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U.s. Budget Deficit Problem Worse Than Uk

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Edmund Conway points out, and it's worth re-iterating:

Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.
But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.

USnetdebt.jpg

Compare it with the UK, which is often pinpointed as a Greece in the making. As you can see, gross debt increases sharply, but not by anything like the same degree.

UKgrossdebt.jpg

But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are. The killer table to show you that is this one, which shows a country’s “gross financing needs” – in other words how much debt it has to issue in the coming years to keep itself functioning.

Britain, as you can see from the second column on the left, has one of the biggest deficits in the world. However, because it also has the longest maturity of average debt in the world (far right column), and so doesn’t have to issue as much new debt each year just to keep rolling that stuff over, its gross financing needs are – at 32.2pc of GDP, way bigger than Britain’s, at 20pc. Come to think of it, it’s actually worse than Greece on this measure.

http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/

Oh dear, no Gordon to blame . . . .

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I know, but as I said, it's worth re-iterating for the benefit of the cuts brigade, whose slavering lips are already wet with the blood of the unemployed.

quite.

This briefing is a very good one:

http://www.ukpublicspending.co.uk/debt_brief.php

note that debt has climbed above 200% many times in the past, and that actually what matters is interest payment burden, on which measure we are nowhere near even the 80s let alone prior high debt level periods.

I think we can expect a very long period of very low rates and very high debt levels. This would match the historical outcomes, however of course the danger is that this time we never exit this mode due to worldwide demographics.

uk_debt_300.png

and here is the interest payment burden of UK public debt for the 20th century. of course what is mainly different this time, and not shown on these charts is the very high levels of PRIVATE debt. The threat of mis-timed cutting is that they result in these private debts defaulting, which will damage the UK economy.

uk_interest_100.png

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scepticus, do we know if those graphs measure the same things over time, or has a lot of stuff been removed

- PPI, future public sector pensions etc.

I'd guess the pension burden has never been what it is today? Shouldn't the NPV of those be included?

Does the same data exist for private debt?

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Thank you, scepticus.

Seems the cuts are more for ideology than practical purposes, just like in good 'ol 1980/81. :o

The state can only steal so much.

Tories are in, so that stolen fund will be sent to the already rich.

Same as they always do.

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Thank you, scepticus.

Seems the cuts are more for ideology than practical purposes, just like in good 'ol 1980/81. :o

The cuts are designed to force down wages such that stuff can be produced here more cheaply than elsewhere. This is standard capitalist dogma.

To be fair, there do need to be some cuts in places like the UK and US because a deficit of the current scale is not sustainable. However, even low deficit nations like germany are basically in a public debt situation which is irretrievable.

The things is when the entire OECD implements austerity measures we get international level paradox of thrift because when all export markets simultaneously reduce their consumption the real value of the existing debt will grow, not fall, and as a result most investors are going to lose alot of money. Simultaneously, the unemployment pain throughout the western world will not be tolerable.

It is at this point of maximum pain, and maximum investor fear that I expect the yanks to shake things up. Meanwhile, everyone else needs to hang on until the yanks are backed into a corner, and then replicate whatever they do, thus robbing the speculators of the opportunity to 'punish' any nation that decides to depart from flogging the dead dead horse of market capitalism.

So my view is that we need the ConDem(med) to talk the talk for a couple of years until the US takes the steps which need to be taken, or until this 'safe haven' falls apart, at which point we can do mostly what we like since everywhere will be equally broken.

Austerity is not going to be forever (or even very long) IMO.

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scepticus, do we know if those graphs measure the same things over time, or has a lot of stuff been removed

- PPI, future public sector pensions etc.

I'd guess the pension burden has never been what it is today? Shouldn't the NPV of those be included?

Does the same data exist for private debt?

no they dont, i responded to this in another thread of his, that didnt get answered. its apples and pears because of the pension costs, Off Bal Sheet and Banking guarantees. , the current percentage doesnt bother me it is the potential speed of increase in it that is likely when Global govts are cutting, any sort of major decline in GDP (which includes Govt spending)and it will be off to the moon, it will shoot through 250% before you can kiss your ass goodbye.

I think its likely to be the rapid deterioration in this debt GDP ratio (across a number of countries) that will ultimately cause the REAL black swan that we have been building up to over the last decade but no doubt it will be totally unexpected and nobody to blame because noone could possibly see it coming

Edited by Tamara De Lempicka

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The cuts are designed to force down wages such that stuff can be produced here more cheaply than elsewhere. This is standard capitalist dogma.

To be fair, there do need to be some cuts in places like the UK and US because a deficit of the current scale is not sustainable. However, even low deficit nations like germany are basically in a public debt situation which is irretrievable.

The things is when the entire OECD implements austerity measures we get international level paradox of thrift because when all export markets simultaneously reduce their consumption the real value of the existing debt will grow, not fall, and as a result most investors are going to lose alot of money. Simultaneously, the unemployment pain throughout the western world will not be tolerable.

