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Government borrowing and why this isn't "the one"


Frank Hovis
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sancho panza
13 hours ago, spunko said:

I don't understand this. We had one "black swan" event i.e. Covid-19 and yet according to that graph it's barely made a mark. Why would one more black swan event make a difference? According to that graph, we need about 100 more such events.

Not sure that your graphs account for inflation either. If there was a war on the scale of WW2 now, then that line would go right off the top. A Spitfire in WW2 cost £2m to build in today's money, but a Eurofighter Typhoon costs £80m.

The debts are nominal but the GDP will naturally reflect elements of price inflation.Deflating GDP with ONS inflation measures inherently gets distorted by the bias in the inflation measure and boy is there some bias.

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sancho panza
3 hours ago, Frank Hovis said:

First point: look at the second graph; the ratio has shot up from 75% to 100% in a couple of months.

That's massive and it's projected to go to 110% by the end of July and as to government is going to keep spending that's why I am saying it will go to 150%.  Now that's high for peacetime but you can gradually recover from that.

However if there is another big shock on top of that requiring similar spending then you are into post war levels of debt at over 200%; and that won't just be due to borrowing but to economic contraction. Then you are going to get a sovereign downgrade and inflammation will start devaluing the currency.

Second point: it's a ratio of Debt to GDP; in words the amount of government borrowing compared to the size of the economy.

Inflation is automatically brought into account through the GDP measure so that if the debt stays static then inflation-led growth of GDP will drop the ratio.

the main issue is the price of sterling ref USD.At the moment as govt can keep borrowing as long as it's stable and above parity.after parity inflation will be running I suspect.

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sancho panza
4 minutes ago, Frank Hovis said:

 

Fair point and I didn't know that about imputed rents; though I have had to calculate them in the past.

I accept that personal debt and corporate debt (I'm assuming that the graph includes both) will have gone up recently but not to the degree of the public debt.

The shorter timeframe UK debt curve looks fairly benign to me; we hit high debt in the early years of Blair / Brown at 220% and it's declined from the 2008 peak back towards 220%.  The low interest rates mean that there has been a lot of personal debt in the form of mortgages paid down and the low housing transcations / mortgage approvals that have become the new norm for the last tweleve years mean that the number of people holding the high levels of personal debt is going to be much lower and so less people will be affected if rates go up than in "normal" times.

I'd agree.Shorter term isn't the issue.

Structural issues start occuring when you consider that so much relies on the illusion of economic growth rates.Economic growth has been driven largely by diverging returns on debt ie for each dollar growth in debt over the last 12 years we've got increasingly less growth.Consumers/govts willingness to borrow has underpinned msot economic growth psot 2008 as money velocity has been gone down.

ref the bit in bold,I think it's worth consdiering where the debts and the equity sit demographically.Consuemrs big spending years are aged 25-54 as they set up home,have kids, live life.Problem currently is that the debts are spread unevenly in lower age groups.So currently,people in their 20s/30s/40s are spending mroe of their income proportionately on hosuing than their predecessors,to the point that funneling stimulus trhough them is more likely to see them pay down debt than buy a sofa.

the effect of rising rates will be to raise moeny velocity in higher age groups but it will possibly destroy the balance sheets of the 25-54 age group.

 

Sorry I dont have time to look for the data.will try tonight.

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Frank Hovis
4 minutes ago, sancho panza said:

I'd agree.Shorter term isn't the issue.

Structural issues start occuring when you consider that so much relies on the illusion of economic growth rates.Economic growth has been driven largely by diverging returns on debt ie for each dollar growth in debt over the last 12 years we've got increasingly less growth.Consumers/govts willingness to borrow has underpinned msot economic growth psot 2008 as money velocity has been gone down.

ref the bit in bold,I think it's worth consdiering where the debts and the equity sit demographically.Consuemrs big spending years are aged 25-54 as they set up home,have kids, live life.Problem currently is that the debts are spread unevenly in lower age groups.So currently,people in their 20s/30s/40s are spending mroe of their income proportionately on hosuing than their predecessors,to the point that funneling stimulus trhough them is more likely to see them pay down debt than buy a sofa.

the effect of rising rates will be to raise moeny velocity in higher age groups but it will possibly destroy the balance sheets of the 25-54 age group.

 

Sorry I dont have time to look for the data.will try tonight.

I agree with all of that but as per your previous post and per my OP the government has the ability to buy its way out of the problem this time.

And if the next time comes too soon then there is the collapse.

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reformed nice guy

Imputed rents is a major problem and thank you to @sancho panza for pointing that out.

Another big issue is productivity. Our population is growing faster than GDP and our liabilities (roads, hospitals etc) even faster.

For me the biggest issue is due to relative competitiveness. In previous crises' western countries were seen as the safe place to be. China and Indo-pacific was not able to efficiently use a lot of the available international capital. Coming out of the current COVID related/created problem will be an increasing confidence in the East from both the international class and from the East itself.

We may be able to buy our way out of this one, but our relative ranking world wide will have slipped alongwith most of the western world.

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Frank Hovis
7 minutes ago, reformed nice guy said:

Imputed rents is a major problem and thank you to @sancho panza for pointing that out.

Another big issue is productivity. Our population is growing faster than GDP and our liabilities (roads, hospitals etc) even faster.

For me the biggest issue is due to relative competitiveness. In previous crises' western countries were seen as the safe place to be. China and Indo-pacific was not able to efficiently use a lot of the available international capital. Coming out of the current COVID related/created problem will be an increasing confidence in the East from both the international class and from the East itself.

We may be able to buy our way out of this one, but our relative ranking world wide will have slipped alongwith most of the western world.

