We are Completely Broke! 7

A British Housewife’s view of the UK economy:

Treasury forecasts that in five years the UK Government will owe £1,400,000,000,000. No, I didn’t lean on the ‘0’ key. It really is that big. Let’s take the very most optimistic view possible:

1. suppose this is true and it is not higher (bank bale-outs, PFIs, decommissioning power stations, civil servant pensions and so forth blithely ignored for the moment because Labour have made this ‘off balance sheet’ to hide it);
2. suppose this is only serviced at a rate of 3% and that it will not cost more (for example, because interest rates rise, because investors will not buy gilts, or because the pound drops further against other currencies and gold);
3. suppose that other Government income does not drop (because the economy shrinks, because people and companies pay less tax if they are bankrupt or unemployed);
4. suppose that other expenses do not go up (unemployment benefit; more bale-outs; rising pay demanded by the 40% of the workforce in the public sector);

and suppose these things even though they are probably not true at all.

Even with this rosy view, the cost of servicing that debt will be, at a modest 3%, some £42,000,000,000 a year. Again, I do not lean on the ‘0’ key.

This means that towards the end of the next Parliament, the cost of paying for all the debt will amount to about the same as the total corporation tax income the treasury takes in a year at today’s rates.

Just paying interest Government’s term will cost the entire contribution of British business to the pubic purse . Or look at it this way, interest payments will take funds which amount to more than the Government spends a year on public order (police, law courts, prisons, etc): that is just to pay the interest, not to pay back what it borrowed.

What is the alternative view? Maybe the public debt could be £1,840,000,000,000 (including the off balance sheet items ignored in the Treasury forecasts). Maybe my assumptions are a tad too optimistic. If interest rates on gilts then go up to a fairly unremarkable 6%, that would be a debt interest cost of £110 billion a year – about the current cost of the National Health Service.

What happens then, as the Government runs out of money?

It still wants to pay for the NHS, pensions, the Army, Police, welfare, rubbish collection, equality, redistribution of wealth, pocket money for low income teenagers (I kid you not), schools, universities, nauseating public art, the climate nonsense and so forth. Government spends about half our output and employs nearly half of us at the moment. It spends about £43 million a day on the European Union. Well at some point, say it can’t actually pay because of the debt interest it needs to pay.

You may say it will have to raise taxes, sell gilts (borrow even more), sell gold, or just print more money.

Raising taxes will come. but will simply strangle the last bit of life out of what is left of the productive part of our economy, or push wealth and investors abroad. I would also be amazed if the UK can carry on issuing gilts. Who will buy them? A broke UK is hardly the best investment and the credit rating is already being questioned. And if gilts are sold, we may have to pay punitive rates. Gordon Brown already sold all the gold, by the way, when the price was low. What is left? The Government will have to print money. However, this can only make matters worse. The money supply will go up and therefore prices will rise with interest rates (probably just as oil prices go up further). The worth of pensions, savings and property will be cruelly devalued by this dilution in the value of the pound. There will be public sector anger, unemployment, rising prices and real poverty.

(By the way for all of you who say the CPI and RPI measures of inflation are low, please just remember that food inflation as calculated in the Daily Telegraph, is consistently between 9 and 14%. The indices are low in energy and mortgage payments because oil prices went down and because of the low interest rate. These can always go up again.)

Can Government cut spending? Just just to pay for interest and not really touch capital obligations, we shall have to ditch the equivalent of the NHS. The main political parties have done their typical thing: Conservatives have been vague and Labour has been misleading. Conservatives have said they will cut some spending but will not cut the NHS or Third World Aid. Labour is committed to spending more in real terms but won’t say if that includes interest and unemployment benefit so this means in reality spending less too, but not admitting it (in the usual Labour way).

The only answer is of course to make the productive part of the economy work again. We must reduce the cost and size of the public sector and ditch the EU. We must somehow allow businesses to create wealth, make a profit, employ people and thereby help them pay their mortgages. Even if we do this, it is going to be tough and public policy makers simply are not facing up to it. Both main parties have obviously never kept to a household budget.

Mrs M A Westrop, UK Housewife: economists please comment.

Posted under Uncategorized by on Monday, June 22, 2009

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This post has 7 comments.

  • Ian

    Mrs Westrop

    I agree. I’m frankly disgusted that none of the political parties have the guts to stand up and say that we seriously need to cut back on spending. The ridiculous state of having somewhere around 50% of people in work actually working for and being paid by the government is astounding – I just don’t understand how this can be sustainable.

    The legacy that GB and Labour have left us will be with us through my childrens generation.

  • Mrs Westrop

    Dear Ian,

    I don’t think I forgot the ‘off balance sheet’ figures you mention because they are the one in the CPS study I took for the higher of the two estimates.

