Jump to content
House Price Crash Forum
interestrateripoff

Servicing Our Debt Is Tough Now, But It's Only Going To Get Tougher

Recommended Posts

http://www.telegraph.co.uk/finance/comment/7870200/Servicing-our-debt-is-tough-now-but-its-only-going-to-get-tougher.html

The UK has a budget deficit of 12pc of GDP, the US is at 11pc and Spain at 10.5pc. Politicians and commentators focus on these huge fiscal shortfalls – unprecedented as they are in peace-time history.

Yet such deficits are, of course, merely the tip of the iceberg, amounting only to the annual increase in each country's national debt – those huge underlying state liabilities lurking below the waterline of mainstream public discourse.

Britain has a national debt equal to 80pc of GDP. America's is 100pc of national income. In recent years, general fiscal irresponsibility has combined with the "sub-prime" meltdown to send Western sovereign debts into orbit.

Between 1997 and 2009, the UK's national debt more than doubled under Gordon Brown's reign of fiscal terror – from £350bn to around £800bn. Despite George Osborne's recent "austerity budget", and all the pain its implementation will no doubt entail, Britain's debt total will still almost double again by 2014/15 – even though the annual deficit falls.

Whatever the politicians tell you, getting the annual budget deficit under control doesn't mean that your debts have gone and the repayment burden has been lifted. It just means your fiscal problems, momentarily, stop getting worse. Budget deficits are like an overdraft – in your face every time you go to the cash point. National debts are like mortgages – far, far bigger debt burdens we try to ignore but must continually service and, ultimately, repay.

Keep in mind, also, that even Western national debt totals that are set to spiral over the coming years are, for the most part, woeful under-estimates. Numerous "advanced" economies have made an art form of hiding additional state liabilities off the books.

The UK, in particular, has grown extremely adept at such reckless fiscal subterfuge. If legally-binding taxpayer obligations related to public sector pensions and the ghastly private finance initiative are included, for instance, then this country's national debt is at least twice that on the Government's balance sheet.

Consider, too, that just as the Western world is waking up to a massive and self-imposed fiscal hangover, we face enormous demographic challenges. It's 65 years since the Second World War ended and all those "baby-boomers" born in its aftermath are about to retire.

When that happens, the "boomers" become extremely expensive in net terms – as they draw state pensions, become more reliant on health care and start paying much less tax. Across the Western world, such demographic realities have been buried by a generation of politicians, hidden behind false actuarial assumptions made and endorsed by state-sponsored "experts".

Such government liabilities are there, though, as made clear by a recent report from the Bank of International Settlements, an umbrella group for the world's leading central banks. The long-predictable impact of our ageing societies after 2015 means that the Western world should have spent the past decade running annual surpluses and paying off national debts. We stand on a demographic cliff-edge, but instead of preparing such a fiscal parachute we've insisted on wearing a debt weight-belt and a pair of fiscal concrete boots.

The BIS report shows the trajectory of UK public debt to be the most terrifying of any big economy on earth except Japan – which anyway has far more savings than the UK and the world's second biggest haul of foreign exchange reserves. Even if the UK government spends only along the "austerity" lines now being proposed, retaining such fiscal vigilance for the next 30 years, our national debt still approaches 300pc of GDP by 2040 says the BIS, not least due to demography.

Servicing a debt of that magnitude, even with benign interest rate assumptions, would soak up around 15pc of GDP – or a third of total government tax receipts, just to pay the interest on what we owe.

None of this is new. But I mention it now in the context of Ireland. Last week, it emerged that the Irish economy has climbed out of recession. New data showed GDP grew by a buoyant 2.7pc during the first three months of 2010, reversing a contraction of the same size during the previous quarter. This is highly significant – and not only if you're Irish.

A year and a half ago, Ireland endured nothing less than an economic implosion. After a decade of rampant borrowing and spending, the Celtic Tiger was shot between the eyes. The country's runaway housing market and related construction boom turned to bust. All told, the Irish economy shrunk 7.1pc in 2009 – and by an even more shocking 11.3pc if you exclude profits made by the numerous multinational companies attracted to modern Ireland.

I love paying for past excesses, why do I want services now when I can look back with total joy in my heart over services provided in the past at my expense which I now no longer benefit from.

33% of govt tax receipts going on interest repayments. Nice.

Share this post


Link to post
Share on other sites

All this is the bleeding obvious, but it won't stop some numpties coming on here later and trying to justify endless deficit spending on the grounds of avoiding contraction in broad money. Truly, it is woods for trees thinking.

Government deficit spending which is allegendly justified as substituting for inadequate private demand is a complete fiction; if people choose not to pay to run a Health Service or whatever, then a Health Service they are choosing not to have. It's so simple but the state exploits the ability to borrow endlessly to paper over the brutal realities of a country which long ago ceased to create the wealth it desired to indulge in.

Even telling financiers to stuff it solves nothing, because immediately that is done the ability to borrow again ceases and the show all has to stop.

PS The bit I've been finding funny is the idea that by 2015 it's really bad, as if by 2015 it all stops. As this article makes clear, 2015 is just a stage along the way.

Share this post


Link to post
Share on other sites

I knew all this, but it is really weird finally reading it in a national.