I would say that our one saving grace is that we're not in the EU / Euro which makes us if not a safe haven then a secondary safe haven.

Here are the countries with the largest debt to GDP ratios end of last year; Japan is 234% but has been stuck there since the last recession.  Greece is 182% and look at all the other EU ocuntries in that list.  Pre-CV19.

 

image.png.eee503cc4e95c9c901c82fa52b87b1fb.png

https://worldpopulationreview.com/countries/countries-by-national-debt/

 

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1 hour ago, reformed nice guy said:

For me the biggest issue is due to relative competitiveness. In previous crises' western countries were seen as the safe place to be. China and Indo-pacific was not able to efficiently use a lot of the available international capital. Coming out of the current COVID related/created problem will be an increasing confidence in the East from both the international class and from the East itself.

So far most of the Indo-pacific countries have done better in the pandemic and so should be better placed for recovery.  I can see that being an important factor for the next few years as we in the west struggle.

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Frank Hovis
16 minutes ago, janch said:

So far most of the Indo-pacific countries have done better in the pandemic and so should be better placed for recovery.  I can see that being an important factor for the next few years as we in the west struggle.

"We in the west" covers a lot of bases.

The US economy is always strong, Canada does fine and I think we will.

The disaster zone IMO is the EU because the Mediterranean economies are on the point of falling over; CV19 may make that happen.

There's nothing clever in pointing this out as the collapse of the Eurozone for just that reason has been predicted for over thirty years.

I think it will happen within the next eighteen months.

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PatronizingGit
22 hours ago, Darude said:

Why does rising government debt mean everybody has to get out of cash asap? The Japanese government's national debt is at 235% of GDP and the yen is just fine, year after year of low inflation and even some mild deflation.

Yeah...in the late 2000s and early 2010s Kyle Bass used to predict the end of Japan in the mid 2010s...had his '4 leg' theory or somesuch as the 4 things keeping Japan propped up (exports, domestic savings and a couple other things that would turn sour due to more people dieing than retiring, lessening the appetite for domestic savings etc) 

 

Since Japan did not collapse in the mid 2010s, even after the quake, he's since been relatively quiet on Japan and now spends his time predicting the end of China instead.

 

People forget, nations can stumble on a long time in far worse situations than the UK. Intuitively, people seem to think once the takers outnumber the makers, it all comes crashing down. ie, Romneys '47%' stat (about 56% in the UK), but in South Africa, the takers of govt money are up in the high 80% percent vs the makers...still that nation staggers on. 

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PatronizingGit
2 hours ago, Frank Hovis said:

I would say that our one saving grace is that we're not in the EU / Euro which makes us if not a safe haven then a secondary safe haven.

Here are the countries with the largest debt to GDP ratios end of last year; Japan is 234% but has been stuck there since the last recession.  Greece is 182% and look at all the other EU ocuntries in that list.  Pre-CV19.

 

image.png.eee503cc4e95c9c901c82fa52b87b1fb.png

https://worldpopulationreview.com/countries/countries-by-national-debt/

 

Why ppl never pay attention to private debts. Seems to me given the govt essentially nationalizes bad debts rather than making the banks eat them (ie, go bust like other parts of the economy that fuck up would) private debts should just be considered 'public debts yet to go bad and become public debts'#

 

This is what Steve Keen used to berate Krugman about. 4/5ths of debts are private and may as well not exist in the mind of Krugman and his establishment ilk. All very well saying we should spend our way out of stagnation as after WW2 but of course Krugman never mentions after the war savings were high, people having got money to fight, war bonds etc, and seen a lot of the 1920s/30s debt finally paid off, so public spending was able to be financed by private activity. Now all sectors are leveraged at historic highs. 

 

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Frank Hovis
25 minutes ago, PatronizingGit said:

Why ppl never pay attention to private debts. Seems to me given the govt essentially nationalizes bad debts rather than making the banks eat them (ie, go bust like other parts of the economy that fuck up would) private debts should just be considered 'public debts yet to go bad and become public debts'#

 

This is what Steve Keen used to berate Krugman about. 4/5ths of debts are private and may as well not exist in the mind of Krugman and his establishment ilk. All very well saying we should spend our way out of stagnation as after WW2 but of course Krugman never mentions after the war savings were high, people having got money to fight, war bonds etc, and seen a lot of the 1920s/30s debt finally paid off, so public spending was able to be financed by private activity. Now all sectors are leveraged at historic highs. 

 

That's all true but the point of the thread is that the government is perfectly capable of borrowing sufficient money to pump into the economy and avoid a big recession this time.

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stokiescum
5 hours ago, sancho panza said:

Chinese will implement capital controls and keep their cash.The savvy will have got some out but much like the Uganadan Asians int he 70's,they'll get robbed blind.

Personally,I'll be glad to have them and it will help pay for the benefits bill.

Im thinking the same they will get here with little but a million would need a lot of houses to live in which will put demand up .

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stokiescum
1 hour ago, Frank Hovis said:

That's all true but the point of the thread is that the government is perfectly capable of borrowing sufficient money to pump into the economy and avoid a big recession this time.

Maybe true ,but that’s reliant on other country’s not going tits up.

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Frank Hovis
2 hours ago, stokiescum said:

Maybe true ,but that’s reliant on other country’s not going tits up.

It's always going to be the case that if the US, China or Germany suddenly goes pop it's going to badly affect us.

Greece, Spain, Italy: less so.

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18 hours ago, Frank Hovis said:

that must be out of date cos UK debt is higher than GDP now....

And anyhow the GDP figures are 'made up' to include the drug trade :P

AND it's a 'coffee economy' in the UK now, has been for years xD

https://www.bbc.com/news/av/45104007/why-gdp-includes-the-illegal-drugs-trade

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