France loses AAA Credit Rating. Britain doesn't. WE have something right.

[Mecky]

What about the other £590bn increase in debt? What caused it?

 

MPs' expenses?

[Cyclone]

so i was right then labour inherited a £400 million debt. maybe this gov will tax the high earners(tesco/vodaphone etc)to bring the debt down then ?

 

You were wrong, you said "the debt" implying the current level of debt. Labour inherited a moderate amount of debt and handed on a massive amount.

 

With regards to Labour fixing the situation the tories leave by spending, past evidence would suggest that they hand out economic fillips to everyone, run up a huge debt spending money they don't have and then hand it on when the pyramid scheme becomes too obvious to ignore.

[I1L2T3]

MPs' expenses?

 

Haha, yeah. Duck islands and moat cleaning aren't cheap.

 

Seriously though, fiscal stimulus in the UK was actually pretty small - less than France and much less than germany. Uk was < 5% of GDP.

 

Direct costs of bailing out banks, about 10% of GDP

 

Higher interest payments, about 5% of GDP. As others have pointed out the low gilt yields are temporarily helping out in this respect.

 

The main growth in debt was related to revenue loss, i.e. revenue for the government. This was because of the sharp decline in economic output after 2008. About 25% of GDP in this respect.

 

It goes without saying that if the current Tory policies of scaling back spending had been applied in 2008 the sharp decline in output would have been even more dramatic. We'd be in even more debt that we are now.

 

So, let's ask the question what makes the Tories think their policies can work now? The bottom line is their policies can't work in a recession. The miraculous private sector growth hasn't happened. They have choked off domestic demand. Export markets are shrinking. Revenue losses will increase. There is no coherent plan for growth.

 

My prediction is that the deficit will increase this year. Public debt will increase quite markedly. Our AAA rating will be at some risk and perhaps the only things we have in our favour are independence in monetary policy and the fairly unique structure of our public debt (dominated by long-term borrowing for which previous governments of all persuasions deserve credit). Those factors might just save the rating but the markets will become increasingly concerned about the state of UK public finances. Finally, I think Ed Balls supporting the coalition cuts will turn out to be one of the most spectacular miscalculations he has ever made - the markets and the IMF will be calling for exactly the opposite this year as we sink deeper and deeper into the mire.

[Cyclone]

So cutting spending early, at the point when income was dropping would have been a mistake and would have actually increased debt? That sounds somewhat backwards to me. If you reduce spending when your income goes down then debt doesn't grow so much.

 

Attempting to spend more because your income has dropped is a policy of idiocy, it's an attempt to deny reality.

[grafikhaus74]

It is pretty frightening to think what a ratings downgrade can do to an economy. I was watching the news a while ago and France is currently paying a modest 3.1% to finance its debts but even at that rate is paying 290 billion euros a year to finance debt. So presumably every 1% by which its repayments rise means tipping another 100 billion euros down the pissoire for no return whatsoever.

 

Agree with that. It seems S & P & Fitch can do a 'George Soros' - i.e. dictate markets with a few, well-chosen words. But then, I'm sure they've got huge, flashy offices so we must believe them. (As did Enron & Lehmann Brothers).

 

It seems that the only thing that is keeping us in the 'Triple A Club' is that we are not in the Euro and can therefore print more money to cover our debts.

 

All seems a bit smoke and mirrors to me.

[purdy]

I make the cost of employing 100,000 public sector staff on short-term and fixed-term contracts for two years to be in the region of £5-10bn.

 

What about the other £590bn increase in debt? What caused it?

 

A million has 6 noughts not 5.

 

But if that doesn't account for the overspend it was probably down to sheer incompetance like the IT systems installed in the NHS.

[Cyclone]

Cancelled, not installed.

[Phanerothyme]

All seems a bit smoke and mirrors to me.

 

I think that pretty much sums it up.

[I1L2T3]

A million has 6 noughts not 5.

 

But if that doesn't account for the overspend it was probably down to sheer incompetance like the IT systems installed in the NHS.

 

Do the sums yourself. The extra public sector workers taken on cannot not account for any more than 10 billion quid, even with very generous rates of pay.

 

The NHS system and other systems again account for a small proportion. Maybe 1% of GDP.

 

Keep trying.

[I1L2T3]

So cutting spending early, at the point when income was dropping would have been a mistake and would have actually increased debt? That sounds somewhat backwards to me. If you reduce spending when your income goes down then debt doesn't grow so much.

 

Attempting to spend more because your income has dropped is a policy of idiocy, it's an attempt to deny reality.

 

Why is it idiocy to apply stimulus if it restricts debt increase caused by declining revenues? If every pound spent on stimulus prevents at least a one pound increase in debt caused by revenue loss it is worth it. That is not even taking into account multiplier effects from the stimulus spend.

 

Germany applied massive direct stimulus after 2008. It seemed to work ok for them. USA too, and they appear to be ahead of us in terms of establishing a recovery with some encouraging signs recently.