Increasing borrowing to reduce borrowing.

[MrSmith]

Deficit is not naturally bad. In an ideal world, the economy would have some surplus during a boom, and dip slightly into deficit during a recession, so the shape of the public finances would naturally peak and trough over an economic cycle.

 

Some surplus from a boom acts as an insurance policy against a slump. The ability to borrow in a slump gives additional backup when we need it.

 

The problem has been that we run up a massive deficit during a boom, leaving us with no insurance policy.

 

What boom?

[Cyclone]

Its very simple.A farmer has had his mortgage repayments increased to the point where he cannot buy seed and fertiliser.The bank allows a repayment holiday ,the farmer buys seed and uses the proceeds of the harvest to repay his debts.Borrowing has enabled the farmer to utilise his resources,increase output and facilitated debt repayment.This analogy can be applied to the whole economy.

It's not an accurate analogy though.

 

In the good years, when the weather was nice and production was good the farmer borrowed every year in order to make his farm nice and fancy. Cows were given back rubs, fields of crops had singing lessons and other such public service lunacy.

Now it's a bad year, the cost of debt has increased and the farmer isn't making enough to pay the debt comfortably.

Some experts advice him that in order to solve his problem he should borrow more, spend it on pimping up his fields and cows even more and despite the bad weather (reducing the quality of his harvest and thus his income) this extra borrowing will allow him to reduce his debt.

The other camp advise him to cancel the singing sessions and cow masseuse, pay down the debt as much as possible and bring his debt problem back under control so that if the harvest continues to be bad for several years he'll still be able to afford the interest payments.

[Cyclone]

What happens to the debt if he can't afford to farm any more because of paying debt repayments & a refusal to borrow what is necessary for them to continue farming? What if all the other farmers were forced out of business by the bank's refusal to lend & then the farm is worthless because nobody can get a loan to buy it?

 

You don't pay your debts back by cutting your income.

 

As long as you can make more than the interest on the loan, then that's an investment, that's how people, companies, banks & countries make money. It's an easy calculation to do & interest rates are very low.

 

Don't confuse the Bank of England base rate for Sterling with the cost of borrowing for governments. Rates are very high, even for the well rated countries like the UK (still AAA I believe because the market believes that the debt reduction program is a good one).

 

It's true that if we could borrow £1 (repay £1.25) and make £1.50 it would be a good investment, but it's incredibly difficult to quantify the return on public investment.

[Riche]

Stop shopping at Mark's and eat beans. Society is gready, they want everything now and pay latter. Save and buy.

[WeX]

What boom?

 

This boom: http://tinyurl.com/c6ef48b

[dutch]

The debt will get bigger and bigger and it will never ever be payed back.

Human species is the only living organism in existence that has a debt. Nowhere else in existence does debt exist. Everything moves on happily while we are miserable and crying because we have a debt.

Why not be happy and joyful instead of misserable, crying, suffering because we owe some money. Government can grap all that money from nowhere and play games with it.

Just give everybody the power to grab and borrow as much as they want.

You came without money and you will die without it. It is only something temporary you have to deal with.

Money is largely there to keep people misserable and under control. Take away their freedom to live a happy healthy live.

[MrSmith]

This boom: http://tinyurl.com/c6ef48b

 

Ah the boom that was driven by cheap credit, which was used to stimulate the economies of the world after the Dot com bust.

 

The government borrowed to keep that boom booming, they couldn’t have saved without stopping the boom.

[WeX]

Human species is the only living organism in existence that has a debt. Nowhere else in existence does debt exist.

 

Humans are also the only organism to have created art, mathematics, cooked food, disease control etc etc. I don't see your point.

[lizmachin]

No, we do it like Iceland. Zimbabwe's problem has been external trade barriers.

 

No, we do it like Iceland. Zimbabwe's problem has been external trade barriers.

 

.

 

Zimbabwe's problem has been Mugabe. They managed pretty well when Ian Smith was in charge and they DID HAVE trade barriers and sanctions. Mugabe embezzled the countries money, built up massive debts and now the country is a basket case.

 

I'm intrigued to know what you think Iceland has done that any sizeable country could do, or why they would want to? I'm not sure that you are fully in touch with world affairs.

[Jim Graham]

Some people, both on here and in europe, seem to think that if we continue to increase borrowing so fund public sector spending over and above what the tax take allows then this will reduce the deficit.

 

However under labour they did this every single year. And every year the deficit increased, the national debt increased hugely and the percentage of GDP spent puring on servicing the interest on debt increased to the point where it's the 5th largest "department" of government by budget.

 

So given that it did not work, over 10 years, to reduce the deficit why will it magically do the opposite of what it always has done this time?

 

 

 

Here's how Labournomics works in practice:

 

Let's take a completely hypothetical example. How about we host a sporting event that nobody has ever heard of? We'll need to build some facilities so we'll borrow some money. Let's say £140m. With that we can build the facilities but more importantly we can use it as propaganda to claim that we are "investing" in the future, providing jobs etc etc.

 

Some years later we realise that the facilities we built are costing a lot of money to run and we are losing money on them. So let's give them away to a "trust" and let them run them. Of course we are still stuck with paying back the £140m. So let's not do that. Let's renegotiate the loan and pay back £1 a week.

 

After 20 years the debt has still not been paid off. Interest payments are £25m a year. By the time it gets paid off the total bill for a £140m sports day will be £650m. A total interest of almost 400%.

 

THAT is what Labour are proposing to do to our £1 Trillion debt. The interest payments we have now are already more than the education budget. Ed Balls strategy is to turn it into a £5 Trillion debt and hope the sun explodes before they have to pay it off.