I can’t believe the stupidity of Ed Balls (Labour Shadow Chancellor) in the comments he made today to Radio 5Lives Dominic Laurie. I can only assume that Dominic was not in the same room as the wantwit Balls, otherwise he surely would have chinned the puttock!
Ed Balls’ assertion that the nation’s borrowing under the previous government was not troublesome, beggars belief. He told listeners (in response to Dominic’s very worthwhile questioning) that the only “real” way to assess national annual borrowing (the deficit), was as a percentage of the Nations “Gross Domestic Product”, and as such our historical borrowing was low compared to other leading economies.
Tosser!
The analogy he used too demonstrate the situation this Nation finds itself in today, was to suggest that an individual who had an annual income of £10,000 and found themselves at the end of the year with a credit card debt of £1,000 would be right in the ordure!
But someone with an income of £50,000 a year with a similar £1,000 on their credit card would only be ankle deep!
And there we have it! Those two simple sentences, spoken by a man who has for fifteen years skulked in the corridors of power, shaping this country’s fiscal policy, acting as an adviser on all matters monetary, with a voice in the ears of Tony, Gordon and Alistair, demonstrated his total lack of comprehension of the people’s horror at our economic situation.
His assertion is this: Greece as a country with an income of a modest nature, can not be trusted to borrow money; whereas Britain, with our more affluent resources, can.
If someone has an annual income of fifty thousand pounds, but spends all of it, plus a thousand pounds each year, they are no different to the man who has an income of ten thousand pounds and spends eleven thousand!
(However, if you were to ask someone in the city to bet on which of the two is most likely to pay back the £1,000 borrowing, then you’re into derivatives! That is a topic for another day)
There is a major fault in Ed’s argument!
His comparison of this Nation’s annual deficit, to that of a credit card bill, has to be qualified by a simple statement of fact. In the last fifty years this country has not been able to pay off any of its “credit card” debt.
We have for fifty years only ever paid the monthly interest on our national credit card bill.
Each government in turn over the last fifty years has been forced to acknowledge that our credit card borrowing has been unaffordable, and has had to resort to transferring it onto the country’s mortgage account, and as each year passes the interest on that debt increases to a point when one day the interest payments alone will be the whole amount of government borrowing!
There is one further horror that should not be overlooked in Ed’s bold accounting procedures. His claim that “national borrowing is low by comparison to the country’s GDP” needs to be examined.
Figures that he quoted in his interview gave the GDP as £1.533 trillion. Government borrowing over recent years has been in the region of £150 billion - 10%.
However government predictions of borrowing levels are usually quoted as being in the region of 5% of GDP because the Treasury does not include government annual spending of £890 billion in its calculation of GDP.
But GDP is the combined economic activity of the country and works like this.
A council worker has a take home pay of £1,000. He decides to have his bathroom improved with the addition of a shower, and so gives me the £1,000. I go to the bathroom shop and buy £600 of shower screen and fittings. Steve in the bathroom shop sends £450 of this to his suppliers, and uses the remainder to buy his weekly shopping in Tesco. Tesco use that money to pay the wages of the girl on the till who served Steve, and she spends some of it having her hair done, some on a new outfit and the rest on a night out in town.
For my part I use the £400 I have left to fill up the van for £60, similarly go to Tesco for the big food shop and part with £180, get a few other bits and pieces from Jewsons for the job, at the ridiculous cost of £60, and squander the rest on a good night out in the pub on Saturday.
Dave the Publiican uses the hundred quid I put over the bar, to buy the crisps and peanuts from the crisp man, and puts what’s left towards Becky the barmaid’s, wages.
So £1,000 of government borrowed spending, (which is not included in the GDP calculation) is responsible for a total of £3,000 of the GDP figures without looking beyond Steve’s suppliers, the crisp man, Becky the barmaid, the girl who served me in Tesco, Jewsons paying for the things I had from them, the petrol station paying its suppliers and so on.
If any of us went into a bank and asked to take out a mortgage and tried to use such a system of calculate the monthly cost of the repayments as a proportion of our disposable income we would be laughed out of the place.
But this is how economists see the world we all have to pay to live in.
The United Kingdom's debt currently stands at £1.4 trillion, or £1,400,000,000,000.
According to George Osborn, the yield on UK Gilts is 3.6% costing us an annual “interest only” bill of £50.4 Billion
[Owing to Dave’s Tourettes, expletives in this blogpost have been customised by Charlie without Dave’s express consent. However, she considers the word bollocks to have had its case proven in court by John Mortimer QC on behalf of the Sex Pistols.]
