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Govt finances - out of control?

Posted by jdavis on October 27, 2014

The above chart shows the UK's current accounts back to the 1950s.

Essentially, a country's balance of trade is the net or difference between the country's exports of goods and services and its imports of goods and services.  A country is said to have a trade (current account) surplus if its exports exceed its imports, and a trade (current account) deficit if its imports exceed its exports.

Clearly, the UK more often than not buys goods and services in more than we sell abroad.

What is hugely concerning is that our current account (CA) deficit is the highest it has been in near 60 years.  The last time it was NEARLY this bad was after the late 1980s Nigel Lawson Boom, which then resulted in a massive crash in the economy and house prices.

This time it's worse.

As M&G say (huge financial institution AKA Prudential) this level of CA deficit has historically preceded a crash in our currency.  This is possibly the reason why Mark Carney the Bank of England Governor spent most of 2013 talking up Sterling.  Clearly, policy doesn't work but maybe words will...

Then we look at The Government's borrowing to pretend all is well.  It's now at the rate of c £110 Bns pa.  This is equivalent to a normal household borrowing £11,000 pa adding to existing £130k of credit cards and £400k of mortgage.

Did anyone say toast?

Firstly, how does this compare to other countries?

Our rate of borrowing is c 6% of the size of our economy.  Oh, it's about to be the worst in the West.

As you see, our illustrious governments normally borrow to pretend all is well.  Every cycle it gets worse.

So, as someone asked me last week Why not borrow for ever?   What's the problem?

1. Our interest charge will rise exponentially.  Thus public services will be slashed.

2. If we just print and print and print then eventually we become Zimbabwe.

The solution is cut borrowings.

From whom are we borrowing?  Doesn't matter.  What matters is the next generation will have to pay it back.  How do you feel about 'borrowing' from them?

Our finances are dire.  Yes we have some economic growth but it is not helping the long term.  The long term (borrowing) is helping the short term.  I'll have jam on my toast please.

Does anyone seriously believe public service spending will stay high when we will be spending so much just on interest?

Of course not.  We forecast, if that's the right word, that you can say goodbye to the Welfare State by 2030, if not sooner.

Never mind then, all the major parties will be proscribing heavy cuts going into May 2015.  Not 2025.  2015!




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