Public Sector Finances, Aka, We Are Really In The Shit

[cashinmattress]

Public sector finances June 2009

Choice Bits:

Provisional estimates of the public finances show that in June the public sector had:

• a current budget deficit of £9.9 billion;

• net borrowing of £13.0 billion

and at the end of June:

• net debt was £798.8 billion, equivalent to 56.6 per cent of gross domestic product.

Main Statistics

The main statistics released show, that in June 2009:

the public sector current budget was in deficit by £9.9 billion; this is a £4.1 billion higher deficit than in June 2008, when there was a deficit of £5.8 billion;

public sector net borrowing was £13.0 billion; this is £5.5 billion higher net borrowing than in June 2008, when net borrowing was £7.5 billion;

the public sector net cash requirement (see table PSF4) was £19.0 billion, a £7.6 billion higher net cash requirement than in June 2008, when there was a net cash requirement of £11.4 billion. N.B. rather than looking at the cash measure, which can be misleading due to timing factors, it is better to look at the other, accruals-based, statistics at the end of June 2009 public sector net debt was £798.8 billion (equivalent to 56.6 per cent of GDP). This compares to £641.4 billion (44.4 per cent) as at the end of June 2008.

Public sector net debt (excluding financial sector intervention)

The most recent figures for public sector net debt (excluding financial sector intervention) are for June 2009, when net debt was £657.5 billion (46.6 per cent of GDP)

Financial year to date (April 2009 – June 2009):

Monthly data can be volatile, so it can be misleading to read too much into one month’s data. The following paragraphs give information on the financial year to date and comparisons with the corresponding period of the previous financial year.

In financial year 2009/10:

the public sector current budget was in deficit by £34.1 billion; this is a £17.0 billion higher deficit than in the same period of 2008/09, when there was a deficit of £17.1 billion;

public sector net borrowing was £41.2 billion. This was a £19.6 billion higher net borrowing than in the same period of 2008/09, when there was net borrowing of £21.6 billion;

the public sector net cash requirement (see table PSF7) was £42.8 billion; £24.7 billion higher net cash requirement

Where the hell is this money coming from, and, when do we have to pay it back? And at what cost to the nation?

What is the debt load when the bank interventions are considered?

No wonder they are on extended recess. These kunts have made a complete mess of our future. They've been so busy padding their own pockets that they've let us all go into a huge intergenerational debt. We need justice served.

Fail.

Edited July 23, 2009 by cashinmattress

[interestrateripoff]

The numbers are just staggering.

Luckily Gordon knows what he's doing and he's doing it with 100% conviction.

[lowrentyieldmakessense(honest!)]

The numbers are just staggering.

Luckily Gordon knows what he's doing and he's doing it with 100% conviction.

yep he spends every hour thinking about how he can help the economy

anyway i look at those numbers and am happy to learn we are more wealthy than the previous month

can we include pfi also just so we know how truly wealthy we are

[RufflesTheGuineaPig]

Where the hell is this money coming from, and, when do we have to pay it back? And at what cost to the nation?

Currently the BoE is issuing new money (Quantative easing) which it is using to buy back existing older, low-interest long term government debt. The sellers of that debt then use the money they got from selling it to buy newly issued, higher paying, shorter term government debt.

Problem solved.

[Vaevictus]

some countries in the EU (belgium for example) have debt at over 100% of GDP yet they still get by ok.

What's stopping us borrowing double what we currently owe? What's Belgium got that we haven't?\

Perhaps it's because looking at debt levels as a percentage of GDP is not a very good measure...

[interestrateripoff]

some countries in the EU (belgium for example) have debt at over 100% of GDP yet they still get by ok.

What's stopping us borrowing double what we currently owe? What's Belgium got that we haven't?\

Perhaps it's because looking at debt levels as a percentage of GDP is not a very good measure...

You mean Belgium have been OK so far. If we have debt deflation then we'll discover how clever having debt is.

[Vaevictus]

That's not really answering the question is it?

A country with debt at over 100% GDP is surviving in the current climate, still finding further money available on the money markets, and the interest on this debt is affordable (albeit at current rates, and via high taxation).

That would suggest that the UK has room to rack up significantly more debt.

I do not disagree with your NLP though, UK debt is too high.

