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UK returns to budget surplus watch

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    At the same time homelessness skyrocketed. There's always two sides to the same story. "The true measure of any society can be found in how it treats its most vulnerable members".
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    (Original post by Rinsed)
    I am not blaming everything on Brown, but he demonstrably showed a lack of prudence in the decade he was in charge up of the treasury. Had he been more circumspect in his spending, the UK budget would have fared better in the stresses of the crisis. He was not responsible for the crisis, but he was responsible for the fact we were so unprepared.

    Brown hiked spending beyond the government's income, and we were running a current account deficit from basically the moment he took over all the way up to the crisis. He told everyone this was fine because he had 'abolished boom and bust', but actually he was hubristic and irresponsible. And so, come the inevitable thunderclouds, we found ourselves in a much more precarious position than we should have done.
    I get your point however two things come to my mind.

    Debt is 85% of gdp and the government wants it below 60% before the next recession.
    However debt peaked at 35% pre crash.

    Second thing is who decides what is an ok debt to gdp ratio is?
    Obviously a good one is as close to zero as possible but places like japan and China have double their gdp in debt.
    For me that begs the question is there a new normal?

    I’d argue at this point I couldn’t care less what debt went up to as long as what it was spent on had an ROI
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    (Original post by paul514)
    I get your point however two things come to my mind.

    Debt is 85% of gdp and the government wants it below 60% before the next recession.
    However debt peaked at 35% pre crash.

    Second thing is who decides what is an ok debt to gdp ratio is?
    Obviously a good one is as close to zero as possible but places like japan and China have double their gdp in debt.
    For me that begs the question is there a new normal?

    I’d argue at this point I couldn’t care less what debt went up to as long as what it was spent on had an ROI
    The thing is though that 60% isn't seen as the optimal target, it's what's seen as achievable. I think everyone recognises the UK's finances are in a worse position than they were before the crash, although they could have been even worse had action not been taken.

    As for what's an acceptable level for debt/GDP, it's pretty dependent on the fundamentals. You have to remember we are paying interest on this debt, and currently those interest payments are greater than this new "surplus" so we're technically still in deficit. A lot of those interest payments are money leaving the UK economy, so high debt will inevitably subtract from GDP growth and put downward pressure on sterling. Some debt is absolutely fine, but you absolutely must have a good idea how your future tax base is going to pay it off, or growth will suffer.

    For advanced economies 100% is around the sort of level people start to worry if you'll ever pay it off. As you point out, debt has increased by 50% since the crisis, so if that were repeated we'd be in trouble, even if we got it to 60% beforehand. That's not to say you definitely won't pay it off, but investors start to get itchy feet, reducing growth and making paying it off that much harder.

    I'd be wary comparing to non-Western economies too much. China is still a developing economy, and though growth is slowing it's still massive compared to western economies. They can handle high levels of debt because the tax base is expected to be large enough to handle it, whereas we'd be happy with 2% growth. They're also not exactly the freest of economies, which gives their government more leeway. Japan is in seriously dire straights with its debt, which is the main reason they've barely grown for like two decades. We seriously do not want to emulate Japan.

    And once again, you don't get an ROI on debt to cover current expenditure. If you borrow to build a bridge, fine, there are projected future benefits to weigh the outlay against. If you borrow to maintain welfare payments, OK you're avoiding social pain, but where's the return? The money is just consumed and we have to reclaim if from future taxes.
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    (Original post by Rinsed)
    The thing is though that 60% isn't seen as the optimal target, it's what's seen as achievable. I think everyone recognises the UK's finances are in a worse position than they were before the crash, although they could have been even worse had action not been taken.

    As for what's an acceptable level for debt/GDP, it's pretty dependent on the fundamentals. You have to remember we are paying interest on this debt, and currently those interest payments are greater than this new "surplus" so we're technically still in deficit. A lot of those interest payments are money leaving the UK economy, so high debt will inevitably subtract from GDP growth and put downward pressure on sterling. Some debt is absolutely fine, but you absolutely must have a good idea how your future tax base is going to pay it off, or growth will suffer.

    For advanced economies 100% is around the sort of level people start to worry if you'll ever pay it off. As you point out, debt has increased by 50% since the crisis, so if that were repeated we'd be in trouble, even if we got it to 60% beforehand. That's not to say you definitely won't pay it off, but investors start to get itchy feet, reducing growth and making paying it off that much harder.

    I'd be wary comparing to non-Western economies too much. China is still a developing economy, and though growth is slowing it's still massive compared to western economies. They can handle high levels of debt because the tax base is expected to be large enough to handle it, whereas we'd be happy with 2% growth. They're also not exactly the freest of economies, which gives their government more leeway. Japan is in seriously dire straights with its debt, which is the main reason they've barely grown for like two decades. We seriously do not want to emulate Japan.

