Carry on is not an option

Britain\’s public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission.

OK, this is the EU speaking, but still, pretty scary. Carrying on simply isn\’t an option.

So what are the options?

Attempts to bring the debt down by a spending squeeze can prove counter-productive because lack of growth itself drives the deficit higher. \”Once you get there your trapped,\” he said.

To which of course we\’ll have the cry of \”raise taxes\”!

But raised taxes constrain growth as well.

So what exactly can be done?

8 thoughts on “Carry on is not an option”

  1. Ambrose EP laid out the options a little while ago:

    1. Liquidate the individuals and companies where debts exceed assets. Not going to happen: would lead to revolution.

    2. Severe cuts in spending and also tax rises. Severe pain and social unrest from those who lose.

    3. Let inflation deflate debts. Will cause gilt strike and interest rates to rise rapidly. Indirect pain spread out. Easiest political option.

  2. I agree with the above options and think that No 3 is the most likely scenario.

    BUT I think the most likely way for inflation to come is not via a general rise in prices, assets and wages (as in the 70s) but via a catastrophic collapse in the pound which would raise prices, possibly assets, but NOT wages. We would all become much poorer.

    Which if you think about it is the only possible outcome of this current mess.

  3. The only sensible option is a massive cut in public spending, which guarantees that some other option wil be taken.

  4. One really needs to know a few things before deciding how serious the problem is, such as what % of debt is held by foreigners and what % of current deficits are held by foreigners. Also what GDP growth predictions are in the Commission’s study.

    It’s funny how just a few years ago deficits were describe as showing confidence in the debtor, now they’re the worst thing in the world.

    Btw, one way you can cut spending without being deflationary is foreign spending. The most obvious here is defence commitments abroad and a large chunk of Trident’s replacement.

  5. “Hmm. It’s Evans-Pritchard, without any real sources cited, so it’s scaremongering bollocks. Nothing to see here…”

    Since you went with the ad hominem attack let be reply with a pro hominem and say that AEP has had a pretty good record of predicting the evegts of the meltdown. I’ll take his forecasts over those if the Treasury any day.

    Oh, and he does cite his sources.

  6. >Attempts to bring the debt down by a spending squeeze can prove counter-productive because lack of growth itself drives the deficit higher.

    Fallacy right there, in the assumption that less government spending means a lack of growth.

  7. @KT no he doesn’t. “an official” and “a secret report that you can’t see” are exactly the same as “some shit I made up”. Citing sources would mean “Dave Bloggs” and “This EU report available at this link”.

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