Public Debt


This week on Facebook: As I posted in Cassandra on debt and as I had previously conclude in my 2013 post Crisis and Credit, the issue of public debt is used as an excuse for a fiscal policy of austerity measures, yet it is private debt that is behind the fiscal crisis. The State (particularly in the UK) does more to encourage private debt than to control it. Conversely the State continues with its fiscal policy of increasing public debt¹, something that I wrote about in Debt, the prolific mother (2012).

As I posted on Facebook last Sunday the peacetime public debt is unprecedented (1), sustained by State contrived low interest rates that have also led to unsustainable private debt. That we should care about the public (national) debt is discussed in the article at (2). It seems to me that caring involves sharing and there is little indication (certainly on the part of politicians) that sharing austerity measures, which may interfere with a perceived quality of life, is not something willingly acquiesced to.

“Just how equal do we want the world to be?”  The answers would suggest that the wrong question is being asked and that — perhaps — those with a large measure of a quality of life should be asked, “What are they prepared to give up?”. What is GDP?

The International Money Fund (IMF) at is an organisation seeming to prove that any question on economics is fraught with misinterpretation, both in its choice of fiscal data and the analysis of it. The media reporting of pronouncements by the IMF don’t help as they are given a political bias. The media article at (3) may well be right but there is little interest amongst the political classes for any reduction in public debt.

Microeconomics is about money you don’t have, and macroeconomics is about money the government is out of. P. J O’Rourke — Eat the Rich

State’s Off-Balance Sheet Financing and deficit financing always conceal² the true size of a budget deficit and consistently fails  to reveal the State’s true economic growth. Nevertheless a budget deficit is used by the State to justify austerity measures, increased taxation and reductions in social welfare programmes. With blatantly fraudulent claims made by successive Chancellors Of The Exchequer that paying off public debt mitigates any future deficit financing.

This isn’t true of course, deficit financing has to paid for with taxation (4), even if only a small part. With GDP used as a measure of economic growth, increasing GDP and decreasing public debt allow for increases in deficit financing, which is why the State’s fiscal policy  places the emphasis on public debt (5).


1. The history of public debt holds positive lessons for the modern British state: For most of the last three hundred years, waging war was the main item of spending for government. Public spending and borrowing fluctuated in line with the wars Britain fought, becoming progressively more costly with the mobilisation of whole societies in the twentieth century.

2. The UK’s national debt and why you should care: The Chancellor, Philip Hammond has made much of the fact that he plans to reduce Britain’s borrowing. “We will not saddle our children with ever-increasing debts,” he said, saying that there is £62,000 in debt for every person in the UK. But while the deficit – the difference between how much the country spends and how much it takes in – has been in the news plenty since the financial crisis, debt itself receives relatively little attention. Here’s what it is, where it comes from and why it matters.

3. Britain’s public finances worse than Gambia, Uganda and Kenya, because of privatisation, IMF finds Rather than looking at each country’s debt and the deficit (a government’s income minus its expenditure) the IMF’s approach takes into account the benefit of assets such as publicly owned corporations and natural resources. These figures more closely resemble a company’s balance sheet. The IMF said the cost of bailing out banks had been a significant factor dragging the UK down the rankings. The UK also has one of the largest pension liabilities of any nation in the study but is towards the bottom of the pile when it comes to public assets.

4. Every Briton faces £53k debt for public sector pensions and other unfunded schemes: The Adam Smith Institute said the £1,85 trillion “hidden debt time bomb” was “truly staggering” and hit out at the government’s “deeply immoral” failure to bring the cost down. The total is largely made up of the pension payments for government workers not yet funded as well as losses from unpaid student loans and the sale of shares in RBS and Lloyds.

5. Why the public debt should be treated as an asset: Whether the economy is strong or weak, the British government can never default on its debt. The debt is nothing more than pieces of paper that the government promises to buy back on a specific date. These pieces of paper can be bought back with new pieces of paper (new bonds) with later buy-back dates. If the private owners of the debt paper do not want the new bonds (new debt paper), our government can sell those new bonds to the Bank of England for cash and use the cash to pay the bond holders.


Referenced Articles Books & Definitions:

  • A text subscript above and preceding the title here, refers to a book, pdf, podcast, video, slide show and a download that is usually free.
  • Brackets containing a number e.g. (1) reference a particular article (1-5).
  • Sometimes a superscript is added to definition¹·¹ to indicate its context.
  • A long read url* (especially below) is followed by a superscript asterisk.
  • Occasionally Open University (OU) free courses are cited.
  • JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.

¹Taxation, Government Spending & Economic Growth: In Brief (url/pdf): The UK has a very badly designed tax system with high marginal rates, huge complexity, taxes that discourage wealth-creating economic activity and wide-ranging exemptions.

²PLC Britain’s Unexploded Time Bomb (pdf): Central to the rationale behind the compilation of the Whole Government Accounts (WGA) is the quest to achieve a more transparent view of the public finances, which go well beyond the limitations of the long established National Accounts — and especially in terms of quantifying unfunded public sector pension liabilities.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

The Land Is Ours

a Landrights campaign for Britain

The Bulletin

This site was created for members and friends of My Telegraph blog site, but anyone is welcome to comment, and thereafter apply to become an author.

TCWG Short Stories

Join our monthly competition and share story ideas...

The Real Economy

Blogs and stuff from Ed Conway

Public Law for Everyone

Professor Mark Elliott

Bleda

Am I my Brothers keeper?

The Land Is Ours

a Landrights campaign for Britain

The Bulletin

This site was created for members and friends of My Telegraph blog site, but anyone is welcome to comment, and thereafter apply to become an author.

TCWG Short Stories

Join our monthly competition and share story ideas...

The Real Economy

Blogs and stuff from Ed Conway

Public Law for Everyone

Professor Mark Elliott

Bleda

Am I my Brothers keeper?

%d bloggers like this: