`t recall you ever accusing any members of the previous "administration" of lying.
    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

    I should have added:

    "when they were in power" at the end of the above sentence.

  • Comment number 78.

    Hi Stephanie

    According to your article part of the problem with our public finances could be "accounted for by the fact that a year ago the retail price index (RPI) was negative, and interest spending was freakishly low. (To see how freakish: the Treasury paid out just £1.3bn in debt interest last August, in a year in which the total cost of servicing our debt rose to £32.3bn)."

    Is it not also true that part of the problem is that the RPI is now at 4.7%? It has risen a lot and you never seem to mention it, indeed in this article you seem to go out of your way to avoid mentioning it. Surely our problems with inflation should be discussed on here rather than avoided.

    Also I seem to remember you expecting inflation levels like the ones you now call freakishly low to persist.

  • Comment number 79.

    70. At 11:16am on 22 Sep 2010, SleepyDormouse wrote:
    .....PS How do I get posts to show italics and bold; CTRL+I and CTRL+B don't seem to work
    -------------------------------------------------
    This link has the answers for this and more:

    http://www.bbc.co.uk/dna/hub/GuideML-Clinic

  • Comment number 80.

    64. At 10:17am on 22 Sep 2010, richard bunning wrote:
    A very concise, explicit and correct analysis.

    It IS the perfect storm. Clouds are gathering, winds are getting up. Will the ship of state weather it, or will the SS GB sink/get taken in tow?

    We cannot carry on borrowing to spend, we cannot spend without borrowing and we cannot stop borrowing and spending without jeopardising our current borrowings.

    mushroom is now puzzled and scared all at once. We are in the barrel, and here comes the waterfall.

  • Comment number 81.

    #61 Dempster wrote
    Consequently there is a point between 0% and 100% tax rate of GDP where the Government tax receipts will start to fall if the overall rate of taxation is increased.
    Given that the simplest answer is usually the correct one; that point is likely to be 50% of GDP, and we’re closing in on that now.
    ===========================
    You are certainly right that high taxation discourages affert and reduces taqx receipts. I do not agree, however, that it operates at the national level. It is the rate an individual pays that counts. I am old enough to remember when income tax was more than 100%

    The amount of debt that has been created is beyond the capacity of the indebted to service it. Which is likely why:
    UK banks and building societies wrote off £10.9bn of loans to individuals in the last 12 months to end Q2 2010. In Q2 2010 they wrote off £3.47bn (£2.14bn of that was credit card debt). This amounts to a write-off of £38.06m a day.
    ==========================
    are you sure of that figure; it seems remarkably low. Elsewhere you point out that private debt is £1456bn so 10.9 billion is 0.75%

    In addition in a system where all money (other than notes and coins) is created as debt bearing interest, more debt has to be created to satisfy future repayments of capital and interest.
    ================
    you keep repeating this as if it were an accepted fact. In my opinion it is totally untrue. As I have pointed out several times debt and interest thereon are paid out of foregone consumption. I have done it myself and so have billions of others.

  • Comment number 82.

    I'm getting strange posting problems. It says I have already posted comments each time I post. We have a IT glitch I reckon.

  • Comment number 83.

    48, 'Backward Ho'

    I really cant believe that statement, how are you going to convince me that I should pay 40% tax on anything earned over 10k - Just to keep YOU in a job!!!

    You are an idiot, and don't tell me about those wonderful services you give us (and charge a fortune for, so you can have a pension!!!)

    Your part of the problem, not the solution.

  • Comment number 84.

    62. At 09:53am on 22 Sep 2010, BiiBoidshateu wrote:

    If you accept that there are 62 Million people in the UK (refer to Government web site ONS) only 36.6 Million are of a working age.
    7.7 million of these are economically inactive
    7.2 Million work part time
    6.65 million work in the public sector
    That leaves 16.7 million in full time employment in the private sector.

    Fascinating statistics. Printed large and stuck on my bedroom wall. thankyou.
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    I would, however take issue with the phrase "economically inactive".
    In that it is often used to mean all people who are not in paid employment.

    If that was not your (or the ONS) intent, I apologise.

    If it was, then it is a disparaging term used to include people who provide voluntary services to the community, such as parenting, together with those who throug genuine illness or disabilty are unable to work, as well as those who choose a lifestyle of living off state handouts.

