At some point, something has to give… debt, deficit and a confused populace

OK, only a tenuous link to procurement here. But I liked (if that is the right word) this video from the Centre for Policy Studies.

What is really scary is that only 10% of the a sample survey in the UK knew that the coalition government is actually going to add £600 billion to the national debt over this Parliament. Almost 50% of the sample thinks the coalition will reduce debt by £600 Billion. So they're only £1.2 Trillion out in their understanding of the country's financial position - thats around £20,000 per person in the UK. Truly scary.

And in the US - a similar picture. The Government is borrowing something close to 10% of the annual GDP.

So the UK government has reduced the annual deficit - from £160B in the last days of the Caligula type spending frenzy of Labour in 2009/10 to a mere £120B or so this year. But that still means the government is borrowing around 20% of what it is spending. In the US, that percentage is, amazingly, over a third.

So, given this borrowing, the national debt is obviously still rising dramatically - over £1 Trillion now in the UK, and $16Trillion in the US. That's money my generation is benefiting from, whilst my daughter's generation are being left to settle the bill. (Or my colleague Jason's sons will "pick up the check" in the US).

But the average UK citizen somehow thinks the debt is being paid off.

Another fact - the current coalition government is on track to borrow more in five years than the last Labour government did in 13 years. That's not to say that Labour didn't play a large part in getting us into this mess.

And the problem is, unlike other times in our history when a bit of growth made debt fade away, it's hard to see that the invigorated developing world is somehow going to ease off the competition and allow the UK to get back to 3% plus annual growth. Not with our constraints and expectations.

So, there are only three ways to get the debt back to a manageable level.

  1. Pay it back - through growth or austerity.
  2. Inflate your way out of it.
  3. Default.

We're seeing Greece try option three (to some extent anyway). The US has more chance of the growth option given their track record of innovation and entrepreneurship.

For the UK - my money is on option 2. Inflation has been consistently above economic forecasts for the last couple of years, and quantitative easing is a sign of what is to come. Expect more serious printing of sterling, and consequent inflation, at some stage in the next 5 years.

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Voices (4)

  1. Robert Beveridge:

    I don’t believe the democratic process as we have it to day allows us to solve this problem. A party which proposed to tackle debt could not get elected. I agree that inflation is therefore the most likely outcome but despite massive stimulus in the past few years inflation is still pretty moderate. Terry Smith ( pours scorn on the latest government initiative to restore growth by stimulating house building, and concludes that the future will be amusing to watch from a safe distance! Good stuff!

  2. Christine Morton:

    I am firmly in the camp that believes that quantitative easing is treason.

  3. dan2:

    Quantitive easing – the ultimate stealth tax.

  4. Ilisidi:

    As you say Peter Option 2 is well under way, with Option 3 a possibility depending upon events. Option 1 would be great but the current crop of politicians and electors don’t cut it.

    Unfortunately politicians are so focused on not scaring us that honest rigorous rational not emotional debate about the merits of the different courses of action is stifled and does not form part of a national discourse.

    Implicit in those survey responses and others elsewhere is that too a high proportion of the population do not realise or cannot accept the disappointing fact that there are no silver bullet answers and that real cash cuts requiring hard choices with outcomes nobody wants are going to be necessary.

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