I praise the Coalition government for their first brave attempt to tackle the £156 bn deficit with their £6 bn of net cuts. This, as we know, is scratching the surface of the problem.
I was speaking to a back bencher who used to have a senior role as an advisor to a current Cabinet member: he told me that their main objective was to cut the “structural deficit.” This is estimated to be about £70 bn. I get worried when the ambition is so low and assumes that growth will build up substantially this year, enough to bring in an extra £80 bn of tax revenue to “plug the gap.”
So I believe we will finish the year with £900 bn of national debt. This is forecast to cost £40 bn a year in interest service costs. This is nearly 30% of all income tax revenue. This is more than what we pay for the education of our children. What a shocking waste of our resources and a desperately onerous burden on the taxpayer.
If you follow this link to the Debt Management Office, you will see the perplexing sight that our very own Bank of England, part of the apparatus of the state, owns £190 bn of all outstanding debt. This is shown on the very first page, bottom left hand chart.
I say perplexing as it may have dawned upon you now that one side of the government issues new debt while the other part “buys” it with newly minted money. We the taxpayers get the privilege of paying the interest on this newly minted money that is now owed to the government!
Currently at the end of Q4 2009 the national debt was £796 bn, so £200 bn is 25% of this debt. Suffice it to say, I would think it reasonable to assume that ¼ of the £40 bn debt interest service is then totally unnecessary!
Our Chief Secretary to the Treasury, David Laws, is involved in the papers today with a £40k personal expenses scandal. This makes the front page of all major papers. This is nothing compared with this £200 thousand million debt problem and the £10 thousand million interest bill problem that this oddity generates! Yet no mention of this on the front pages!
This means £10 bn could be saved at a flick of a switch on a key board, with no economic consequences other than to relieve the burden of the taxpayer of having to pony up £10 bn in cold-blooded tax extractions. This savings could also be the equivalent of a 7% cut in income tax.
Now that would be popular.
I wonder if the real reason why one arm of Government must “buy” so much of the debt of another arm is to keep the illusion going that there is a market for UK debt. This then begs the question, “Did a bond strike happen a long time ago?”
Readers to this site know that I favour a solution that would totally eliminate the national debt as mentioned in these two articles:
- The Emperor’s New Clothes: How to Pay off the National Debt & Give a 28.5% Tax Cut
- A Day of Reckoning: How to End the Banking Crisis Now
However, today, this modest “pressing the button” reform could be done and should be done with no debate, and yet it is not!
The general lack of economic knowledge does concern me more and more. A timely reminder of this was in yesterday’s letter section of the FT, May the 28th .
‘Reminder of repressive US gold rush
‘Sir, Martin Wolf asks “How likely is financial repression?” (May 25). Based on the historical record, as he suggests, it’s pretty likely.
‘He does not mention a most egregious case of financial repression: the confiscation of all their gold from American citizens by their government in the 1930s, so they could be forced to hold depreciated fiat dollars. (The Federal Reserve Banks had their gold confiscated, too, and still own none.)
‘This was followed by default on the gold bonds of the US. For its citizens to own gold was made criminal by the American government, an outrageous and oppressive act that remained in force for decades.
‘Yes, when pushing comes to shoving, never underestimate what coercive measures governments will undertake. Mr Wolf’s reminder is timely.
Alex J. Pollock, Resident Fellow, American Enterprise Institute, Washington, DC, US’
I could not put this better myself.
We should all remember the following:
- The crisis always starts by Public Spending in excess of what we can afford.
- Deficit Spending then occurs, with no understanding that this risks the collapse of the economy.
- Denial of Any Problem is writ large amongst the incumbent ruling politicians.
- There follows a Lack of Political Will to do what needs to be done.
- Finally, Monetisation of the Debt. This always means your purchasing power goes down and a wealth transfer takes place from you to any of the programmes that the government is funding at the time. This is the best we can realistically hope for.
At the other extreme, we must hope the repressive measures of the Depression-era US authorities are not considered by modern British and European governments. But if the government lacks either the will or the knowledge to bag this easy £10 bn of savings, then it is hard not to infer that they actually want that money from the taxpayer in interest.
You then have to start wondering: where is this going to end up?
The Crack-up Boom, a review of Mises’ The Causes of the Economic Crisis and Other Essays Before and After the Great Depression.