    I agree with you that the socialists have, as always been spendthrift and all those who carefully saved for a pension, as you and Roger point out, are being robbed by this ‘stealth bankruptcy’, which will become apparent as the debt soars to the 1.8 figure.

    Isn’t it amazing that the Left are still calling mad public spending ‘investment’? We all should have known from their language 10 years’ ago that anyone who thinks expanding the public sector is an investment probably believes money grows on trees!

  • Ian

    Don’t forget the spiralling and uncontrollable (at present ‘cos of the unions) cost of public pensions and the ridiculous rates of ‘early retirement’ taken in the police etc.

    I’d love to be able to find make my occupation a ‘cash’ business, it seems to be the only way I’ll ever feel like I can keep the money I have earned.

    I had my own pension statement through recently and in the last few years it has done well. It is now worth less than I paid for it – I can’t believe it has got this bad in just one year. This is my own private pension as I am self employed.

    Thanks Gordon Brown, thanks Labour, I voted you in in 1997 but I will never vote for these idiots again. I’m too young to remember the problems of the 1970’s but its deja vu all over again.

  • brian ahn

    The culprit is the wrong philosophy which dictates “all men/women are created equal.”
    These words are not true. All humans are created differently. Scholars and leaders of society should repent and they should teach students that men/women should live up to their own abilities, talents, efforts, productivity, creativity, etc.

    The philosophy that all humans are created equal is not fit even to the principle of democracy. Democracy does not work if all members are given equal rights. Any society or organization crumbles if all members ask equal rights and equal voice. Capitalism is much more productive and beneficial for both the haves and have-nots. Capitalism can help the less-privileged people better than socialism. Capitalism help people learn responsibility and diligence. Only capitalism creates true jobs and true economy. Socialism just cannot sustain society.

    Christianity cannot save America and the world. Christianity is the source of inspiration of socialism and communism. Jesus banned private possession. Jesus’ disciples exercised communism. Jesus was a radical socialist revolutionist. He cursed the haves, and he allowed only the have-nots to heaven. American Christians have worshipped the king of socialists—Jesus–not knowing that Jesus’ philosophy is to destroy capitalism. Now it seems that the world is dashing toward its last days. The culprit is the wrong philosophy.

    But American capitalism has begun to be strangled for long time in the name of social justice or economical justice. Unions’ greed and incompetent CEOs have run companies as a social welfare organization. These kinds of companies or banks cannot but bankrupt. But Obama knows every thing in the reverse way. He does not know what religion is and what economy is. Obama is stabbing the back of America with his radical leftist ideology.

    Equality is not the law of existence of things. All humans are created differently. All humans come to this world with different abilities, talents, tastes, preferences, and destinies. Equality before law or equality of opportunity is not to give all people equal opportunities or equal income. We should teach our children and adults as well that every humans have to pursue different ways of life and happiness. The sentimential or wishful thinking that we can make all people equally happy will bankrupt all people.
    (Excerpted from my unpublished manuscript entitled “Bring Religions to Justice!”

  • roger in florida

    Just to put this into context; when Margaret Thatcher was forced from office, the UK was on schedule to be external debt free in 30 years. Thank you John Major, Tony Blair, Gordon Brown.
    I live in the US, each and every household in the US is on the hook for approx. $600,000.00 in federal debt. This does not include State and Municipal debt. So we have a similar situation. But as Glen Reynolds of “Instapundit” has said; debts that can’t be paid will not be paid. What does this mean? What it means is that when the govts. of UK and US cannot sell their debt instruments they will continue to pay their obligations from currency printed. I mean this literally, when they cannot borrow anymore they will create money to pay their obligations. This is not new, perhaps the most famous (and successful) example is Dr Halmar Schact and the Weimar treasury of Germany who created money to pay off various debts that Germany had. The result was catastrophic inflation. let’s say you are a retired teacher or civil servant, or similar. Your pension is, for example $4,000.00 per month, an amount that currently allows you to live a comfortable life. You may find that your $4,000.00 a month pension will not buy food for one day. People who have lived responsibly and saved money will be wiped out financially. The people most affected will be the old, people who are living on fixed incomes with no possibility of returning to the workforce. The gainers will be the spivs, the drug dealers, the manipulators, the criminals. This is going to happen, because there is no political will in UK or US to take the steps necessary to head this off, as I said before; “the course is set, the wheel is lashed, we are going over the falls”.

  • Winnie

    Yet just this morning on the UK Today programme the Trades Unions were calling for Government subsidy of private businesses because this would prevent unemployment and they talked about the ‘power of the public purse’. Just how delusional can the Left get?

  • aeschines

    In case anyone is wondering about the whole pocket money for teenagers – a link: