The End Of Britain:: The downward slide has begun

Britain is about to be flattened by a tidal wave of debt. It doesn’t matter if you vote Conservative, Liberal, Labour, UKIP – or for no party at all. The facts are the facts.

Let’s take a look at some numbers…

Two and a half years ago, when the Coalition government formed, we were already in a huge amount of debt. In fact, the previous government had left the country sinking under £700 billion’s worth. Take a look at the following chart:


Source: Read more of this post

Financial meltdown:: Monopoly for 1%…Russian roulette for 99%

I am fed up watching whilst politicians, bankers, rating agencies and “the markets” play monopoly! This article (link below) refers to the UK and dates back to 17th January 2011 with links to even older items.

UK Economy: A cynic’s summary

People are realising that we are not in fact all in it together but have, instead, a kleptocracy

What has happened since then is that the stakes are higher, based upon gradual exposure of the sheer scale of bank and sovereign debt – to the purists there is a world of difference to the rest of us any distinction between banker and politician merely reflects what stage they are at in their career – as a result of, at best, mismanagement and, at worst, unadulterated systemic greed.

I was really drawn to revisit this topic because of these pithy comments from TIm Hoad taken from a long-running discussion on Linkedin: “How realistic is the prospect of any country either being pushed out of, or leaving, the Eurozone?” Read more of this post

Creators and casualties of complexity: why banks are eurozone’s fault line [BBC]

The familiar expression that springs to mind is “what goes around comes around” or, in Biblical terms, perhaps befitting the scale of the problem…

“as you sow so shall ye reap”

However, please note the deliberate use of the term “casualties” rather than victims. Because, the ability to socialise the losses renders citizens as the VICTIMS!

Here’s the lethal chain of causality: banks have found it harder to borrow because of their big loans to the likes of the Italian, Spanish and Portuguese governments, and because of fears these governments will struggle to repay their debts; but if one or more of the banks were nationalised, the perceived liabilities of these governments would increase; and that in turn would erode confidence in the ability of other banks to repay what they owe; and so on, till no institution in the eurozone is seen to be sound. Read more of this post

Two reasons why the public finances are in deep trouble

Circulation in macroeconomics

Image via Wikipedia

Last time the UK’s public finances were in such a mess was back in the 70’s. A whole lot of pain was inflicted on the public, including austere spending cuts imposed by the IMF.

In the end a Tory government was voted in. The government was forced to hike taxes and cut public spending. In the end they were able to right the ship.

Thatcher talked about government finances being like a household budget. This simple analogy can be useful – i.e. you shouldn’t spend more money than you bring home.
But there are two critical differences…

First, when a household borrows it’s usually to buy something tangible (a house, or a car). Yes, you’ve created a liability (the loan), but there’s an asset on the other side of the balance sheet.

Secondly, households tend to borrow most when they’re young. Borrowers work on the assumption that their wage will tend to rise over time, so reducing the onus of the loan.

Neither of these applies to government borrowing.

Firstly, government borrowing generally isn’t for investment. The big bills are for NHS, schools, welfare benefits and pensions. That’s not to mention the banking bail-outs. This is day to day spending – and it keeps going up!

Anyway, if there has been investment, it’s been mainly pushed off the balance sheet into PFI projects. There are no new assets on the government’s balance sheet.
Secondly, the government can’t easily grow its income. They can try to increase revenue by upping taxes, but this is increasingly difficult…
In economics the ‘Laffer curve’* describes how you can only raise taxes to a certain point after which the amount of money raised actually begins to go down. And that’s where we are now.

* Not an original idea. David Hume expressed similar arguments in his essay Of Taxes in 1756, as did fellow Scottish economist Adam Smith, twenty years later. But even they weren’t entirely original.

Businesses are migrating to lower tax regimes and so are individuals. Of course, this all takes time, but make no mistake, people aren’t happy to offer government a blank cheque book.

Once presented with unreasonable taxes people start to avoid them, both legally through avoidance and illegally through evasion.