It has been said on today's BBC "Question time" that for 200 years Britain had greater budget deficit than now. Even after the World War 2 it was able to build an amazing social system with NHS and social housing. "So what's the bother now?" the host, Mr David Dimbleby, asked.
It appears the there is a significant difference. For 200 hundred years at the time Britain was an empire, a real superpower that controlled its destiny. The financial markets and other lenders to the government at that time had really had to rely on what British government had been prepared to pay. And they had to lend if they wanted to exist. In a way it was a synergy but with Britain, as a state, had an upper hand over the financial industry. Now it is the other way round: Britain is at the mercy of the financial markets. It does not act like a sovereign state but like a minion being bullied by a loan shark. This is a reason why we see savage budget cuts now, and despite that, times are very uncertain indeed.
Globalisation is not a new phenomenon. The British Empire was truly global: "the Empire on which the sun never sets". What changed is who is in charge.
It appears the there is a significant difference. For 200 hundred years at the time Britain was an empire, a real superpower that controlled its destiny. The financial markets and other lenders to the government at that time had really had to rely on what British government had been prepared to pay. And they had to lend if they wanted to exist. In a way it was a synergy but with Britain, as a state, had an upper hand over the financial industry. Now it is the other way round: Britain is at the mercy of the financial markets. It does not act like a sovereign state but like a minion being bullied by a loan shark. This is a reason why we see savage budget cuts now, and despite that, times are very uncertain indeed.
Globalisation is not a new phenomenon. The British Empire was truly global: "the Empire on which the sun never sets". What changed is who is in charge.
Ah good, you are starting to realise that true wealth true power comes from something other than money, cash, shares, gold etc
ReplyDeleteHow do you turn lead into gold?
Fire some lead into a gold dealer!
Is Japan a real empire these days? It has a far higher government debt than we do and is not in meltdown. Were the rest of the European governments, one and all, real empires after ww2? They all seem to have had national debts of over 200% of GDP.
ReplyDeleteSo no, it does not seem as though having an empire is a requirement for running a "large" government debt. Having our own currency might have something to do with it though...
@stalinvlad: I realised that some 30 years ago when I read a poem of Julian Tuwim that I published as the next post. I published this post to make mainstream media and politicians realise this.
ReplyDelete@NickB: good point but I think you overstretched my point with your interpretation. (For example I have never stated that "having an empire is a requirement for running a "large" government debt".)
Hi Greg,
ReplyDeleteI didn't express it very well, but that seemed to me the gist of what you were saying. The nations/times I mentioned are not and were not, it seems to me, in a position to threaten the survival of the financial markets.
It seems to me that a comparative analysis of what constitutes a genuine debt crisis is sorely needed. At present it seems to be breaking down along clear lines, of nations whose debt is and is not primarily denominated in a currency that they issue. Japan, UK, USA OK; Ireland, Greece, Iceland not OK.
Are there any examples in economic history of defaulting on national debt, when it is denominated primarily in a currency that the government in question issues? If not, then the hullaballoo about the British national debt is empirically rather odd.
Nick
Hi Nick
ReplyDeleteI think that debt argument in this crisis really obfuscates the core issue: it is a massive money multiplier that blew up the financial system not debt. (However a lot of debt is a result of it as it was generated when banks were rescued.) Having said that I was writing about debt in this post. Maybe I shouldn't.
Best
Greg
Hi Greg,
ReplyDeleteIt amounts to practically the same thing (money, or debt) since more than 95% of the money supply is issued as bank credit (ie debt). But there is nonetheless a crucial difference when it comes to analysing the government debt, which is what you were talking about in this entry. From the perspective of the rest of the economy, government spending is an injection of debt-free money.
Nick
Hi Nick
ReplyDeleteI do not agree with you. There is a relationship but it is not the same thing. The significance of debt (with the same parameters like debt to income/GDP ratio, net value of debt) is completely different if money multiplier is, say, 5 or 50 or 500. Incidentally high money multiplier skews the GDP figures. It is a bit more complex picture than "the same" as a very high money multiplier renders the entire financial system insolvent.
Best
Greg