Recovery risk for government borrowing
Whenever I find myself in any gathering of bankers, business people or politicians, the question they ask more than any other is whether the government will be able to borrow all it needs from markets - or whether at some point big investors will lose their appetite for gilt-edged stock, the exchequer's IOUs.
A good person to tap on this - though one who is not without a vested interest - is the Treasury's banker, Robert Stheeman, the head of the Debt Management Office, whose job is to raise all those hundreds of billions of pounds to cover the gap between tax revenue and public expenditure.
This year he has to sell an utterly unprecedented £220bn of gilts. That's more than four times the finance that he's typically had to find in recent years. And it would expand the existing stock of gilts - or the size of the market - by more than a third.
And, what's more, with the government refusing to countenance significant spending cuts or tax rises, he'll have to raise a similar amount next year too (even if a new government were to massively reduce public expenditure, there would be a lag before there was an impact on borrowing).
So - I asked him, in an interview for the Today programme - how great is the risk that investors will sit on their hands? Does he lie awake at night fearing a re-run of the 1970's, when a Labour government had to be bailed out with emergency financial support from the International Monetary Fund?
Well, Stheeman doesn't have bags under his eyes and sees a funding crisis as a very remote danger - largely because the market for gilts is much wider and deeper than it was.
For example, it has become much more international, with a record 36% of gilts now held overseas.
Now, you might point out, he would say that, wouldn't he?
That said, he was much less dogmatic about whether the government might end up having to pay a much higher interest rate to borrow - which is hugely important, because an increase of one percentage in the cost of borrowing £200bn would be £2bn that wouldn't be available to spend on public services every single year till the debt is repaid.
If, for example, the UK lost its impeccable AAA debt rating, that would almost certainly push up funding costs - not least because some of those helpful overseas buyers are central banks which aren't permitted to hold sovereign debt rated at less than AAA (though it was striking that Stheeman told me that he didn't think a downgrade of just a notch would make it significantly harder for him to raise what he needs).
But here's one reason why it's so difficult to judge where the cost of borrowing for the government will settle in the coming few months: the Debt Management Office has sold fewer gilts than have been bought by a separate part of the public sector, the Bank of England.
In April, May and June, Stheeman and his team flogged £57.9bn of gilts, while Mervyn King's traders waded into the market to buy £77.7bn of UK government debt.
The Bank of England is buying as part of its so-called Quantitative Easing programme to increase the stock of money in the economy and cut the cost of credit.
But the Bank has almost disbursed the £125bn allocated in total to the scheme - and was somewhat equivocal a couple of weeks ago about whether it will increase its gilt-purchasing budget.
Investors seem persuaded that the Bank of England will buy a bit more - although we'll have the first test in a gilt auction this morning of whether the Bank's equivocation is seriously unsettling investors.
Gilt prices have been falling after the large penny dropped in markets that there may not be many more weeks before the Bank of England transmogrifies from a massive net buyer of gilts into a potential seller.
Where the gilt price settles then is - as Stheeman implied - not something that can be predicted with scientific certainty.
And here's the great and painful paradox.
If the Bank of England stops buying at a moment when investors become a bit more confident about prospects for the global economy and our economy - if they become less averse to risk and more interested in buying assets other than AAA sovereign debt - well, then it might become altogether more tricky and expensive for the government to borrow.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~01~RS~)
Comments
Sign in or register to comment.
"And, what's more, with the government refusing to countenance significant spending cuts or tax rises," You can bet they are countenancing taxes and cuts but are not quite ready to tell us. When this double whammy arrives it will simply deepen and prolong the recession. Beginning to parallel the thirties depression?. The eye watering numbers put into context the tight fisted attitude of Brown to the support (often just friendly loans)of our crumbling manufacturing sector.
Complain about this comment
Mr Peston, you hit the nail on the head. The BoE is the gilts buyer of last resort, as well as the UK's off-balance sheet vehicle. Foreign investors have been net gilts sellers recently. Your story is another pointer to an election this autumn, just in time for Brown, before the public wakes up to the fact of the gilts flood.
Perhaps time the beeb also reports on the 22 billion pounds tax revenue shortfall, well documented in The Times and The Independent today? The Guardian somehow seems also to have missed out on this report, slipped out by the government on the last eve before recess.
Complain about this comment
Robert,
"And it would expand the existing stock of gilts - or the size of the market - by more than a third."
Given the current debt burndens taken on by various Gvts, how many other countries will have to make such large increases in the amount of debt they are selling? Has anyone estimated the potential growth of the bond market?
Surely such a large increase will destabilise the market, potentially creating far more sellers than buyers.
Complain about this comment
"a funding crisis [is] a very remote danger - largely because the market for gilts is much wider and deeper than it was."
It had better be. Sprott Asset Management of Ontario has calculated that in the US, for instance, there is not enough money in the domestic economy to fund the US's increased need to issue debt - and the US 'only' needs to borrow three times more than normal, whereas the UK needs to up its borrowing by a factor of four.
AAA ratings count for little these days. With every major Western economy chasing after their cash, overseas investors - now the only lenders of last resort - can sit back and wait for borrowers to bid up interest rates to sell their debt.
Mr Stheeman's comment in his interview, to the effect that many countries are "facing unique challenges of a similar nature" will surely become an enduring icon of Mandarin-speak. I imagine a policeman surveying the wreckage of a monumental motorway pile-up; hundreds dead, thousands injured, telling the news cameras: "It seems that a lot of drivers found themselves facing unique challenges of a similar nature, all at the same time."
Can anyone see how the idea of solving a debt crisis by trying to sell much, much more debt won't end badly?
Complain about this comment
Was October 2008 the start of a major change in the world economy and world order?
Did it mark the start of a 20 year period where the UK and US print money just to survive?
They've been doing this in Africa for decades, and look at the state of those economies.
Our future dependent on printing money?
Perhaps out of that will come our eventual salvation....our currencies will decay and we will become competitive again.
At what level would we be competitive?....the pound at half its' current value?
Complain about this comment
#4 FiniteResources
In spite of the rather sinister nature of the example, your policeman analogy gave me a good laugh.
Well, as long as the music doesn't stop ...
Complain about this comment
If there are £220bn of gilts to be sold this year at possibly increasing returns, is this not going to cause even more hardship on SME's trying to borrow the money they need. Will it impact on funds available to be lent as mortgages, further harming the property market?
Complain about this comment
Instead of borrowing money, the government should become money.
It works for me -
[Unsuitable/Broken URL removed by Moderator]/2009/07/i-am-light-of-world.html
Although it is not easily done. It has taken me years to get to this stage.
Complain about this comment
This article doesn't really say anything, does it? Except to stir up unwarranted worries about public debt levels. It asks a question - can the government finance its debt - without attempting to answer it.
There are much more interesting issues about how the recovery will take place - and whether using fiscal or monetary policy is best. In short, the best economists would say: stop worrying about printing money, that is exactly the Bank of England's job!
http://www.knowingandmaking.com/2009/07/monetary-versus-fiscal-policy.html
Complain about this comment
A very interesting report on Today this morning, Robert. We tend to forget those who toil in the depths of The Treasury to make it all hang together for a little while longer.
Mr. Stheeman deserves our best wishes and prayers for without him and his team we are sunk.
Having said that though we should consider the circumstances which placed this decent fellow where he now finds himself: trying to raise GBP 200 billion of debt just to keep the ship afloat.
As you rightly point out this debt only has value as a security for as long as the UK taxpayer has the funds to pay it off with whatever interest which applies. Given the ongoing collapse in government revenues this immediately becomes more challenging.
For as long as the Prime Minister remains in denial about the massive government deficit then the capability of Mr. Stheeman will remain in a complex situation.
The government continues to spend like a drunken admiral on shore-leave, its revenues are dropping like a stone, it has already incurred massive debts propping up the banks, it was running a budget deficit before any of this happened and the social costs of recession are building by the minute. Yet all we hear from the government is about swine flu. Is this the next big excuse after the Yanks and the banks?
All the evidence crossing my desk at the moment suggests a second nasty bite of recession will be on us before the end of the year. As usual I hope I am wrong.
When will this government wake up and not just smell the coffee, but the tea, the chocolate, the toast and the remainder of the full English as well?
Complain about this comment
If the selling of Gilts is a sensible way to raise money, then I presumably the UK is not alone... and if its not, then there is going to be an awful lot of choice out there for the Markets.....
There may be a lot of demnand for a finite amout of money!
Complain about this comment
Without a shadow of a doubt saving the institution of Govt and saving the banks means that real industry will be starved off funds probaby for a decade or more.
Inevitably therefore we will become increasingly reliant on inward investment by overseas companies which will of course lead to the smothering of what remains of UK industry except in some very nichey sectors.
I wonder whether this Govt and it's leaders along with the financial institutions really understand the damage they've done and why they are now so despised and mistrusted.
Complain about this comment
No.11. thinkb4
I agree with you. If all governments around the world are borrowing and spending, there will be an awful lot of government bonds being issued.
The only way to attract enough investors is to engineer a further global stock market smash, to scare all the investors into holding government securities instead of equities. Once all this Quantitative Appeasing has worn off, the price of equities (and houses) may start to slide again....
It took the Dow 2 years to lose 90% of its value back in 1929-1931.
Complain about this comment
Government (BOE) buying its own debt on the merry go round ? Is this not what the banks did ! Until the music stopped.
The city smoothers and the propaganda machine rolls on whilst the country sinks into its irrecoverable demise.
Companies are going bust left right and centre, millions loosing their jobs and all Brown and Co are bothered about are headlines. The only thing this useless bunch have been good at is headlines and announcing big spending plans (usually the same plan over and over again )
Browns maintaining of low interest rates is another attempt to tax the savers, only this time he benefits by his own lower rate borrowing.
Despite "RBSTemps" previous protests, Britain is bankrupt ! Morally, politically and financially.
We need change, and a bigger change than the Blair wannabe Cameron will ever have the guts to deliver.
Complain about this comment
We are living through a completely new era. Britain's AAA rating is the remains of a glorious past. It won't be cut until a spectacular crash in gilt demand takes place. Which it surely will, because the Government is trying to cure a disease caused by too much spending on credit by borrowing 4 times as much as last year. Unless that money comes from domestic saving (and I don't think anybody dare say it can, in the near future), sooner or later a ceiling will be hit--and probably sooner rather than later. At that moment, there'll be a crash. It's blood, sweat and tears again--only, few people seem to realize it.
Complain about this comment
Who are the net lenders to the cash-strapped Western economies? - presumably we are largely "owned" by China?
Complain about this comment
#2. Econoce wrote:
"Perhaps time the beeb also reports on the 22 billion pounds tax revenue shortfall, well documented in The Times and The Independent today? The Guardian somehow seems also to have missed out on this report, slipped out by the government on the last eve before recess."
It's the top story on the BBC Business page ("Public borrowing hits June record"), and is covered extensively in the Guardian too ("UK budget deficit hits record high in June").
The repeated accusations of BBC bias from contributors to this blog are predictable and tiresome.
Complain about this comment
This post is on a very prescient point.
I personally believe that the lack of government debt in the early part of this century as governments both national and local gave up on using government debt through gilts to fund hospitals and schools, for example, and used PFI projects helped and this helped cause the property market crash.
Traditional buyers of government debt such as pension funds and life assurance companies needed a source of reliable long term income to match their liabilities. Securitised mortgage payments over 20 or 25 years sounded ideal. This extra source of funding for property loans helped push the housing boom on for too long as cheap credit was too freely available.
A huge jump in government debt now not only will lead to a rise in long term interest rates as governments need to increase yields to ensure that they can sell all their debt but also threatens to crowd out private sector debt either for investments in stock, machinery or other investments.
I fear we will reap a double whammy from Gordon Brown's ill conceived mantra of keeping government debt below 40% as not only are we gifting our children a huge national debt but any economic recovery will be stymied by a lack of available private sector credit. It will all go to feed that cuckoo in the next UK government debt.
The government's insatiable need for debt borrowing over the next few years will handicap and delay economic recovery in the UK.
Complain about this comment
Is the Gilts story a swift way of avoiding all that bad news about falling revenues at HMR&C that came out yesterday under all that stuff from McPoison?
Complain about this comment
Yes but can we belive the figures, it imerged yesterday that the National Audit Office will not sign off several departments accounts INCLUDING the Treasurey's own accounts.
So we are now entering the relms of the EU where our accounts can't be signed off! So much for prudant accounting!
Perhaps its because for every pound that spent nuLabour anounce it under at least 3 times offtent under different headings and departments like the collage building program actually beleive they have 3 times the budget so over spend?
Complain about this comment
Shocking as it is the 56% of GDP debt isnt the true story as if only includes about 10% of the PFI debt/commitments, dosnt include the nucular power station decomisioning commitment, nor the RailTrack garanteed loan, nor the student load company, nor the state pension commitments, nor the totally unfunded Civil Service pensions....
the list goes on and on.....
Complain about this comment
Robert, no update now that UK debt has reached a record high and will only get higher in the short term.
http://news.bbc.co.uk/1/hi/business/8160614.stm
Surely time for a UK equivalent of the US debt clock.
For those interested GBP 799 billion, and how convenient it stays below GBP 800 billion before parliament breaks up, is approximately GBP 13,000 for every man woman and child in the UK.
Does anyone want to guess when government debt will breach GBP 1 trillion or GBP 1,000,000,000,000?
That's a frighteningly big figure.
Complain about this comment
I sense a mini-budget coming on, just like the good old days. VAT @ 20% and income tax up 5-10p easy isn't it?
