Saturday, February 28, 2009

Lets talk Numbers

I have been fulminating on Hopi Sen`s superb blog .He has drafted in some Labour economy apologist and the sneaky devil was being pretty damn tricky...
Duncan Said
Public Sector Debt is increasing now, obviously – but for most the last ten years it has not been especially high.
Complaining about ‘printing money’ is pretty glib. I would ask why, if it is so easy to create demand, Japan failed for the better part of a decade?
As for my ‘hocus pocus magic number thinking’, fine. Let’s talk numbers. Net Gilt issuance next year (the increase in public borrowing) will be about £130bn. The banks will buy about £100bn of that under new FSA rules. The other £30bn is fairly easy to fund.
Some more numbers: we can currently issue gilts at an interest rate of about 3.6% (set by the market, that’s what buyers are prepared to pay). In the 1990’s recession the cost of government debt was over 10%. I.e. the debt burden for government is more affordable now.
I Said ...
Right , got it .The next time someone pops through the door perhaps a mortgage sales consultant from Northern Rock and tells me that if I study Japan and twenty years ago and look at the good deals floating about I will see what a good idea it is to borrow more than I can afford . I shall make sure to risk my children’s future and house on that clever fellow ; or may be not ! Oddly enough we are not writing schoolboy essays , this actually is our own money and Brown actually is risking my house and my children’s future . Cripes because put another way total indebtedness is about to rise to £3trillion about half of which is private 184% of GDP ahead of Italy on 113% for of national income .Still it is a relief that the banks we are underwriting will be taking part for the public debt we are also responsible for . Phew !

Listen , we are about to start printing money with all the dangers this entails and which Labour ought to know very well. This is not because we have lots left , it is not to give life a bit more sizzle. You have no idea where we are going with this and predictions of New Labour have been consistently badly wrong on receipts and they are relying on a ‘business as usual’ model . You see the thing is , sometimes things go wrong
It makes me go all misty when I recall the Labour manifesto that struck this note of prudence ( …ha bitter ha ) .“ Since 1992 the typical family has paid more than £2000 in tax rises breaking every promise made by John Major at the last election” Tsk tsk , what a silly spendy man was Major . Well since we are ignoring vast gulfs of time lets see how that looks shall we . From 97 to 2007 tax revenue went up over 80% , 55% adjusted . Average earnings increased by 29% private sector and 35% Public sector ( So that 2.5 times income rises ). . This of course has left us with the lean mean economy we need now ….(That be irony .. that be )

When the great leader gave us growth , he said ,.we set up state commitments that should unemployment ever dip were bound to be catastrophic as revenues plunged and welfare flooded out . So debt was ok until now in the sense that an umbrella was fine until it rained . Surely no-one would be so hubristically foolish as to imagine there was no more boom or bust .What do you suppose the economic cycle of the previously important 40 % rule is now , a Millennium ?
By the way as much of this growth was actually only a property bubble after mortgage and tax many working people were actually worse off during the “good times “ . Not the public sector …no just the idiots making the cash in the first place .Because of this largely and we now know entirely illusory , growth you are right , as a part of the GDP the figure hovered in what appeared a relatively stable way . We should have been paying money back . We should have fixed the roof not put a fat useless state on it
.Now lets say that we start from where we are and you say Brown did a great job and I say I wish he had died at birth . From this point I do not disagree with you so much , except that you talk about demand which I see as only exchanging unemployment for inflation acting alone . I would err on the side of less borrowing ,. There are risks either way .I do not see any way of realistically paying back debt and as it was already built into the country by Brown its too late to worry about it . It is presented as a decision only to cover up the joke of the years of golden rules .We will just have to hope we are lucky ( ..inner fury moment …). It will have to be paid back though and then your bland chat about a few billion here and there look a bit different does it not .I agree if there is any way taxes musty come down but they must come down on the economically productive not the “poorest” necessarily in fact the poorest are about the worst people to hand out borrowed money to . The other thing that has to happen is to get rid of the regulatory burden on SME`s . That is what has strangled real domestic trade . You ,like a sleek African Potentates love big dams and state shiny things ,but most of us work in small and medium sized companies and this will not help us .
The answer is get taxes down , get off our backs and cut back the state and hope our luck holds on our perilous borrowing for the next year or three.


Auntie said...

SMEs have another increase in statutory holiday pay amd entitlement to contend with in April.

That will cost my company around 400 days lost production or the equivalent of paying one extra full-time plus one part-time staff member plus margin enhancement each year - from ever diminishing returns.

That sort of vote buying self indulgence is the last thing we need at a time when turnover is down, overheads are up, competition is fierce, margin pressure is even fiercer and councils are squeezing struggling SMEs for 30% rent increases - which they will not get - on lease renewals. The net result can only be more staff redundancies.

As if that wasn't enough to contend with, councils are introducing punitive parking and charging schemes, aka money making scams, to pay for their elitist, public sector salaries, expenses and pensions.

That's where the axe must fall, Newms, the bloated public sector jobsworths must be made to come into the real world that the rest of us inhabit.

And if they go on strike, GOOD! Saves us money. As long as we're careful that cuts don't affect essential services, such as NHS coal face staff, the alleged service we get from these greedy jobsworths now is so poor to non-existent that we won't even bl**dy well notice that they aren't there.

Take the refuse collectors, for example - the public now do most of their job for them. Gritting? What gritting? Street cleaning, road repairs? Ditto. Police? Do we have any now? Drain cleaning...I believe that last time was 1997. Flooded? Sorry missus, you can't have any emergency staff or sand bags you have to find a supplier and do it yourself.

Traffic wardens? Oh, yes we will so miss them. Community rubbish dump? That's now our front gardens. Recycling? Take it to Tesco and get paid a penny an item.

Got a body that needs cremating? Covert to Hinduism and have a bonfire in the garden :)

Mark Wadsworth said...

They are truly mental.

"The banks will buy about £100bn of that under new FSA rules."

So the taxpayer is bailing out banks so that they can lend money to the government that we will have to repay out of future taxes, or what?

Newmania said...

Ha ha love that copmment Flo

Thanks Mark , thats my feeling

Bill Quango MP said...

Taxpayers money must be leant to the banks or they won't have the funds needed to buy the gilts that government requires for borrowing the money to lend to the banks?

Isn't there a middleman we can cut out of here somewhere?

Tell me again about buying eggs at 2c each in Corsica Milo..

Newmania said...

Tell me again about buying eggs at 2c each in Corsica Milo..

Hmmm now what do you mean by that BQ ?

Duncan said...

Mark - I know I'm going to regret having this debate but...

It wouldn't simply be state owned banks buying.

HSBC has a £1.7trillion balance sheet, Barclays has a £2 trillion balance sheet. Between the two they can fund most UK govt borrowing. And faced with a choice of that, or economic disaster for most of theri loan book... which do you think they'll do?

For what it's worth I work for an SME too.

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