A few people have asked why don’t government’s just default and not pay their debt back? Firstly, a government could effectively default just by printing money, creating inflation and making it easier to pay debt back. But, if the government does create inflation (print money) to pay off its debt or simply refuses to pay, …
Readers Question: Indicate the problems which are created for the government’s finances as a result of having to help avoid an even deeper recession. In a recession, automatic fiscal stabilisers automatically cause a rise in borrowing. The UK recession hit tax revenues hard. Income tax receipts fell as top earners were made unemployed. Corporation tax …
Most western economies are facing the prospect of record peace time government debt levels. The EU Maastrict Criteria stated that the maximum budget deficit member countries could run is a budget deficit of 3% of GDP. (By the way, I am glad this target for government borrowing has not been enforced. That would have been …
An interesting graph showing relationship between the output gap and levels of government borrowing. A negative output gap indicates GDP is below full capacity and there is unemployed resources. Therefore, in a deep recession, like 2009, the output gap will rise. In a boom, we will have a positive output gap as firms struggle to …
Readers Question: I would like to know more on the issue of who exactly benefits from the UK national debt that my great grandchildren are going to be paying. It is helpful to think of the three aspects of the government debt Structural deficit – related to above inflationary increases on health and education and …
Readers Question: Why do the Government often fail to achieve its main objectives of high economic growth, price stability, and a surplus on the balance of payments. Other objectives worth adding are low unemployment, low government borrowing and maybe stable exchange rate. Looking at the current climate of the UK economy, the government is only …
Readers Question: How can a smaller government fiscal deficit cause a larger international trade surplus? A smaller fiscal deficit means the government is reducing its borrowing. Therefore tax revenues must be increasing faster than government spending. A trade surplus means that the value of exports is greater than the value of imports. Suppose the government …
Readers Question: Why are future debt commitments, pensions, PFI repayments, Northern Rock, et al, not part of the National Debt? The treasury must do cash flow projections (?) to calculate how much income it needs. Don’t these factor into the calculations? It is a good question. A while back, The Institute of Fiscal studies produced …