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21 December 2012


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John Healy

Thank you, Terry, for this extra work (and your colleague Tim Morgan, of course). Looks like we need to impress this on our politicians - have you had any 'luck' in that direction? Does the new BoE Governor to be 'see the light'. Hopefully he subscribes to your blog or at least is on your mailing list! Hopefully you will be invited to participate in one of the Government/BoE advisory committees (assuming they have any influence). happy Christmas (not too sure about the appropriateness of wishing the same for the New Year - but I guess it depends on one's 'outlook'.

Iain Herbertson

Terry - your thoughts are instructive, not least because they are running against much popular political opinion and are thus generating debate. In this instance however, you did not comment on the thoughts of Algernon Percy on 'house value' (tangible assets) and 'total wealth' (capital base). Do you agree with his numbers? How do these compare for the various countries?

David Nash of Stratford Grammar School


Terry Smith

Ian Herbertson: I have just done a new blog post in reply to Mr Percy’s points.

Terry Smith

John Healy: I am fairly sure that the new Governor of the Bank of England wouldn’t agree with me and that he and the government don’t want me anywhere near the central bank in case I succeed in getting it to follow some correct but painful policies.

Nigel Britten

Terry, for those of us who do not work in the finance sector, this is a fascinating and truly sobering analysis. Taking away the zeros and attributing the figures to the Clampetts really brought home to me the extent of the problems we face. Your analysis deserves to be front page news in the media to help provide the public with a clearer understanding of the sheer scale of this problem.

Simon Anthony


Fascinating and terrifying stuff as usual.

I have more questions: given these figures why aren't more of the policymakers more scared? I keep thinking I must be missing some very fundamental part of the argument which allows these people to be comfortable with the position their countries find themselves in.

I guess one extension to your analysis above that I would find interesting is how sensitive the figures are to growth. ie if (somehow) the economies in question had a good year next year then presumably spending would come down (as unemployment benefit at least would fall) and revenue would rise. But it would be interesting to understand how much growth would be necessary in order to actually lead to negative "additions to debt".

Would we find that fairly modest growth alleviated a lot of the apparent issue or (more likely I suspect) would we find that it would take incredible growth to alleviate the problem?

And a further question that keeps nagging at me is this: normally if people are not creditworthy, the interest rate at which you'd be prepared to lend them money would rise. Given the apparent scale of the debts and given the apparent paucity of revenues, why aren't we seeing huge general upward trends in interest rates?



Hello Terry - I've recently started reading your posts and they are very informative. Its great to be able to read the thoughts of someone with access to the data and the means with which to interpret it. Your UK figures seem to confirm what I've been thinking - that this so called 'austerity' is just smokes and mirrors.

As a side note to Simon - as far as I'm aware, the BoE's open market operations serve to artificially lower interest rates on government debt, I believe the BoE monetized about three years worth of deficit spending so far? Also, if you look at the 10 and 30 year bonds, the rates are beginning to creep up. But please correct me if I'm wrong!

Simon Anthony

Thanks Joseph. Open Market Operations is another of these terms the meaning of which is quite opaque.

I think you are saying that the Bank of England is basically buying government debt (at artificially low interest rates) with money that does not exist until the point at which BoE makes the purchase... ie it is how quantitive easing is taking place. New money is introduced into the economy through this process (well, technically, I suppose this money sits with the government, who then spend it as they see fit?). The government is therefore able to issue debt at whatever rate it likes because it is not a real third party (who would assess credit risk) who is making the purchase but a quasi-government institution.

The implication of this in turn would seem to be that no government would actually go bankrupt for as long as they can print money to service their debt refinancing needs. However the quid pro quo of ever-increasing amounts of money in the economy must surely be (ever-increasing) inflation.

Which brings me to another question: if all governments cannot service their debts using revenues and so have to print money to do so, isn't the best policy to

a) print more money than everyone else;
b) limit information about what you are doing;

and thereby hope that the effect of the money-printing exercise will not be realised one-for-one in your exchange rate! ie if our pounds are being devalued in real terms by QE but the exchange rate vs (eg) the dollar isn't moving precisely enough to counteract the effect then we are actually able to suck wealth out of the US and into the UK (by buying their goods at old prices with our pounds).

In fact, if no-one really understands the scale of the problems that Terry tries to bring to light in his blog, then isn't the government's policy actually brilliant... people won't adjust their prices by enough because they don't appreciate the fact that QE is actually making every pound they receive for their goods/services less valuable in real terms. For as long as this continues and people are duped the government can print money and pay off its debts because inflation will lag (and if people are continually "stupid") never actually reflect the real situation.

I'd be interested in people's views about how cognisant policy makers are of the fact that they could perhaps "inflate" their way out of the debt problem...

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