The Labour Party. All discussion here please

[Eric Arthur]

Not having a dig at you, Eric, but there is one very fundamental thing missing in the above (which is very good, let it be said ), which is equally missing in most of the budget-related posts in political threads and in most of the 'analyses' about the national debt by pseudo-journalists, and that is the term of the (each) debt.

 

IMHO this further precision is required for many people (who hold any debt as 'bad') to fully understand the financial wisdom behind this:

 

When businesses borrow to invest with a view to make a profit, they do so over an agreed period of time with an agreed repayment schedule. That effectively allows them to reduce the real level of the debt over each accounting period to realise a profit before the debt is fully paid down: if the business can service the debt according to the agreed schedule during each period, anything more that it makes is profit.

 

The trillion-or-so figure bandied about for the UK Gvt's debt is the same: it's the total debt of the UK Gvt at term, including e.g. state pension commitments (to current workers decades away from retirement) that won't be paid out for decades yet. The UK Gvt does not owe a trillion-or-so by end 2015, it owes a trillion-or-so by end [last year of repayment of latest debt factored into calculation of total debt figure]: by end 2015, it may only owe e.g. £20bn (as of today).

 

The annual deficit is how much the UK Gvt must find on top of its income from taxation to service the debt in that year. If it owes £150bn in 2016 and only gets £140bn from tax, it will need to borrow an extra £10bn (wherein the deficit is £10bn).

 

Making a surplus means a financial ability (not necessarily a policy-) to pay down the interest and capital of what's already owed. If it owes £150bn in 2016 and gets £170bn from tax, wherein the surplus it £20bn, it can pay £20bn of the 2017 repayment figure early and reduce the interest payable on it pro-rata...or do something else with it (coke and hookers may get my vote ).

 

Depending on when a particular debt was created, some will be repayment of mostly the capital (old debts with expectedly higher interest rates, just about fully paid out) and some will be repayment of mostly the interest (fresh debts with expectedly lower interest rates, lately to finance the deficit).

 

I was trying to keep it simple for obvious reasons but that is a great follow post. Thanks.

 

There's so much misunderstanding of these simple concepts it's no wonder that people think that bankers are to wholely blame for themselves taking on too much of the wrong debt or that profits are wrong.

[MikeFrank]

Corbyn and co are being very selfish. They are sacrificing the Labour Party for their 15 minutes of fame.

 

To win an election Labour needs to win back people who voted Tory or UKIP. They perhaps voted Tory because they didn't trust Labour on the economy and UKIP because of mass immigration and the EU.

 

The Labour Party couldn't manage the economy, they are in favour of mass immigration and the EU. Do the math, they haven't a chance in hell.

[Solomon1]

Do the math, they haven't a chance in hell

 

But the force is with him!

 

https://pbs.twimg.com/media/COtJjsUVAAAZCdz.jpg

[I1L2T3]

oh right. so was the drop in gdp in 2008/2009..........

 

 

2008 Q2: -0.2%

2008 Q3: -1.7%

2008 Q4: -2.2%

2009 Q1: -1.8%

2009 Q2: -0.3%

 

...... down to a population migration or were the figure even worse than they look because of the population increase that accompanied it?

 

Those quarters were the height of the biggest financial crisis the world had seen since 1929.

 

To try and claim that the root cause was anything else is madness

 

---------- Post added 17-10-2015 at 09:00 ----------

 

Not having a dig at you, Eric, but there is one very fundamental thing missing in the above (which is very good, let it be said ), which is equally missing in most of the budget-related posts in political threads and in most of the 'analyses' about the national debt by pseudo-journalists, and that is the term of the (each) debt.

 

IMHO this further precision is required for many people (who hold any debt as 'bad') to fully understand the financial wisdom behind this:

 

When businesses borrow to invest with a view to make a profit, they do so over an agreed period of time with an agreed repayment schedule. That effectively allows them to reduce the real level of the debt over each accounting period to realise a profit before the debt is fully paid down: if the business can service the debt according to the agreed schedule during each period, anything more that it makes is profit.

 

The trillion-or-so figure bandied about for the UK Gvt's debt is the same: it's the total debt of the UK Gvt at term, including e.g. state pension commitments (to current workers decades away from retirement) that won't be paid out for decades yet. The UK Gvt does not owe a trillion-or-so by end 2015, it owes a trillion-or-so by end [last year of repayment of latest debt factored into calculation of total debt figure]: by end 2015, it may only owe e.g. £20bn (as of today).

 

The annual deficit is how much the UK Gvt must find on top of its income from taxation to service the debt in that year. If it owes £150bn in 2016 and only gets £140bn from tax, it will need to borrow an extra £10bn (wherein the deficit is £10bn).

 

Making a surplus means a financial ability (not necessarily a policy-) to pay down the interest and capital of what's already owed. If it owes £150bn in 2016 and gets £170bn from tax, wherein the surplus it £20bn, it can pay £20bn of the 2017 repayment figure early and reduce the interest payable on it pro-rata...or do something else with it (coke and hookers may get my vote ).

 

Depending on when a particular debt was created, some will be repayment of mostly the capital (old debts with expectedly higher interest rates, just about fully paid out) and some will be repayment of mostly the interest (fresh debts with expectedly lower interest rates, lately to finance the deficit).

 

Good points. Very interesting.

 

Firstly, and governments of all types have benefitted from this, the UK has an excellent state debt management agency. Most of our debts are long term and have historically been predominantly held domestically. Yields have been kept at manageable levels too.

