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Us Faces One Of Biggest Budget Crunches In World – Imf


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Guest Noodle

However the last time there was the possibility of huge growth as everyone got TV's, Cars etc...

Where is the growth going to come from this time?

Are we all going to start buying those spaceships for quick trips to the moon?

The next five years will be hard no doubt, but I really wouldn't give up on Blighty.

Still a very capable country, stable, temperate climate, relatively good infrastructure compared to most.

Lots needs doing. I feel that if they get the banks under control and the deficit amongst many other things, the future isn't that bleak.

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Last I looked, Rome wasn't burning but suffering from an excessive debt the result of a political response to an economic situation.

Hopefully, we will have an economic response now and the debt will be reduced to manageable levels.

May want to check that.

The decline and fall of the Roman Empire was accompanied by currency debasement (replacement of precious metals in coins) on a gargantuan scale.

The idea that no large economy could ever go belly up is cute, ask the Soviet Union. Oh. Wait...

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Yeah, yeah.

As I recall what I am saying is that we need to pay down our debt and we can.

I admit it. I'm optimistic we will.

If we don't we may be in for a big problem, which is nothing more than what everybody is saying.

As for the decline and fall of the Roman ... that was the product of military not economic failure.

Remember, Rome got sacked, the mausoleum of Augustus was looted by the Visigoths in 410, right?

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...the UK debt exposure to GDP took a steep dive for the better from late 40's early 50's .

what you find looking back at the UK debt chart is public debt falling from a high in 1840 to a minimum in 1929, after which it climbs incessantly until 1950. Then it declines until about the year 2000.

uk-us-public-debt-since-1800.png

Now, in any closed system declining public debt must be matched by rising private debt, assuming the economy is continuing to grow. Periods of secular decline in public debt are matched by secular increase in private debt, and the latter ends in financial crisis. Then the cycle starts again. The cycle is basically one in which the decling public debt/increasing private debt is the ponzi phase which ends in crisis, and the increasing public debt phase is the clean up period.

I don't see why it should be any different this time, and why OECD public debt can't get to 200% all round the world.

The historical record shows periods of rising/high interest rates coinciding with declining public debt and falling/low interest rates coinciding with rising public debt.

Given that bond markets existed throughout the period shown in the graph and there was no bond strike or interest rate melt ups I can't see why this time should be different. Look for public debt to rise to 200% gdp in most OECD nations by 2050, or perhaps by 2030.

Thanks for listening.

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So the chart tells us current debt levels are peanuts .... kewl.

I suppose that early 19th century spike might have had something to do with Bonaparte ....?

And I suppose that if we've been able to deal with such extreme debt levels the Yanks should be able to as well.

So the Jonahs should still be able to sit under their trees cussing life the universe et al ....

A bit like Diogenes without the barrel, maybe.

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So the chart tells us current debt levels are peanuts .... kewl.

I suppose that early 19th century spike might have had something to do with Bonaparte ....?

yup.

And I suppose that if we've been able to deal with such extreme debt levels the Yanks should be able to as well.

anyone can deal with high debt levels as long as they are carried at very low interest rates. The historical form seems to be:

1) declining public debt from prior high matched by increasing indebtedness of private sector to itself. This is actually a private sector boom and serves to inflate away the existing public debt.

2) financial crisis in the private sector

3) a long period of rising public debt low interest rates, often accompanied by war of some kind.

repeat from 1. However the doubt now is whether we can have a private sector boom given the demographics. My view is probably not, not until the aging has levelled out and the world population basically stabilised. I think this inflexion point is projected for around the end of the century by which time the population could be down a couple of billion form current levels.

However if modifications to the political economy were made as a result of social change (for example negative nominal rates or more modern taxation regimes - e.g. land tax and consumption tax rather than income tax) then a boom could occur much sooner.

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A picture of health for the US, very sustainable.

DR%201_0.jpg

The health is affected by the interest rate on the debt. Near zero it doesn't really matter how large it gets, within reason, and also one has to bear in mind that during these high public debt epochs following private debt ponzis, the public sector is a much bigger portion of the economy.

The history speaks for itself.

