Getting Real
There has been a strange period over the last twelve months when politicians of all parties tried to pretend (or knew no better) that if your expenditure is way above your income and you borrow every month to pay the bills, the solution is to borrow yet more still. This flight of financial fancy is explained by eminent, but shortly to be discredited, economists, as well as politicians peddling their errors, as a way to avoid a double dip recession. The debt mountain will be paid off by the surge of taxation when growth returns. This is the most utter nonsense for several reasons.
The first is the arithmetic at housekeeping level. To avoid mounting debt leading to bankruptcy, every household knows that you must bring your expenditure down to the level of your income. The second is that if you have been living on borrowed money for a long time your standard of living is an illusion and cannot be sustained. Borrowing more cannot take you back to something that was never there in the first place. Too much of the economic boom was an illusion. It was funded by plastic and built on debt. The real economy was much smaller. This is why we have the second largest overseas debt in the world, which is 4.5 times the world average.
Finally the argument about double dip recessions is drivel. The size of the debt and the amount of interest required to service and reduce it will shortly lead to a huge slice of taxation, the biggest, being needed each year to pay it. The effect on jobs, services and the economy will not only guarantee another dip, but will herald a continuing decline in a downward spiral from which there is no escape beyond a ruined standard of living, even national bankruptcy. The social implications of such a process are very hard to predict.
Cameron and Osborne have now seen the books and realize this. Clegg and Cable are facing sums with which they cannot argue. So over the next few days we are going to be told what is to come. It will, we are warned change our whole way of life. There are two things that have to happen. The first is that expenditure has to be cut until the budget is in surplus. The second is that several years of that surplus have to be used to pay off the debt.
Then and only then will the economy be on a sound footing structurally. Organically there is much to reform. At least a third of government needs to disappear. We have to earn what we spend and make what we buy. The dominance of the City has to be reduced and manufacturing must increase. Europe has many problems of its own and will be a stagnant market for some time to come. The eastern economies are powerig ahead. We need to send our salesmen there to root out the manufactures, goods and services we can provide and then to get on and do it. Some of those vast reserves of cash have now got to start flowing our way.
Canada will be used as an example to follow. It took the pain. The consequence was that it did not suffer in the global financial crisis and has one of the fastest growing economies in the world. This never was a global financial crisis. It was always a western debt crisis. Until countries get out of debt there will be no end to their pain. Canadians will explain.