Well, yes Seumas

The IMF has argued Britain could afford to raise its debt by 50% of GDP without triggering a crisis.

That might be perhaps just a little lenient, but let\’s run with that shall we?

So, our current budget deficit, that is, the amount we add to the national debt each year, is some 10% of GDP.

This means that we can continue on the current budget trajectory for a maximum of five years.

Now, from what I remember of the various speechifying, the current government says that it\’s trying to get that deficit under control in four years.

I\’m not hugely convinced that leaving a 12 month gap before \”crisis\” is being overly harsh really. Sounds like a reasonable sort of buffer actually.

Maybe, even, that the current government\’s actions are informed by that IMF statement?

6 thoughts on “Well, yes Seumas”

  1. JustAnotherTaxpayer

    No, not good maths Tim.

    This is from am IMF report in 2010 where they said we could increase net debt to 140% of GDP without issues.

    It is currently 60%, the Osborne plan has it rising to 71% then falling.

    A 10% deficit does not add 10% to debt/GDP because GDP rises too. The Keynesians should be saying debt/GDP will *not* rise with more deficit spending, because the fiscal multiplier is greater than 1.

    http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/09/uk_economy_some_good_news.html

  2. @JustAnotherTaxpayer: it all depends whether the increase in GDP created by the deficit spending is sustainable or not. Its no good spending 10% of GDP via borrowed money for (say) 5 years, if at the end of it, when you withdraw the stimulus the economy cannot sustain itself without the extra borrowing.

    If the UK were spending all that borrowing on building something that would have lasting effects ( fibre optic cable network connecting every house, or nuclear power stations for cheap electric, or anything that would outlast the debts and create wealth into the future) then I would agree with you.

    What is absolutely pointless is borrowing money to allow the population to maintain a level of consumption that the true productive capacity of the economy cannot sustain. Because as soon as you withdraw such stimulus the economy contracts back to where it would be without the stimulus.

    And I would say we are doing the latter at the moment, not the former. Most of our spending is current consumption not future investment.

  3. …..What is absolutely pointless is borrowing money to allow the population to maintain a level of consumption that the true productive capacity of the economy cannot sustain…….

    Pay off your credit card bills

  4. JustAnotherTaxpayer

    @Jim. Agree 100%. You could make a stronger case. If deficit spending *does* raise debt/GDP, it is proof that the fiscal multiplier is less than 1, and hence, we should stop bloody well trying.

  5. The UK could afford to borrow more without causing an immediate meltdown, but to gear up more would simply make the country a less attractive place to invest, and we would simply suffer the same fate as the PIGS.

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