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Deficit Blowing Out

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http://www.moneymarketing.co.uk/politics/budget-2011-chancellor-to-admit-higher-borrowing-due-to-wrong-type-of-inflation/1028180.article

The Chancellor will be forced to admit in tomorrow’s Budget that medium-term borrowing will be significantly higher than planned.

The Financial Times reports that Budget forecasts to be released tomorrow will say “the wrong type of inflation” will squeeze Government finances and hit household incomes.

The pressure on household incomes will mean income tax and National Insurance contributions will not rise as is usual in an inflationary environment while benefits and index-linked Government debt are automatically linked to inflation.

Inflation will be higher than predicted by the Office of Budget Responsibility in November and as a result borrowing will be significantly higher than expected from 2012 onwards.

The OBR will also announce tomorrow it is downgrading the GDP growth rate for 2011 from 2.1 per cent to 1.8 per cent as a result of 0.6 per cent contraction in growth in the last quarter of 2010.

However these downgrades are expected to be reversed in future years because the OBR will not say the long-term potential for the economy has been compromised.

In tomorrow’s Budget the Chancellor is expected to look to raise additional revenues from Non-dom taxes, introduce a new tax on private jets, launch a £100m pot-hole fund and introduce further tax anti-avoidance measures.

Osborne may also announce plans to consult on the Office of Tax Simplification’s recommendation to merge National Insurance and income tax.The move was called for in a recent OTS report which suggested it should be a “long-term” objective.

At a recent event, Osborne hinted that the Treasury may look to make changes to the EIS and VCTs in the Budget. Experts predict the Chancellor may clamp-down on limited-life VCTs.

Here we go then.

I have been banging on about this before. This is where things go really wrong.

If incomes are static in monetary terms, whilst at the same time we have inflation, lots of bad things happen.

1 ) Real incomes fall as a result of rising prices.

2 ) Benefits are index linked, so remain the same in real terms, but increase in value relative to income from working.

3 ) As a result of 1 ) and 2 ), more people find themselves better off on benefits rather than working, and so will make the logical choice to not get work.

4 ) Unless tax rates are raised, tax revenue will fall, and benefits payments will rise. Benefits rise both because more will claim them, and because the index linking of them means that more is paid on each claim as a proportion of national income, leaving less for other things.

5 ) Because of 4, there is even more downward pressure on real incomes.

What we have is the recipe for a complete collapse of the state finances. Index linking stuff like payouts on government debt and benefits, is just plain crazy, unless you are guaranteed to have positive growth. If you just get negative growth just once, everything spins out of control as your reward system causes people to go for benefits rather than work. This can turn into a stampede, but of course if we are all on benefits then nothing is produced.

Looking back at what happened to Russia, you can see what the outcome will be. It will be a complete reset of the system, with those most dependent upon benefits being the worst affected. Ironically it will be the illegal black market that will sustain the life of the nation should the worst come to pass. Having things to trade in that black market, could become invaluable.

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Looking back at what happened to Russia, you can see what the outcome will be. It will be a complete reset of the system, with those most dependent upon benefits being the worst affected. Ironically it will be the illegal black market that will sustain the life of the nation should the worst come to pass. Having things to trade in that black market, could become invaluable.

Time to stock up on fags, toilet roll and alcohol then?

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Having things to trade in that black market, could become invaluable.

When the powers that be begin to lose all respect for money and the work that goes into earning it, the populace start to think the same way. ;)

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Big contraboost for £--up vs. Euro and $.

Nothing like rising debt, deficits and inflation coupled with an inability to raise rates due to fragility of economy to get the currency rising!

Next will come an awful trade deficit and the Pound will be off to the moon leaving gold and the major currencies in the dust.

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Big contraboost for £--up vs. Euro and $.

Nothing like rising debt, deficits and inflation coupled with an inability to raise rates due to fragility of economy to get the currency rising!

Next will come an awful trade deficit and the Pound will be off to the moon leaving gold and the major currencies in the dust.

Presumably due to an expectation that the UK will now have to raise rates, and raise them fast?

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Big contraboost for £--up vs. Euro and $.

Nothing like rising debt, deficits and inflation coupled with an inability to raise rates due to fragility of economy to get the currency rising!

Next will come an awful trade deficit and the Pound will be off to the moon leaving gold and the major currencies in the dust.

:D

It sometimes fells like that, the markets have been very tough to trade in the last month or two. I guess that the pounds increase today on the inflation data shows that the markets still have respect for the bank of England, but I do not know how long that will last for. Inflation is beginning to get out of control.

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...if index-linking is linked to inflation, how and where is all this extra money required to pay increases inline with inflation going to come from?....I can't see how this system can work, it has failed....or do we add the cost to the forever increasing deficit... that in realistic terms can never be repaid, only extended infinitely plus interest. ;)

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...if index-linking is linked to inflation, how and where is all this extra money required to pay increases inline with inflation going to come from?....I can't see how this system can work, it has failed....or do we add the cost to the forever increasing deficit... that in realistic terms can never be repaid, only extended infinitely plus interest. ;)

It does make you question why anyone thought that never ending deficit spending was a good idea. It was is if, somehow, government borrowing would be magical, cause no problems and never have to be repaid. How could they not foresee this end game? I'm betting they did, but decided to let someone in the future deal with it, in exchange for votes for the day.

Balance, balance, balance. In trade, in spending, in wealth, in lifestyle. If there was one watch word for running a sustainable economy, it's balance.

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It does make you question why anyone thought that never ending deficit spending was a good idea. It was is if, somehow, government borrowing would be magical, cause no problems and never have to be repaid. How could they not foresee this end game? I'm betting they did, but decided to let someone in the future deal with it, in exchange for votes for the day.