It is at this point of maximum pain, and maximum investor fear that I expect the yanks to shake things up. Meanwhile, everyone else needs to hang on until the yanks are backed into a corner, and then replicate whatever they do, thus robbing the speculators of the opportunity to 'punish' any nation that decides to depart from flogging the dead dead horse of market capitalism.

So my view is that we need the ConDem(med) to talk the talk for a couple of years until the US takes the steps which need to be taken, or until this 'safe haven' falls apart, at which point we can do mostly what we like since everywhere will be equally broken.

Austerity is not going to be forever (or even very long) IMO.

Not too sure economic analysis is all that relevent at this point, other than to say that what can't be paid won't be. Politics is where it's at - and specifically the idea that "the US" and "the UK" will carry on as a great big "we are all in this together" lump is going to come under severe stress.

Actual markets are where we are going, after the fiat currency systems have finally tapped themselves out.

There are no statist nations without funding for the delusional and there is soon to be no funding. Therefore there will be no nations. I expect to see the same regional splintering the USSR had once it's centre dies on it's ****.

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USnetdebt.jpg

UKgrossdebt.jpg

Actually the amount of US and UK debt relative to GDP since about 1970 isn't that different. They'll both end up at near 100% in 2015 - according to those two charts. Although admittedly the UK percentage is a bit lower than the US but not by as much as it appears at first glance and the percentages aren't as far apart as the BoE perhaps implied in saying “even the United States, the world’s largest economy, has a very large fiscal deficit”

In fact in 2010 they look almost identical percentages.

It's just that the UK had much more debt coming out of World War 2 which distorts the appearance of the UK chart compared to the US chart - and the Y axes are different which magnifies the affect.

Of course both charts exclude the other £trillions of tax payers debts and liabilities lurking in the background.

Edited by billybong

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no they dont, i responded to this in another thread of his, that didnt get answered. its apples and pears because of the pension costs, Off Bal Sheet and Banking guarantees. , the current percentage doesnt bother me it is where it is the speed of increase in it that is likely when Global govts are cutting, any sort of major decline in GDP (which includes Govt spending)and it will be off to the moon

sorry for not answering tamara. Not deliberate!

Current 'entitlements' can be repudiated without damaging our standing in the public debt markets. In fact, a repudiation of a good portion of future pension entitlements and PFI projects would likely improve market standing, so its right that they not be included in the debt.

I mean, back in those prior high debt periods many things got repudiated, one example being various war related reparations and loans. These high-public-debt epochs following a long private debt ponzi period (during which public debt declines) always incorporate alarge amounts of social restructuring. After this element is complete, the framework is then in place to divest the public debt, after which the new ponzi begins. Such is civilisation.

As I said above, there will be a period of common austerity in the OECD and when the insanity of that approach is revealed, then the social restructuring will begin, which will include some restructuring of the unfunded liabilities as well as restructuring of existing outstanding debt. Let us hope we approach this period of restructuring more intelligently than we have during past epochs, and avoid war and an insane swing to either left or right.

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Oh dear, no Gordon to blame . . . .

Government debt and deficits are only half the issue.

Britains total debt load is greater than anywhere except Japan (maybe were MORE in debt than them now, that was last autumn in Mckinseys report) which might not be a problem except for the fact that Gordon took the liberty of having the taxpayer guarantee all those 'private' debts. Hence why 18 months ago it was a banking debt crisis, and now its a sovereign debt crisis. Thanks Gordon - once again youve managed to pass the buck and take what was a containable problem - if the banks had been allowed to fail and broken up and instead turned it into an all encompassing morass.

mckinsey-international-debt-chart.gif

Plus the US seems to still be viewed as a safe haven, despite all the printing and so on. We dont have that luxury.

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scepticus, do we know if those graphs measure the same things over time, or has a lot of stuff been removed

- PPI, future public sector pensions etc.

none of these charts include any off balance sheet or 'promised stuff'.

I'd guess the pension burden has never been what it is today? Shouldn't the NPV of those be included?

certainly the pension burden is much higher but then (I imagine) the military spending burden is a good deal lower now than it was on average 1929-1989.

Does the same data exist for private debt?

yes I presume it does. I'll see if I can find it. I imagine it would accumulate inversely to public debt.

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yes I presume it does. I'll see if I can find it. I imagine it would accumulate inversely to public debt.

here is a chart of USA debt components. It illustrates my point. 1929 onwards public debt goes up and non-government debt (household, business and financial) goes up. As soon as government debt begins to fall at the end of the war private debt starts to climb.

public-and-private-debt-burden.jpg

the reality of the matter is this:

you cannot have a capitalist democracy in which all actors are reducing their debt at the same time without a systemic collapse of the democratic system or the financial system or both.

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I know, but as I said, it's worth re-iterating for the benefit of the cuts brigade, whose slavering lips are already wet with the blood of the unemployed.

