“The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.” Alex de Toqueville
What Governments would rather we did not know about the nation's finances
Ignorance about the nation’s finances is but one tool in the government's armoury with which they can pursue their ends without the rest of us noticing what is happening. Important is that we do not see what is going on. This has happened on every level, immigration, education, ‛political correctness ’and everything else. They show utter contempt towards the people they rule. And we, miserable souls, only notice the mess when it is too late.
Economics is not an exact science, we are told. The truth is, it is not science at all in any strict sense of the word. Relying as it does so much on guesswork, it is notoriously unreliable in its predictions. It is estimated that only one in ten members of parliament understand that money is created by banks, is it then any wonder that so much hot air is generated when talking about the economy in parliament? If it is the case that the chancellor of the exchequer and the prime minister actually understand what is going on, then we can only assume that they are deliberately devious to the point of dishonesty, obscuring the truth that money does not work in the interest of us, the people of Britain.
Confusion reigns with respect to the national debt. Is this confusion deliberately exploited to make everything seem much better than it really is? The confusion lies in the failure to distinguish between the national debt (or public sector net debt) and the government deficit (or public sector net borrowing). The national debt refers to the total amount of money owed by the government. The budget deficit (or surplus) is the difference between what the government receives from taxes and elsewhere and what it spends of that income. As long as the government maintains a deficit, it is added to the debt.
In February 2013, the prime minister claimed his administration was “paying down Britain’s debts”. This is, of course, patently untrue. His administration has been struggling to reduce the deficit and has not touched the overall debt which is rising. Was he trying to deliberately mislead us or is he confused himself? Whichever it is, it does not bode well for the ordinary people of this country. He was roundly rebuked at the time by the UK Statistics Authority for causing confusion. The chairman of the Authority confirmed that public sector net debt had risen from £811bn when the Coalition took office in 2010 to £1.1tn at the end of 2012. At the time, due to the significant budget deficit, the national debt was in fact increasing at about £107 billion per annum or £2 billion per week. Our national debt is still rising and who do we anticipate will pay it off or will the economy simply collapse under its own weight of debt? Will the second possibility be the preferable option to the government? Either way, it is the ordinary people of this country who will lose out.
David Cameron is still at it and received a similar warning from the same source about making misleading statements at the October 2014 Conservative Party Conference in Birmingham. He said “Look what we are showing the world. Not just a country that is paying down its debts, and going from the deepest recession since the war to the fastest-growing major advanced economy in the world, but at the same time: a country that has kept its promises to the poorest in the world ... ” Having already once been told about playing fast and loose with his words on the state of the economy, one is forced to the conclusion that the man is deliberate intending to pull the wool over our eyes. Surely only the most blinded or ignorant conservative activist can believe this subterfuge. Never has it been more important for the general public to be aware of how our politicians are spending our money and running up huge debts in our name. Rarely have we been so blatantly lied to.
Apart from the national debt and the deficit, there is also the interest the government must pay to service what they owe. Britain enjoys low borrowing rates because the government has to date never failed to repay its creditors. Eliminating the deficit is slow and may stall completely. The date for this is continually being shifted. Interest payments are currently in the region of £46.5 billion and by 2017-18 they are expected to rise to £71.3 billion.
Relation of National Debt to Wars
To uncover the beginnings of the National Debt, we must go back to the times of William III. Unsurprisingly, this reveals a close connection with the financing of warfare. William put together a syndicate of city traders and merchants to offer for sale an issue of government debt. From this syndicate the Bank of England grew. It financed the wars of the Duke of Marlborough and Imperial conquests. The national debt grew astronomically during the Napoleonic Wars. It then fell away, but there were large increases again in WWI and WWII. Afterwards the national debt decreased slowly.
An unprecedented high level of national debt has tremendous implications for the British economy for many long years ahead, blighting the lives of our children and grandchildren. Irresponsible spending and pretending things are getting better when the debt is still spiralling is an unforgivable betrayal of our people. We have got into the habit of spending way beyond our means. It is a national pastime, among the general population as it is by politicians. The irresponsible use of credit cards is little different from what politicians have been doing for years.
Rarely, if ever, do government revenues match the outlandish promises they make especially at election time. It is therefore inevitable that there will be a large deficit. Because it cannot be covered by income, the difference between income and expenditure has to be covered by a loan that we the taxpaying public guarantee. Every year this deficit is added to the national debt. It is as though the government takes on a new credit card each year and spends it to the limit. If we were to behave as does our government in our private or business affairs, we would be quickly declared bankrupt.
When the Labour Party came to power in 1997, the public finances were under control and the books balanced. How this came about under the Tories is another story. After four years, Gordon Brown the then Chancellor, took to spending so that at the end of the financial year 2009-10 the deficit had grown to £170.8 billion.
Despite tax revenues being up and spending cut, our current government is failing to make any inroads reducing the public debt. Some economists speak of the much vaunted ‛recovery’ as being ‛jobs rich but tax poor’. Over the last twelve months around 774,000 new jobs have been created, but most of them are poorly paid. Wage stagnation keeps taxes low.
The size of the deficit is much larger than in the recessions of the 80s and early 90s. It is currently higher than when Britain went begging to the IMF in 1976. Rather than save or pay off the debt in good years, our government continues to rack up debt.
From whom does the Government borrow? Governments obtain money by selling bonds. These bonds are known as ‛gilts’ or ‛gilt-edged securities’ because they are thought to be a safe investment. The government has never failed to pay out on a gilt. These bonds are sold at auction to the highest bidders by the UK Debt Management Office on behalf of HM Treasury.
The Government guarantees to pay the holder a fixed interest every six months until the maturity date when the full value of the bond is paid out. The Government then goes away and promptly spends the money adding to the debt. Bonds are repaid within 15 years. Government spending is way out of control. These repayments can now be met only by selling yet more gilts. This kind of deficit financing by anyone else would land the perpetrators in jail for running an illegal Ponzi scheme.
Each month the DMO publishes a quarterly report showing who owns Britain’s debt. A typical month would be like this:
Overseas Investors 35.1%
Other financial institutions 17.8%
In recent years the number of gilts held overseas has risen sharply. Around a third of our national debt is owed to foreign governments and investors. We are relying on the trust and confidence of foreign investors to keep our country afloat.
D. William Norris
“We must never allow good sense to stand in the way of rank stupidity” Anon