    Activities such as voluntary childcare (parenting), while adding value to society, have been undermined by the use of the phrase "economically inactive" by those who use spending-based GDP as the be-all and end-all of economic activity, to the detriment of society at large.

    Off-topic, but there it is. If we are hoping to come out of this turmoil with a better Britain, it starts with understanding the value of things, rather than just their price.

  • Comment number 85.

    76. At 11:43am on 22 Sep 2010, SleepyDormouse wrote:
    -------------------------------------------------------------------------
    Firstly on an earlier point - The ECB will not and in fact has stated that it will never take responsibility / liability for any member states debt. So Ireland is on its own unless the EU and or Eurozone offer assistance.

    Secondly you can not just print money without affecting in internal economics of of a nation. It will also have an impact on the currency on the global market.

    Finally you are now putting forward protectionism as a policy. This would just lead to a tit for tat reaction and we are big enough to win such a conflict.

    Can't wait for your next big idea......

  • Comment number 86.

    81. At 12:38pm on 22 Sep 2010, AnotherEngineer wrote:

    In response:

    Re: 1 I’m referring to the overall rate of tax of the GDP nationally

    Re: 2 According to Credit Action statistics

    Re: 3 Other than notes and coins all money is created from a ‘debtors’ promise to pay, and is therefore debt bearing interest. Think it through, with the exception of notes and coins, how is money created?

  • Comment number 87.

    After the axe as fallen on the masses of goverment mules the debts of today WILL be inflated away, we have no choice. Full circle has almost been reached.

  • Comment number 88.

    They always said that the Irish called it a Punt because it rhymed with Bank Manager. Seems prophetic now.

  • Comment number 89.

    Use &ltb&gt Bolded text &lt/b&gt and &lti&gt italic text &lt/i&gt

  • Comment number 90.

    " 8. At 4:26pm on 21 Sep 2010, Lindsay_from_Hendon wrote:

    This is wonderful news. The markets believe in the UK which demonstrates how wonderful a job the new government is doing."

    Lindsay, please note for future posts that optimism and positive outlook are not allowed on these pages. In future you should only be cynical and negative.

    Many thanks

  • Comment number 91.

    "87. At 1:26pm on 22 Sep 2010, Mammon1 wrote:

    After the axe as fallen on the masses of goverment mules the debts of today WILL be inflated away, we have no choice. Full circle has almost been reached."

    There is another way. By realising the credit that was issued during the bubble we are effectively making our children pay the true cost twice (higher asset prices vs earnings and reduced purchasing power through inflation).

  • Comment number 92.

    84. At 12:50pm on 22 Sep 2010, PuzzledMushroom wrote:
    "Activities such as voluntary childcare (parenting), while adding value to society"

    How do you think that parenting adds value to an already over populated society? Giving that at current levels only 25% of the population are in full time private employment.

  • Comment number 93.

    Multiple posts - I only hit the POST button once - must be system errors?

    Re: "Reduce the need for welfare payments" - run our trade and industrial policy to make the UK self-sufficent, reduce imports, create jobs, generate tax income - less unemployed=less need for welfare payments.

    How do we do this?

    1. Invest in renewable energy - it's not only good for the planet, it reduces our dependence on imported gas, oil and coal.

    2. Wean our consumers and farming industry off meat produced industrially using imported grain - it's simply not going to be there in future anyway and is rapidly becoming unaffordable.

    3. Implement a programme of phased import tarriffs combined with tax breaks for new manufacturing plant in the UK - allow retailers & producers a reasonable amount of time to gear up - then impose suitable import taxes to rebalance the rigged markets in energy and manufactured goods, particularly from China. The message is simple - if you want to sell to the British people, you have to employ British workers to produce the goods and services you sele here, or contribute directly to the cost of having people unemployed in the UK because you choose to manufacture overseas via the import tarriffs.

    4. Establish a range of bilateral and multilateral trade deals aimed at REALLY helping emerging economies and putting place trade realtionships that are mutually sustainable in terms of societies, economies and the environment.

    5. Ditch GATT and the whole idea of globalisation - why would a rigged market be likely to deliver balanced sustainable trade or protect the environment? GATT = anarchy, pure and simple - "free" trade= massive balance of payments deficit, mounting debts, large scale unemployment, high welfare bills and levels of taxation - it's actually more accurately described as "very expensive" trade that only makes sense because it allows manufacturers to cut costs and retailers to make bigger margins.