    And once again, you don't get an ROI on debt to cover current expenditure. If you borrow to build a bridge, fine, there are projected future benefits to weigh the outlay against. If you borrow to maintain welfare payments, OK you're avoiding social pain, but where's the return? The money is just consumed and we have to reclaim if from future taxes.
    I get the arguments but like I said where’s the line there seems to be a new normal, like you said 2% growth seems ok now it used to be 3.5 to 5% for a long time.

    I admit China is a different kettle of fish but japan isn’t who has 3 times the debt maybe that says we can go half way? The point is we don’t know and I feel that’s something that should be honestly worked out to know the parameters we can work in.

    As for spending on day to day I agree, if we want more we will have to pay more tax again that’s a debate that needs to be had and it can’t be yea let’s whack it up for the rich as per usual.

    So like I said in the last post borrowing now in big big fashion for stuff that has an ROI of which we have many things to spend that on is ok but that’s not what’s being talked about in politics, and it should also bump growth and wages up.
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    (Original post by Rinsed)
    Brown hiked spending beyond the government's income
    Not quite. His day-to-day spending was bob on. He borrowed for capital expenditure which is no bad thing. And we are better off for that as we now have many new hospitals and schools to show for it. I would question the public private ownership model though. What he didn't take into account was the fact that the economy would potentially take such a massive hit. But then, why would he? Why would anyone? How many people who depend on two incomes have made provision for their partner suddenly dying? It happens but most do not heed that basic fact.
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    (Original post by ByEeek)
    Not quite. His day-to-day spending was bob on. He borrowed for capital expenditure which is no bad thing. And we are better off for that as we now have many new hospitals and schools to show for it. I would question the public private ownership model though. What he didn't take into account was the fact that the economy would potentially take such a massive hit. But then, why would he? Why would anyone? How many people who depend on two incomes have made provision for their partner suddenly dying? It happens but most do not heed that basic fact.
    Just looked up the ONS stats, it was in 2002 that Browns' current deficit began, which is later than I had intimated, but still a good while before things went tits up.

    It is absolutely the job of the government to make preparations for major risks to the economy. All businesses (especially financial businesses) prepare for the risk of a financial shock by holding excess capital, it's hardly a new or outlandish concept. Indeed, one of the arguments against Brown is that he allowed some of the banks to get away with poor risk management. Recessions happen fairly frequently, if the government is unprepared then that's negligent in my book.

    By the way, there is a whole industry (life insurance) which is predicated on people making preparations for the financial loss a family would incur should one of the earners die. Typically families will do this at least when they get a mortgage, because debt is risky.
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    (Original post by Rinsed)
    All businesses (especially financial businesses) prepare for the risk of a financial shock by holding excess capital
    You would think so wouldn't you? Seems Goldman Sachs, Northern Rock, RBS and Lloyds to name four global banks didn't heed your advice. And for all the reassurances, new legislation, inspections and due process, I don't believe for a second that it couldn't happen all over again.
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    (Original post by ByEeek)
    You would think so wouldn't you? Seems Goldman Sachs, Northern Rock, RBS and Lloyds to name four global banks didn't heed your advice. And for all the reassurances, new legislation, inspections and due process, I don't believe for a second that it couldn't happen all over again.
    And if it were up to me we'd have let them go to the wall, to encourage the others.
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    (Original post by Rinsed)
    And if it were up to me we'd have let them go to the wall, to encourage the others.
    I wouldn’t have but I would have made all the banks have separate entity’s for personal/business banking from their market trading.

    That way when they mess up again you really can let them fail.
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    (Original post by Rinsed)
    And if it were up to me we'd have let them go to the wall, to encourage the others.
    Thank goodness you weren't able to make that decision. That surely would be like deciding one evening to remove all the roads in the country to stop pollution?
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    (Original post by paul514)
    I wouldn’t have but I would have made all the banks have separate entity’s for personal/business banking from their market trading.

    That way when they mess up again you really can let them fail.
    Ordinary banking customers' balances should have been guaranteed, but otherwise if they were insolvent they should have been liquidated.

    (Original post by ByEeek)
    Thank goodness you weren't able to make that decision. That surely would be like deciding one evening to remove all the roads in the country to stop pollution?
    No, it's just the operations of a proper free market, as opposed to the *******ised corporatist version we have today. Taxpayers should by no means be expected to bail out the risk-taking of big businesses. If nothing else, it introduces a moral hazard where bankers have every reason to think "if I screw this up the government will probably help us out".

