![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Biggest lie in British politics
I am not a doctrinaire defender of the last Labour government. I think Tony Blair should be in prison, and Gordon Brown will be damned by history for his role in deregulating the banks – the real cause of this crisis. But to claim that this crisis was caused by Labour “racking up debt” is simply false.
A blog entry that's well worth reading by Johann Hari.
A blog entry that's well worth reading by Johann Hari.
no subject
no subject
no subject
Put even more simply: running a deficit makes it difficult or impossible to pay down one's debt.
no subject
no subject
no subject
The debt is raised by sale of bonds of various kinds, which usually pay guaranteed interest (or in the case of Premium bonds pay out prize money) and then mature, at which point they have to be paid off which unless you are actually running a budget surplus, necessitates rolling it over. Lots of people have happily lived on the return on gilts (or consols, as they were then).
Interest payments on the total debt, incidentally, are around £62.5bn pa, as against some £57.5bn which is the total education budget for a year. So it would be nice if it *was* smaller, but there is no prospect whatsoever of that happening, the question is how much and how quickly it will get *larger* year on year.
Obviously if a government defaults on interest or repaying bonds as they fall due, which is the fear with the economies in particularly dire straights, Ireland, Portugal, Greece, then no one will buy bonds any more, which means they can no longer run a deficit at all.
The main concern is that if we continue to let the deficit grow, or run at present levels, eventually people will stop buying bonds - that you cannot continue indefinitely borrowing larger and larger sums every year to meet your annual commitments: the markets will consider there is an increased risk of ultimate default - so the interest demanded will be greater if the bonds sell at all. Unless you print more money, which has much the same effect as defaulting in the long run.
People tend to refer to Keynes a lot - ie that in times of recession you should happily run a deficit to boost spending. Fine so long as we remember that his argument has another side: that when the good times come you repay the additional money spent. But that isn't going to be happening for a good few years on anyone's plans.
In the long term I can't see how we can continue to run a deficit of the current order. But the question is the rate at which the current account deficit should be cut, or when we should start - the actual difference between govt and opposition policy - and on that I really have no view at all.
But no one is seriously considering cutting it to anywhere near nil in the next few years, still less is anyone suggesting cutting it entirely and running a surplus, so that the debt could be paid down. The idea is entirely ludicrous. Hari's argument sets out in the first paragraphs the premise that the debt is fairly reasonable as a proportion of GDP (the only sensible way of considering it). Which is true but entirely irrelevant. The question is how fast we should allow the debt to *increase* year on year - how *much* more than our income should we borrow in any one year (and indeed, how much we should allow that increase to accelerate). The amount of the excess of current expenditure over income *is* significantly greater than has been seen in living memory, and that is the debate which is actually being had.
My point was not to advance a substantive view on the economic decisions to be made but that I don't see that articles which talk about it in terms of an argument over whether we should cut the *debt*, which is not seriously advocated by anyone without swivelling eyes, assist in forming any such view.
no subject
no subject