Pete, so how is the UK cumulative debt funded and accounted for? If the world is a balance sheet, someone must have a huge debtor provision! Who is owed all the money? Banks, I assume. Regards.
No, that is on top. However to be fair that is an ongoing liabilty that wouldn't appear on any balance sheet. It is huge and out of control though - thanks Gordon :wink:
So, a question to you Europhiles, what is your desired goal in the short to medium term ? Is it that the UK joins the Euro, further fiscal consolidation in Brussels / Luxemburg and the associated central control of 'Nation State' budgets and taking on an ever larger share of that borrowing, printing and spending to kick the can further down the road ? How long do you think this can go on ? My problem is that whichever way I look at it all ends in tears. That which is unsustainable must come to an end.
I can't ever see a time when all the member countries will become financially stable, there will always be poorer cousins pulling on Germany's apron strings, and the German joe public are sick of it already.
My limited understanding of fiat (paper based) monetary systems is that they are fundamentally unstable and require 'growth' to survive. This is different from 'balancing the books'. But yes, within Europe the demands of the German economy are used to set interest rates and that results in the PIIGS being massively disadvantaged and relying upon redistribution to survive.
Of course not. No future contingent liabilities of governments are funded, nor could they be. The commitment to pay for health, education, pensions, defence, etc runs on into the future indefinitely. There is no end point. So for commitments to be "funded" the fund would have to be infinite in size. Coming back to reality, government finances are always accounted for within the year April to April. Under the annuality principle, government departments are not allowed to carry funds over from the current year to future years. Their income and expenditure balance is operated within each year only. Public sector pensions are exactly the same as everything else.
All the major western economies are surviving on the principal of quantitative easing............or printing money to you and me. Until they realise that the ONLY way to get out of this mess is to make work pay and not working not, then we are doomed to eventually going bust. ( See Greece, Spain, Portugal and Ireland who only continue to exist at all as the EU (read Germany)) are underwriting their debts. As to the problem of pensions liabilities, you will find that the retirement age gets pushed further and further away (even more so than now) for all of us as the current system is unaffordable as we are employing workers on lower and lower wages that will not be able to sustain the pension liabilities to come.
I mentioned that the UK's total government debt accumulated down the years is about £1,278 Billion. That may sound a lot, but bear in mind that the UK's GDP is about £2,400 billion per year. So the national debt is very roughly half of one year's GDP. If you were buying a house you might take on a mortgage debt of up to three times your annual income; one half annual income would not be so frightening after all, and by no means unsustainable. The "National Debt" is not a balance sheet, it's just a figure. On the other side of the balance sheet are assets, including physical assets. The UK has lots of those, comprising most of the land, buildings, infrastructure, equipment, vehicles, aeroplanes, ships, stock in trade, etc. The UK also owns assets overseas in all parts of the world. Even larger are non-physical assets, such as shareholdings, bank deposits, drilling rights, etc. The total UK assets vastly exceed the government's debts, on such a scale that the National Debt is not really a big deal. Another point to remember is that every debt I owe is an asset to somebody else; every debt of the UK goverment is held by some institution (such as a bank, pension fund, insurance company, etc.) as an asset so the overall balance of debts and assets is zero. [OK there are many complications I have omitted, but that's the gist]. Debts are not a problem provided the interest is affordable and there are corresponding assets. The problem with the debts of Greece at the moment is that they are not affordable and are not backed by enough assets. This is the result of mismanagement over many years by Greek finance ministers and central bankers. It would have been the same if Greece was not in the EU, except that the bailout would not have been offered.
True up to a point. But all monetary systems are fundamentally unstable since they rely on confidence. For them to work, people have to believe that money (paper, gold, cigarettes, whatever) will be accepted by everybody tomorrow in exchange for food, work, fuel, etc. If people lose confidence in the future value of the currency, then it loses its value today. Anything which destroys confidence leads to instability. What you say about growth is surely back to front. If there is nil growth or recession for long, that leads to deflation (negative inflation) as in e.g. Japan recently. As a result people hang on to money since it is increasing in value, instead of spending it or investing it in risks. The Yen has been too strong, not too weak! Responsible central bankers make sure deflation is avoided in a low-growth period by quantitative easing - but they musn't overdo it, as that would stoke inflation. The Bank of England seems to have got it about right so far, but it is a sensitive operation. It has the helpful by-product of reducing government debt, but that is obviously not the main purpose.
Pete, this is one of the major concerns for me about Government expenditure. I understand that departments that don't spend their budgets (act in a responsible manner with our money?) are rewarded with smaller budget allocations in the next financial year. This is why we see a rash of roadworks in March as councils burn cash to protect their stash for next year.
Good news! 278 banks in the Eurozone are about to repay €137.16bn to the European Central Bank. They received the loans a year ago to keep them afloat during the crisis. Although the loans were for three years, some banks are now so stable and profitable they are able to pay them back two years early. The ECB provided €489bn in December 2011 and €530bn in February 2012 to 800 banks across the whole of the European Union, including €37.4bn euros to UK banks. Portugal and Ireland have also been able to return to government borrowing on the markets in the ordinary way, no longer needing bailouts.
This is certainly how it works in companies. You are never rewarded for not spending your marketing budget. You are deemed to have not been creative enough to make the proper marketing investment. And naturally, the feeling is, you don't need all that money, clearly. Thus next year you get less. This is surely how all sorts of budgets are handled. You may find this amusing: There has been criticism here in Switzerland recently as the federal government has ended up with a cash surplus of a few billion (£s, francs - doesn't matter much which). The Swiss are naturally conservative and the budget probably over estimates expenditure and underestimates cash in. Anyway, there are various people on the left whinging that the government isn't investing enough in education, roads blah blah and it is some sort of heinous crime to actually end up with any cash. You can't win.
Government departments are hierarchical. Expenditure budgets are split and split internally down to local levels. Sometimes at a local level some official holds back some funds in year "just in case" then hurries to spend it in March. I've done it myself. But that's trivial stuff. At departmental level, the Treasury allocates funds to each department for the coming year on the basis of predicted spend in accordance with ministers' prioritising decisions. Nearly all expenditure in reality cannot be postponed until March. Salaries, contractual commitments, rents, transfer payments [pensions and benefits], and some others cannot be postponed or affected locally. So I wouldn't worry. The effect you mention exists, but it's not a serious problem.
In my naivety (be delighted for people to point out I am wrong), I see countries like businesses. If you export more than you import, you end up with cash to buy all the things your company needs: infrastructure, education, health care, personnel costs (pensions) etc. If you don't, you end up having to borrow to meet the costs. The thing about the UK economy is that the City of London has always compensated for the lack of real exports by producing "invisible earnings", or the profit on moving around money and bits of paper. This is what has kept the UK going for decades and is probably even more significant now. Hence if your banking system collapses, the UK will be in the do-do. This is why no one will say boo to the bankers. If they did just clear off to Singapore, the UK would be deeply in Scheissestrasse. The bankers weren't bailed out because the government wanted to, but because it had to. The UK is totally in hoc to the bankers. I did some noddy research on exports vs imports, produced a little graph and wrote about it here: Exporting and making money If you want to know a bit more about the frightening power of the City of London, there is a brilliant film you could watch about it here: City de Londres, la finance en eaux troubles - YouTube Dammit. Just noticed it's in French. Oh well. For the French speakers among you.
Switzerland must have a similar reliance on banking, surely? In fact, we have a bigger industrial base than you'd think, even after all the outsourcing.
The value of assets can go down as well which is what has created this current problem. Billions of dollars were lent against property which pushed the prices of the property up so next time more is borrowed to buy the same thing. The property is used as collateral against the loan. Suddenly the bubble bursts and not only are lenders not getting repaid the loans they have made but also the guarantee they have ( i.e. the value of the property) is not worth enough to cover the balance of the loan outstanding. The same can and has happened to countries. As regards your point about Greece. Greece would never have been able to borrow the sums it did were it not a member of the EU. Their lenders (rightly as it turned out) assumed that the EU would underwrite their debt and get their money back from other EU countries. Germany and France were the first EU countries to break their own rules on the amount of borrowing they were allowed so they are hardly able to crow about what other EU countries have borrowed.
