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General Chat Thread, David Cameron preaching austerity from a golden throne. in General; Originally Posted by pcstru Under what circumstances would that actually happen? Currently servicing our debt costs 43bn, around 3% of ...
  1. #61

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    Quote Originally Posted by pcstru View Post
    Under what circumstances would that actually happen? Currently servicing our debt costs 43bn, around 3% of GDP, or ~35% of the current 120bn annual deficit. So that situation would occur if the deficit was exactly 43bn? Or not, because if the deficit was 43bn, the debt would not be growing, but if the debt is growing then we are borrowing and even if that borrowing is only paying public sector wages then that is money going into the economy which may very well be driving growth (people spend money and if they have more money they can spend more which is what needs to happen to drive growth). So your statement seems to be sensible but as this is economics - just maybe it's not.

    I'm not sure it's even easy to shout from the sidelines.
    It might be 3% of GDP but GDP isn't the thing you should be comparing it to. You should be comparing to to total tax take. Comparing it to GDP gives you a false impression because it implies that all of GDP is available to service or repay the debt, when it isn't.


    In reality, 2012 spending looks like this:
    UK Central Government and Local Authority Spending in 2013 - Charts

    And debt interest makes up 47Bn of total spending of 506Bn - or 9% of government expenditure. More than the central government education budget, more than the entire defence budget.

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    Quote Originally Posted by localzuk View Post
    Its a clever system (where clever means "mindbogglingly stupid"). We owe money to China, India, France, Germany, Italy, USA, etc... The thing is, they also owe us money... For example, the USA owes the UK 834.5bn but we owe them 578.6bn... (As of June 2011).
    Likely a very dumb question - why the hell can't they just owe us 255.9bn and be done with it? "we owe them and they owe us" just make no sense - agree for only the difference to be paid back, both countries drop their debt by over 500 billion in one fell swoop. I mean at the end of the day it's governments owing governments, right?

    I admit I'm rather uneducated on the topic of national debt, but that's the whole point in asking.
    Last edited by Garacesh; 14th November 2013 at 04:02 PM.

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    Quote Originally Posted by Garacesh View Post
    Likely a very dumb question - why the hell can't they just owe us €255.9bn and be done with it? "we owe them and they owe us" just make no sense - agree for only the difference to be paid back, both countries drop their debt by over 500 billion in one fell swoop. I mean at the end of the day it's governments owing governments, right?

    I admit I'm rather uneducated on the topic of national debt, but that's the whole point in asking.
    I know plenty about the debt, but I'm still buggered if I can work out why we're doing it.

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    Quote Originally Posted by Flatpackhamster View Post
    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.
    So, if you say all debt is bad, is there a particular time when you would say the UK economy was in particularly good shape?

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    Quote Originally Posted by Flatpackhamster View Post
    It might be 3% of GDP but GDP isn't the thing you should be comparing it to. You should be comparing to to total tax take. Comparing it to GDP gives you a false impression because it implies that all of GDP is available to service or repay the debt, when it isn't.
    I think all I said was that it is a metric that is often used. That would including use by the current government. GDP is what you have to look at if you are looking at varying the tax rates and the effect that variation will have in the future.
    And debt interest makes up 47Bn of total spending of 506Bn - or 9% of government expenditure. More than the central government education budget, more than the entire defence budget.
    10-15 years ago, 30-40% of my expenditure went on servicing debt. That did make things quite tight for a while but it seemed to work out OK in the end.

    Very few people could buy a house without a mortgage and that usually involves borrowing many times your personal GDP. I'm surprised that you might be suggesting that home ownership is a bad thing?

    And these days no one but the offspring of the wealthy could actually go to university without incurring substantial debts. So borrowing is something that will presumably be encouraged by Cameron if he wants to address the imbalance of monied toffs who seem to run the country.

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    Quote Originally Posted by pcstru View Post
    So, if you say all debt is bad, is there a particular time when you would say the UK economy was in particularly good shape?
    Hmm. Tricky. Off the top of my head (checking no figures but I think I'm about right) 1995-2001 weren't especially bad. Some debt was paid off, economic growth was steady and taxes weren't too onerous. After that the growth was just fuelled by cheap credit.

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    Quote Originally Posted by pcstru View Post
    I think all I said was that it is a metric that is often used. That would including use by the current government.
    And by economists all over the place. But IMO it doesn't tell you anything and it's an easy get-out. "Look, we might owe a bazillion and eight pounds but the country's GDP is more."