[lowrentyieldmakessense(honest!)]

some countries in the EU (belgium for example) have debt at over 100% of GDP yet they still get by ok.

What's stopping us borrowing double what we currently owe? What's Belgium got that we haven't?\

Perhaps it's because looking at debt levels as a percentage of GDP is not a very good measure...

you mean like looking at mortgages and income levels

zero hour approaches

[interestrateripoff]

That's not really answering the question is it?

A country with debt at over 100% GDP is surviving in the current climate, still finding further money available on the money markets, and the interest on this debt is affordable (albeit at current rates, and via high taxation).

That would suggest that the UK has room to rack up significantly more debt.

I do not disagree with your NLP though, UK debt is too high.

Servicing debt is fine providing your GDP keeps growing or stagnates, however stagnation only works providing the debt doesn't keep growing.

If we do enter a depression phase GDP's could collapse.

I hope my maths is right with this below, I'm sure someone will correct if I've got the % wrong.

If your country has a GDP of £100 and a deficit of 50% of GDP gives you debt of £50.

If your GDP falls by 10% you then have a GDP of £90 but debt is still £50 and this is now 55.5% of GDP, providing my maths is correct. Remember this still needs servicing so your country now has reduced tax revenues plus still has to service it's debt. You now have to either cut services or increase taxes, your then getting into debt deflation with the added bonus of fiscal drag, which could further depress GDP. You can very quickly enter a vicious cycle, everything else can contract apart from the debt leaving you with the possibility of debt default unless you can start to magic growth in the economy quickly.

[lowrentyieldmakessense(honest!)]

Servicing debt is fine providing your GDP keeps growing or stagnates, however stagnation only works providing the debt doesn't keep growing.

If we do enter a depression phase GDP's could collapse.

I hope my maths is right with this below, I'm sure someone will correct if I've got the % wrong.

If your country has a GDP of £100 and a deficit of 50% of GDP gives you debt of £50.

If your GDP falls by 10% you then have a GDP of £90 but debt is still £50 and this is now 55.5% of GDP, providing my maths is correct. Remember this still needs servicing so your country now has reduced tax revenues plus still has to service it's debt. You now have to either cut services or increase taxes, your then getting into debt deflation with the added bonus of fiscal drag, which could further depress GDP. You can very quickly enter a vicious cycle, everything else can contract apart from the debt leaving you with the possibility of debt default unless you can start to magic growth in the economy quickly.

by quantitative easing

sorted

until everyone realises you are printing currency to buy your own debt

[righttoleech]

Belgium survives in the same way that the housing bubble survived beyond all reasonable expectation.

And the longer it goes on the harder the fall. Gordon Brown has been stoking this fire for 12 years. His work is almost done. Country close to meltdown.

[Vaevictus]

Servicing debt is fine providing your GDP keeps growing or stagnates, however stagnation only works providing the debt doesn't keep growing.

If we do enter a depression phase GDP's could collapse.

I hope my maths is right with this below, I'm sure someone will correct if I've got the % wrong.

If your country has a GDP of £100 and a deficit of 50% of GDP gives you debt of £50.

If your GDP falls by 10% you then have a GDP of £90 but debt is still £50 and this is now 55.5% of GDP, providing my maths is correct. Remember this still needs servicing so your country now has reduced tax revenues plus still has to service it's debt. You now have to either cut services or increase taxes, your then getting into debt deflation with the added bonus of fiscal drag, which could further depress GDP. You can very quickly enter a vicious cycle, everything else can contract apart from the debt leaving you with the possibility of debt default unless you can start to magic growth in the economy quickly.

thanks for explaining

looks like belgium is in a much worse position than the UK then. They could be an interesting bellweather.

Vae

[Bloo Loo]

Belgium survives in the same way that the housing bubble survived beyond all reasonable expectation.

And the longer it goes on the harder the fall. Gordon Brown has been stoking this fire for 12 years. His work is almost done. Country close to meltdown.

nonsense...theres dough in chocolate. and biscuit, nuts, fruit.

[macca]

I hope Gordo thinks it was all worth it just to keep the rich happy at the expense of the rest of us. Funny how the super rich of this country are all hiding in bunkers and cannot come up with an entrepreneurial plan between them to assist this country out of the shite.

[xux42]

I hope Gordo thinks it was all worth it just to keep the rich happy at the expense of the rest of us. Funny how the super rich of this country are all hiding in bunkers and cannot come up with an entrepreneurial plan between them to assist this country out of the shite.

