debt

How important is the budget deficit?

How important is the budget deficit?

Readers Question: how important is the budget deficit? The budget deficit is the annual amount the government borrow. The government usually financed the budget deficit by selling bonds to the private sector To libertarian and free-market economists, budget deficits are liable to cause significant economic problems – crowding out of the private sector, higher interest rates, future tax rises and even potential of inflation. However, Keynesian economists are more sanguine arguing that in an economic downturn, a budget deficit plays an important role in stabilising economic growth and limiting the rise…

UK Government spending – real and as % of GDP

UK Government spending – real and as % of GDP

In 2015/16 the UK government is forecast to spend a total of £753 billion.Source: HMT public spending statistics (May 2017) Also see: HM Treasury PESA (released 21 July annually Real term trends in public spendingSource: HMT public spending statistics (May 2017)    UK Pension spendingMore details on pension spending. Government spending as % of GDP

bond-yields-net-debt

Does Government Debt Matter?

Readers Question: Does Government debt matter? Do high fiscal deficits threaten economic stability? Summary Many worry that high levels of government debt could cause economic instability. In certain occasions, countries with high debt have seen investors lose confidence, leading to higher bond yields and putting pressure on the government to slash spending, for example, several countries in the Eurozone (2010-12). In rare cases, governments with high debt have responded by printing money – causing inflation to spiral out of control, for example, Germany in the 1920s. Another potential problem is when…

Government debt under labour 1997-2010

Government debt under labour 1997-2010

Government debt under Labour was a major factor in the elections of 2010 and 2015. But to what extent did the Labour government really plunge the economy into debt during 1997-2007? Usually, when people say ‘it’s debt that got us into this mess’. They tend to view all types of debt as the same – equating government debt to financial debt incurred from selling sub-prime mortgages in the US. However, this is deeply misleading. The consequence of bad debt defaults in the financial system is very different to government debt…

Can Labour be blamed for the economic crisis?

Can Labour be blamed for the economic crisis?

Readers Question 1. Can Labour be blamed for the economic crisis (i.e. did they really ‘overspend’)?  My view is that the global economic crisis is to blame, and that Labour could have spent less but that this is easy to say with the benefit of hindsight. I don’t think there is any economist who would try to blame the global financial crisis and global recession on the fact the Labour government increased spending on the NHS / education by a relatively moderate amount. The global recession of 2008-13 was caused by…

Consequences of budget surplus legislation

Consequences of budget surplus legislation

Readers Question: Can you explain the short-term and long-term effects of Osborne legislating that there must be budget surpluses in any year when growth exceeds 1%, which is almost every year, whilst we have a rather large current account deficit. What will be the effects of this on private sector companies, public investment, households, the current account deficit, pensions and ultimately the banking sector. Running in a budget surplus means government spending must be lower than total government receipts (primarily tax revenues)

UK debt held by foreign investors

One of the most common questions asked is, who owns UK National Debt? Often  people assume that UK government debt is owned by foreign investors. However, foreign investors only hold about 25-30% of UK government debt. The rest is held by the UK private sector (pension funds, insurance companies e.t.c). Recently, the Bank of England has also been purchasing Gilts under the Asset Purchase Scheme. In the past few years, the proportion of UK government debt held by overseas investors has been about 30%. A different, but similar, concept is

Why Can Japanese Government borrow at Low Interest Rates?

Why Can Japanese Government borrow at Low Interest Rates?

Readers Question: After the insightful post on ‘Italian Economic Decline’, I was particularly captured by the % debt to GDP line graph of the different developed countries. The one thing that really caught my eye was Japan’s huge % debt to GDP and yet their government bond yields are consistently declining. Aren’t the markets worried that Japan may default on their debt someday or is the fact that they have a lender of last resort (no fear of liquidity problems) unlike Italy and their 0% interest rates shielding…