So if I were a finance officer in a PLC board room and said

'Look, ok we are in debt, our annual deficit is huge related to turnover, we are buying a lot more than we are selling BUT look at the state of our biggest competitor! They are much worse, isn't that good news!"

Do you think I'd get praised for that?

What would you think on that level?

Edited by robo1968

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sorry for not answering tamara. Not deliberate!

Current 'entitlements' can be repudiated without damaging our standing in the public debt markets. In fact, a repudiation of a good portion of future pension entitlements and PFI projects would likely improve market standing, so its right that they not be included in the debt.

Yes i recollect Argentinas financial standing improving markedly in the markets when they nationalised pensions recently, its laughable to suggest fcking over your own citizens would be viewed positively by others who also hold your debt, they will view it as confirmation that debt repudiation is your preferred option and add a premium accordingly to cover you acting the same way against them and you havent begun to factor in the human reactionary aspect of such a repudiation on your own citizens

I mean, back in those prior high debt periods many things got repudiated, one example being various war related reparations and loans. These high-public-debt epochs following a long private debt ponzi period (during which public debt declines) always incorporate alarge amounts of social restructuring. After this element is complete, the framework is then in place to divest the public debt, after which the new ponzi begins. Such is civilisation.

Yes and they tended to get repudiated with an accompanying collapse

As I said above, there will be a period of common austerity in the OECD and when the insanity of that approach is revealed, then the social restructuring will begin, which will include some restructuring of the unfunded liabilities as well as restructuring of existing outstanding debt. Let us hope we approach this period of restructuring more intelligently than we have during past epochs, and avoid war and an insane swing to either left or right.

Your orderly way out of this whilst elegant has no basis in historical reality, given the fact that the largest bubble in history has just been created and subsequently collapsed the whole financial system suggests that things are no more and probably even less orderly than ever before when it comes to how humans act and react, if we had truly learnt to act rationally and orderly then it would be impossible for the last decade to have happened

I think you are living in the same world as politicians of dreamonomics, but i guess we'll find out over the next 3-4 years

Edited by Tamara De Lempicka

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Yes i recollect Argentinas financial standing improving markedly in the markets when they nationalised pensions recently, its laughable to suggest fcking over your own citizens would be viewed positively by others who also hold your debt, they will view it as confirmation that debt repudiation is your preferred option and add a premium accordingly to cover you acting the same way against them and you havent begun to factor in the human reactionary aspect of such a repudiation on your own citizens

the point is that the current entitlements only accrue to a portion of the population, a portion which has promised the output of other population sectors to themselves essentially without consulting those who are going to be paying.

so some portion of the population is going to get disappointed regardless. interesting that you seem to suggest for example, that paying the boomers everything they have promised and condemn the younger generations to decades of misery not of their making would be well regarded by the markets, but a solution which is more even handed inter-generationally speaking would not get market approval.

is that what you are suggesting?

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I think you are living in the same world as politicians of dreamonomics, but i guess we'll find out over the next 3-4 years

the real dreamworld is one in which the voting public graciously submit to market mediated/enforced solutions which only benefit a tiny portion of the population. That would be dickens' world, not the real world.

don't forget that not until 1928 did women and men vote in the UK on equal terms:

"In 1900 around 700,000 Londoners were eligible to vote - all of them property-owning men aged over 21. In 1918 the vote was given to working-class men over 21 and women over 30, increasing the size of London's electorate to 2.2 million. In 1929 voting rights were extended to women aged between 21 and 30, bringing the capital's electorate to nearly 3 million. In 1969 the voting age was reduced from 21 to 18 and the century ended with around 5 million Londoners eligible to cast their votes in both national and local elections. Unfortunately the century also ended with the lowest ever turn out in a London election. In the 1998 election for local councils only 34.7% of London voters actually exercised their right to vote."

so at the time of the last major financial crisis/depression the electorate as we know it today has literally only just been formed. Whereas today we have mass democracy, which although seeming a rather inert electorate since the war, would seem to be waking up.

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the point is that the current entitlements only accrue to a portion of the population, a portion which has promised the output of other population sectors to themselves essentially without consulting those who are going to be paying.

so some portion of the population is going to get disappointed regardless. interesting that you seem to suggest for example, that paying the boomers everything they have promised and condemn the younger generations to decades of misery not of their making would be well regarded by the markets, but a solution which is more even handed inter-generationally speaking would not get market approval.

is that what you are suggesting?

no i know the pensions will be repudiated to a large extent, what im suggesting is the market will not like it, its welching on your citizens, what is to like about that, if somebody nicks something from someone else to pay me a fiver he owes, am i to view that as a positive aspect to his future behaviour and character. and i highlight Argentina as a recent example of whether the market likes this type of theft.

The pension liabilities and PFI are exactly that liabilities and there is no reason for exclusion until they are actually repudiated. And the bank guarantees are guarantees, potential liabilities they should be included on some sort of reserve basis like any insurer otherwise that debt ratio is simply incorrect and incomplete information as to the true position

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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