 

But there are two big problems now. The debt is being increasingly held non-domestically. Ostensibly this sounds good as it seems our gilts are seen as a safe haven but the problem is having more foreign held debt opens us up to much greater risk. The second issue is the level of debt is becoming so high that the interest isn't an item that can be kind of squirreled away in the national accounts. Within 5 years it is going to be a massive and very noticeable item of national expenditure. Managing it in the background is not going to be an option any more as debt interest is going to take a big bite out of revenue before anything can be spent.

 

This brings us to the need to run a surplus. I can see why Osborne might think this is needed. But seriously is anybody really going to tolerate it. Most right wingers would be pretty angry at having to pay more tax than the government needed to spend. If Osborne then countered by saying that it was needed to pay down debt then people would surely then round on him as being creator of much of that debt. I think he's living in some kind of weird fantasy land and using childish political games to score points against opposing parties. Furthermore the classical economics the Tories normally pursue requires balancing of the books not a Keynesian deficit/surplus cycle which is something Osborne is trying to write into law. Bizarre

 

In reality the aim should be to not run balanced accounts if Osborne was true to Tory tradition. And if he was honest he'd admit that as long as the debt interest can be paid and if the economy can be kept out of recession then the debt as a % of GDP would gradually erode, and if inflation could return to historical norms then in real terms the debt would erode too.

 

It rather depends on him really hitting has deficit reduction targets this time, getting sustainable growth going (not pumped up by immigration, consumer debt and house prices) and getting some healthy level of inflation back into the economy. I'm not confident because when you take this whole thing apart piece by piece you can see what a mess Osborne has got us in.

[Eric Arthur]

3 things stand out in your post.

 

1. How much more government debt as a % is now held abroad? I don't know but I'm interested to know.

 

2. Why is it a bad thing for gilts to be held abroad? They always have been so what's changed to make it a bad thing now, so that gilt issuers have the problem instead of gilt holders if a nation defaults? For that matter why would Britain default at all under the Osborne rule.

 

3. Osborne is proposing to use the good times surplus to reduce debt, not to just save it in the building society for a rainy day. To quote him "In normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future".

 

It would be good to hear your thoughts on this.

[I1L2T3]

3 things stand out in your post.

 

1. How much more government debt as a % is now held abroad? I don't know but I'm interested to know.

 

2. Why is it a bad thing for gilts to be held abroad? They always have been so what's changed to make it a bad thing now, so that gilt issuers have the problem instead of gilt holders if a nation defaults? For that matter why would Britain default at all under the Osborne rule.

 

3. Osborne is proposing to use the good times surplus to reduce debt, not to just save it in the building society for a rainy day. To quote him "In normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future".

 

It would be good to hear your thoughts on this.

 

For 1 & 2 this link give some stats and the risks. Not often discussed but the way things have progressed is setting us up for serious issues.

 

http://www.telegraph.co.uk/finance/economics/11187727/Its-time-to-come-clean-about-our-national-debt.html

 

3. He wants to run as surplus to pay back debt he created. Seriously, when it comes down to money in peoples pockets they are not going to tolerate it. It's fantasy. Sure some of the core Tory vote may be swept away in some national patriotic fervour and happily pay more tax than is needed. Some will use it as an excuse to avoid tax despite their loyaIties but It's the people who are in marginals that will really object. If we have a situation where growth is normal and inflation is at historical norms and that is naturally eroding the debt then people will not want to pay more tax. Think about it.

[drummonds]

corbyn to become deputy leader of cnd. you couldn't make it up.

 

---------- Post added 17-10-2015 at 09:46 ----------

 

Those quarters were the height of the biggest financial crisis the world had seen since 1929.

 

To try and claim that the root cause was anything else is madness

 

that would be the mess the government are clearing up then along with the massive budget deficit it caused..

 

To try and claim that the root cause was anything else is madness

Edited October 17, 2015 by drummonds

[Eric Arthur]

For 1 & 2 this link give some stats and the risks. Not often discussed but the way things have progressed is setting us up for serious issues.

 

http://www.telegraph.co.uk/finance/economics/11187727/Its-time-to-come-clean-about-our-national-debt.html

 

3. He wants to run as surplus to pay back debt he created. Seriously, when it comes down to money in peoples pockets they are not going to tolerate it. It's fantasy. Sure some of the core Tory vote may be swept away in some national patriotic fervour and happily pay more tax than is needed. Some will use it as an excuse to avoid tax despite their loyaIties but It's the people who are in marginals that will really object. If we have a situation where growth is normal and inflation is at historical norms and that is naturally eroding the debt then people will not want to pay more tax. Think about it.

 

I'd be grateful for an answer rather than a commentary.

[Harrystottle]

Corbyn and co are being very selfish. They are sacrificing the Labour Party for their 15 minutes of fame.

 

To win an election Labour needs to win back people who voted Tory or UKIP. They perhaps voted Tory because they didn't trust Labour on the economy and UKIP because of mass immigration and the EU.

 

The Labour Party couldn't manage the economy, they are in favour of mass immigration and the EU. Do the math, they haven't a chance in hell.

 

This is all true, but the Tories have an Achilles heel as well. Which is the world of zero hour contracts, agency jobs, pitiful wages, no job security and impossibly high house prices.

 

Corbyn can tap into that, I should think.

[Happ Hazzard]

But Labour aren't willing to do anything about mass immigration which is the root cause of all those problems.