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what you find looking back at the UK debt chart is public debt falling from a high in 1840 to a minimum in 1929, after which it climbs incessantly until 1950. Then it declines until about the year 2000.

uk-us-public-debt-since-1800.png

Now, in any closed system declining public debt must be matched by rising private debt, assuming the economy is continuing to grow. Periods of secular decline in public debt are matched by secular increase in private debt, and the latter ends in financial crisis. Then the cycle starts again. The cycle is basically one in which the decling public debt/increasing private debt is the ponzi phase which ends in crisis, and the increasing public debt phase is the clean up period.

I don't see why it should be any different this time, and why OECD public debt can't get to 200% all round the world.

The historical record shows periods of rising/high interest rates coinciding with declining public debt and falling/low interest rates coinciding with rising public debt.

Given that bond markets existed throughout the period shown in the graph and there was no bond strike or interest rate melt ups I can't see why this time should be different. Look for public debt to rise to 200% gdp in most OECD nations by 2050, or perhaps by 2030.

Thanks for listening.

...do you have a graph showing the private debt trend over the same period ..?...would be interesting .... :rolleyes:

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what you find looking back at the UK debt chart is public debt falling from a high in 1840 to a minimum in 1929, after which it climbs incessantly until 1950. Then it declines until about the year 2000.

uk-us-public-debt-since-1800.png

Now, in any closed system declining public debt must be matched by rising private debt, assuming the economy is continuing to grow. Periods of secular decline in public debt are matched by secular increase in private debt, and the latter ends in financial crisis. Then the cycle starts again. The cycle is basically one in which the decling public debt/increasing private debt is the ponzi phase which ends in crisis, and the increasing public debt phase is the clean up period.

I don't see why it should be any different this time, and why OECD public debt can't get to 200% all round the world.

The historical record shows periods of rising/high interest rates coinciding with declining public debt and falling/low interest rates coinciding with rising public debt.

Given that bond markets existed throughout the period shown in the graph and there was no bond strike or interest rate melt ups I can't see why this time should be different. Look for public debt to rise to 200% gdp in most OECD nations by 2050, or perhaps by 2030.

Thanks for listening.

whilst i think its acceptable to ignore pension liabilities on a stand alone basis, if you are doing a graphical representation over history, then i think they need to be included because whilst they are not current payable debt, so dont carry interest i think that interest is likely to be more than offset by the normal expansion of this pension debt relative to those servicing it and they simply didnt exist to even a blip of the current amount previously. Add that to PFI etc which there is no argument for exclusion and that takes it to about 120% already (maybe a bit more as im sure there is likely other hidden debt).

You then have the govt insurance scheme for the banks, whilst they dont expect to use this because the economy is apparently miraculously going to return to liar loan and leveraged finance 3% pre collapse growth all whilst whilst the world implements record cuts i think its is guaranteed to be fully called by the banks, that takes us to about 160%. Given i dont think additionally the oncoming cuts will in any way match the speed of the oncoming crash in GDP i expect to be far greater than 2008 then i would be shocked if that 250% level isnt shot through within the next 3 years. So whilst i am neither up nor down on interest rates (its probably the only thing im not willing to project into the future). I do not rule out them being forced higher upon that 250% breach which i see as highly likely.

What we do have to feel proud about though is that if it is breached we have managed to do so without the cost of a world or napoleonic war, weve managed it through sheer greed and incompetence which i think shows some real social and intellectual progression over the centuries

Edited by Tamara De Lempicka
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Pensions?

What nation went tits up because it welched on its old people?

If the UK doesn't pay its pensions that's v bad but the nation doesn't slide into the sea.

no but that doesnt stop it being a parameter that is included in the calculations of any bonholder when calculating the likeliness of being repaid, have a look at the increased cost of financing for argentina when they recently nationalised pensions, do you think the bondholders are going to ignore a country welching on its citizens when calculating whether they might also be welched on

Edited by Tamara De Lempicka
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Seriously.. countries do not need to withdraw stimulus spending and reduce deficit spending. The mainstream economic thought is still 'any day now things will get back to the way they were.' In the old economic paradigm it is true that these deficits would not be sustainable. But the old economic paradigm died in the fall of 2008. And its never coming back.

In the new order, first world national governments are going to be forced to run deficits of 12% of gdp for the forseeable future. People are afraid of the debt to gdp levels but at some point people will just forget about it. Even now people are starting to get used to the new normal of budget deficits of 12% of gdp.

