UK national debt: who are the guilty?

Here is a link to the latest figures for UK government debt levels from the Office of National Statistics:

http://www.ons.gov.uk/ons/rel/psa/eu-government-debt-and-deficit-returns/march-2014/stb—march-2014.html

Here are some highlights from the report for your perusal:

‘In the calendar year 2013 general government deficit was £92.9 billion or 5.8% of GDP, according to the definition used for comparability across the European Union. This was fourth consecutive fall in the deficit as a percentage of GDP. In the financial year 2012/13 general government deficit (or net borrowing) was £81.8 billion, equivalent to 5.2% of gross domestic product (GDP).’

and

‘General government deficit and debt estimates for the calendar year 2012 were affected by the transfer of the Royal Mail Pension Plan assets. This reduced the deficit by £28.0 billion and had the same impact on the financial year 2012/13. The asset purchase facility transfers from the Bank of England in the calendar year 2013 reduced the deficit by £18.6 billion (for the 2012/13 financial year the reduction was £6.4 billion)..’

and

‘General government gross debt (nominal value) was £1,461 billion or 90.6% of GDP for the calendar year 2013. Since 2002, debt as a percentage of GDP has grown in each calendar year.’

 

So, without the proceeds of the Royal Mail Pension Plan assets, and the remittance to the Treasury of interest on debt purchased by the Bank of England (with Sterling currency created from thin air), the UK would have run a deficit in 2012/13 of £116,200,000,000. Is that what austerity looks like I wonder?

Total debt stood at £1,461,000,000,000 (£1.461 trillion).

The Bank of England owns around £385,000,000,000 (£385 billion) of this debt in the form of gilts (UK government debt securities). Who owns the rest? Most are owned by the British public, via their pension schemes. Some are also owned by the UK’s banks and building societies, and around a third is owned by overseas investors.

Do we ever expect these debts to be repaid? How could we afford that? At a rate of £50 billion a year, it would take 29 years to repay this sum. Do you think the UK will ever run a budget surplus of £50 billion a year?

So, why not default on the debts, simply write them off by refusing to pay? It wouldn’t be the first time a sovereign nation has defaulted on its national debt. We won’t do that, because politicians realise they would be destroying our pension plans and our banks and insurance companies. It’s simply not an option.

So, the UK will follow the ages-old path of maintaining the nominal payments of interest on its debt, as well as the repayment of the borrowed capital, even as it has to take on more debt, or the Bank of England has to create more currency, simply to keep the appearance of solvency alive. Rest assured, the result (as always) will be ever-increasing pressure on the currency, most easily visible via rising inflation in the years ahead, to levels most would be surprised at today. We’ve had 20 years or so of falling inflation, we should not be surprised that the costs of this debt now have to be paid, not overtly, but via the devaluation of our buying power. Debtors should rejoice, whilst savers should be terrified.

Our journey is on auto-pilot now, but who set the course, and demands that the journey is completed? Your fellow voter, that’s who. There is no appetite for austerity in the UK, only a desire for the gravy train to keep on rolling. If the Bank of England can bail out the nation at zero cost via QE, the good times will surely never end. Well, consensus is that we are already in the midst of a healthy recovery as I type. Yet there is no sign of interest rates rising, no sign of any structural adjustments in the UK economy, just a lot more cheap debt and another housing bubble centred on London. Have you noticed the FTSE 100 has been treading water for the past year?

The good times will end, gradually (then very suddenly) within the next 15 years, in a very nasty and painful way, especially for those expecting a comfortable retirement, having saved and invested for their future.

Pay very close attention to the UK’s debt position and the wishes of the electorate in the next few years. Those that are expecting to be paid in full when they come to spend their pension funds and savings stand to be sorely disappointed that their counter-parties and currency managers have let them down badly.

 

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