Complain about this comment
If there is a problem selling all the new gilts, won't the government just instruct the Bank of England to buy more gilts? i.e. increase its programme of quantitative easing. It seems to me that both labour and conservative governments will do this.
Furthermore, the amount of gilts that the Bank of England can buy with newly created money is potentially limitless.
I do not see these actions of quantitative easing by the Bank of England as being inflationary, as the new money that they are creating is not going into the hands of the man in the street who might use it to push up prices on the high street, the new money is going into the hands of investors, and, by definition, investors invest.
Investors may then use the newly created money to invest in equities and businesses which is good for the economy.
What's the problem?
Complain about this comment
For a Government not to be announcing what cuts it needs to make now is just criminal to me,faced with the figures you are giving us.
They have it it woefully wrong and are hell bent on making it worse.....
Complain about this comment
Just keep on printing boys.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
It seems to me there are 2 ways this will end.
1 - There are enough international buyers for Gilts that we can sell what we need without having to raise the interest rates. However this does mean we have 'SOLD the UK to unknown rich foreigners' to whom we will be in debt to for many years. Tax hikes would be needed to settle the debts - effectively taxing the people and the funds going abroad.
2 - With the printing of money going on in the US and elsewhere, we are effectively in competition with other countries for gilt business. If they appear more attractive to investors then we will be forced to raise rates or further increase QE. Although we are AAA rated - we are going up against other AAA rated countries - and the biggest, being the US. A story on the BBC website shows the US are exposed to 23.7 Trillion - and they may need to raise even more than us - and we may find the markets cannot handle the expected flood of gilts.
Interestingly I think Vicky Redwood said on Radio 4 last night that the expectation in the market is there will need to be more QE as the last lot doesn't seem to have made much difference.
I see the country is on the edge - if it goes our way we can escape by the skin of our teeth - but if it doesn't it's a very long way down....
Complain about this comment
With TAX REVENUE FALLING by over 5% PSBR GOING THROUGH THE ROOF
YOU WOULD HAVE TO BE A NUMPTY TO KEEP BUYING GORDY'S DUD PAPER.
UNLESS OF COURSE ITS OUR SPECIAL EDITION 2009 FISCAL PRUDENCE LOO PAPER.
Nulabour HAVE TRASHED THE ECONOMY. . THE 30 YEAR CYCLE:LABOUR DOES NOT
WORK. . . .
Complain about this comment
#24 QE_Fan
AS I understand it the QE money is being used to buy Govt and private debt. If this is being bought from the banks, who are now buying up new issues of government debt, then the money is going into the Treasury coffers and is being used to maintain current levels of Government spending.
That in turn goes mainly into public sector wages etc and so feeds through into the hands of the man in the street.
I don't see how this can fail to be inflationary. The more money you pump into the economy in this way, borrowing to consume rather than to produce, the weaker the pound will become - and for a country that consumes imports rather than producing exports that will inevitably end with inflation.
Complain about this comment
In order to reflate the economy it is necessary for most of the new national debt to be bought by the BOE, because private sales do not create new money, There is also the advantage that any interest paid to the Bank recycles to the Exchequer as Bank profit.
Why on earth should credit rating agencies downrate British gilts? They are obviously completely secure because they are denominated in Sterling and at the end of the day the government can create, through the BOE, any amount of Sterling required to repay them.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
There were an awful lot of worried faces around in October 2008, particularily among the wealthy.
People fear poverty more than almost everything else.
And we all stood on the verge of poverty.
We still do.
There are still a lot of crossed fingers in Westminster, the Treasury and The BOE.
Those fingers will remain tightly crossed for months, or even years.
1929 is still waving at us.
But we British have one overwhelming attribute.....Apathy.
We will always be more interested in what's going on in Eastenders or Corrie than what's happening to our future.
That was what allowed the government to give the extreme favouritism to City that created this mess. "Elitism" is highly dodgy.
Apathy among the public may be the way forward.
After all, they robbed us in creating this wreck, so they can rob us again to get out of it. Printing money always has a negative effect on individual wealth. Inflation will do the rest.
"But I don't understand finance"......that's exactly what they like to hear.
Complain about this comment
@myself16 - Yup sorry, I should have read this previous debate on the topic before I posted -
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/07/how_long_will_china_finance_am.html
Well, all I can say is how awfully decent it is of the Chinese to fund our public services for us, especially as public services are basically for poor people!
Oh crikey, oh my gosh ... I guess that means the Chinese are socialists or something ... this is really, really scary ... I bet they only have loads of money because they tax their own deserving rich folks at punitive levels!
People, I think I've stumbled across a terrifying international conspiracy to MAKE RICH PEOPLE SLIGHTLY LESS RICH!!!
Rise up ye downtrodden rich and throw off your tax burdens! Rebel, I say, rebel - before it's too late!
May you live in interest-free times!
Complain about this comment
> Why on earth should credit rating agencies downrate British gilts? They
> are obviously completely secure because they are denominated in Sterling
> and at the end of the day the government can create, through the BOE,
> any amount of Sterling required to repay them.
The more Sterling you 'create', the less intrinsic value it has. If I had major holdings in Sterling, the last thing I want to see is the relative value of Sterling decreasing, it would make me want to dump Sterling ASAP, which would only add to the downward pressure on the value of sterling.
Complain about this comment
Pseudo Communism (Aka China) triumphs over capitalisim...............well who else can afford to buy these GILT thingies!!!
Complain about this comment
#22. My guess is next tuesday, about 4.30pm.
Complain about this comment
QE may raise the risk of inflation, but maybe, just maybe a little more inflation would help. As long as it is a little. It would help those who are in negative equity on their mortgages as well as a little help for whatever it is that we export these days, as keeping those jobs going is vital. With a little increased income, manufacturing companies can expand their operations gradually, offer more jobs. Maybe then we can turn the inflation tap on a little more (but watch it carefully) and be able to expand our manufacturing industries.
The problem I do see is the debt we are mired in, which we have obviously had to borrow in another currency other than sterling. It would make it a bit more difficult to pay off with a weaker pound, but maybe with extra revenues from manufacturing, it may even out in the end.
I haven't got a degree in this kind of subject, so maybe there is some flaw. But over the long term would more QE be worthwhile if managed this way?
Can I be Chancellor?
Complain about this comment
Debt,
As the numbers continue to grow and the amounts become untenable, isn't it about time that UKplc started to investigate its cost base (as would any company). From this, they would realise that their liabilities to its 'staff' are quite onerous in relation to the reduced income now being received.
There are two ways to tackle this, identify the root cause and implement immediate corrective action or carefully calculate the financial burden costs of a longer term recovery program to see if it is sustainable.
As i understand matters, the government (and i include all parties) are afraid of taking the necessary immediate action, significantly reducing costs which will impact on the beauracratic operations of this dis-jointed company. Despite what may be claimed, a severe cut in staff will ease the burden as new ways to provide the expected services will be quickly found (as in industry) and the huge pension public service pension scanddal needs restructuring to follow private practice.
the leaders of UKplc are currently afraid of making the dramatic changes required and are planning the longer term scenario of 'can we afford to wait and see'. As can currently be seen in the market place, this longer term option is not really available, so why do the collective leaders fail to take decisive action.
When are we going to get someone in charge with common sense, who can get 'the big picture' and make the necessary adjustments. Yes it will be extremely unpopular, yes it will have a counter productive cost (benefits vs salaries), but the economics make sense. i am not advacating a thatcher style, but just a leader who can explain and stand by their conviction.
there are more people in this country with common sense who can see whats needed, why not elect some
Complain about this comment
As long as what's done does not increase the basic rate of income tax, then we will eventually see light at the end of the tunnel.
Of course, we shouldn't be in the blasted tunnel in the first place!
Complain about this comment
2 years ago I could of borrowed 6 times my salary with ease and everyone thought this was reasonable.If they treasury believe they can keep issuing guilts no matter what,they are more stupid than I thought.Has no one learnt anything from the last 2 years? The country needs a robust plan to resolve this issue,otherwise we are going to have a situation where 20 to 30 % cuts in public expenditure will be required across the board.Raising additional taxes is just not going to be an option.
1.We already pay a high percentage in the £,you could raise VAT to 20% but expenditure will decrease pro rata,result no additional tax income.
2.Watch how the 50% rate produces no aditional tax next year,as the smart people work around it.
3.How many tax rebates are being paid out be because individuals and companies have already OVERPAID.
4.Some tax revenues lag spending by at least 18 months - cash flow issue!!!
The idea that education and the NHS will be spared this cull is complete nonsense.
Complain about this comment
"... the Debt Management Office has sold fewer gilts than have been bought by a separate part of the public sector, the Bank of England. In April, May and June, Stheeman and his team flogged £57.9bn of gilts, while Mervyn King's traders waded into the market to buy £77.7bn of UK government debt"
Isn't this simply a case of the snake eating its own tail?
I accept that a little knowledge is a dangerous thing, but my little knowledge of the finer points of economics tells me that having the Bank of England print money in order to buy Government debt can't go on forever.
So, where's this heading exactly?
Complain about this comment
All this business of the BofE selling Gilts with one hand and buying them back with the other is just a complicated way of printing money. And surely that is OK.
This whole crisis is because the banks have lost a quite staggering amount of money. For the economy to keep running that lost money has to be replaced, and the best way to do that is for the Government to print it. We're in a quite unique situation where we can just print money without it being inflationary. There's obviously a limit, but it doesn't look like we're anywhere near it yet and a further extension to the QE allocation is surely the right thing to do.
Also this shouldn't really be looked at as a temporary thing where we will have to pay it all back at some time in the future. The banks need to be prevented permanently from the excesses of recent years and must lend much less relative to their reserves and capital base. So in effect money printed by the Government will permanently form a much larger part of the money supply.
During the recession, we need the banks to keep providing loans in order to keep distressed firms and individuals afloat, but once the recession is over we need to be much less reliant on borrowing as a means of funding consumption. It is simply not a sustainable model. We need instead to move to a situation where trade is more balanced internationally and where wealth and income are distributed far more evenly - that is the only stable way of ensuring an ongoing demand for good and services. And again if we are less reliant on borrowing then money printed by the Government forms a much bigger part of the money supply. It is the situation in the past decade that was wrong.
Complain about this comment
The worst kept secret in the world is that the financial markets have ALREADY reduced effective ratings on UK government debt down to AA or even A, but that the embattled rating agencies have agreed to hold back their formal pronouncements until after the next election. That gives international holders a few quarters to adjust their portfolios (read: to dump Sterling), before the next government --Labour under credible new leadership or Tory-- put an end to the present ostrich act.
Complain about this comment
Re 34 magnetic monopole
Great post.
"How awfully decent it is of the Chinese to fund our public services for us".
Keep it up.
Complain about this comment
Gordon
Wake up and stop pratting around.
Let the Boe put a noose around the necks of our banks and forget about international competetiveness.
Slash public spending but do nationalise the utility companies
Don't raise any more business taxes and finally
Stop legislating
It's all about to go pear-shaped. Everyone here can see it. Why can't you?
Ooh thats much better
Complain about this comment
24. At 11:40am on 21 Jul 2009, QE_Fan wrote:
If there is a problem selling all the new gilts, won't the government just instruct the Bank of England to buy more gilts? i.e. increase its programme of quantitative easing. It seems to me that both labour and conservative governments will do this.
Furthermore, the amount of gilts that the Bank of England can buy with newly created money is potentially limitless.
I do not see these actions of quantitative easing by the Bank of England as being inflationary, as the new money that they are creating is not going into the hands of the man in the street who might use it to push up prices on the high street, the new money is going into the hands of investors, and, by definition, investors invest.
Investors may then use the newly created money to invest in equities and businesses which is good for the economy.
What's the problem?
----------------------------------------------------------------------
QE not inflationary?
Money not going into the hands of the man on the street?
Are you mad?
QE may not appear to be inflationary (as it's going on and we have deflation) - but it's like pouring petrol on a BBQ which has died down. It looks out, but then WHOOSH!
Money always eventually ends up in the hands of the man on the street. Gilt traders will make money from the artifically high prices (caused by the Government purchase) - and what's he going to do with it? Give it back to the BoE? He will be buying goods and services with this money. The reason this is so uncontrollable is because market players are herd animals, there won't be a steady increase in the spending of the additional QE money, we will reach a point where confidence returns and WHOOSH - here we go.
You logic is akin to saying that I can open a shop and buy all the goods myself and make a heap of cash!
Complain about this comment
33. At 12:11pm on 21 Jul 2009, stevewo wrote:
"But we British have one overwhelming attribute.....Apathy.
We will always be more interested in what's going on in Eastenders or Corrie than what's happening to our future."
....not once the power cuts start they wont!
Complain about this comment
Dear Gordon (The most successful Chancellor for a decade),
The first step to recovery is to first admit that you have a problem! (that we are now having to pay for)
Please find some helpful contact numbers below:
(Please note that the lines are closed on Saturdays, Sundays and holidays*)
International Monetary Fund
Headquarters 1 (HQ1):
International Monetary Fund, 700 19th Street, N.W., Washington, D.C. 20431
Headquarters 2 (HQ2):
International Monetary Fund, 1900 Pennsylvania Ave NW, Washington, DC, 20431
Telephone Operator: + 1 (202) 623-7000 · Fax: + 1 (202) 623-4661
Business Hours
MondayFriday: 8:30 a.m. to 6:00 p.m. (ET).
Saturdays, Sundays, and holidays*: closed.
*For holiday schedule, please see the IMF Business Hours, Holidays, and Emergency Closures page.
