The Vicious Cycle of Debt

The UK loses its AAA rating but no-one is really surprised other than by the timing. The pound has started to fall already which is no surprise but it will start to raise the cost of the fuel we put in our cars (and for those who use oil to heat their homes) as oil is traded in US dollars. The government will also start to see a change as there will be an increase in the cost of borrowing the government has to make to keep the country going (the bonds we keep hearing about). The changes may not be huge but given the numbers we are talking about they will ultimately make a difference. Given that the UK's debt is currently running at 68% of GDP the interest payments alone are eye-watering and will only get bigger (it wasn't that long ago that a figure of 42% was considered high but the norm!).

More debt to pay back, increased costs of getting loans and the cost of energy rising. These are just three direct impacts of the downgrading from AAA status. Unless drastic measures are taken this won't be the only downgrade. Government debt needs not only to be cut it needs to be got rid of completely - now there's a vision we don't hear politicians talking about much. The power is currently with the financial institutions who the country owes so much money. Think of the situation in China or the Middle East where it's the other way round, where countries are cash rich. 

Cut public spending, slash bureaucracy on businesses and encourage exports - it's the only way ahead.

The Debt Keeps Rising

The UK Chancellor of the Exchequer has admitted that the government over-estimated by some £64bn the amount of revenue it would take in when it put together its forecasts back in 2010. No-one has a crystal ball and no-one would expect really accurate figures but £64bn is an awful lot of money to have to find. Oh yes and we need to add that to the £375bn of Quantitative Easing, a.k.a. money printing, that has happened. Politicians are forever playing games and we all know that all they want to do is get re-elected so why would they come out and be realistic about what is owed - wouldn't it be good if some of them did once in a while?

£64bn short in the coming years and only paying off the interest on the £375bn of QE isn't a healthy position to be in. No-one is ever advised to just pay off the interest on their credit cards and certainly not to take a cash advance on one card to pay off the interest on another so why is the government playing such a game with the country's finances? I guess the answer is because they can and the cynic in me thinks that by constantly pushing the problem out to the right it'll be someone else's problem to deal with and those responsible will be picking up 'nice little earners' advising some financial institution or other how to make money out of the government of the day.

The UK Put Austerity On Hold During 2012

So many countries around Europe are feeling the heat of really deep cuts in government spending and people losing their jobs because no-one has the money to keep their consumer led economies going. Up to now the UK has talked about austerity measures and a recovering economy but in comparison to Greece, Spain, Portugal and Ireland the UK is just fine. So why is this? It can't be down to the UK not having the Euro as it's currency as many small minded politicians would have people believe. 

For those who love conspiracies this may sound like common sense, for everyone else it will probably feel very uncomfortable. There was no way the UK government was going to allow the country to suffer the economic pain seen by others during 2012 for two simple reasons - the Queen's Diamond Jubilee and the London Olympics/Paralympics. The rest of the world couldn't see a country of the stature of the UK struggling while staging such significant events. The long-term reputational damage would have been catastrophic.

So what happens next? Well, let's hope for the long-term benefit of the country the cuts start to hit and people start to notice. The danger is that the politicians now believe their own spin and will continue down the same slippery slope hoping to win back their 'jobs' at the next General Election.