And So It Goes…#740


The Commentariat,let alone government ministers and their spin doctors, talk about the operation and workings of the capitalist economic system as if it were some esoteric mystery religion.And given the average attention span and genuine lack of interest / engagement amongst the general public in what appear to be such weighty matters ,it comes as no surprise that the High Priests and Acolytes of Capitalism ( capitalist economics,the capitalist system et al ) get away with basically spouting gibberish on all matters to do with economics. Gleaned from the Daily Telegraph the other day,this rather neat little precis about National Debt,borrowing and the basic functioning of capital markets. Please take especial note of the opening paragraph. –

Another option is to inflate away the nation’s debts. By increasing the amount of money in supply, debasing the currency, and in turn stoking inflation, the Government’s debts can be rendered meaningless.

However, very high inflation has other costs. It can make doing business very difficult, as prices are constantly adjusting, and also wipes out the value of savings. As such, episodes of “hyperinflation” have often been both socially and economically destabilising. Inflating away a nation’s debts is considered a last resort.

It also requires that you are able to issue your own currency. The UK is lucky in this regard; it means it can always avoid defaulting on its debts if it desires.

Eurozone members are not so lucky. Printing money was not an option for Greece, which instead had to go cap in hand to the International Monetary Fund (IMF) and other creditors.

Is the national debt a problem?

While the outstanding size of the national debt in cash terms may appear alarming, the financial markets, and few economists, are likely to pay attention to this headline figure.

More concern is paid to the national debt’s size compared with the size of the economy, or the nation’s gross domestic product (GDP).

As a share of GDP, the national debt is expected to fall from 83.1pc in the last fiscal year to 82.5pc by the end of the current one, in March. According to the OBR’s latest forecasts, it will continue falling, to 71.3pc by the end of 2020-21.

We can also look at what investors think. If they believed that the Government was in a bad position, with debts so great that it was likely to default on them or that there was a risk it would inflate them away, then the yields paid on UK sovereign bonds would be high.

That is because money managers would demand a high return on the money loaned to the UK government – this is in effect what a bond is, a loan from an investor to the government – in order to compensate them for the risk that they will not be paid back in the future, or that they would be paid back in a devalued currency.

At present, there seems to be little cause for alarm on this metric. Compared with other countries, the return bond holders demand to own a 10-year UK government bond is low, with yields at around 1.6pc. This compares with 1.9pc on an equivalent US Treasury bond.

The yields demanded on the bonds of more imperiled nations are far higher, as often they cannot print the currencies they are issued in. Mexico’s US dollar bonds deliver 4.1pc, Colombia’s 5.3pc, and Brazil’s a staggering 6.8pc.

How can high government debts hamper economies?

Very high Government debt can slow your economy right down.

Borrowing can crowd out other investment, as investors loan their funds to the Government, rather than to private sector borrowers.

Academic research looking at the US has found that raising the Federal deficit may have adverse effects for businesses and households. It can in turn reduce private sector investment, economic growth, and employment.

Large debts may also require higher rates of taxation to pay for them, limiting the Government’s ability to cut taxes and stimulate the econmy. One study found that in the UK, a 1pc cut in taxation has tended to stimulate GDP by 0.6pc on impact, and by 2.5pc over the following three years.

There. that wasn’t too bad,was it. Not too technical or esoteric. In summation therefore what the Opponents of this entire Ruling Elites’ instigated,manufactured and driven game of charades need to bear in mind is,as per the opening paragraph previously flagged up. “Another option is to inflate away the nation’s debts. By increasing the amount of money in supply, debasing the currency, and in turn stoking inflation, the Government’s debts can be rendered meaningless.”

Rendered meaningless. Stop accepting the dominant narrative.Opposing and organising to ultimately unseat the Ruling Elites and smash their capitalist system means constructing and promoting an alternate narrative. In the same way that on June 23 this year here in the UK,formerly ” great ” britain,the electorate has the opportunity to assist in the re-writing of History, to render meaningless the EU and so restore the beginnings of a different narrative in the history of the Long March of Everyman.

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