Comments or questions about the IMF's website: webmaster@imf.org
Yours...
BankRSlicker
Complain about this comment
39. Avalanche dodger
You need a reality check. Swathing Thatcherite (Cameronite) cuts to public services and public sector employment will deepen the recession. The benefits vs salary trade off simply does not work. A lot of the jobs to go in the public sector would be at lower levels and low skilled jobs, thus creating more long term unemployed, potentially unemployable. Can the UK afford to take another employment/consumption/taxation hit at this point in time? No. The only game in town is to get people spending to stimulate markets. You cut the public services at your peril as the likelihood is that you create a double whammy of lost tax and consumption and longer benefit lines. Best way to cut public spending is to ditch trident, cut defence spending and to stop being the US poodle (both Cameron and Brown have made great show of cosying up to Obama and UK foreign policy is an extension of the US's).
The simple fact of the matter is that the UK is doing or at least attempting to do the right things to head to recovery. This crisis is UNPRECENDENTED (sorry to go all ALEXANDER CURZON) and as a consequence the response to it largely reactive with some proactive parts. Paul Krugman Nobel Prize Winning Economist agrees with the course of action taken by the UK government and puts us ahead of the curve as the US and the other European economies cannot/have not been as brave. (US due to republicans adding amendments to bills at the senate and Europe because of one large inflexible central banking system.)
The only true way out of recession is to increase productivity, thereby increasing employment, tax take, consumption and GDP. Any attempt to decrease employment at this time will be entirely counterproductive. If economic activity increases all this talk of cuts/tax rises is moot. A growing economy can pay for itself and service debt. Lets not get caught in a stagflationary, high interest rate cycle.
Complain about this comment
Lukeo1980 various
Expand manufacturing? Theres no skill base left to do it plus most UK
citizens wont do it ie WORK!
Complain about this comment
43. random_thought and others supporting QE
Try to understand this - you can print all the money you like as a country, and you are correct it will 'fill the hole' that the banks produced when their predictions of perpetual growth failed.
However, consider the Beeny baby - if I have 1 and there are only 5000 in the world, the Beeny baby has a value relative to that which will be quite high (a colectors item).
If however the Beeny baby can be bought in every corner shop - it's suddenly worth a lot less.
The only way a market can maintain prices is through the idea of scarcity - that's why air is free and cannot be bought and sold (yet).
Money is no different, it's essentially a commodity which has 1 purpose - the means of exchange. It serves no other purpose (you can't live in it or on it - only the goods and services you can exchange for it)
When the world wakes up and realises it's been flooded with the Queens face - they will not regard it as having value. Other currencies will become the 'collectors items' and money will flood to those currencies. The only way to stop this is by attracting it back through punitive (attractive) interest rates.
This is the consequences of QE - Zimbabwe are showing the extremes of this - where now the Dollar is being used as currency - which is common when this has occurred before (postSoviet Russia) - or where barter replaces currency.
However nobody has considered what happens if the Dollar goes the same way. I guess at that point only the Yen will have value and will replace the Dollar as the 'default currency'.
Complain about this comment
I HEAR GORDY IS TAKING HIS HOLS IN THE LAKE DISTRICT: PITY!!
Complain about this comment
PeterWARD
GOING all ALEXANDERCURZON?
Now THERE's A THOUGHT!!
Complain about this comment
If it ends up a contest between US T-bonds and UK gilts...then I reckon WE are gonna lose out...as the US dollar remains the worlds reserve currency (for now!).
Complain about this comment
# 43 random_thought
" ... it is the situation in the past decade that was wrong".
The situation in the last decade was just right for the Labour Party; it kept them in power under false pretences for 12 years.
Gordon Brown created the biggest illusion of wealth creation in recorded history, funded by personal and public sector debt, now perilously underwritten by the Government, but in fact underwritten by this and future generations of taxpayers.
Brown stole money from the UK's future citizens and dumped it unconditionally in today's society so that we could indulge in a house owning/flipping, SUV-driving, consumerist, welfare-dependent, statist dystopia that had one objective to the fore at all times: keeping socialists in Government. You either worked for the Government directly and/or loved the easy money of financially incontinent private and public sector policies.
In short, governance of the United Kingdom over the past 12 years has been a shameless and unmitigated shambles; a group of political gangsters (led by the Blair/Brown/Balls triumvirate) engaged in a cynical exercise in securing and holding power at all cost ... which is now turning out to be nigh-on bankruptcy.
Since socialism is, by definition, unsustainable (it despises and stifles wealth creation whilst demanding ever greater levels of debt and/or taxation), we've now reached the point where that unsustainability has tipped into collapse.
Like I and many others keep saying: I just hope that the Tories understand the potential socio-economic chaos that lies ahead (seriously exacerbated by this nation's grotesque energy insecurity which will smash into our lives like a steam train in the next decade), and have some idea of how they intend to avert disaster. I'm not holding my breath.
Indeed, I'm preparing myself and my family for what could well evolve into little short of armageddon if our political class keeps performing like it has over the past few years, ie with blistering incompetence.
Finally, just to make my point: http://tinyurl.com/mnakc2
Complain about this comment
50 Peterward2008 - public emplyees do not pay tax, they are the recipients of tax taken from the productive part of the economy. Using your logic everyone should be employed by the state.
Writingsonthewall - how would you manage the money supply?
Complain about this comment
#43 random_thought wrote:
All this business of the BofE selling Gilts with one hand and buying them back with the other is just a complicated way of printing money. And surely that is OK.
-------------------------------------------
It's not the BoE that's selling the gilts...it's the Treasury that's selling them and the BoE that's buying them!
A gilt is just a government IOU (+ interest) put simply
Complain about this comment
50. peterward2008
I completely agree with your post - except for this one line:-
"The only game in town is to get people spending to stimulate markets."
Whilst this is partially true - this is not a sustainable way out as the only way to get people spending again is for them to increase their own personal debt (as most people have been living off credit for sometime now).
This is a false Economy put out by the desperate free market loonies who criticise the Government for trying to spend their way out of debt - but expect individuals to spend the country out of debt - locking themselves into slave labour for the rest of their lives.
I completely agree with your final statement that only Production will get us out of this hole. However if you think about it, the expectation was for the Economy to be growing at a 3-4 percent rate, and it's currently shrinking. Seeing as the banks have gambled away the next few years production revenue (and that was at the expected rate of 3-4 percent) - it's now going to be much, much longer before we can produce enough to fill the hole. We would have to get back to pre-bust production levels today to stand any chance of getting out in the next 2 years or so.
As each day passes the realisation that this is going to go on for a very long time becomes apparent. This is no short term blip and I expect the best case scenario is we return to +ve growth in 2012 - and that's without factoring all the unknowns - like the effect swine flu will have on the Economy.
If you watch the politicans carefully you will see how worried they are now. They really fear a collapse of unprecedented magnitude and their only option is the one mentioned above - the Ostrich approach.
Complain about this comment
799 BILLION OF DEBT WITHOUT PFI!
nulabour HAVE SERVED US SO WELL?
Complain about this comment
BankslickerMinustheR
The dollar remains the worlds reserve currency as long as China allows it. A change in the valuation of the Remnibi would change all that.
On a separate note...
Any public spending cuts should target waste not jobs. Waste being adequately displayed by £200m overpayments to defence staff due to a wonky payroll system and £150m of lost secure radios.
Complain about this comment
Moraymint
1. This is not socialism...lol.
2. If you beleive all you say then you are seriously deluded.
Are you digging a bunker and stocking up on tinned fruit and bottled water?
It is a recession. All politicians of whatever hue are as morally bankrupt as each other. We have our electoral cycle to thank for that. I fear for when the tories get in and I will no doubt look at emigrating as it will be a return to the worst excesses of Thatcher. Remember the rest of the country being left behind as the South East prospered. A return to the bad old days all round I think.
Complain about this comment
#42 moraymint wrote:
Isn't this simply a case of the snake eating its own tail?
I accept that a little knowledge is a dangerous thing, but my little knowledge of the finer points of economics tells me that having the Bank of England print money in order to buy Government debt can't go on forever.
So, where's this heading exactly?
-----------------------------------------------------
It's all about credibility...and at the moment, all of this country's credibility lies with a certain Mr. James Gordon Brown!
The credibility bit is whether the international finance markets believe that the UK Govt (aka Jimmy Brown) can keep up on it's interest payments...otherwise it's a dose of austerity tablets to be administered by the IMF doctor.
Looks like the public sector pensions provisions will go down the pan.
Complain about this comment
truths33k3r
Public servants pay tax (unlike a lot of vaunted high earners and masters of the universe lol) spend money in the UK on goods and services and pay VAT. The Companies that public servants spend their money in pay tax on their profits and employ staff. Its called the Multiplier effect. You will find it in any economics text book under Keynes.
Complain about this comment
PLEASE WILL EVERYONE STOP GOING CURZON ON US - IT'S INFECTIOUS AND NOW I CAN'T STOP!
Complain about this comment
Public workers do not pay tax. Period.
2 Labour disasters should have taught you that Keynes cannot be taken seriously.
Complain about this comment
56. At 1:13pm on 21 Jul 2009, moraymint wrote:
"Since socialism is, by definition, unsustainable (it despises and stifles wealth creation whilst demanding ever greater levels of debt and/or taxation), we've now reached the point where that unsustainability has tipped into collapse."
1 - Are you trying to say britain is Socialist? - if so you need to look the word up before you make that assumption.
2 - Socialism doesn't stifle wealth creation - it merely prevents the un-even distribution of wealth. When a man becomes rich, another becomes poor - or are you suggesting the world is infinitely big thereby allowing the creation of wealth without destroying it elsewhere? As the latest experience has shown - there is a finite level of production and no amount of gambling over and above that will change it - hence why we're going to be paying it all back over the next 10 years.
3 - The greater levels of tax / debt are solely due to the attempt to produce socialist ideals in a capitalist world. In a truly socialist world the WORKERS own and run the PRODUCTION and thereby there is no extraction of capital by the capitalist and therefore no diminishing profit.
4- The unsustainability we're experience is the capitalist unsustainability - so unless you're writing this from Cuba you are talking nonsense.
It's so depressing when I see the 'S' word thrown about by people who don't understand it - but are happy to blame it for their troubles rather than the true cause which is staring them in the face.
If you haven't worked it out yet (and it's been 10 years so you must be slow) the reason Labour put 'Nu' in the front was because they were MOVING AWAY from their traditional left wing ideals.
Even what you say in teh apragraph before makes no sense - you claim Labour supported consumerism (which they did) - but this is the opposite of what a truly socialist government would have done.
A proper left wing government would have raised taxes long before and would have prevented the over-inflation of the Economy which has just caused the crash.
I can only presume you're actually 5 years old and therefore it's understandable why your ideas are so mis-guided.
Complain about this comment
66 Truthseeker
You cannot be serious because monetarism is not a busted flush. lol. We are at the zero bound and still liquidity is more golden syrup than water. Milton Friedman must be really proud of himself.
Seriously learn some fundamental economics before you come out with such stuff as public sector employees do not pay tax.
Complain about this comment
57. At 1:17pm on 21 Jul 2009, truths33k3r wrote:
"50 Peterward2008 - public emplyees do not pay tax, they are the recipients of tax taken from the productive part of the economy. Using your logic everyone should be employed by the state.
Writingsonthewall - how would you manage the money supply?"
truths33k3r - you're back - and who have you brought with you today?
1) mmmm - that's odd because every public sector employee has the same NI and tax to pay as the rest of us. Are you suggesting it's a conspiracy? Maybe it's because you can't value something unless it's a monetary value - so I'll remind you of that when you're in hospital awaiting your triple by-pass on the NHS. Only brought to you by other productive areas of the Economy - however should you recover and then return to work - and god forbid - be productive - then you will have slipped back into the 'productive area of the Economy' - where you can then be taxed again.
Didn't really think about that properly did you?
2) I don't know which post you're referring to - however generally the money supply is a pricing mechanism and is irrelevant to the actual production within the Economy. All the money supply shows is how far we're over-inflated as an Economy from our true 'value'. Reading the money supply is like looking at the sky to see the weather - you can read what the weather is but you cannot predict it nor change it by looking at it.
Remember your basing the relevance of the money supply on the premise that Economies are essentially stable and it's the money supply that upsets it. The increase in the money supply is merely the symptom and not the cause of the over-extension of the Economy.
Complain about this comment
peterward2008 - I realise that you are an economics expert but public sector workers do not pay tax, they recycle it. I am not letting you get away with that one, economics expert or not.
Complain about this comment
The UK is in a very real mess, on a scale much bigger than during the 1970s. Here is why:
1. Unprecedented, jaw-dropping levels of public and private debt which are unsustainable even with 0% interest rates.
2. House prices are still way over valued.
3. A continuing fall in the tax-take. Over the previous decade the tax-take has been inflated by a) North Sea oil, b) the City, c) the consumer.
The North Sea oil production is declining rapidly. It peaked in 1999. Indeed BP announced today that their production from NS will be 9% down this year - and this is not due to lack of demand. It is because of declining flow rates.
The City has cooked its own goose. The party is over. Bank balance sheets are still wrecked and many are technically still insolvent. Also, new tighter regulation will curtail any desire to restart the casino.
The Consumer benefited from a double bonanza of absurdly over-valued houses which they used as cash machines and spent on the high street and also exceptionally low prices of consumer goods (and food) while the pound was strong and there were still deflationary pressures to be had in the Asian sweat-shops. About two years ago prices ceased being driven down. There was no more economies of scale and the Chinese were starting to ask for more profit.