    By increasing domestic UK employment this will stimulate wage levels too, so increasing incomes and reducing the need for "top up" benefits, e.g. tax credits, which are effectively a wage subsidy to low paying employers - the min. wage was a good idea - we were told by the libertarians it would destroy jobs - it hasn't. We need to go further.

    I do NOT advocate cutting the already scandalously low income levels of the retired, the disabled, the sick or those unfortunate enough not to be able to get a job.

    I AGREE with the LibDems that raising the threshold at which tax starts, so taking millions of low paid out of taxation altogether, is a good idea.

    Welfare is not desirable - it is much better that people have jobs and that those jobs pay decent wages - and that people have proper pensions that will give them a decent income in retirement - so that those that really need welfare can get a much better standard of living than they do now because as a society, we would be able to afford to do this.

    Ian Duncan Smith bangs on about the "broken society" - the solution is not to tinker with the welfare system (yet again) but to ensure there are well-paying jobs out there for people to do and some initial help to get people back into work. Do people really choose to live on £60 per week in benefits, or would they take a job on £500 per week? Get real!

    THE LEVEL OF PUBLIC SPENDING IS NOT THE PROBLEM - it's a symptom of the loss of our manufacturing base and our dependency on imports and borrowing to pay for them. Sure New Labour expanded public sector employment to soak up the unemployed, but how does chucking them back on the streets do anything to address the real problem?

    At long last the USA seems to be getting serious about how the Cihnese Communist Party is rigging the world's terms of trade by holding their currency way below its market level, given the sheer scale of the trade surplus they are running with the rest of the world - the EU needs to close ranks with Obama and take action. The same could be said about OPEC, etc, but generally I'm in favour of doing everything we can to end our use of fossil fuel ASAP.

    I question the validity of socialism for the benefit of millionaire bankers and running a trading system for the benefit of the Chinese Communist Party, then clobbering the poorest sections of our society to pay for this lunacy.

    No doubt someone will tell me I am a dangerous leftie...

  • Comment number 94.

    #63 &ltb&gtBiiBoidshateu7ltb&gt.

    That's because uncouth ranters like Rugyprof could be relied upon to do it

  • Comment number 95.

    If Average Jimmy paid the real cost of his public services, at 40% income tax over 10k ,there would be such an uproar .....but it would be fair.....everyone wants something taken off someone else they think is earning more than them,and nobody wants to pay for what things actually cost.
    Time for Average Jimmy to pay his way!

    It is because there are so many Average Jimmys who vote that no politician has the courage to speak the truth, which is that our experiment with low mass income tax has failed ,and it is time to get real and get people paying for public services in full.
    Anything more than 40% disincentivises extra work.
    Anything less and there is no public clamour for spending control.

  • Comment number 96.

    78 AmySmythe

    RPI is high because Darling put VAT back up from 15% to 17.5%. People often do not see this quite obvious effect of VAT on price rises - VAT hikes increase prices!

    If you look at the CPI reports when they come in you will see a section called 'Other Measures of Inflation'. In these are the CPIY rate and the RPIY rate which remove the effects of VAT and other indirect taxation. Currently, the RPIY is 3.4% and the CPIY rate is just 1.4%.

    So expect inflation to look alot higher than it really is next year too, because the government are putting VAT up again.

    Kind Regards
    Charlie

  • Comment number 97.

    78 AmySmythe

    RPI is high because of the increase in VAT.

    Kind Regards
    Charlie

  • Comment number 98.

    78 AmySmythe

    RPI is high because of the increase in VAT.

  • Comment number 99.

    78 AmySmythe

    Prices of goods and services are artificially higher because of the increase in VAT.

  • Comment number 100.

    SF advises 'But Mr Clegg said that the last government's borrowing had taken the country "to the brink of bankruptcy". That is similar to rhetoric that Chancellor Osborne has used - but it is simply not true.
    As it happens, governments can't go bankrupt - they can only default on their debt. But I'm not just being pedantic..'
    Perhaps Stephanie has forgotten that Weimar Germany went bankrupt (i.e. France occupied the Rhinelands and removed German property) or in her words defaulted on their debt. Out of the desperation this caused Germany fell under a totalitarian leader that directly resulted in tens of millions of people dying prematurely and often very violently.
    It is hard to disagree that you are not just being pedantic...

 

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