Look Japan has been running deficits near 10% of gdp fro a long time, and honestly no one is worried. They are now nearing 200% of gdp as their national debt. While the UK is currently only at 60%. No one is worried about Japan's debt because it is something they have gotten used to.

That doesnt inspire much confidence!

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...one of the trends I notice is the high points occurred when GB was at war....early 1800's Trafalgar, Waterloo, ...increase during and after WW1 ...and another peak WW2 .... :rolleyes:

of course. but why do the wars happen?

The chart can also be overlaid by a depcition of the social inclination ot individualism vscollectivism, which would vary inversely to the level of public debt and in phase with the level of private debt, so maximum social inclination to individualism co-incides with peak private debt.

Thereafter debt repudiation increases in conjunction with a rejection of individualism. However the rise of collectivism can only work if there is a common cause, normally a common enemy. Because the social mood swings towards collectivism as a result of the excesses of the prior, individual oriented period, an enemy or common cause is manufactured if one does not naturally come to light. And so to war.

Particle man suggests: protectionism then war.

I tend to agree, but would ask, against what shall the protectionist barriers be raised, and to who or what shall we go to war and what will be the casus belli? Here it is important to note that the answers to these questions are less important than that the question is being asked.

My personal view is that the protectionist barrier is basically a northern hemisphere vs souther hemisphere line of demarcation, and that the common cause, or enemy, is nature itself, in the form of peak oil and climate change. Again, it doesn't matter whether these are real or imagined threats, any more than hitlers notion that germans had too little lebensraum and were oppressed by jews was real, or that the allied notion of freedom was real.

The common enemy justifies the long period of low interest rates and the disenfranchisement of the individual investor versus the common good.

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of course. but why do the wars happen?

The chart can also be overlaid by a depcition of the social inclination ot individualism vscollectivism, which would vary inversely to the level of public debt and in phase with the level of private debt, so maximum social inclination to individualism co-incides with peak private debt.

Wars happen because it's the easiest way for a central bank to justify robbing everybody.

There ar eno priovate debts, btw. Almost all people have who have debts have debts to the banking system, which is an entirely state backed enterprise. There is also no private money.

Thereafter debt repudiation increases in conjunction with a rejection of individualism. However the rise of collectivism can only work if there is a common cause, normally a common enemy. Because the social mood swings towards collectivism as a result of the excesses of the prior, individual oriented period, an enemy or common cause is manufactured if one does not naturally come to light. And so to war.

Bankers get caught out, set the wolrd on fire to avoid capture. Classic bankster behaviour.

Particle man suggests: protectionism then war.

I tend to agree, but would ask, against what shall the protectionist barriers be raised, and to who or what shall we go to war and what will be the casus belli? Here it is important to note that the answers to these questions are less important than that the question is being asked.

I think it's not all that material - as the mechanism for funding an overseas war without extra taxes (devaluation) is on it's way out. If they could possibly have us all in dome foreign field getting killed (and thus cancelling debts left right and centre) we'd be there already. Civil war, now theres an idea.

My personal view is that the protectionist barrier is basically a northern hemisphere vs souther hemisphere line of demarcation, and that the common cause, or enemy, is nature itself, in the form of peak oil and climate change. Again, it doesn't matter whether these are real or imagined threats, any more than hitlers notion that germans had too little lebensraum and were oppressed by jews was real, or that the allied notion of freedom was real.

Well, as far as I can tell Hitler just latched onto the (justified) hatred of what international bamksters (mostly jews) had done to the german people in the name of their insane religion of book balancing.

The common enemy justifies the long period of low interest rates and the disenfranchisement of the individual investor versus the common good.

We've just had the collectivism though, which is where your thesis completely collapses even if we accept all the previous. We've just had a major attempt to turn the UK into east germany circa 1960 and it's been roundly rejected at election time, except by those who are getting paid for doing it.

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We've just had the collectivism though, which is where your thesis completely collapses even if we accept all the previous. We've just had a major attempt to turn the UK into east germany circa 1960 and it's been roundly rejected at election time, except by those who are getting paid for doing it.