3. Energy. If there is one thing which goes hand-in-hand with debt-based GDP growth it is the requirement of continually cheap and abundant energy. Both in the form of electricity and liquid fuels for transportation. The UK is facing a very real, very serious squeeze on our ability to generate adequate electricity. And the oil markets have never been tighter. The ability for the UK and other countries to grow our way out of debt is going to be impossible. There is not enough energy. I could discuss Peak Oil for ages, but suffice it to say that it is genuine and a clear and present danger and is the final nail in the coffin of business as usual.
This is not just another recession. It is the start of a very long, and very deep depression. Frankly, the government cant do anything to mitigate the consequences. We are going to be a lot poorer in the future, the glory days are over.
Complain about this comment
62. At 1:29pm on 21 Jul 2009, peterward2008
You beat me to it!
Unfortunately there is a long procession of people who want to blame something for the failure of their Economy other than the true cause. Like a bad builder - not fixing the root of the problem but continuously papering over the cracks.
Hopefully these people will get time to read more over the next 10 years whilst they sit around contemplating where their job has gone to....
Complain about this comment
68. At 1:53pm on 21 Jul 2009, peterward2008
You should ignore him - he is mis-guided and a wind up.
There are millions of tax paying public sector workers in the country - however truths33k3r thinks they all actually sitting around doing squat and getting paid for it.
It's classic selfish mentality - too busy looking at what others are doing and not getting on with doing yourself.
However I'm sure Truths33k3r doesn't use roads, hospitals, schools, college (well he couldn't have), his GP, the Dentist, railways, social sevices, the library......
To not use these services must mean he sits in all day writing blogs which have no grounding in the truth.
Complain about this comment
70. At 2:06pm on 21 Jul 2009, truths33k3r wrote:
"peterward2008 - I realise that you are an economics expert but public sector workers do not pay tax, they recycle it. I am not letting you get away with that one, economics expert or not."
Still haven't answered my example about the Doctor though? If you return to work in the private sector thanks to an NHS doctor (who is a PS worker recycling tax as you put it) - do you pay him back? or does that simply mean you're not counting that as a contribution?
In reality we all recycle tax - I use the roads to get to work, tax money is used to keep those roads in good repair. Without that I wouldn't be able to get to work and I would not be a 'productive member of society in the private sector' paying tax. I would sit at home on my hands.
....or agian, do you not count that?
if you really seek the truth - why do you so often ignore it?
Complain about this comment
Hi Writingsonthewall - how is my favourite socialist?
I see how you are getting confused about public sector tax. Yes they do have NI numbers and a notional amount of tax is deducted from their payslip, but given that all of their salary is tax taken from someone else it is pure recycling.
Your comments about the HNS are irrelevant given that I paid for the op through taxation - that is how I know the value of it. Are you saying that without the HNS nobody would be providing heart operations?
Money supply is at the heart of our current issues, that is why I asked you the question, knowing that you would come back and say it was irrelevant.
I love this game.
Complain about this comment
It is certainly true that the only wealth generators in our country work in the private sector. The public sector may contain socially productive people like doctors and nurses but they don't produce any true wealth. That is done solely in the private sector. Now, don't go and read that as though I think all public sector workers are useless. I don't. But the chap above who argues that they don't pay tax is correct in so much as they don't increase the total amount of tax-take. They are paid via tax, and they recycle it back to the HM Treaury. Only when entreprenuers in the private sector put capital (savings) to work in creating new private jobs is any wealth created - which can then be taxed.
And the more people at work in the un-productive public sector (some of whom may very well be socially productive), the less the private wealth creating sector can grow.
Complain about this comment
Wringsonthewall - do not put words into my mouth. I said that public sector workers do not pay tax, not that that did not work hard.
Complain about this comment
Oh truths33k3r - I do get tired of correcting you....
Hi Writingsonthewall - how is my favourite socialist?
- I am not a socialist, I am an anti-capitalist. I understand what Socialism is which sets me apart from you. It's important to understand all forms of Economy - otherwise you discount important factors and we end up with the 'free market is the only way' attitude.
I see how you are getting confused about public sector tax. Yes they do have NI numbers and a notional amount of tax is deducted from their payslip, but given that all of their salary is tax taken from someone else it is pure recycling.
- .....and where is your salary from? Do you work in an industry that receives no public grant? one that doesn't deal with the Government (local or National) as a customer? Do tell me, what is this industry?
Your comments about the HNS are irrelevant given that I paid for the op through taxation - that is how I know the value of it. Are you saying that without the HNS nobody would be providing heart operations?
-- So you pay exactly the right amount of tax for all the public services you use? What about if you get run over? Have you accounted for that too? You must be the ONLY person in the world who has reach tax parity.
Money supply is at the heart of our current issues, that is why I asked you the question, knowing that you would come back and say it was irrelevant.
-- So tell me - how does restricting the money supply actually influence anything? Take it to the extreme and tell me how the theory works then? Where is the evidence of it working? Chilie? Thatchers Britain? As I said before it's merely and indicator of the symptoms and not the cause. I presume you'll be treating your swine flu with a handkerchief.
I love this game.
- ah well, that's because you think it's a game, well unfortunately it's not, it's very serious. People will die as a direct result of this recession but I presume as long as 'you're all right jack' then you will keep smiling.
....just make sure your doors are locked at night as recessions always increase the crime rate...
Complain about this comment
76
Sorry to go through this well rehearsed argument again. You assume that all public sector workers do is recycle tax. So public sector do not consume goods and services from private entrepreneurs, who then use this spend (net of tax paid) to invest in their business and produce more products and employ more people. In this way the consumption of public sector workers can create capital and revenue. The multiplier effect as it is known and is broadly accepted.
Complain about this comment
76. At 2:30pm on 21 Jul 2009, sectornitad
...or are you truths33k3r in disguise?
Read my post at 74 and explain how this is not ensuring the generation of wealth in the private sector as a direct result of the public sector?
Maybe that's the solution - we withdraw the use of all public services by the private sector (including contracts won by private sector businesses) and we'll see how productive, we the private sector is on our own.
How you going to get to work in the productive private sector without the public roads to use? Helicopter maybe? - well you'll need a serious amount of pay rises then...
Complain about this comment
Sensible and realistic posters today with varying degrees of accuracy and trepidation on what lies ahead.
The world is in such a mess and the imbalances between China and the rest are widening at a time when there should be plans to place a check on these. We are all being led up the garden path by one vested interest after another. Truth at the moment is hidden in the dark shadows.
Who can possibly know the outcome of a situation where China is printing money to buy debt from the west and pulling in massive amounts of debt interest into its economy. How frightening is that?
Desperation has set in for no-one knows what to do so everyone keeps printing more money and selling more debt to whoever can print the money to buy it.
This is buying time until the whole situation implodes. Back to square one.
Gordon Brown will remain where he is as long as is possible because everyone knows his policies have been rubbish but we're too far down the line now for them to be reversed. He will take the flak at the end of the day.
How long it will be before the final crash is difficult to say but even the IMF won't be able to raise enough money to pay the debt interest required by China from the rest of the world.
In the meantime while those at the top continue to play their games of monopoly billions of ordinary people have to sit it out waiting for the final outcome. It will not be pretty.
Complain about this comment
Thank goodness I'm moving to New Zealand next year.
Complain about this comment
writingisonthewall -
I believe if you re-read my post you will see that I do make reference to 'socially productive' workers in the public sector. I have no doubt that the private sector requires law and order in order to turn a buck, and that they therefore require a police force. The point that is always lost in this debate is that the the tax gathered is infact a cost to the private sector. The public sector does not, never has and never will actually create that tax revenue.
Take your argument to the extreme and assume that we all work in the public sector. Where does the tax come from? The Treasury taxes us all at a marginal rate - say 30% - and then pays us 100%. Sure you can see that this is voodoo economics?
Complain about this comment
now is the time for all good men
Complain about this comment
re 45 stevewo - thank you - likewise your posts - always thought-provoking and substantial.
Complain about this comment
I recall from the 2009 budget/red book figures that Alastair Darling has made a forecast that the UK will come out of recession during the last half of 2009 - this now looks over-optimistic just as it did in March 2009 and so the government's borrowing problems are compounded by having to borrow more and the markets (mainly overseas speculators) can sit on their hands and pressurise the interest rate on those borrowings.
But in reality does anyone think that anyone in the current government gives two hoots how much needs to be borrowed or from where or whom or as to the percentage rate on those borrowings? Gordon Brown has only one interest as a committed megla-maniac and that is in hoping that the UK economy recovers sufficiently by June 2010 for him to argue that the recession is on its way out - in time for peddling spin and lies at the general election.
If the UK borrowings go sky high Gordon Brown knows that his tax bureacrats will sweep down like a great vulture (in the unlikley evenet of a successful general election by Labour) on the English PAYE taxpayer and give them the biggest 'double whammy' of all time and will cut services in England and tax those PAYE mugs until their 'pips squeek'. This will maintain the English taxpayers' perennial net subsidy of Wales, Northern Ireland and SCOTLAND - Yes ... Scotland is subsidised because Gordon Brown has said so (if you can believe him?).
Interesting piece about who amy be concerned aboyt paying what - but the Labour government's attitude is that the English taxpayer will always bail them out under any economic conditions - the final question is how many miscalculations have Brown/Darling made here?
No .. let's not keep blaming Brown/Darling (as they are not in control anyway as abdicators from that illusive but non-existent entity the British economy/banking system as we're all now part of the global economic mess according to Gordon Brown) - so can we blame the Whitehall Mandarins instead? (i.e. those who keep supplying Darling and Brown with bad GDP/economic data and 'bent' figures for budgetry statements) - even though the National Audit office does not seem to care much about the fraudulent budgetry statements?
By the way I have a Grade A star GCSE in English Language so please no more remarks about the quality of my grammar!
Complain about this comment
virtualsilverlady -
spot on. And about the IMF, it has no money. It is a fund into which the wealthy nations place money to bail out the poor nations in trouble. The problem now is that the wealthy nations are now the ones in trouble! Just last week the US had to issue bonds to the tune of $100 Billion to cover its commitment to the IMF. Absurd or what! The US is in such a terrible mess, literally insolvent, yet it is still donating a huge wedge to the IMF!
Complain about this comment
The multiplier effect may be "broadly accepted" but not by me.
If you are an anti-capitalist what is your solution to the issues that we face?
We live in under corporatism, and as such is is impossible to operate in any industry without the government being involved somewhere. That does not mean that I have to like it.
With the government setting the tax how do I know whether I have paid the right amount of tax for the services I consume? I do not. That is why government should not be fixing prices.
Controlling the money supply helps prevent bubbles, like the housing one that still threatens to engulf us, which is why we are printing more money to try and prop up prices. The recession is not a game, but everyone that suffers can look at one place for the reason - big government.
Complain about this comment
Why aren't other leading economies with considerably larger budget deficits facing credit downgrade or debt default?
The bank of england if truely independent should have been purchasing high grade(whatever that means) private debt instead of monetising government debt. All that quantitive easing appears to have done is to allow the government to significantly increase it's borrowings without penanlty on the coupon it has to pay, cheap money for the government to waste on bureaucracy. I hope before the BofE decides to increase interest rates it sells all those treasuries it's purchased to tighten monetary policy, which will also mean Darling and Brown will HAVE to start tightening their belts!
I also hope Mr Bootle is correct in his assessment of the macro economic landscape over the next few years (I'm not a public sector worker), it seems to me to make a lot of sense. Anyone agree or disagree?
http://www.telegraph.co.uk/finance/comment/rogerbootle/5675634/We-can-afford-to-keep-interest-rates-at-record-low-for-many-years.html
Complain about this comment
64 peterward2008
''Public servants pay tax (unlike a lot of vaunted high earners and masters of the universe lol) spend money in the UK on goods and services and pay VAT. The Companies that public servants spend their money in pay tax on their profits and employ staff. Its called the Multiplier effect. You will find it in any economics text book under Keynes.''
Public servants may pay tax but they are paid in money collected in tax from the private sector. Tax revenues can only come from the private sector which creates the wealth, all else is just tax recirculation, diminishing on each recirculation. It has nothing to do with multiplier effects. It is the false belief that the public sector is somehow divorced from the reality of the state of the wealth creation in the economy that has cause the bloated public debt with public expenditure running absolutely flat out during Browns Bubble. If your wealth creation is money manipulation then it is vulnerable. If your wealth creation is undermined by low wage zones then it is vulnerable. If you cannot create the wealth then your tax revnue drops, if your tax revenue drops then your public services and public servants must also drop. Wait for the drop.
Complain about this comment
"Pay us more and we may buy more of your bonds"
Presently these is a 'fraud' taking place and that is the deliberate destruction of the price of money by sticking to a zero interest rate policy combined with printing money. The market will ensure that this does not go on very much longer. If the central banks stick to a worthless money policy, sooner or later they will suffer a terrible retribution from the market. They know it, but are hoping against hope that they can con investors for a few more weeks or at best a month or so.
However the first central bankers to raise rates to a proper level, a sustainable level (5 percent), will get the advantage of not having to raise rate so much as later central banks. They are all waiting to see who blinks first!
Given their past pathetic performance I don't hold up much hope for the Bank of England in this race. Too little too late has been their pattern for the last decade or so. The same cowards are running the place - so that would be my prediction! Total inaction until after the election! At huge medium term cost to the Nation - as per usual.
