Reply to post: Re: Impulsive voting

NEVER MIND the B*LLOCKS Osbo peddles, deficits don't really matter

I ain't Spartacus Gold badge

Re: Impulsive voting

Pointing out to these people that the coalition had actually increased the national debt more in their term of office than the previous three administrations combined was met with general disbelief

This is a pretty dishonest argument though, in that the trajectory of national debt was set during the administration of the previous government - and short of insane levels of cuts, as were enforced on Greece with utterly disastrous (and utterly predictable) results the coalition was only ever going to have a limited effect on the total debt.

On the other hand though, many people don't seem to get the difference between debt and deficit. Including some politicians seemingly. Many people when asked at the beginning of the last government apparently believed that Osborne had pledged to eliminate the national debt by the end of this Parliament, not the deficit. But I am suspicious of those kind of surveys, like when the Daily Mail tries to ramp up the shock with 20% of teenagers don't know who Adolf Hitler was / can't point out the UK on a globe, etc. Whereas I suspect the real meaning of those surveys is that 20% of people couldn't be bothered to answer a silly question.

I slightly disagree with Tim on the point of the article though. That report with the Excel spreadsheet error still seemed to show a correlation between economies with lower growth and those with debt-to-GDP ratios over about 90%. Although correlation is not causation - so it could as well be said that dysfunctional economies run up large debts.

But trajectory matters. Running deficits around 10% of GDP is dangerous. That kind of money mounts up really quickly. When the Conservatives had to re-write their entire program for government in 2009 - they had no way to predict that interest rates would still be so ridiculously low 6 years later. I mean there was a good chance that they wouldn't be shooting up, as growth and inflatoin might be expected to be rare commodities after such a nasty recession. But it would he horribly reckless to not worry about interest rates on government debt jumping - and it could then start getting seriously expensive to service the national debt. Congratulations are due to the Treasury under Gordon Brown here, for pushing out our government debt maturities to much longer periods than any other country during the last boom. Thus locking in the low interest rates on offer at the time, and making this period much easier for us now.

I've changed my opinion on the risk of the bond markets turning against us. I thought it was reasonably likely in 2010, without some action - but on watching the Euro-crisis unfold and how willing people continue to be to lend money at insanely low rates - even though the risks are both historically high and impossible to properly calculate. Personally I feel that there's more than a 50% chance of Italy having to partially default. Their debt is rising, their economy is stagnant, their population is falling and they're in a fixed exchange rate system at the wrong rate, with a political system that makes serious reforms all but impossible. Yet they're paying under 2% with a debt to GDP ratio of around 136%, and rising by 4%-5% a year. Oh and almost all the Italian opposition parties are now committed to a Euro referendum, and campaigning to leave.

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