Happy New Year

I sent this New Year’s card to all our MPs and Peers to remind them of the dire state of the UK’s finances by comparing them to a household budget:

The Times City Diary (£) seems to mistakenly think that I am advocating that the UK should “look West” to what  America is doing, presumably because there is a picture of Abraham Lincoln on the front of the card. No, the reason for the picture of Lincoln is the quote inside the card about trusting people by telling them the truth.

Meanwhile, City Spy at the Evening Standard grandiloquently proclaims that I am ‘wrong-footed over Lincoln’ because I have failed to spot two facets of the situation: a) ‘there’s little sense in comparing the national finances to a household budget. What may be good for one household is not good for the wider economy. If we all save at the same time, it’s disastrous’; and b) ‘Moreover, households can’t print money: governments issue their currencies and they can spend it, but households have to save to spend in the future.’

I have news for City Spy. I had spotted those points, but maybe the answer to the first is that yes, it is disastrous because that’s what we’re going to have to do. There may be no painless way out of this, because it is indeed a disastrous predicament. As regards governments printing money, amazingly enough I had spotted that (hard to miss £375 billion of Quantitative Easing) but I have to admit that I had not realised that there was someone at the Evening Standard simple minded enough to think that is really a solution. Who says standards of journalism have fallen?

The point of the analogy to a household-budget illustration I used which has been missed by this journalistic statement of the blindingly obvious is to make the UK’s financial situation more understandable. It is very hard for anyone to get their minds round the concept of a billion let alone a trillion. I think if people really understood the position the UK finds itself in they may be better prepared for what surely has to come and what has to be done, and it makes it clear that the current policies are not capable of correcting the situation.

We need to be told the truth.

 

Comments

[Adrian Fisher]

The Evening Standard fails to land one of its points. Households too can "print their own money" to a certain extent, in that they can stack up credit card debt. This facility is an expensive last resort, and is limited by the creditworthiness of the family in the eyes of others. The analogy with excessive sovereign debt is all too painfully exact.

[Andrew]

Keep up the good work Terry, a bit of hard work and saving never hurt anyone.

[johndubyah]

Well, terry, no-one can say uou haven't TRIED to get your point over to the movers and shakers (sometimes questionably referred to as the 'Great & the Good'. One has to ask Great and Good at what 'sums'?).

[David Nash of Stratford Grammar School]

Dear Terry, I have read all you and your referred blog writers have to say.
In effect and to use a maritime metaphor it is that those with economic 'expertise' have sailed into deeper and deeper, storm tossed waters with no rudder and their eyes wide open and when a giant whirlpool, visible only to the ignorant ordinary person, finally swallowed them they shrugged as they went down and looked puzzled and shouted, " It's your fault, not ours !" PS Between the ages of eighteen and twenty one I worked at The Boat Show at Earls Court for our family friends, Lewis Marine who were the British agents for RIVA boats, many of which you've probably got !

[Diane]

Wonderful New Year card ...and our own Daniel Day-Lewis playing the man himself!
Happy new year to you Terry
Elly Mae

[Andrew]

So, to recap:

City Spy = simple-minded.
Everyone simultaneously cutting spending, causing the economy to contract further while sending unemployment through the roof and thereby provoking a death spiral of falling revenues and increasing deficits = solution.

Got it.

[Goose]

This is an admirable campaign you are running Terry. Just make sure you don't end up being offered (and worst of all accepting) a job in the Government!

[Terry Smith]

Andrew: Just to recap accurately, I said City Spy was simple minded for suggesting that I had overlooked the government’s ability to print money, and for believing that is a solution.

[Prohyp]

Excellent stuff Terry and a good start to the year. Regrettably the flaw in your plea is that the truth and politicians, have rarely, if ever, peacefully co-existed.

If may indulge in a little fantasy, how wonderful it would be, to be able to dispense with the latter.

[Chris Downing]

I've long held this view of the economy. When all this first started I did a quick analysis of the numbers and came up with the conclusion that cuts to fix the problems, spread over ten years, would be something like 25% in government expenditure. A combination of staying inside tax income and reducing the debt by 50%. Taking this view to friends and down the pub soon makes one realize we are in a World of deep denial. Nobody wants to talk about real reality. And I've heard that one about Goverrnment can spend what ever it wants because it can print money, too often for it to be funny anymore.

[Chris Downing]

When I first looked at these numbers I thought if 1-2% cuts can fix it I must be hugely wrong. I thought the basics were about £500B tax revenues, £650B expenditure and a rising debt of £1.2T. Which for my back of a fag packet calulation meant cutting £150B overspend plus paying down some of the debt, lets say £100B a year.

That means cuts of about £250B per year just to get back into balance and reduce just a part of the debt. Isn't that nearer 40% cuts than 2%. Even 25% doesn't seem the get the books to balance.

I had expected by now to be seeing a raft of swingeing cuts of at least 10% in the first year, then another 10% the next year, then another cut.

Would I be correct in assuming I live in a whole World of denial?

[Mike Mellor]

Dear Andrew alias "City Spy"

I presume that the "City" part of your name refers to the financial district of the City of London.

So I guess that you're a financial and economics boffin.

Surely you have overlooked the Economics 101 concept of Gross Domestic Savings?

The most prosperous nations have the highest Gross Domestic Savings, and to get that way most of the households had to save at the same time.

What you're suggesting is a kind of countrywide potlatch, an all-out splurge and complete draining of your capital in the trust that you will regain it all.

That reminds me of the proverb that when the poor inherit the earth, it will take the rich a week to get it all back again.

I'm also reminded of the street wisdom that if a bunch of people are in a lift and the cable snaps, you should all jump at the same time just before it hits the ground, although when you are enclosed in a box how you are supposed to determine the exact moment I don't know...

[Jason Abbott]

Dear Terry.

It seems UKIP needs someone of your stature on their side especially now as they seem on the rise . Considering the EU will destroy the City in the end, have you thought about a career in politics with UKIP ?

Regards
Jason Abbott