Complain about this comment
It seems a racing certainty that the interest paid on gilts is going to have to rise to enable the government meet it's borrowing requirements. Will this mean that the Bank of England will have to raise the base rate? Or can there be a dislocation between base rate and what the government has to pay on the interest rates on gilts? Or will it be the case that because the rate offered on gilts is better than what banks can achieve on loans to the private sector that this 'crowding out' of debt provision to the government has the automatic effect of raising interest rates on private loans?
Appreciate comments.
Complain about this comment
88
Monetarism and the exploitation of it caused this bubble.
So you want penal interest rates? Repossessions etc. The thatcherite solution is bust. The control of the supply of money using interest rates does not work. Interest rates are near 0% yet the supply of money and finance is worse than ever, ask any SME how easy it is to get credit out of a bank. The deregulation of the banking sector that forced the US to drop Glass Steagall caused a lot of this by allowing retail banks to get too big to fail. Central banks cannot hope to control the supply of money as long as China keeps saving and turns that saving into cheap money. This cycle will be repeated if monetarist control returns. Then you end up with wild fluctuations in exchange rates, devaluations that cost billions to underpin a la the ERM debacle.
Monetarism and control of the supply of the money is a busted flush with the structures we have place (both regulatory and commercial).
The multiplier effect is accepted the argument tends to be around the value. A look at the history books at the American experience of the New Deal and the Military Industrial Complex shows that. Your view on value added is interesting if you extend to include shipyards with one contract that is a government one...surely all the people here are public sector employees who merely recycle tax.
Complain about this comment
88
You and other intellectual heavyweights George W Bush and Ronald Reagan would agree with your views on big government.
Complain about this comment
79 peterward2008
''Sorry to go through this well rehearsed argument again. You assume that all public sector workers do is recycle tax. So public sector do not consume goods and services from private entrepreneurs, who then use this spend (net of tax paid) to invest in their business and produce more products and employ more people. In this way the consumption of public sector workers can create capital and revenue. The multiplier effect as it is known and is broadly accepted.''
Just wait till the tax revenue drops. It is as simple as that. I can't remember whether it was Friedman or Greenspan - An economy is - 'I can spend my money or your money. You can spend my money or your money'. Its as simple as that. If I have no money and you have no money then nothing happens. As for your multiplier effect, fine its looks great, perpetual motion, problem solved we can all sit on the dole and use public money and the multiplier effect will take care of it. Nobody objects to paying taxes in return for services, that is the principle of taxes. Taxation runs at 46 percent total direct and indirect and has done for years, that figure is the same across developed western european economies and is needed for welfare provision. It is a percentage so if the economy drops the the tax take drops. In the private sector competition stops most lunatic behaviour, what competition doesnt stop government regulation is supposed to stop. In the public sector there is monopoly, no competiton and excesses do not stop. it is as simple as that. Your multiplier effect will not save you.
Complain about this comment
If all the net surplus countries do not buy up all of our public and private debt then we wont buy their oil and cheap toys, it's what is commonly known as a virtuous circle. We end up being effectively mortgaged up to the eyeballs with the above countries but what are they going to do when we default, repossess our hospitals and roads? We actually hold all the trump cards because we can also allow inflation to erode the value of both our debt and their assets. But whisper it quitely because they are going to be mighty peeved when they work all this out. That'll teach em to try and achieve world domination through manipulation of exchange rates.
Complain about this comment
NeedaFilip -
The real interest rate to watch is not the BoE base-rate. That is a purely academic rate (almost). The real rate to watch is the inter-bank rate. This is the rate upon which all consumer and business loans are made and floats above the base rate. The inter-bank rate (LIBOR) is typically priced around the AA rating, but moves up and down even as the BoE rate is static. The secondary market for gilts will start to price in a higher yield requirement (prices will fall). This means that new gilts will need to equal or beat the prevailing rate in the market on that part of the maturity curve.
I said that the BoE rate (which is actually a repo rate) was almost academic. It is the rate at which the BoE will pay banks for over-night deposits - which are mandated by the capital requirements ratio.
Complain about this comment
Gordon Brown is out of control and I think Mandy realised this a while ago...hence Mandy's recent comments regarding reduced budgets.
Maybe Mandy can act as a restraining hand on Gordon!
Complain about this comment
95
I am afraid that your understanding of Keynesian economics is tainted by your Friedman and Greenspan references (both stewards of this current problem). The multiplier does work and does not apply in the same way to benefit payments as benefit payments do not have any added value. Benefit payments do not lead to tax being increased and have minimal impact on consumption (on a macroeconomic level). No matter how we cut it, consumption and production drives growth. In order for goods to be produced, they require a market and to be demanded (otherwise there is no point in producing them). An entrepreneur/producer will take the £1 in my pocket whether its my money or your money. Utilise it to produce more inventory to sell or to grow their business.
That in a nutshell is the multiplier, in a way its how markets work and its around a measure of return on capital. On the question of monopoly in the public sector. Thats now becoming more of a myth. I can send my children to any school within reason and these schools compete to attract the best students, same goes for unis and colleges too. I can now also travel to get operations done by other PCTs.
Complain about this comment
NeedaFilip -
"If all the net surplus countries do not buy up all of our public and private debt then we wont buy their oil and cheap toys, it's what is commonly known as a virtuous circle.... We actually hold all the trump cards because we can also allow inflation to erode the value of both our debt and their assets. But whisper it quitely because they are going to be mighty peeved when they work all this out. That'll teach em to try and achieve world domination through manipulation of exchange rates."
No. This argument is flawed. They do not need us. China is busy try to stimulate its internal markets. If we try to inflate away our debt we will cause massive problems for own citizens. The pound will tank and seeing as we are net energy importers, net consumerable importers, net clothing importers and most importantly net food importers there would be very real social unrest and the economy would implode. And all this while real wages are decreasing or at best stagnant. If we even begin to think we can inflate our way out of debt we are playing with hell-fire.
Complain about this comment
#93
Who said anything about interest rates controlling money supply? Not me.
I am against central banking so you can't get me on that.
The New Deal prolonged the depression. I am a pacifist therefore against the military complex. George W Bush talked about small Govt and then led America into illegal wars through deficit financing. Fannie and Freddie (Govt) were behind the worst of the sub prime debacle, together with artificially low interest rates (Govt) My opinion of people is based on what they do rather than what they say.
I know there are a lot of people who want to blame markets for what has happened and that I am in the minority. My issue is the bigger government gets the less free we are.
Complain about this comment
The government owns a big stake in the banks and the banks are lending the government money to cover debt that was created by lending the banks money to cover debt. I guess it is meant to make you dizzy. Having invested in a metal box and shovel I will deposit my money, where although still subject to devaluation by the schemes of bankers and government, at least it won't be stolen by them.
It just amazes me that all of these people still have their jobs and are not in prison.
Complain about this comment
Damn, it looks like we are going to have to do proper work again instead of dog walking and pushing bits of paper around posh desks. Reopen the pits, fire up the kilns, drag all the engineers from their garden sheds, Britain is going back to work!!!
And Blackpool will become the only affordable location for the majority and with british made brollies we are likely to get very wet!
Complain about this comment
Juggling debt is avoiding, not dealing with the issue. The western world economies are in a dire state, a rudderless out of control overweight juggernaut. I just hope the Tories have a workable plan to repair the rudder and get us fit before we crash and burn.
We don't control manufacturing and we don't have enough natural mineral resources to sell and bargain with.
We need to go into survival mode just like the human body does when it suffers a severe trauma or injury. Any non essential parts are shut down. Government spending has to be radically cut back. To name but two nanny state industries the FSA and CSA are ones that abjectly fail to deliver any value to the economy. The HSE should be shut down as should the alcohol and tobacco industries.
Any mortgage above sensible lending limits say two times an individuals salary should be wiped out on the basis the mortgage lender should have known better and any credit card debt above a persons monthly net spending power should also be wiped out for the same reason. If that means the lenders go to the wall then so be it. new ones will rise from the ashes having learnt from the excesses of the failed institutions.
The nation can then start to breathe and recover and live happily safe in the knowledge they will never again be led to the edge of a financial abyss while the government and the so called regulators sit idly by watching there constituents bleed and suffer.
Just a thought!!
Complain about this comment
83. sectornitad
....and I take your argument to the other extreme and we all work in the private sector - that means when you or I fall ill we're simply left to die in the street as we're not worth fixing up (as defined by short term private sector gains) as we can be replaced by a younger and fitter version.
The result of that is although the workforce would be progressively stronger physically we will end up with children going up chimneys again and the loss of the knowledge our elders have - which means we will be repeating a lot of mistakes already made in the past - spiralling waste.
You also make a generalisation with this statement:
"The point that is always lost in this debate is that the the tax gathered is infact a cost to the private sector."
....so Metronet wasn't paid Government money to fix the tube? Railtrack didn't receive public money? The Government isn't one of the biggest customers for electricity and gas? There are very few private sector companies who have nothing to do with public money.
The private sector actually believes it pays tax and the transport network simply 'appears' for it to use, along with all the other public services which simply appear.
As I said earlier - if you think about it hard enough all taxation is simply recycled wealth that Government tries to direct into areas which wouldn't benefit if we relied purely on the market.
I presume all the clever people at your work were educated by the company?
Complain about this comment
101. At 3:50pm on 21 Jul 2009, truths33k3r wrote:
"I know there are a lot of people who want to blame markets for what has happened and that I am in the minority. My issue is the bigger government gets the less free we are."
This is the most accurate thing you have ever written - but what you actually meant to say was:
101. At 3:50pm on 21 Jul 2009, truths33k3r wrote:
#93
Who said anything about interest rates controlling money supply? Not me.
I am against central banking so you can't get me on that.
The New Deal prolonged the depression. I am a pacifist therefore against the military complex. George W Bush talked about small Govt and then led America into illegal wars through deficit financing. Fannie and Freddie (Govt) were behind the worst of the sub prime debacle, together with artificially low interest rates (Govt) My opinion of people is based on what they do rather than what they say.
I know there are a lot of people who want to blame markets for what has happened and that I am in the minority. My issue is the bigger government gets the less free we are - TO EXPLOIT OTHERS LESS FORTUNATE THAN MYSELF.
Complain about this comment
104. At 4:12pm on 21 Jul 2009, aka_bluepeter
...there is an alternative solution - and the Tories won't be coming up with it.
As we have no manufacturing industry and not enough natural resources (BTW remind me who sold off North Sea oil / gas again?) you are right we have little to bargain with.
However - just as a business would - we can reduce our running costs by reducing our imports. By making ourselves self-sufficient we do not need to export a lot to maintain a trade surplus.
Sadly our continued reliance on the biggest import (oil) is what is holding us back. If you think we're printing money, the oil rich nations are REALLY printing money (except in any currency they favour) - by setting the price as they wish.
Make this country self sufficient and we will survive. The problem is time is running out as the oil price continues to rise despite us being in a deflationary (or stagnant) situation.
oh how nice it would have been if the politicians had the foresight to see this 20 years ago....
Complain about this comment
1 in 7 tax payers are managers and 55% of the workforce are employed in a non-production capacity (latest Labour Force Survey). Couple this with the earnings imbalance between production and non-production jobs and it is no surprise the economy has reached the state it's now in. Even within the private sector the majority of people (on average) are not involved in the manufacture of the product, but "add value" in the form of sales, administration, accountancy, HR & personnell services. It's also semantics as to whether the owners/shareholders/investors actually create any wealth. Also profit and loss appear to have different meanings in the "Financial world" as £18M profit this year compared to £20M last year is described as a "loss" rather than "less profit".
So, can we all please stop debating semantics whilst our major supplier (the planet) has not been credited for materials & services rendered
Complain about this comment
writingsonthewall -
"I presume all the clever people at your work were educated by the company?"
Actually I was privately educated and my parents also paid for some other kid to go to state school. My company is exactly that: MY company. I started it, worked hard and pay taxes on the productivity I produce. I am under no illusions that I use the public roads, am treated in a public hospital and protected by public police men. And I think I have made that perfectly clear already.
The point which you make about all taxation being recycled wealth says it all really. You are confusing "wealth" with "money". The two are very different beasts. I will explain:
Wealth is produced through the product of human labour and a claim on tangible capital. For instance, a farmer will sow his seed capital and then tend the field (human labour) and the result is real wealth in the form of an increase in the harvest. He can then eat! And save some of the harvest for next year's sowing.
Now, if at midday he returns home from the fields and his wife (just to be purely sexist!) has cooked him lunch, then she has performed a necessary social function (akin to the public sector worker) and she would expect to be "paid" by also consuming her share of the harvest. However she has not increased the harvest one iota. The corn or wheat is not growing any faster and nor is there more of it sown. The farmer's wife's part of the harvest (her pay) is simply a cost to the farmer, just as getting his plough repaired or buying fertilizer.
This is the real point here. Tax is a cost to the private sector, and as such the "purchased service" needs to be competitive and relevant. Much that the public sector does is neither. If the farmer, rather than ask his wife to prepare lunch, went to a Michelin starred restaurant every day then come harvest time he would have not a lot to show for it, and critically no surplus (capital) to reinvest in the farm next year to increase the total WEALTH.
Your idea that the public sector just circulates wealth is hideously false. It is just not the case, and woolly thinking like this, if implemented as policy, only serves to make us all poorer.
Complain about this comment
86. At 3:00pm on 21 Jul 2009, nautonier wrote:
"By the way I have a Grade A star GCSE in English Language so please no more remarks about the quality of my grammar!"
+
Are you Robert Peston in disguise?
A Grade A star GCSE in English Language is twit tastic *
* twit as used by Tweety.
e.g. Where's dat liddle puddy twit?"
