The economic cycle plays an important role in determining the level of government borrowing, especially in the short run. Essentially, higher economic growth leads to lower government borrowing, but a recession will increase government borrowing. Over the past few years (2008-12) – the idea that an economic downturn increases government borrowing is probably one of …
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 …
Readers Question: Why are there government spending cuts at a time of rising government spending? One of the confusing elements of ‘austerity’ and government spending cuts is that from one perspective, we can have a rise in total government spending – but some areas of government spending see cuts. Source: ONS Public Sector Finances MF6U …
Readers question: Does the government determine the interest rate for their bonds? The government finances its debt by selling bonds on the open market. (in the UK they are termed gilts) In the UK, government debt is managed by the UK Debt Management Office DMO. They sell gilts on behalf of the government. Initially, they …
Readers Question. I greatly appreciate the time that you took to try to explain our debt situation. (History of National Debt / GDP) One thing that still confuses me is why our debt actually rose during a sustained time period where debt/GDP charts showed that it shrank. This is very important. (and I wish those …
There are a raft of different methods of calculating government debt. It can be a little bewildering (even for an economics teacher!). I have tried to define the key terms in a simple format and also a more detailed and precise way. This only focuses on the UK. Defining Public Sector Debt Simple Way: Government …
How has the coalition government fared on its economic policies? Firstly, there are quite a few paradoxes. Ignore own promises. The first paradox of the coalition government is the best thing they did was to ignore their own advice. When they came to power, they promised spending cuts, austerity and a balanced budget within a …
Firstly, I thought it might be helpful to talk about the different types of spending cuts that people refer to. An actual cut in government spending. e.g. one year we spend £39bn on defence, the next year that is cut to £38 bn. This is a nominal cut of £1bn. The real cut will be …