Friday, Jan 23, 2009
We can't get out of debt without structural reform
CynicusEconomicus: The importance of the ability to service debt
Another post from this blog. The argument being that long term the UK cannot repay the debts. Jobs come from debt/savings shrinking or increasing or just churning(healthy). However, in a period of excessive debt from say, speculative bubbles, how would the debt/savings be run down. His point is that the UK, and hence the debtors in the UK, don't make anything and so are unable to repay debts irrespective of increased borrowing from government, his argument being that increased government debt just makes things worse. So, basically rather than UK savers paying UK debtors and allowing them to work it off, the only way they can spend their money is on real goods/production which pretty much mainly come from abroad...(continued..)
Posted by stillthinking @ 01:07 PM (346 views) Add Comment
4 Comments
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1. stillthinking said...
... and the should domestic savers start spending all that will happen is an acceleration in the decline of sterling, -not- a recovery. So the government is in fact pursuing a course which will collapse sterling should their expansive plans to increase demand succeed. Let us not forget, for example, before all of this kicked off there was a certain Mervyn King trying to increase rates to head off inflation, which is now no longer with us because of demand collapse. Demand collapse essentially being a temporary reprieve for UK PLC on the currency markets.
This situation is the same for the US to a certain degree. A conclusion might be that we would need to expand our "real" production, but of course we are not in a situation to do that while there is a huge disparity in wages with China and a technological gap with say Taiwan.
So, from that, government borrowing to fund the public sector, thereby creating demand, is directly collapsing sterling.
Also, any recovery of demand will collapse sterling.
And, a failure of the UK government to successfully borrow funds leading to money printing (-not- quantative easing which printed money is exchanged for assets) will also collapse sterling.
Or briefly, our problems are structural more than debt and sterling is going to collapse.
2. Onewaystreet_(down!) said...
Gordon Brown got us into this mess by encouraging an unsustainable housing market price bubble. The only way out is to inflate this bubble for ever more; which is what he is trying to do. All the taxpayers money he keeps on spending and promising down each and every avenue which he feels may allow this to happen will eventually come to a stop as he would have spent it all.
What currency do we all put our money into is the question. Any ideas?
3. greytornado said...
GOLD
4. Randeg said...
UK is not the only country that has a repayment debt problem. I think all the countries of the world are on the same boat with this credit crunch we find ourselves in. UK may even have less of a problem in this area than most. I know it is not a pretty picture but we have to live with it and just hope the recession will be short.
Evelyn Guzman
http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)