[your comment failed by the profanity filter change tw~t to twit]
Complain about this comment
Sorry to join the party late!
Truths33k3r
I see you're having some local difficulty with Writingsonthewall and PeterWard2008. Actually I thought WritingsontheWall's argument before he/she lapsed into anti-capitalism! (Hi WotW).
Not sure PeterWard2008 understood your basic argument re tax recycling. I think your argument is correct. PeterWard2008 argument is only correct from a consumption model perpsective.
From a fundamental capital economics perspective there is no tax paid by public sector as this is financed by the private sector tax.
Yes there is a multiplier effect but the question comes down to national productivity from scarce resources. It is an 'inefficient' model but acceptable in modern times other than when national deficits occur...............its effects are a little more complex for debate here......
Complain about this comment
97 sectorniad
Thanks for the reply. The reason I ask the question is that I am currently tied to bank base rate on my mortgage and trying to make an educated guess on the direction of interest rates. I pretty much already understood about Libor and the repo rate, and that there can be a significant dislocation between these 2 rates (ref what happened last year). I predict bond prices falling/yields rising and that there will be some 'crowding out' effects on loan rates rasing libor and hence private loans. What I was trying to understand was that is there a mechanism as a result of this that automatically requires the BofE to raise the base rate? Or will this entirely be decided on inflation, which I can't see going anywhere with all the extra capacity being created and the reduction in demand, unless the pound really falls through the floor?
Does this excess government borrowing have the effect of increasing real interest rates keeping inflation low and therefore allowing the BofE to keep the base rate low?
Complain about this comment
While we are talking pie in the sky numbers.
Why doesn't the Gov borrow £60,000bn and give us all a £1mn each we could all buy foreign gov debt and live of the interest. so instead of just giving a newborn £250 give us a million each.
Once we've all got the million we could pass the idea on to other countries, Oh sorry thats piramid selling!!
Bring back Cromwell to get rid of these idiots, please.
Complain about this comment
Recycle vs true wealth creation.
If I contract to build a structure for public body then I am a tax recycler. If I do it for Fred down the road.... how much of his money is recycled tax? If I buy a flat screen TV then Comet is a tax recylcer of my tax recycled money.
I bet there are fewer than 1% of people whose earned income is not dependent in some proportion on tax recycling (excludes state handouts).
What a pointless argument.
Complain about this comment
NeedaFilip -
There is only one way interest rates can go, and that is up. The BoE repo rate might not rise anytime soon as it is set by a bunch of old men and (I think) one woman at the Bank. The point here is that they SET the rate. LIBOR is market driven and responds to the gilt market. And of course mortgage rates are set against LIBOR, not necessarily quoted as "LIBOR + 3%" but they will reflect the level of LIBOR. Mortgage companies have already started to raise their rates, even though the repo rate hasnt moved.
The old levers of control on the economy provided by monetary policy appear to have broken down. The only tool left in the Banks armoury is quantitative easing and Mervyn King is only too aware how risky this venture is.
Complain about this comment
109. At 4:51pm on 21 Jul 2009, sectornitad
Ah - now that post explains everything....
1 - It always makes me chuckle when private school pupils claim their parents made a 'sacrifice' to allow others to be educated for free. Maybe if you had gone to public school and not excluded you at a different school your parents may have actively helped the school get better - which benfits all, and not simply opting out - thereby making those who are left behind suffer a lesser education (although not that it's always true anyway). Your parents motivation for sending you to private school is pure self interest and not something for the greater good.
2 - From the way you describe your business you seem to be a bit sour that you have had to work so hard. Could it be you made the wrong choice? Don't you think everyone else works hard? or are you special and actually deserve more than everyone else because of your mis-conception? You admit you use the public services - but your assumption is you pay more in tax than those services cost. Try getting a road built to your house and see what that costs and then re-asses if you think you pay more than you receive.
3 - I am well aware of the difference between money and wealth, in your example you forgot to mention the fact that because the wife is at home making dinner the farmer will be healthier, can work longer and produce more by spending more time tending to the crops (loosing less through disease, bad weather, pests etc.) and by sowing more efficiently as well as many other improvements the extra time gives him - thereby she does indirectly increase the harvest. It also reduces the need for surplus because his crops will have a greater flourish rate. It's the same as the Doctor repairing someone from the private sector and then they go and generate tax from the additional years they can work because they have a new arm / leg or whatever.
Finally your last 2 paragraphs show where the real truth lies, you presume the farmer needs to produce a surplus - even if he is already producing enough food for him and his wife.
The reason for this is the uncertainty of the future and the fact the farmer can't tell what the next harvest will be (good or bad). However if he was passing surplus to his neighbour in the good years and recieving it in the bad years this wouldn't need to be the case.
Now farming has changed a lot and we can predict the weather - but this requirement for surplus still stands. HOWEVER, for the millions of other industries the uncertainty is created by the very system that we're working within (Boom and Bust) which is exactly why the Bankers are greedy and the MP's follow suit - when do you have enough to be 'comfortable and safe from future downturns'? A million? 2? 5? 100?
The net result of this behaviour is a few people get very rich - but the vast majority get poorer. Don't believe me? Check out the distribution of wealth in this country. Oh but I guess the next thing you'll be saying is it's OK to have mega-wealthy people as long as they "are responsible with it" (al la Thatcherism)
.....that worked out well didn't it?
Complain about this comment
peterward et al.
a simple view starts a tirade of discussion.
We are all aware of the multiplier effect, one could argue that it is a predominant cause, with people borrowing on multiples !
tax is recyled to provide a core level of services, so it is academic as to whether i deduct tax just to give it you back, there is a net transaction somewhere, but if salary = more than tax paid then you must be a receiver (economics expert or not)
if you kindly re-read my blog, you will see it in the context of a plc (not just a random entity) and i was suggesting that if run purely as one, decisions would be made to cover the survival of the entity. Those pushed out (lower manual skilled you assume, although reality will depend on what services are required to be paid for) would be classed as an overhead that has to be maintained.
there has been for a long time an emperors clothes approach both to economics in general and the way matters are run. everyone can now see the truth, but didn't before
can we have commom sense instead of academics - privatise the local authorities to make them run better, my roads are the worst in England, but we are best at multilingual signage
Complain about this comment
#92. NeedaFilip wrote:
"Will this mean that the Bank of England will have to raise the base rate?"
Yes, or the Pound dies...
Complain about this comment
p45builder -
"What a pointless argument."
It is only a pointless argument if you don't understand it. Otherwise it is absolutely critical to the way we build our economy and what are expectations are from that economy.
Complain about this comment
When Labour got in there was 1 in 5 people working for the Goverment, so on an average that would be 25% of a private sector workers pay, going towards a public sector worker, now its 1 in 4 or 33.3% an 8.3% increase on its own.
Next stop 1 in 3 or 50%, how long before Richard Branson pays for all of us.
Complain about this comment
115
After a promising start not really that helpfull. If bond yields and LIBOR rise automatically from the effects of excess government borrowing then there will be no need for the BofE to raise base rate, monetary tightening will have, to some degree, been effected by government borrowing. These real interest rate rises will also have the effect of helping to maintain the value of sterling, foreigners happy to lend money to the government and private borrowers at relatively high real interest rates. What I am hoping for is that this means the BofE will be able to keep base rate low for some considerable time. Is this a relatively wise view or am I missing something that may necessatate the BofE having to rase the base rate in the short/medium term?
Complain about this comment
writingonthewall -
Not sure I ever suggested that my parents made a sacrifice. But the fact that my not going to state school, while my parents still paid the same tax, meant that there was more available for state education against less demand is irrefutable.
My parents motivation for sending me to private school was indeed self-interest. Exactly as is government ministers from the Labour party buying houses in smart areas with good school. The assumption behind your (rather spiteful) comment is that no one should ever do anything for self interest. Dream on.
As for my business, yes. I am a bit sour actually. Here is why. Two weeks ago my accountant informed me what my tax liability is. Unfortunately, due to the recession, orders are down. Because (no matter what you may think) I am not a rich man I have very sadly had to terminate the employment of a lovely woman who worked part time doing the books and other admin duties. She has a young daughter in primary school and no other income. I held talks with the tax office and asked if there was no way that I could not pay the tax, and instead keep Jenny on. What do you think was the reply? So now Jenny is unemployed and will need assistance from the government which will be using my tax money to support her! And in the mean time I have to work 15 hours a week longer. So yes, I am a tad sour.
It seems that you have a bit of a chip on your shoulder with regard to the private sector. It is not a very pleasant attitude and speaks volumes of the lazy statist, socialist mess this country is in.
Sweet dreams!
Complain about this comment
78 writingsonthewall
You say you are an anti capitalist, you also say you work in fund management.
Doesn't this choice of career contradict your principles as an anti capitalist?
Or like most anti capitalists, are you a hypocrite who argues against capitalism and yet is happy to take a salary from a very pro capitalist industry?
Look forward to your reply, and it's lack of any relevance to the question.
That's it from me, am happy to stay on the sidelines and watch the snipes and refusal to answer valid questions.
Complain about this comment
100
This is not a proposal this is a reality. The we I was refering to was the US who are in much the same boat, as are a number of other western countries. We are net debtors, with both current account and budgetary deficits, inflation will erode this debt. We've been here before in the 1970s, it is painfull but the lesser of 2 evils, the other being a significantly impoverished society. If it was just the UK in this position then yes we would see a run on the pound and a call to the IMF for the necessary succor. But we are hanging on to the coatails of the US, the inevitable rebalance is the US reducing it's liability to the chinese through inflation. They will not be happy and have accepted the US reassurances that they will not jeopordise the chinese 'investment' in US debt. But how far will the US tolerate a reduction in their living standards to enable this to happen, not very I would suggest when they currently hold all the aces, that being the currency of last resort. Don't know who said it a previous US federal reserve chairman 'The dollar is every other countries problem not ours'.
Complain about this comment
100
What is China's or India's inflation rate?
I am not suggesting it will be hyper inflation, just the necessary amount that will improve our debt position, yes to the detriment to all those surplus countries that hold most of that debt, but then they both deserve and will expect this because of their interference on exchange rates, particularily China. As I said before it happened in the 70's under similar circumstances, recession preceeded by an oil price spike.
Remember the US is not mandated to target inflation in it's monetary policy, and with the position of the dollar as the reserve currency of most wealthy nations it has this in it's power. Untill it is replaced as the main reserve currency, then we will always go through these cycles of debt erosion through inflation to protect the wealth and living standards of the US citizen, that's why some of them are quite large, they have to be the No 1 consumers on the planet, sad but true. The good side to this from the UK perspective is that we can follow their lead without fear of debt default or a collapse in the pound. That is what I beleive Brown is refering to when he harps on about this being a global problem, we are not going to be targeted for a run on the country.
I am not advocating this as a strategy this is how I beleive things will pan out. Will the average person in the street be better off or worse off if we experienced a period of relatively high inflation, discuss?
Complain about this comment
100
As for your comments about net food, consumerables etc, importers, as per my previous post we are going to have to get on our bikes(currently made in China) and turn that around. Something that isn't discussed a lot is what I beleive is the real issue for the UK(and the US) and that is the balance of trade deficit. A weaker pound will help to address this, which has already happened, we need to do our bit and start to make and export stuff of value as opposed just exporting our own debt!
Complain about this comment
99 peterward2008
''I am afraid that your understanding of Keynesian economics is tainted by your Friedman and Greenspan references (both stewards of this current problem). The multiplier does work and does not apply in the same way to benefit payments as benefit payments do not have any added value. Benefit payments do not lead to tax being increased and have minimal impact on consumption (on a macroeconomic level). No matter how we cut it, consumption and production drives growth. In order for goods to be produced, they require a market and to be demanded (otherwise there is no point in producing them). An entrepreneur/producer will take the 1 in my pocket whether its my money or your money. Utilise it to produce more inventory to sell or to grow their business.
That in a nutshell is the multiplier, in a way its how markets work and its around a measure of return on capital. On the question of monopoly in the public sector. Thats now becoming more of a myth. I can send my children to any school within reason and these schools compete to attract the best students, same goes for unis and colleges too. I can now also travel to get operations done by other PCTs.''
I'm no great fan of Friedman or Greenspan or any economist. The my money yoru money is the basis of an economy is however a sound comment whoever said it.
'Consumption and production drives growth.' There is a problem with consumption, its related to the gross exploitation of resources. There is a problem with production, its not here.
Schools. Where are these schools. You will not be offered transport to some. You can pay privately which I did at one point uintil I realised that it did not work and was a pressure kettle, nothing about personal development, but many cannot afford that.
Medical treatment. You are correct in theory that you can get treatment everywhere. Just try it. Thats why I have had to pay for medical and major dental treatment privately for one of my family. But there again why not look at getting you bin emptied or other local services, look at the choices, absolutely zero. Look at the high handed behaviour. Look at the standards and provision of service and the statute. You have to involve a MP or take a cadee to a Permanent Sec to get your legal right established. I know I have done it.
You are totally missing the point. Public sector expenditure has been rampant. HMG have willingly coluded with the ramping up of the economy driven by housing because they gained a massive increase in revenue. HMG spent every penny as it was coming in. Just check the figures. The edconomy is reduced, tax revenuse are reduced. Your multiplier applied to money left after tax as well as tax revenue expenditure. So what.
An entrepreneur blah blah. I am an entrepreneur, I have also worked in the private sector in manufacturing. I have also worked as a civil servant. I know first hand which is the most efficient and the most driven by consumer choice and the public sector is in last place. It frequently does not even know the statute it is supposed to be implementing.