    There were banks which did not have sketchy business models and which did not need government money. They should have had the chance to take the place of their poorly-run competitors. Instead we have the likes of RBS still knocking around, making losses and generally performing poorly.
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    (Original post by Rinsed)
    Taxpayers should by no means be expected to bail out the risk-taking of big businesses. If nothing else, it introduces a moral hazard where bankers have every reason to think "if I screw this up the government will probably help us out".
    Agreed to a point. Except those risk taking businesses also happen to provide services upon which we can not do without. Like I said above, can you imagine the roads being handed to banks who take risks, go out of business and then we can't use the roads? It just would never be allowed to happen. Same with the banks. The only problem at the time is that no one thought it could ever happen. And it did.
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    (Original post by Rinsed)
    Ordinary banking customers' balances should have been guaranteed, but otherwise if they were insolvent they should have been liquidated.



    No, it's just the operations of a proper free market, as opposed to the *******ised corporatist version we have today. Taxpayers should by no means be expected to bail out the risk-taking of big businesses. If nothing else, it introduces a moral hazard where bankers have every reason to think "if I screw this up the government will probably help us out".

    There were banks which did not have sketchy business models and which did not need government money. They should have had the chance to take the place of their poorly-run competitors. Instead we have the likes of RBS still knocking around, making losses and generally performing poorly.
    Who's not an ordinary banking customer?

    And how would the cash have got to the ordinary ones?
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    This may be a short-term situation until Brexit, for which we will be paying until 2064.
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    (Original post by KingHarold)
    This may be a short-term situation until Brexit, for which we will be paying until 2064.
    I doubt there will be an EU to pay in the 2060s.
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    (Original post by Jammy Duel)
    Figures released yesterday showed the first current surplus since 2001 with a £3.8bn surplus in calendar year 2017. While it is still the case when including capital expenditure that there is an overall budget deficit, day to day spending is lower than tax revenues.

    This furthers the blow to Keynsian thinking with analysts putting this down to the decision by the 2010-15 coalition government to cut spending rather than increase taxes, with the two countries that took this approach (Uk and ROI) showing much stronger results than Europe as a whole.

    https://www.telegraph.co.uk/business...osborne-right/
    I maybe wrong however these figures dont include the debt from PFI so we're not necessarily self sufficient

    I dont see how this can somehow be used to undermine keynesian thinking. Increasing taxes would have done the same thing (bear in mind we did increase VAT, a regressive tax) and at least that way the poor wouldnt have been hit so hard.
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    (Original post by paul514)
    I get your point however two things come to my mind.

    Debt is 85% of gdp and the government wants it below 60% before the next recession.
    However debt peaked at 35% pre crash.

    Second thing is who decides what is an ok debt to gdp ratio is?
    Obviously a good one is as close to zero as possible but places like japan and China have double their gdp in debt.
    For me that begs the question is there a new normal?

    I’d argue at this point I couldn’t care less what debt went up to as long as what it was spent on had an ROI
    Around 90% is acceptable, beyond that and Debt is said to take a hit on economic growth
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    (Original post by DeBruyne18)
    Misleading headline.

    It doesn't include capital expenditure and it is two years after it was promised.

    You also haven't provided any evidence that we would have grown slower had we adopted a Keynsian model like Portugal did, whose economy has grown far faster than out own.

    I do like the fact that the media have barely touched this story.
    Yep. We're far from a true budget surplus, the telegraph continues to peddle the conservative utopia
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    (Original post by 04MR17)
    There we go.:yy:
    Even as a left-winger, I say it is reasonable to look at the budget surplus/deficit from the perspective of day-to-day non-discretionary spending (healthcare, education, defence, etc) and not to include capital expenditure which, essentially, pays for itself in the long-term.

    Corbyn / McDonnell are using precisely that method of calculating government finances; they say that Labour would keep the country in surplus in terms of non-discretionary spending while capital expenditure would be considered outside the normal budget because it pays for itself in the long-term; it is an investment in the economy, as it were.
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    (Original post by Quady)
    Who's not an ordinary banking customer?

    And how would the cash have got to the ordinary ones?
    I notice that you rarely make actual arguments. You post these sorts of nitpicky questions and 'gotcha' type points with all the aplomb as though you've just pointed out some profound flaw in my logic. And then, what, you wait for applause? I can only assume you think this makes you look clever.

    If the bank were liquidated, retail investors rank above all other creditors. There are well established procedures for making sure creditors recover as much as possible of their investment in the event of a liquidation. Furthermore, the government was prepared to guarantee balances up to £85,000. Of course I think you probably knew all that.
 
 
 
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