...are you talking about Woodley in Cuba at present celebrating the revolution instead of negotiating with BA....?..... :rolleyes:

Edited by South Lorne
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Yeah, yeah.

As I recall what I am saying is that we need to pay down our debt and we can.

I admit it. I'm optimistic we will.

If we don't we may be in for a big problem, which is nothing more than what everybody is saying.

As for the decline and fall of the Roman ... that was the product of military not economic failure.

Remember, Rome got sacked, the mausoleum of Augustus was looted by the Visigoths in 410, right?

I'm really curious how everyone here thinks we will do that when money = debt.

Pay down our debt and we decrease the money supply. But this paying down will only allow payment of the principal and not the forever growing interest portion. Thus the overall level of uk debt (personal+governmental+corporate) to gdp will increase as the money supply decreases faster than the overall debt does (by this paying down).

How to solve this conundrum? Send your answers on a postcard, please, to 11 downing.....

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I'm really curious how everyone here thinks we will do that when money = debt.

Pay down our debt and we decrease the money supply. But this paying down will only allow payment of the principal and not the forever growing interest portion. Thus the overall level of uk debt (personal+governmental+corporate) to gdp will increase as the money supply decreases faster than the overall debt does (by this paying down).

How to solve this conundrum? Send your answers on a postcard, please, to 11 downing.....

simple, increase the velocity of money to make up for its lower stock level.

OR

just default on part of it.

it amounts to the same thing.

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I'm really curious how everyone here thinks we will do that when money = debt.

Pay down our debt and we decrease the money supply. But this paying down will only allow payment of the principal and not the forever growing interest portion. Thus the overall level of uk debt (personal+governmental+corporate) to gdp will increase as the money supply decreases faster than the overall debt does (by this paying down).

How to solve this conundrum? Send your answers on a postcard, please, to 11 downing.....

...we are talking ratios ...and if we look at the other side of the equation and increase our GDP the percentage drops ...to grow our GDP is easier said than done...but the first move has to be to reduce the annual deficit as the carry over is added to our debt... :rolleyes:

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I'm really curious how everyone here thinks we will do that when money = debt.

Pay down our debt and we decrease the money supply. But this paying down will only allow payment of the principal and not the forever growing interest portion. Thus the overall level of uk debt (personal+governmental+corporate) to gdp will increase as the money supply decreases faster than the overall debt does (by this paying down).

How to solve this conundrum? Send your answers on a postcard, please, to 11 downing.....

credit is not money. money wont decrease unless the BoE cash it in.

this is a credit boom. the credit cant be paid off in time, hence, they call it a liquidity crisis.

the problem is insolvency really, as they issued way too much credit in the shadow banking system...course, nobody thought this would affect the real World.

what they forgot was that credit, entirely imaginary, features large in the real World.

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what you find looking back at the UK debt chart is public debt falling from a high in 1840 to a minimum in 1929, after which it climbs incessantly until 1950. Then it declines until about the year 2000.

uk-us-public-debt-since-1800.png

Now, in any closed system declining public debt must be matched by rising private debt, assuming the economy is continuing to grow. Periods of secular decline in public debt are matched by secular increase in private debt, and the latter ends in financial crisis. Then the cycle starts again. The cycle is basically one in which the decling public debt/increasing private debt is the ponzi phase which ends in crisis, and the increasing public debt phase is the clean up period.

I don't see why it should be any different this time, and why OECD public debt can't get to 200% all round the world.

The historical record shows periods of rising/high interest rates coinciding with declining public debt and falling/low interest rates coinciding with rising public debt.

Given that bond markets existed throughout the period shown in the graph and there was no bond strike or interest rate melt ups I can't see why this time should be different. Look for public debt to rise to 200% gdp in most OECD nations by 2050, or perhaps by 2030.

Thanks for listening.

what you fail to mention is growth. Up until recently this system has worked due to increasing populations and increasing access to natural resources which has enabled growth, and by that allowed debt liabilities to be met.

We are nearing the end of the worlds growth phase, as evinced by diminishing access to high quality energy, mineral, and biomass resources around the globe. The end result is a bust of truely epic proportions. Whether 'this is it' or it will come in a couple more decades is unknown as yet, but its coming and its not too far off at all....

Time for me to go buy some more tinfoil and beans....

Edited by alexw
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