Complain about this comment
117 AvalancheDodger
''but we are best at multilingual signage''
Yes that is also the case where I live. What a nonsense. have you ever tried to buy a multilingual map. No such beast exists. That is because nobody wants it. Therefore it is a LGA invention, not driven by consumer demand. That sums up the LGA mentality.
Complain about this comment
122. At 6:01pm on 21 Jul 2009, sectornitad
But the fact that my not going to state school, while my parents still paid the same tax, meant that there was more available for state education against less demand is irrefutable
...it is refutable, obviously you think the best teachers are all working in state schools because of the better pay then?
I do feel sory for Jenny, but surely this is the bargain of the private sector isn't it? more wages in the good times - but uncertainty in return - maybe you're like the others who want it both ways by making the public sector pay for the failures of the private sector.
The assumption behind your (rather spiteful) comment is that no one should ever do anything for self interest. Dream on.
...and with that sentence you have summed up the reason why the country is in such a state. The inability of vast numbers of people to see the cumalative consequences of their actions is why everyone is staning around scratching their heads trying to understand why the system has failed us (again)
I don't have a chip on my shoulder about the private sector - it would be quite hard as I have worked in it all my life. What I do recognise (which is how this started) is the arrogance of the private sector which actually believes it's of greater value to the Economy than the public sector.
What I can assure you is that tax evasion is often only found in the private sector - which goes to show the morality of the people within it.
Complain about this comment
The public sector bashing is quite socking, it makes out they are all civil servant fat cats on 50k a year, which is just ridiculous.
Surely the point here is the choices faced by the country is a no brainer, to cut now and to cut hard would see possibly another 500,000 on the dole. If we learnt anything from the 80's it was that you simply can't sacrifice a generation to idleness simply to allow a few to became rich.
So debt is high at the moment and this government has alot to answer for but to maintain a certain level of spending is essential to stop unemployment being even more widespread. So we all may have to pay abit more tax in the future and we all might not be able to afford a new BMW but surely if its your mate or brother that does'nt lose his job or house then thats a price worth paying!
Complain about this comment
123. At 6:16pm on 21 Jul 2009, islider55
Hello again, didn't we speak earlier on this blog? or was that another identity?
I have no such dilemna - if you let me know what career path suits anti-capitalists then I shall be most interested.
What is crucial is that when I started in this business I was fresh from college with my head full of monetarist ideals - however, after having worked in the city and seen the exceses, greed and downright robbery of public money through blackmail I have realised what the consequences of Capitalism will be.
Rest assured if the state decides to remove all existing wealth above a certain level then I shall be the first to hand it over. Before you start snorting I should point out that I live on a tiny fraction of the money I earn. The rest simply piles up in the bank - I have no use for it. If I could be more certain of the financial future (I.e. no inflation, no boom and bust) - then I would have left work and be doing something more socially rewarding.
My wealth is measured by the things in my life that money cannot buy - I am happy and content I have a beautiful wife and a wonderful family. Posessions are merely trinkets to adorn the shallow.
I suggest you sit there and watch from the sidelines if that's what you're good at - I do try to answer all the questions but it's hard to do without writing an essay.
....speaking of which nobody seems to have answered my question about the public sector Doctor who saves the life of the private sector worker - a fundamental question about 'value' in our society. The silence is because everyone knows we have got our wages structure inverte with the useless getting paid the most and the mos useful getting least - demonstrated aptly by the well paid bankers, economists and politicans missing what most people on the street would have spotted had they had the same information.
If all the doctors, nurses, teachers etc. went on strike I think many people would start to question the value society places on these people when they get ill or have to start teaching their own kids.
Complain about this comment
All this political debate is missing the point. A government of left or right persuasion would have been caught to one extent or another by the toxic trap. Banks had become bigger than nations. The only debate that is relevant is "Which way do we go now?" My instinct is that the "Stand on your own feet" party is most likely to sort things out quicker (as they have in the past). Public servants providing expensive public services at present levels for the relatively disadvantaged are a luxury we can no longer afford until this problem is sorted out. At my age I dont think I have enough time left to wait while the "Be fair to the disadvantaged" party continues to throw good money after bad.
Complain about this comment
#22 This is not a debt clock, but is it the sort of thing you are after?
http://www.debtbombshell.com/
Complain about this comment
"Whenever I find myself in any gathering of bankers, business people or politicians, the question they ask more than any other is whether the government will be able to borrow all it needs from markets - or whether at some point big investors will lose their appetite for gilt-edged stock, the exchequer's IOUs."
Robert, this buying and selling of gilts and quantatative easing that's going on reminds me of the myth of Atlas and Hercules holding up those big, heavy mountains. If I remember correctly, it was Hercules who managed to trick Atlas into shouldering the burden after poor Atlas had fetched the golden apples of the Hesperides.
Nothing changes, does it! You'd have thought by now we humans would have found something more useful to do with all our talent and time.
Complain about this comment
QE_Fan said "What's the Problem"
Banks can only issue money when they have a matching asset ie a real asset now or promise to pay in the future.
QE issues money without an asset backing it. Therefore the real value of money will be diluted by the unbacked money and inflation results. My savings getting 0% are reduced by inflation of, say 5%, which means Brown is stinging me even more than he already has done.
That's the problem
Complain about this comment
writingsonthewall
Doctors do indeed hold great value in our society, that is why they are collectively funded through taxes. It is a great honour to be paid for by such means.
While it's unfair that the public sector suffers from the failures of the private sector, the public is paid for by the private. If the private sector cannot afford the public, then a reduction needs to be made. If the farmer has a poor harvest, it is not only he who suffers but everyone else who needs food. There has to be balance.
Complain about this comment
So Brown and Co need to borrow 4 times more than usual. Remind me, isn't something like this what lenders allowed to homeowners etc to do?
I seem to recall the outcome was not expected and none of the experts saw trouble coming.
Complain about this comment
133. plb_plb
V. good link - this paragraph was the one which should open a few eyes..
The Government forecasts it will soar to an eye-watering £1.1 trillion by 2011. To put that in perspective, the UK went bust in 1976 running a budget deficit of 6% of GDP. Next year, that deficit will top 12%
whoops.
Complain about this comment
131 writingsonthewall
You're correct we have discussed things previously, and I stand corrected a very relevant, sensible and enlightening response.
Possibly the only response that would dismiss, any sense of hypocrisy.
Only disappointment was your reply on another career path. As I don't know either of a decent career that would go hand in hand with anti capitalism. Other than maybe a Trustafairan lifestyle, but I guess this doesn't apply to yourself as it doesn't sound like you have been gifted what you have.
One point you raised, in your own defence, is actually highly relevant to where we all are now. And is as follows:
'My wealth is measured by the things in my life that money cannot buy - I am happy and content I have a beautiful wife and a wonderful family. Posessions are merely trinkets to adorn the shallow.'
If only more people had this outlook, the UK population's hunger for debt to buy possesions they do not need, would not have be affecting them so much now. And inadvertently helping the naive banks at the same time from chasing greater and greater market share through lower grade /high risk borrowers.
Good luck in continuing with your positive, healthy outlook on life.
Two points from me before I retreat to the sideleines again:
From my Economics Lecturer twenty years ago(who was a card carrying socialist)
Needs and Wants are very different things.
Everyone needs water to live, No-one needs a brand new mercedes, you may think you do but actualy you want it, not need it.(Imagine my face when I saw the card carrying Socialist Economics Lecturer in the car park getting into his brand new mercedes) But he was right! Think a lot of people forgot this fundamental difference. In their pursuit of consumerism through expensive BMW, Mercedes, Plasma TVs - wanted, but not needed, imported goods funded through borrowing they could not afford.
At the same time people forgot that to be truly happy you need to be 'Rich in Life' before Rich thru money and goods. Family and Friends cannot be bought, but do require support - support is a mutual action.
Before I get carried away, I too have been enticed by possesions such as luxury cars, but at least mine were manufactured here in the UK(so not exporting jobs) and not financed through borrowing or threatening the roof over my faimly's head.
That's it from my pulpit, back to the sidelines now.
Complain about this comment
It is an absurd myth that Public Sector workers do not produce anything. If the NHS was privatised you would still need the output of those health workers.
The debate should be about whether the Public Sector worker is worth the Private Sector equivalent.
NHS would say would be about 80% of private equivalent with management dragging hard working nurses and doctors down.
Armed services about 110%. Actually much cheaper for the risk they take but pulled down by poor management again.
Police would say would be about 30%.
Councils would be about 25%.
I wonder what the BBC would be ?
Complain about this comment
writingsonthewall
On the subject of Public Sector Workers, I beleive certain members should be better valued by Society. And deserve to be better paid, Nurses and Teachers in particular. I would happily pay higher taxes to fund this, but not layers of consultants in PCTs and LEAs.
On the downside of the Public Sector, there are the issue of the unfunded Final Salary Pensions, and seperately wholesale abuses such as the high number of early retirement due to ill health on full pension in the Police, Fire Service and Local Govt under dubious circumstances. (I'm not attacking genuine cases here).
Think whilst these continue, public perception of the sector will not improve.
Complain about this comment
#20 ICEWOMBAT wrote:
'......Yes but can we belive the figures, it imerged yesterday that the National Audit Office will not sign off several departments accounts INCLUDING the Treasurey's own accounts.
So we are now entering the relms of the EU where our accounts can't be signed off! So much for prudant accounting!
Perhaps its because for every pound that spent nuLabour anounce it under at least 3 times offtent under different headings and departments like the collage building program actually beleive they have 3 times the budget so over spend?'.......
Streuth blowkes, (for light effect) give us a break;
Gentlemen, your articles, if written as the example reproduced above, will surely fail to hold other readers' attention when the number of 'major' errors of spelling and grammar exceed three (3) per sentence/paragraph - if indeed paragraphs have been used.
Perhaps therein lies one of the myriad problems that are now amassing and helping to drag down this once 'Great Britain' as inexorably as the freezing Atlantic engulfed RMS Titanic in 1912.
To paraphrase, rocket science it is not; fundamental gaffs eg;
'..belive..' - should that appear as 'believe'?
'..imerge.. - emerge?
..treasureys.. oh dear..
'..departments accounts.... - (possessive) departments'
'..relms...' - realms?
'..prudant..' - prudent?
'..pound that spent nuLabour anounce it..' Er, um, I really have no idea what this meant, so no announcement on it then;
'..offtent..' Well, I never - is it an illicit campsite activity or less excitingly 'often'?
'..the collage building program...' That's it, I've had enough, I'm travelling to the US to join a 'collage-building program' with all my stick-on picture-books from year 1 at school (5yr olds).
I loved BBC programmes (two Emm's and an 'e') when I was in short trews, learning to read, write, spell and do arithmetic. I did not achieve academic success and failed spectacularly to get a place at University, so applied for a Commission in the Royal Air Force (Flying Branch). I subsequently had to exercise all of my English and Maths' skills just to pass the PE exam.
Sample question, Gym and Physical Fitness Practical: "Mister Bloggs, Sir, how long will you take to climb the wall bars if I hold this Bunsen burner to your rear end? Sah?" You see, it was all there, mass and acceleration, terminal velocity, reaction of a body to heat applied, lactic acidosis, fear....I digress. Was it the easy option? No; as aircrew we worked our behinds off, as did, and still do, all Service Personnel, now more than ever. Of course we had good times, bad times, even memorable times and, frankly scary and horrid times. But during the years, my colleagues and I never submitted a paper for publication without checking and rechecking it for ABC - Accuracy, Brevity and Clarity.
I wouldn't admit to penning an article so bereft of good English.
So might this lack of attention to detail in the written word be a symptom of a wider malaise - a 'devil-may-care' approach, by workers with Firsts from the Redbrick Universities? Degrees that encompass all manner of subjects, (alas not Engineering, the Germans have that one sewn up) some sadly biased to 'Human Resources' - er, that would be people, like me? And 'interpersonal relationships' (he/she's a communicator); all very nice and posh or important-sounding. But if you cannot write and spell effectively, how does that reflect on your ability to pay due regard to your chosen career subject? I refuse to employ the word discipline.
NB: I also have a distaste for the use of 'impact' when 'effect' is the correct word, eg '....the closure of the last British Car manufacturing plant will have a deep impact on the local community....'
Cobblers. An Impact occurs when two bodies collide with each other and in this case I hardly think the plant closure will affect Outer Mongolians.
If and when a new use is found for the factory, perhaps making 'fridge doors, they won't be 'rolled out' next month. The term 'rolled out' was first applied to the introduction to the press and public of a new, mainly commercial, aircraft, because it could not emerge from the hangar under its own power (noise and smell of exhaust fumes) ergo, it was towed into daylight by an aircraft tractor/tug - it was 'rolled out'.
So let us have no more of companies, 'rolling out' a new pocket-sized widget, or increasingly the Government 'rolling out' another policy hastily rushed, ie forced, through Chambers.
Gentlemen look to your OED or Chambers if you prefer or even Rogets. The least you can do is draft it and use a spellchecker.
That's it,
Over and out.
Complain about this comment
lets be honest and call a spade a spade, to balance the countries books any government will have to reduce spending and raise taxation its sadly a fact so why all this spin just come out and be honest due to recent governments debts inpart to misshandling of public monies the good folks of this country will have to soak up a tax hike.
why one party says this the other said that when its all smoke and mirrors and popularity contest, the people deserve the plain simple truth.
the first group to be honest will get my vote even if its the monster raving looney party.
Complain about this comment
138,
How would pac man put it?
