Wednesday, April 25, 2012

Higher borrowing costs

Profligate states accused of hijacking credit system

As the government takes on actual debt (credit expansion as opposed to future liabilities) to the extent this is inflationary the only way the government can maintain low borrowing costs is to pass on artificially higher rates to the private sector individual. This blocks profitable investments that could have been made otherwise, as all borrowing suddenly becomes effectively taxed through the interest rate. IMO, the Tories will never attempt to reduce state borrowing because to do so immediately gives NL the opportunity for electoral bribing i.e. if NL will always borrow to the max then the Tories cannot succeed at the ballot with a debt reduction strategy. So all looks rather sedate for the UK going forward. On the plus side I read that Alberta is legally mandating a balanced budget.

Posted by stillthinking @ 04:59 AM (1156 views)
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2 thoughts on “Higher borrowing costs

  • In other words, the government’s response to the credit crisis has actually worsened its effects significantly.

    For example Iceland’s people didn’t allow their government to saddle them with debt and as a result they are now in significantly better fiscal shape. In the UK though, people didn’t really understand what was going on (e.g. there was a lot of fuzzing and disinformation at the time about precisely what QE was doing*) and our pliant and unquestioning meeja (looking at you, BBC) didn’t bother to ask the right questions to mobilise people into resisting what was going on.

    (*In the end of course, QE was simply good ol’ fashioned Zimbabwean money printing dressed up in a nice suit)

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  • stillthinking says:

    Overall the UK the delveraging of the private sector has been effectively transferred to the debts of the state. In aggregate our debts are the same. This is an expensive way of buying time and does make it worse as you say. Also the is unfair because the state only facilitates he debt reduction of those associated with unfounded state payments.
    when it ends and it will, the effective tax rate will rise. The British are looking at a pretty poor future unfortunately and we have wasted 5 years in denial.

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