@pcstru - reduction of deficit is very much a good thing. In an ideal world we wouldn't have a deficit and might actually, heaven forbid, start paying off some of the debt. The problem is the other side of the coin. Things like the NHS are not free, the money has to come from somewhere. What we don't borrow we have to make up for in taxes. What we can't make up for in taxes gets sold off to the highest bidder (Royal Mail).
All I know is there is a word that would describe my personal finances if they mirrored the states - bankrupt.
1. We have income - which largely comes from taxation.
2. We have expenditure - the costs of running public services and buying things that go bang.
3. If we have more expenditure than income, that is deficit and we get into, or further into debt. We have to borrow to pay the bills (2).
Now, I can see that it wise not to run a deficit but there do seem to be factors that mean that zero deficit all the time might be unwise. We have other factors :
4. Growth : specifically year on year increases in income and possibly expenditure. The most common measure of a healthy economy seems to be growth.
5. Investment : Short term capital expenditures which might be aimed at stimulating growth or sustaining income over long periods of time.
These might suggest that incurring a deficit and borrowing to stimulate or sustain growth is not a bad thing. HS2 will be expensive but over long periods of time might generate revenue that make the investment sensible.
We have another related item :
6. Inflation : The enemy of growth in a sense, inflation wipes out growth but also has the potential to reduce debt or specifically to reduce the debt to GDP ratio which seems to be used as some meaningful measure of a countries ... 'worth'.
So reducing deficit seems reasonable except when you need to stimulate growth, at which point you may need to borrow to invest which means an increase in debt. We are told we need austerity (layoffs, efficiency, wage freezes) to help reduce the deficit and halt th eincrease in borrowing but we only own 90% of GDP - which seems pretty average. The USA has 100% debt to GDP and Japan is over 200%. Even the Germans aren't much better than us at 85%. We certainly don't have much (if any) growth so perhaps the last thing we want is to reduce the deficit if doing so risks that?
As with most things, it is always far easier to suggest from the sidelines than do when you hold the reins of power. The key thing here is striking the right balance between reducing deficit and restricting growth. Not sure how many here are economists, but even they can't agree on the best way forward. It may be considered good business to find money to do something that will increase revenue, but not to find money just to service an increasing debt. There is no concencus from the professionals, so the rest of us are really just guessing and going with a gut feeling that may or may not be fed by our politcial leanings. So far, neither of the two main parties have got it right - Labour said no growth, no jobs, the Tories predicted too much of both. Somewhere in the middle lies reality. Reality seldom wins elections.
Who exactly do we owe the money to!? And more to the point, what would happen if we just said "we're not going to pay it back, sorry."
Isn't most/alot of the debt held in private hands? Mostly with banks and such like? I thought when the government needed borrow money they issued Bonds? Although it wouldn't surprise anyone if alot of those Governement Bonds were bought by the Chinese.
Sdrawkcab's question - if we don't pay the debt (or at least the interest on it) could have serious implications to insurance policies and pension funds...
Damn, this is confusing stuff!
guilts to raise money. As far as I know anyone can buy them. It's a bit like buying a share in UK PLC for a limited period except the government guarantees a return over a fixed term.
If the government defaulted on it's debt then several things would happen. First people would be unwilling to buy guilts, you won't be able to borrow any more money. Second, the people who hold guilts may be unable to service their liabilities where they rely on bond maturity to gain access to liquidity (cash). So if your pension fund is dependent on that for cash to pay the beneficiaries, they will not be paid and if your banks rely on Guilts as a means of holding capital, then you might get into the deep stuff real fast.
The difference is the yield rate/interest rate and the term. The actual amount owed is relatively unimportant. If you add the interest and the like up, it becomes complex.
I'm not sure it's even easy to shout from the sidelines.
IMO this article was a lazy troll on the Guardian site, and mattx is a troll for reposting it without comment. But as the saying goes, never wrestle a pig, because you'll just get dirty and the pig enjoys it.
Last edited by Flatpackhamster; 14th November 2013 at 03:56 PM.
But remember this. Every year you're paying out tax to service that debt. The debt is still getting bigger and it's not shrinking, and every year the proportion of your tax that just goes to service the debt gets bigger. Debt will destroy the country.
It has become an article of faith that debt isn't a bad thing. I disagree. It is ruinous. It is ruinous at a personal level and far worse at a state level because at a state level there is no responsibility for debt growth. Labour doubled our debt and now they're out of power how can they be held to account for that?
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