Meow, Meow, meow meow - Plink!
Complain about this comment
I just don't know what all the fuss is about, I means - We saved the banks, we are okey dokey yeah?
Robert, are you there???...................How's Gordo and comical Ali going to explain how we put an end to boom and bust?
Why are we not having an election during the biggest crisis since WWII given we have an unelected PM? - Is this Democracy Robert?????
Are the electorate being managed into voting the dastardly tories back in? (Maggie T, Jings crivens........Help ma boab)
We are DOOMED!
Complain about this comment
At some stage the money pumped into the economy through the purchase of gilts will have to be reversed. When this happens the government will still be trying to meet the budget deficit through the sale of new gilts. Gilt prices will drop with rising yields, interest rates to the private sector will rise through 'crowding out' from all this government debt. The point I am making is that before the base rate is raised the gilts purchased through quantitve easing will have to be sold to balance the BofE books and in parallel government spending through cuts or higher taxation will have to happen. This should keep inflation low through the consequent reduction in aggregate demand. This tells me that the base rate is going to remain low for some considerable period, perhaps 3 to 5 years. Sterling will continue to fall until the balance of payments is reconciled (no bad thing).
Does anyone see any holes in this prediction?
Complain about this comment
PeterWard
The problem with the multiplier is that the formula used for it implies that spending every penny you have, creates a division by 0 error (or potentially infinite growth). This is incompatible with the whole theory of Economics.
Complain about this comment
The game is nearly over soon Sterling will be devalued again.
Soon the overpaid NHS Doctors, Civil Service bureaucrats and Public sector workers, MOD armchair generals will feel what its like to get £60.50 a week jobseekers allowance to survive on.
A Bunch of overpaid leeches who produce nothing, living off the private sector taxpayers.
Complain about this comment
So basically, the debt the government has incurred in our name will be financed by issuing gilts, which will then be bought up by the BoE "printing money".
Its fortunate that there is so much deflationary pressure on the economy otherwise this would surely reduce the value of money and cause inflation (devaluing both our savings and our debts).
Indeed provided the treasury haven't issued too much debt on any form of index linked basis, inflation may represent one of the few ways out of the debt crisis that has been created.
It would however reduce standards of living, but then that's just paying for previously spending what we didn't have and hadn't earned.
The proportion of the population living in a household with the majority of its income coming from public sources has grown phenomenally under this government (attempting to buy votes by creating dependency?) and is a disgrace and a millstone around our economy's neck.
Public sector pay (the full package) needs to be brought back down to private sector levels for the same job.
The maximum any industry should be supported is the value of any tax revenues resulting from the support and benefits not incurred as a result of those jobs saved - otherwise its throwing good money after bad.
We have a history of supporting inefficient industries (Monday's Panorama was a joke, with people expecting investment in inefficient production because they wanted it... with only a few brief moments from people explaining the global market and from Tata's senior management, the programme was more a demonstration of ignorance and expecting something for nothing than actually being informative).
We need to change our record on turning pure research into applied research, looking forward to future industries, rather than looking back to the past and things others now do better and cheaper than us, and totally depending on financial services.
If we cant do something that people around the world want, better than our competitors, why do we deserve to be paid more and have a better standard of living than them?
Complain about this comment
The UK gilt sale yesterday was subscribed to 1.7 times issue, slightly higher than the 1.6 recorded in October. There isn't a threat to our gilt sales (debt financing) at present. This does not mean that there is no risk that there will be in the short to medium future.
The budget deficit for June was a record 13billion pounds for the month alone so to suggest we've turned any sort of corner is madness, government revenues are falling like a lead balloon- at the fastest rate since records began in the case of VAT revenue. Unemployment continues to increase alarmingly and the pound looks vulnerable.
Yet look at the market- the FTSE has risen circa 33% in the previous 4 months. A further fall is inevitable. When it happens government will need to cut spending and increase taxes in order to improve confidence. It simply cannot afford to borrow more money. Consumers at present feel that we, the nation, should be saving, not spending- Brown is out of touch with this and it is worrying. Please don't take us for fools.
We all lived in the good times- borrowed and spent money we hadn't earnt, and now it is time for us to pay some back...we share a collective responsibility but government must listen.
Complain about this comment
so the gilt sales was oversubscribed...i would not expect anything else when the BOE is quantitatively easing so buying the debt the government creates ....More frightening will be when the QE stops and they become sellers not buyers....
Complain about this comment
Only the Telegraph's Liam Halligan has the guts to tell it like it is...
'If the Government fails to make cuts now it will be racked with gilts'
http://www.telegraph.co.uk/finance/comment/liamhalligan/5858485/If-the-Government-fails-to-make-cuts-now-it-will-be-racked-with-gilts.html
Shame on you BBC!
Complain about this comment
This is panning out exactly as us doom-mongers have been saying all all -all papering over the cracks and nothing else.
None of this is forcing us to get to the root of the problem; an inherently empty and non-productive economy, no forward planning in energy and infrastructure (well, and everything else too) a huge public sector, a complete abandonment of our intellecutal and engineering talents to complete in the world, a higher standard of living than we can support, a frantic shovelling of money in all directions to disguise the meltdown, a clueless government in thrall to the City, a city filling its pockets as fast as it can, and a media that won't wake up and get tough.
..and a determination to make the following generations pay for our largesse. Fin de siecle, a decade late.
regards,
Complain about this comment
sorry, can't type well, and too busy to edit spelling errors on a decent word processor.
Complain about this comment
More bad news for the government re the recovery
http://news.bbc.co.uk/1/hi/business/8162217.stm
It's top story on the business page.
Complain about this comment
Of course we need both the public and private sectors, but there has to be a balance.
Taking your doctor analogy - If everyone were a doctor then there would be nobody to pay for the doctors. If there were no doctors at all then productivity would be lost because people would keep dying.
What has happened under New Labour is that the public sector has been allowed to get far to big. To pay for this imbalance the government have spent the proceeds of N Sea Oil and borrowed heavilty. They have also built up huge invisible liabilities in the form of public sector pensions and PFI.
With private sector unemployment rising rapidly but public spending continuing unabated we are making this imbalance worse. Unless we have a radical change of government the whole thing could spin out of control and result in a complete failure of sterling.
To some extent that would fix the problem because govt debts would become worthless and there would be no money to pay the public sector any more. On the downside it would probably lead to riots and a breakdown in society.
Clearly what we need is a drastic cut in public spending, which will result in a hardship in the short term but will restore the balance between the public and private sectors. There is simply no alternative.
Complain about this comment
146
.
It depends, if inflation is about the money supply, it will not stay low (apart from short term). Sterling will continue to fall (and QE will be one of the contributors to it). The govt spending will be increased through cuts, taxation and the printing press (the worst form of taxation). The yields going up will just add to the problem (for the govt). Besides, we are not alone in the world, sooner or later, the Chinese will feel inflationary pressures from printing the money to buy the US debt and will have to seriously consider dumping the dollar peg. If that happens in medium term future, God help us as the US will be in a really bad state.
Complain about this comment
Re my post 155. The economy is going down the swanee and now it is more difficult to find a place to drown your sorrows
http://news.bbc.co.uk/1/hi/business/8161793.stm
Complain about this comment
#151 - Couldn't agree more.
Perhaps a medium term slow decrease in QE is the only way to end the 'support' without creating a shockwave crisis in confidence, is this what is being proposed?
Complain about this comment
The great Government sponsored gilt edged swine 'flu myth may well succeed in diverting our attention from
the underlying cause of our current financial misery i.e Government theft of public wealth in order to prop up
the discredited and rapacious Banking system that caused the collapse of our economy and led directly to the
closure of much 'small business' in the UK. On my own High Street our excellent independent Butcher was
the first victim, even before Woolworths fell. By kowtowing to the Banks the Government has destroyed the
very framework of our Society. Thatcher herself couldn't have done a better job.
Complain about this comment
I take it we are all agreed a massive bout of inflation will be thew ONHLY way out?
Of course, we could reclaim the bankers bonuses and MP's expenses in order to solve the debt crisis...................
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
What is interesting about this blog is that like Robert many people can find lot of people to blame and why the world is such a cruel place, however I see very few post with any solutions and any good signs of what goes on in the business world. Maybe this is a forum to just to moan along with Robert and never look forward with any answers. Just an observation!!!
Complain about this comment
'Voters urged to keep track of MPs during summer break'
Parliament began recess for the summer yesterday, and it will be for 82 days - including 57 working days - before MPs return to the House of Commons on October 12.
Campaign group 38 Degrees is conducting an MP Holiday Watch survey to establish how much work gets done during the 12-week recess.
[Unsuitable/Broken URL removed by Moderator]
Complain about this comment
139 isslider55
Agreed - it's funny how debate often brings us all round to the same conclusion, we may disagree about some of the details but I wholly agree with your sentiments in this post.
Unfortunately we are mere grunts and have no power to change - those that do are desperately defend what they have, I suspect because they know they wouldn't have it under any other system.
I couldn't agree more regarding the mercedes and want vs need - but in defence of the people who do confuse this - look at the way advertising blurs the wants and needs at a very young age (if you have ever seen ad's in Kids TV breaks you'll know what I mean). We may understand the difference as adults but children are not able to make the distinction.
That's what makes me most angry - it's reversing the laws of supply and demand. Make your product then simply convince the world it NEEDS it - which simply leads to wasted resources.
I know I will survive no matter what the Economy does as I am fit, young and adaptable - it's those that will struggle (the young, the old, the vulnerable) which really concern me.
They are the ones who are expected to pay the price for the failures of the few.
Complain about this comment
131. At 7:44pm on 21 Jul 2009, writingsonthewall wrote:
"Rest assured if the state decides to remove all existing wealth above a certain level then I shall be the first to hand it over. Before you start snorting I should point out that I live on a tiny fraction of the money I earn. The rest simply piles up in the bank - I have no use for it. If I could be more certain of the financial future (I.e. no inflation, no boom and bust) - then I would have left work and be doing something more socially rewarding."
You are an exemplary double-plus-good comrade citizen.Do you get your "un-needed" money from "New York" bankers?
:)
Complain about this comment
The government are fuelling debt with more debt. It is fast reaching the point where the new debt will be unable to service the old debt. At that point, the debt will be debased with inflation.
Effectively, income tax will be eclipsed by capital tax (inflation) and we will be in serious poverty.
Thank you Blair and Brown, and damnation to all you people who voted for them.
Complain about this comment
Writingsonthewall
"What I can assure you is that tax evasion is often only found in the private sector - which goes to show the morality of the people within it."
A big generalisation here. In my personal experience public sector workers try to avoid tax if they can (just as in the private sector). i used to work for an IFA firm and have seen this first hand. i could also point to a few tax and pension advantages that public sector workers have which are not open to those in an equivalent role in the private sector. Hell even BBC exectives billed tax advice to the licence payer rather than pay from their own salaries.
Complain about this comment
Let's be honest, none of us know with any certainty what is going to happen. But anyone who thinks that printing money is going to solve the debt crisis is clearly not the sharpest knife in the box.
What intrigues me is the psychological dimension, which has hardly been touched upon. Everybody said the VAT cut was a waste of money, but you can bet your bottom dollar (if it's worth anything!) that, when VAT rates go back up to their previous level and even to 20 per cent, there will be an outcry. People have got used to paying virtually nothing for their mortgages. If interest rates go up even to a low level, again there will be an outcry. There is now an entire generation which does not know the meaning of the words 'wait until you can afford it'. Believe me, today's children are, for the most part, over-indulged. They all have the most expensive ipods and mobile phones that money can buy. I should know - I put them in lost property every day.
I feel sorry for people who have got themselves into debt because of a sudden loss of employment, but not for those who over-extended themselves. If you start your own business, you have to take risks, but sensible people always ensure they have an escape route if the business fails. You should never put yourself in a position where you risk losing the roof over your head.
When the sweeties are taken away, these people will want to have a blame target - I predict foreigners and the baby-boomer generation will be the blame targets, not the deserving blame targets i.e. bankers and politicians.
Complain about this comment
Let me put it on record that this amount of borrowing is without doubt a disaster in the making ,if the economy recovers quickly in the second half of the year and then continues to grow year on year for the next 10 years,we maybe able to pay the debt down as the Brown plan. Anything less than this will lead to disaster.
The issue is not just the outrageous expenditure but the likely reduction in tax over the coming years.The present tax regime is targeted at the top 20% of the population ,with the bottom 20% paying no tax,in fact requiring cash due to tax credits/pensions/sick benefit.I believe the top 20% I have enough and will do anything they can not to pay a penny more as they are surely been fleeced by GB.
I am therefore confident that the treasury tax model is likely to be flawed in that future tax receipts will not materialise in the size they expect.The expected deficit will therefore be far greater than the worse case of £175 billion ,regardless of future GDP growth in the immediate term.
Complain about this comment
170. hughesz:
"I believe the top 20% I have enough and will do anything they can not to pay a penny more as they are surely been fleeced by GB".
Absolutely right.
What the govt. doesn't seem to realise is that, in a global market for skills and capital, governments have to make sure that their tax regimes are competitive. Much the same goes for meddlesome regulation.
In the modern global market, companies and individuals are quite capable of voting with their feet. Many, I am sure, have done so already, or soon will.
Complain about this comment
I recently read an article published by CEO Q magazine on economic recovery, the new world order, and the impact of current economic policies. I thought i would share it with you as it has some very interesting facts and insights on the crisis and expected recovery.
Check it out: http://www.ceoqmagazine.com
Complain about this comment
View these comments in RSS