I could pretend I was a TFH before, and that maybe everything would be alright, but once you read it all in a national, you can't pretend you might be a silly Chicken Little anymore.

The next thirty years are just going to be shit, aren't they? It's going to be awful. We are all going to hobble around with a huge tax yoke around our necks with next to no public services and copious amounts of unemployment. Or there will be a war, or they will print and we will end up with Austrian-style 1920s inflation where a meal costs the previous year's rent.

It's going to destroy lives, this. The young are just screwed. How the hell were Brown and Blair allowed to rack up so much debt? How were they allowed to consistently spend over already-inflated revenues to this extent? Why didn't anyone in a powerful position say anything? Somebody in the treasury, in the NAO, somewhere must have queried their figures, somebody must have had doubts.

Share this post


Link to post
Share on other sites

I knew all this, but it is really weird finally reading it in a national.

I could pretend I was a TFH before, and that maybe everything would be alright, but once you read it all in a national, you can't pretend you might be a silly Chicken Little anymore.

The next thirty years are just going to be shit, aren't they? It's going to be awful. We are all going to hobble around with a huge tax yoke around our necks with next to no public services and copious amounts of unemployment. Or there will be a war, or they will print and we will end up with Austrian-style 1920s inflation where a meal costs the previous year's rent.

It's going to destroy lives, this. The young are just screwed. How the hell were Brown and Blair allowed to rack up so much debt? How were they allowed to consistently spend over already-inflated revenues to this extent? Why didn't anyone in a powerful position say anything? Somebody in the treasury, in the NAO, somewhere must have queried their figures, somebody must have had doubts.

Tbh it's not really B&B's fault. Its the economic system we use. Its designed to have an endlessly increasing debt come what may. It's more a question of who absorb's it. Do we make johnny foreigner take it (as merchantilist nations have done)? Do we put it on the public sector? Do we make our corporate sector hold it? Or our private households?

Someone has to take it, there is no other choice under debt based fiat. We've just come to the end of the road because we don't any longer have the economic growth to service it.

Share this post


Link to post
Share on other sites

Tbh it's not really B&B's fault. Its the economic system we use. Its designed to have an endlessly increasing debt come what may. It's more a question of who absorb's it. Do we make johnny foreigner take it (as merchantilist nations have done)? Do we put it on the public sector? Do we make our corporate sector hold it? Or our private households?

Someone has to take it, there is no other choice under debt based fiat. We've just come to the end of the road because we don't any longer have the economic growth to service it.

It would appear we need a new currency system and to ensure that all govts run balanced budgets.

Share this post


Link to post
Share on other sites

In two sentences.

We need more debt to make the economy grow

We need the economy to grow to pay down the debt.

How can the economy grow with shrinking availability of cheap energy supplies, particularly oil?

Share this post


Link to post
Share on other sites

How can the economy grow with shrinking availability of cheap energy supplies, particularly oil?

It cant. Unless productivity, more output for less input, does something amazing,

Unemployment, living standards, cost of living should be focussed on. Growth is so last century.

Share this post


Link to post
Share on other sites

It would appear we need a new currency system and to ensure that all govts run balanced budgets.

Not just governments -- countries. Not tolerating mercantilism within a supposed free-trade arrangement would be a good start.

Or you must have a system where excessive debt simply defaults and creditors know this up-front, rather than assuming that their tokens will simply be moved onto the sovereign balance sheet.

Share this post


Link to post
Share on other sites

Perpetual motion and the new economic paradigm.

It's very simple really.

Roubini was talking about Greece and his idea is this. Greece WILL default at some time as it is impossible, as things stand, to pay off the debt even at these ultra low rates. Better to bite the bullet, restructure the debt by WRITING OFF a large portion of it. Lenders will just have to eat crow and accept pennies on the dollar. Tuff.

The point is that the UK (and the US for that matter only later) will default. We all know it on this daft forum so a lot of other clever chappies and chapesses know it as well. Why not do the same-do a Greece in other words and get it over with? Please no answers that say "but this will lead to a collapse of XYZ etc". I know that-but again TUFF.

Share this post


Link to post
Share on other sites

I love paying for past excesses, why do I want services now when I can look back with total joy in my heart over services provided in the past at my expense which I now no longer benefit from.

33% of govt tax receipts going on interest repayments. Nice.

If the Tories pull us out of the EU as a growing number of the electorate want, and a majority of Conservative voters want, the money saved could be used to pay off the deficit without a single job loss, or public service cut.

At present our contribution to the EU is £45 million a day

All that is required is to repeal the 1972 European Communities Act: ;)

Share this post


Link to post
Share on other sites

If the Tories pull us out of the EU as a growing number of the electorate want, and a majority of Conservative voters want, the money saved could be used to pay off the deficit without a single job loss, or public service cut.

At present our contribution to the EU is £45 million a day

All that is required is to repeal the 1972 European Communities Act: ;)

And its gone to skyscraper city and myriad other French "projects"

Heres one in Lille....a truly amazing place.....we were gobsmacked by the buildings as we visited this weekend.

lille_euralille01.jpg

post-10213-12783640318041_thumb.jpg

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 144 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.