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Oct 172013

With apologies to all drunken sailors who will no doubt resent – quite reasonably – being compared with a dysfunctional government.

The big news today (and yesterday – different time zones confuse these things) is that the US government has grasped just a bit of sanity and has stepped back from the abyss. Well most of them did, but the lunatic fringe of the Republican party (also known as the Tea Party) still persisted in trying to block the government from doing any work and paying any debts it owes.

But it is only temporary, and unless some more sanity returns to US politicians, we will get to see this mess repeated in January.

Ultimately this is all the fault of a fanatic wing of the Republican party who believe it is their right to undemocratically block the government budget until their favourite hobby horse is taken care of. Obamacare. Whether it is a good or a bad thing, it is a done deal, and it is undemocratic to try to sabotage it without first giving it a chance.

Yes the US has too much public debt, but too much is made of the so-call US ‘debt crisis’. The overall figure is immense to be true – so big that it is impossible to understand; so big that we have clever means to make it understandable, and to understand it in terms of affordability. If you look at the US debt as a proportion of GDP (in other words how affordable it is), you will see that the US is in 35th position (according to CIA figures) with a figure of 73.6% of GDP. Or 9th position (using the IMF figures).

Not a good position certainly, but hardly a basket case.

Now there’s a great deal of sense in reducing US government debt, but not in this way. Simply by stopping US government cheques would cause a catastrophic effect on the US (and world) economies.

Perhaps those with a vote in the US would like to remember this when it comes to voting next time. Your current set of politicians look dangerously dysfunctional; even in comparison to politicians in other countries.

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Nov 182008

Today the leader of the Conservative party David Cameron spoke on economic policy and went on again about the level of government debt in the Uk. He is quoted in a BBC article as saying Britain was different from other nations because public debt levels were already very high; in fact you can play the video and find that he believes that Britain already has “the biggest budget deficit in the modernised world”. Well perhaps, although it is clearly an attempt by the Conservatives to reclaim the “party of low taxation” banner and frighten the public with talk of a “borrowing binge”.

So shall we take a look at Britain’s public debt ? It is currently at the level of around £660 billion which sounds like a huge amount (and is). It is also around £11,000 per head of Britain’s population. Now lets look at Germany which has a debt level of around €1.5 trillion, or around €19,000 per head of Germany’s population. This comes out to £16,010 per head thanks to Google’s currency converter, or £1.27 trillion in total. I guess Germany is not part of the modernised world which might come as a surprise to the Germans!

Now the US; On 30 September 2008, the total U.S. federal debt passed the $10 trillion mark for the first time, with about $32,895 per capita (cut&paste from the Wikipedia article). This converts to about £6.66 trillion pounds in total and £21,900 per capita. It seems the Conservative party has trouble doing basic arithmetic with such large numbers.

Or perhaps they are being sensible and looking at public debt as a percentage of the size of the economy. Expecting an unsuccessful politician to be sensible is little unrealistic, but hey! I’ve been wrong before so I could be now. Looking at public debt as a percentage of GDP (a kind of measurement of the size of the economy) is a far better way of doing it, as we do not get distracted by all those zeros and is basically what the banks do when deciding how big a mortgage we can get (the old rule being up to three times the yearly income).

The CIA has an interesting table giving the level of public debt in terms of percentage of GDP for the year 2007. The UK is listed at position 50 with a level of 43% of GDP. Lets have a quick look at the big names above the UK in the list :-

  • Japan is listed at position 3 with 170%.
  • Italy is at number 7 with 104%
  • Germany is at number 20 with 64.9%
  • France is at number 22 with 63.9%
  • and the US is at number 27 with 60.8%

Does not seem quite so bad really does it ? Wait! The UK debt has risen considerably since 2007, so we should recalculate the level of debt for a later time. Fortunately the UK National Statistics department have an update for September 2008 showing public debt was at a level of 43.4% of GDP which would still leave us at position 50 in the CIA’s table. Even if we recalculate using the latest debt figure (given above as £660 billion) we get to around 44.4% of GDP which is a pretty big increase, but would still leave us at position 49 in the CIA’s table.

Interestingly the National Statistics page I referred to (here is the link) also gives us the highest percentage of GDP that the UK public debt level reached – 44.2% in 1997 when the last Conservative government was in control.

It seems to me that at best the Conservatives are scare-mongering with talk about huge tax rises to combat spiraling public debt at record levels. That is not to say that public debt is not a concern, but I think we have a fair way to go before we reach the levels of some other modern economies which are still reasonably successful. Of course public debt has to be repaid eventually, but some of that public debt will be repaid by the banks that have been bailed out and by eventually selling off Northern Rock (at a considerable profit I hope).

Of course I could be totally wrong about the level of UK government debt, and perhaps we do have the largest public debt in the Western world, but I cannot see the evidence for it myself. Perhaps someone could point me in the right direction?

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