It is Obvious

Chris Rick has got altogether too much to say

I’m in a JAM

Posted by chrisrick13 on March 8, 2017

It is obvious: never a lender or a borrower be

The UK economy is in good shape. Manufacturing growing. Unemployment down. Employment up. GDP up. Inflation low. What could be better?

Lets start with national debt. The third biggest expense of the government is interest payments. If we had £51billion to spread about NHS, education, police, etc. how much better things would be. I’ve not mentioned personal debt or hidden debt through promises of future payments particularly pensions.

Other people are prepared to lend to the UK. If we keep on borrowing then at some point they will do one of two things. They will decline to lend more. They will only lend more if the interest rates are high enough. This is not an ‘if’ but a ‘when’. It is a ‘when’ because there is no prospect of us as a nation coming round to the idea of paying some debt off. There are two mechanisms that are employed. Increase GDP so that the debt is kept down as a percentage of that GDP or get inflation up so that the value of the debt is eroded.

Increasing GDP is not easy to do. The Government can encourage it and dropping the value of the pound certainly helps. It depends on other nations being able and wanting to trade with us. It depends on the government being competent.

Getting inflation up is easy. What happens when it rises? By various mechanisms interest rates rise. A lot of people will be unable to afford to pay their mortgages. House prices will fall. Not a bad thing I would say but you might think differently sitting in the middle of your possessions on the pavement.

At the moment it is possible to contain inflation, make a show of austerity, increase GDP or at least increase the numbers, keep interest rates low, keep house prices up.

The problem is that the options to control this situation are gradually disppearing. I still think it will be a trigger event that causes the collapse and by its nature that event is difficult to predict. (How about Le Pen for president? Trump didn’t do it though.) The elephant in the room is the many people, the JAMs, who are still in negative equity or who will be sunk by even small rises in interest rates.

It is obvious: never a lender or a borrower be – spend it

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One Response to “I’m in a JAM”

  1. Malc said

    Where have you been?You need to follow your own advice and “spend it” as we’ve discussed previously.Great to see blog info completely in accord with my own views re Brexit!
    Malc

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