[quote author=refugee link=topic=46360.msg1377470#msg1377470 date=1312991384]
[quote author=singlerider link=topic=46360.msg1377461#msg1377461 date=1312990820]
[quote author=Krump link=topic=46360.msg1377458#msg1377458 date=1312990583]
Yay. Let's borrow another 20% of GDP this year, next year and the year after with no way of ever paying it back, so that by 2014 we'll have 140% debt to GDP! It's not unprecedented! The answer to debt is more debt! The interest payments will double to 100 billion a year in three years! It doesn't matter!
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The way of paying it back is by earning more money.
We earn more money by growing the economy.
Economic growth = sustainable borrowing.
Austerity = no economic growth.
Therefore austerity = we're fucked.
I don't see what's so hard to understand here Krump, you're an intelligent lad
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I'm no expert, but surely this will only work if the money is staying in the economy. At the moment we are importing a lot more than we are exporting (
http://www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=219&More=Y) which means that the money is leaving the country and not coming back into it lessening the so called economic multiplier effect of government spending. This is unlikely to improve given the state of the manufacturing industry.
Additionally haven't we just witnessed years of growth whilst the debt continued to grow. Overspending has created false growth that can only be sustained by more overspending.
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The balance of payments is a valid concern, something we should rightly be perturbed about but something that we can address by focusing on exporting high value products rather than trying to compete against China etc on mass produced stuff. They'll kill us all day on that shit, but we are more advanced in other areas and we need to use this to our advantage. Personally I think we still have a good engineering sector, we've got strong skills in some of the creative shit like computer games, if we can step those kinda things up a bit then maybe we can start to balance things out a bit. However, yes - the manufacturing sector is a little worrying as is our reliance on the financial sector.
However, the years of growth = increased debt doesn't wash. In fact from 97 onwards it actually started to drop, and then we kicked off in Iraq and that kind of scuppered that.
[quote author=Sunny link=topic=46360.msg1377472#msg1377472 date=1312991446]
I'm struggling with something here though SR. If you have a debt you're beginning to struggle with then you essentially have two ways to make it easier to pay off. One is make more money and the other is to essentially tighten your belt so it's easier and more affordable to pay off. What you're saying here is it's easy to make more money - all you have to do is get more debt and the money will come rolling in. That seems a pretty risk fraught approach to me and much more loaded with risk than taking an austerity approach. The austerity approach however you're saying means actually you'll earn less so the debt repayment issue becomes worse. So it seems to me you're fucked if you tighten the belt but if you take a massive risk then life will become much easier although there's the massive risk if the promised growth doesn't appear..
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Not exactly what I'm saying Sunny - and this is the danger of using our own personal spending habits as an analogy for the spending habits of the country. Microeconomics and macroeconomics don't work in the same way. As an individual, the sensible thing to do when you've got no money is cut back and spend less, miss out on the little luxuries and generally tighten the belt.
So, when the whole country is feeling the pinch, that's what happens - everyone spends a little less, every business stars to make a little less money cos people aren't out there spending money, gradually the money supply in circulation starts to dry up a bit, businesses go bust, people don't get pay-rises, everyone has a little less money.
Because people have less money, they spend less. People spending less = businesses taking less = more lay-offs, less rises etc.
Can you see the vicious circle that is developing here?
What needs to happen is something to break that cycle. Ideally something to give a boost to businesses and people alike, something that increases confidence and spending.
The government can do this by enacting a large scale stimulus package that encourages growth, creates jobs and pumps money into the economy. Alternatively it can try and stimulate the economy by directly injecting money into it - quantitative easing (not without risks).
What this means is that - as counter-intuitive as it seems - when each of us as individuals are (wisely) spending less, the government should do the opposite to balance things out
