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Archive for August, 2012

War Debt! Huh! What is it good for?

Gosh, I’ve neglected this, haven’t I? This is part of the general crisis of confidence that makes up my life, so don’t worry.

So, a short thing about debt. It’s commonly bandied around that the UK, thanks to Labour’s profligacy, is the most indebted it has ever been.

It’s technically true that the UK holds an astounding amount of debt; something in the order of 492% of GDP. But what is elided here is that it is mostly private-sector debt, largely due to the financial sector’s very large role in the economy, and the recession caused by the crash. Labour may, indeed, be partially responsible for that by looking the other way whilst the real-estate bubble continued to grow, but then, so did everyone else. Does anyone really believe that the Conservatives would have introduced and enforced the kind of regulation necessary to prevent the bubble? Then look over here, I’ve got a rail franchise to sell you.

The argument that’s being made, though, is that Labour spent too much money and that is what has done for us. Bear in mind that the current level of net public debt is something like 60-65% of GDP, a piddling amount in comparison. This is argued to be an incredibly high level of debt which will lead to default, misery, and the ruination of everything we hold dear, especially your granny.

Except this is what debt was like from the beginning of the 20th century to the present day:

How bloody tiny does our “Debt Bombshell” look!

The next fallback is that it only during wartime that we ran up so much debt, so there were special circumstances that are unrepeatable now. This is true, up to a point: part of the reason the WWII spike is so high is that the US was lending the UK shedloads of money in order to keep the UK viable. It’s unlikely the same would happen today, in these austere times.

But here’s debt from the interwar years, 1918 to 1939:

Debt remained well over 100% of GDP throughout the inter-war years, yet strangely enough, there was no massive debt default. Why was the debt so high? Because of a long, miserable depression from 1918-1936. The UK never had a Roaring Twenties, just a horrible, grey 18 years. There may be institutional reasons why the UK was able to run such a high debt; it was the centre of the financial world, after all, and as a highly developed nation no doubt creditors were willing to give it the benefit of the doubt. Much like today, when the markets are basically saying “Dear God, why aren’t you spending money! Spend money now! Today! Please!”

But, of course, that kind of market signal just isn’t what we’re looking for, is it?

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