Balance, balance, balance. In trade, in spending, in wealth, in lifestyle. If there was one watch word for running a sustainable economy, it's balance.

Because the plan was TSWHTF whilst someone else was in charge so therefore not my problem vote for me look at what I'm spending money I don't have on.

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Index linking stuff like payouts on government debt and benefits, is just plain crazy

Complete ignoramous question alert. Is this a new development? (Or a relatively new one)

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http://www.moneymarketing.co.uk/politics/budget-2011-chancellor-to-admit-higher-borrowing-due-to-wrong-type-of-inflation/1028180.article

Here we go then.

I have been banging on about this before. This is where things go really wrong.

If incomes are static in monetary terms, whilst at the same time we have inflation, lots of bad things happen.

1 ) Real incomes fall as a result of rising prices.

2 ) Benefits are index linked, so remain the same in real terms, but increase in value relative to income from working.

3 ) As a result of 1 ) and 2 ), more people find themselves better off on benefits rather than working, and so will make the logical choice to not get work.

4 ) Unless tax rates are raised, tax revenue will fall, and benefits payments will rise. Benefits rise both because more will claim them, and because the index linking of them means that more is paid on each claim as a proportion of national income, leaving less for other things.

5 ) Because of 4, there is even more downward pressure on real incomes.

What we have is the recipe for a complete collapse of the state finances. Index linking stuff like payouts on government debt and benefits, is just plain crazy, unless you are guaranteed to have positive growth. If you just get negative growth just once, everything spins out of control as your reward system causes people to go for benefits rather than work. This can turn into a stampede, but of course if we are all on benefits then nothing is produced.

Looking back at what happened to Russia, you can see what the outcome will be. It will be a complete reset of the system, with those most dependent upon benefits being the worst affected. Ironically it will be the illegal black market that will sustain the life of the nation should the worst come to pass. Having things to trade in that black market, could become invaluable.

Its not the index linking that is the issue, its the steps the govenment has taken to protect asset holders.

What should have happened is debt default with the asset holders who lent them the money taking the hit. Instead they have been protected via QE, bailouts, and low interest rates. The natural outcome of this being that the general citizenry is instead taking the hit, with real term incomes falling for the majority, and the wealth involved being transfered to the elites. This is what is screwing up the reward system not negative growth.

Not to worry thou, this simply means that long term the debts are even more unsustainable, shortening the time to inevitable debt collapse.

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Looking back at what happened to Russia, you can see what the outcome will be. It will be a complete reset of the system, with those most dependent upon benefits being the worst affected. Ironically it will be the illegal black market that will sustain the life of the nation should the worst come to pass. Having things to trade in that black market, could become invaluable.

Just returned from Russia. Our first guide in St Petersburg told us that all Russians want to own their own home, many have paid a lot of money buying flats in what looks like very depressing pre glasnost tenement blocks.

I think the cost of living over here is high, but in Moscow it's about £8 a pint. Wages have not kept up with the rapid growth, and you get the impression many are struggling to cope financially.

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Time to stock up on fags, toilet roll and alcohol then?

Wrong type of things to sell in black market, sorry. Reason being you won't be able to compete with legal imports which suddenly will become more profitable since excises are set in absolute ££, not as %% of declared value. Plus widespread excise/tax avoidance and corruption.

This is exactly what happened in Russia in 1990s when country was bathing in cheap spirits despite overall decline in living standards and rouble purchasing power.

BTW, the old cohort of Russian billionaires made their first millions importing computers in 1980-1990s. So having stash of foreign hard currency and trusted import-export contacts could make you loadsa £££ should real Black Market and barter economy come to this country.

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Wrong type of things to sell in black market, sorry. Reason being you won't be able to compete with legal imports which suddenly will become more profitable since excises are set in absolute ££, not as %% of declared value. Plus widespread excise/tax avoidance and corruption.

This is exactly what happened in Russia in 1990s when country was bathing in cheap spirits despite overall decline in living standards and rouble purchasing power.

BTW, the old cohort of Russian billionaires made their first millions importing computers in 1980-1990s. So having stash of foreign hard currency and trusted import-export contacts could make you loadsa £££ should real Black Market and barter economy come to this country.

Yes, but at least you will be able to wipe your bum.

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Presumably due to an expectation that the UK will now have to raise rates, and raise them fast?

Just wait for the next excuse for the BOE not to raise rates. Japan/Oil Spike/Food Spike/VAT increase/Fuel spike...we can air those out for years..... the underlying forces are deflationary and all hang off NIL wage increases = strikes.

We will inflate out of this mess, although the smart move to switch from index linking to CPI rather than RPI is starting to look a very floored.

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Yes, but at least you will be able to wipe your bum.

Yes if one still has something to wipe :P

Malnutrition, beggarship, criminal anarchy and ethnic conflicts often comes with Black Market and barter economy, ask anyone who visited ex-USSR in 1990s

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Looking back at what happened to Russia, you can see what the outcome will be

Most people in russia lived in state accomodation, which they retained when the USSR collapsed- so in general a state collapse in a communist system is less destructive than in a capitalist one- at least you don't end up on the street. :D

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I wonder how much we've blown bombing Gaddafi? Or does someone else foot the bill?

Many millions a week. A single tomahawk missile apparently costs $500,000 each to launch.

Strange how the government constantly deploys the cupboard is bare mantra, yet somehow finds £50m-70m a week to bomb Liybia, £7billion to bail out Ireland, and then oh look here's another £8 billlion we magically found under the whitehall sofas.

Oh well at least all this spending and borrowing is being offset by getting rid of all those £12k a year teaching assistants. Deficit reduction my ar5e.

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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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