The richest 1% in the States have a combined wealth of $12Trn. They could pay off the Federal Debt, State Debts and the personal debts of the other 99% and still have more than $7Trn left.

Why are none of them discussing this at least?

How much do they need? What good is all that money if they can't leave their compounds?

[D.C.]

The richest 1% in the States have a combined wealth of $12Trn. They could pay off the Federal Debt, State Debts and the personal debts of the other 99% and still have more than $7Trn left.

Why are none of them discussing this at least?

How much do they need? What good is all that money if they can't leave their compounds?

Er US national debt is $11.6 trillion on it's own, how do you work out having 7 left?

[Bloo Loo]

The richest 1% in the States have a combined wealth of $12Trn. They could pay off the Federal Debt, State Debts and the personal debts of the other 99% and still have more than $7Trn left.

Why are none of them discussing this at least?

How much do they need? What good is all that money if they can't leave their compounds?

yo dont beleive they have all that wealth in cash, do you?

ittl be in property, investments and other vehicles.

I think that 1%, if they ever drew up a balance sheet, are actually, losing it hand over fist, in money terms.

and if they attmepted to withdraw 12trillion in cash, then all the markets would crash.

prisoners, the lot of them, poor things.

[thedebtisreal]

Belgium survives in the same way that the housing bubble survived beyond all reasonable expectation.

No, Belgium survives because it has a very high personal savings rate to make up for a government deficit. Same too of other over indebted nations such as Japan.

Thank goodness we brits like to save!

Edited July 24, 2009 by thedebtisreal

[xux42]

yo dont beleive they have all that wealth in cash, do you?

ittl be in property, investments and other vehicles.

I think that 1%, if they ever drew up a balance sheet, are actually, losing it hand over fist, in money terms.

and if they attmepted to withdraw 12trillion in cash, then all the markets would crash.

prisoners, the lot of them, poor things.

I stand corrected on the debt, I was thinking of figures I saw a while ago - hadn't realised how quickly they had deteriorated.

Yes, obviously it won't be cash.

OK then, the richest sign over 1/2 of their real assets which will shore up the balance sheets of the public sector and the other 99%.

If they are losing value hand over fist anyway then what the hell?

At least the USA (World?) won't go Mad Max which it looks like it may well do if the wealthiest just try to sit out the recession/depression. The French Aristocracy tried that and it didn't go so well for them.

What I am trying to say rather clumsily is that the rich cannot insulate themselves and are risking there being no functioning society to be 'rich' in.

[generation jones]

http://ukhousebubble.blogspot.com/2009/07/...ay-with-it.html

read this and despair!

[Si1]

The richest 1% in the States have a combined wealth of $12Trn. They could pay off the Federal Debt, State Debts and the personal debts of the other 99% and still have more than $7Trn left.

Why are none of them discussing this at least?

How much do they need? What good is all that money if they can't leave their compounds?

they probably will - in selective investments, whilst also mixing their selective investments abroad - think Warren Buffet

edit to add:

if this wealth is ALREADY stored in stocks and property, then withdrawing it to pay off one debt simply creates a hole somewhere else. If as cash then that's a different matter...

Edited July 24, 2009 by Si1

[kzb]

I asked this in a prevous thread but no-one responded:

If current outstanding public sector debt is £799bn, is the government's own budget forecasting this to grow by £703bn in the next 5 years, giving a total of £1,502bn outstanding?

[Guest happy?]

Servicing debt is fine providing your GDP keeps growing or stagnates, however stagnation only works providing the debt doesn't keep growing.

If we do enter a depression phase GDP's could collapse.

I hope my maths is right with this below, I'm sure someone will correct if I've got the % wrong.

If your country has a GDP of £100 and a deficit of 50% of GDP gives you debt of £50.

If your GDP falls by 10% you then have a GDP of £90 but debt is still £50 and this is now 55.5% of GDP.....

You illustrate the point very accurately. As I understand it is not only Belgium which has a higher debt than the UK, I believe most of the other western economies have a higher debt - and will continue to do so throughut the rest of the economic cycle.

As has been illustrated elsewhere to show this year's debt as a 'record debt' is a sleight of hand because as we all know nominal and real debt are two entirely different beasts. There is a very large debt here - but showing it relative to other economic cycles would be a much more persuasive argument.