    GDP is what you have to look at if you are looking at varying the tax rates and the effect that variation will have in the future.
    But I think it is a poor tool for deciding if you have too much debt. GDP is an approximate figure for how large the country's economy is.

    10-15 years ago, 30-40% of my expenditure went on servicing debt. That did make things quite tight for a while but it seemed to work out OK in the end.
    But you haven't kept ramping up the amount of debt you've got in the hope that something will come along. That seems to be the way the country is run.

    Very few people could buy a house without a mortgage and that usually involves borrowing many times your personal GDP. I'm surprised that you might be suggesting that home ownership is a bad thing?
    I'm not. I think property ownership is a bastion against tyranny. But I think that people nowadays are far too casual about debt.

    And these days no one but the offspring of the wealthy could actually go to university without incurring substantial debts. So borrowing is something that will presumably be encouraged by Cameron if he wants to address the imbalance of monied toffs who seem to run the country.
    Was there ever a time when 'moneyed toffs' (to use your hackneyed phrase) didn't? A golden age when we were run by horny-handed sons of toil? I can't think of one.

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    Quote Originally Posted by Flatpackhamster View Post
    Hmm. Tricky. Off the top of my head (checking no figures but I think I'm about right) 1995-2001 weren't especially bad. Some debt was paid off, economic growth was steady and taxes weren't too onerous. After that the growth was just fuelled by cheap credit.
    Debt seems to have been at much the same levels in relation to GDP before and after then. Debt had been much higher before - up to 250% of GDP, so given that your choice years are after that, it seems unlikely that debt is actually ruinous (which is what you claim). Appreciate you think that GDP is not a good way to measure that, but unless you can think of a way that is consistent in relation to income, inflation and earnings - it seems a reasonable measure.

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    Quote Originally Posted by Flatpackhamster View Post
    But you haven't kept ramping up the amount of debt you've got in the hope that something will come along. That seems to be the way the country is run.
    I think the hope of what will come along is fairly consistent between the parties, they hope for Growth. I don't know of any major economy that doesn't operate on the basis of growth=good, despite that in a world of limited resources, there would seem to be a mathematical flaw in that expectation.
    I'm not. I think property ownership is a bastion against tyranny.
    Do you have any tyranny in mind or is that just general tyranny?
    But I think that people nowadays are far too casual about debt.
    So how do you square that circle? Borrowing to buy a house will put most people into debt that several times their yearly earnings for a substantial chunk their lives.
    Was there ever a time when 'moneyed toffs' (to use your hackneyed phrase) didn't? A golden age when we were run by horny-handed sons of toil? I can't think of one.
    No. Quite the reverse. The point is that as a measure of social mobility (which is one of the great promises of both capitalism and modern western democracy), progress is either glacial or non-existent. Yet the poorer you are the more debt you are likely to incur simply to have the right bits of paper that say you are qualified. Given low social mobility, is that debt something we are too casual about? IMO education is much more powerful as a protection from tyranny than property but the huge debts and subsequent lack of equality in employment *at all levels* seems to make it a poorer investment for those that need that protection most.

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    Just read through the last few posts and the thought that came to my head is the difference between debt and deficit. Debt itself isn't bad, and like others have pointed out sometimes required. But what about deficit. How meny banks would give you a mortgage if your personal finances showed a massive deficit? In fact any deficit? Can't afford to pay the loan - you get refused credit. Doesn't seem to apply to government spending.

    Also, I thought Gordon Brown had closed the deficit by the time the Banking Crises hit? Labour gets lot of flack for "destroying the economy" when it seems to me the Banks have a lot more to answer?

    Getting more debt to pay for things like HS2 isn't an issue, it's the ability to repay that debt. Just how much money is there in the world? How much debt do we have to be in before the world says - sorry, we can't give you any more? What happens then?

    My problem is that I'd sooner fund improvements to the NHS, welfare state, education, law enforcement, etc. I suppose that means a tmcd35 governement would be one of massive tax hikes?

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    But I think that people nowadays are far too casual about debt.

    So how do you square that circle? Borrowing to buy a house will put most people into debt that several times their yearly earnings for a substantial chunk their lives.
    I think he has a point. I've seen quite a few interviews with people who are so heavily in debt (usually not mortgages as a house is possibly the most tangible asset you can ever have) they have little or no chance of ever getting out of it (bar declaring bankruptcy). One problem being blamed is that, to put it simply a debt is just numbers on a page. Once the numbers get to a certain size they begin to mean little. And then when they want more money (back when the banks would lend anything to anyone) they would simply top up with even more numbers.

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