One point about your argument which you've overlooked - what if the economy then grows? If I have a mortgage of 3x salary and over time my salary increases by 50% the debt is simply eroded by economic activity. If inflation were then to kick-in what effect would that have as well? Suddenly my income is £200 and the debt is still £50 - it's now only 25% of the GDP and nothing's been repaid. QE in this circumstance looks better than a deflationary spiral.

I could also consider budgeting my household income differently e.g. have the windows cleaned half as often (i.e. reduce public sector spending). If I do this I will of course be taking money out of the economy. This is where the analogy of national economy as household economy collapses - because of course in the real economy the window cleaner pays money back to me by way of taxation. Am I better off keeping money in the economy and paying the window cleaner, or better off sacking the window cleaner and having to pay him to be idle (unemployment benefits).

In addition as a politician I also have to keep the electorate sweet. What if people like their windows cleaned regularly - i.e. they want a health service and a functioning education system? This is the conundrum facing Dave - there's a head of steam which is likely to see him elected and who want public-sector cuts now but whatt happens when people begin to feel the pain they assume will be visited on someone else. With a lightweight for a Chancellor, my bet is that wee Georgie's days are numbered even before he's moved into Number 11.

Edited July 24, 2009 by happy?

[FreeTrader]

I asked this in a prevous thread but no-one responded:

If current outstanding public sector debt is £799bn, is the government's own budget forecasting this to grow by £703bn in the next 5 years, giving a total of £1,502bn outstanding?

Sorry, I didn't answer this on the other thread, and I think it was directed at me.

The April Budget projects that UK public sector net debt at the end of the 2013/14 fiscal year will be £1,370bn. However, this excludes liabilities and losses from financial sector interventions, and the £799bn figure being discussed in this thread includes these.

At present these interventions stand at £141.3bn, so if they stay broadly at this level over the next 5 years, then PSND including interventions will indeed stand at over £1,500bn.

These numbers are based on some pretty optimistic GDP projections. In each of the 2011/12, 2012/13 and 2013/14 fiscal years, the Treasury is forecasting real GDP growth of 3.25%. This would put the UK deficit (including financial interventions) at 86.6% of GDP.

On a Maastricht basis the debt is forecast to be £1,582bn, or 90.7% of GDP. As a comparison to other European countries' debt on this basis, here's the position at end-2007:

(For a discussion of the different measures of public debt, see this article by Jim O'Donoghue of the ONS, published in the Economic & Labour Market Review, July 2009. The above chart was taken from this PDF).

[interestrateripoff]

Servicing debt is fine providing your GDP keeps growing or stagnates, however stagnation only works providing the debt doesn't keep growing.

If we do enter a depression phase GDP's could collapse.

I hope my maths is right with this below, I'm sure someone will correct if I've got the % wrong.

If your country has a GDP of £100 and a deficit of 50% of GDP gives you debt of £50.

If your GDP falls by 10% you then have a GDP of £90 but debt is still £50 and this is now 55.5% of GDP, providing my maths is correct. Remember this still needs servicing so your country now has reduced tax revenues plus still has to service it's debt. You now have to either cut services or increase taxes, your then getting into debt deflation with the added bonus of fiscal drag, which could further depress GDP. You can very quickly enter a vicious cycle, everything else can contract apart from the debt leaving you with the possibility of debt default unless you can start to magic growth in the economy quickly.

Also you have to consider if the servicing cost of your deficit is 2% of GDP then if your GDP is £100 then this will be £2.

However if GDP contracts to £90 then in percentage terms your deficit servicing costs, which will still be £2, have gone from 2% of GDP to 2.22% of GDP, even though debts haven't increased nor has the cost of servicing them.

This is where I start to suffer from percentage blindage, doesnt' this mean that in real terms GDP servicing costs have gone up by 11%? (22/200*100 I think this is correct?) even though the cost is still £2

Now if you factor in your tax revenue is going down you either cut services or increase taxes, cut services this in itself could reduce further your GDP if the private sector fails to make up what's been cut (in the short term) or you increase taxes which reduces disposable income which also will probably reduce GDP further.

You can very quickly enter a death spiral because the one thing you can't cut is the debt servicing, because the only option to stop paying is default.