Macroeconomics, the economy, inflation etc. *likely to be very dull*

surrey_commuter

rick_chasey said:

You don’t think a decade of no growth and no productivity growth didn’t have an impact?

I think ending QE and stated intention of QT had a bigger impact

wallace_and_gromit

rick_chasey said:

wallace_and_gromit said:

rick_chasey said:

In macroeconomics you always roll it over because there is always a future.

SVB bank was just poorly run and the regulator let them be run badly - I don't think it's relevant to the discussion.

Disregarding the potential impact of badly run banks that escape the attention of the Regulator did not work out so well in 2007/08 as I recall, so if I was in charge, I'd always have half an eye on the potential for the sh*t hitting the fan at an unexpected time for an unexpected reason. Maybe it's an age thing, remembering "Black Wednesday", LTCM, 9/11 and Lehmans. Life has a nasty habit of biting you on the backside when you're not paying attention.

rick_chasey

I don’t think regulation of the FS sector is relevant to a discussion around fiscal policy and its role in macro economics

rjsterry

rick_chasey said:

2022 GDP is 100

2022 borrowing is 3

2023 gdp is 103

3/103 is not 3, but 2.9.

Debt in 2022 is not zero. If debt starts at 100 as well, gdp and debt in 2023 are both 103. So debt:GDP still = 100%.

rick_chasey

rjsterry said:

rick_chasey said:

2022 GDP is 100

2022 borrowing is 3

2023 gdp is 103

3/103 is not 3, but 2.9.

Debt in 2022 is not zero. If debt starts at 100 as well, gdp and debt in 2023 are both 103. So debt:GDP still = 100%.

No, but the debt took it in 2022 which was 3% in 2022 is now worth 2.9% in 2023 (in this scenario).

Debt is fixed at the time of borrowing right?

Let's do it this way.

2022 GDP 100

2022 total debt 100 > debt to GDP ratio 1:1

2022 additional borrowing 5% of gdp

2022>2023 growth > 50%

2023 GDP 150
2023 debt: 105

Debt to GDP ratio, much better. 7:10

rjsterry

rick_chasey said:

rjsterry said:

rick_chasey said:

2022 GDP is 100

2022 borrowing is 3

2023 gdp is 103

3/103 is not 3, but 2.9.

Debt in 2022 is not zero. If debt starts at 100 as well, gdp and debt in 2023 are both 103. So debt:GDP still = 100%.

No, but the debt took it in 2022 which was 3% in 2022 is now worth 2.9% in 2023 (in this scenario).

Debt is fixed at the time of borrowing right?

Let's do it this way.

2022 GDP 100

2022 total debt 100 > debt to GDP ratio 1:1

2022 additional borrowing 5% of gdp

2022>2023 growth > 50%

2023 GDP 150
2023 debt: 105

Debt to GDP ratio, much better. 7:10

Sure, if growth is ten times the amount borrowed everyone is happy. If growth is just 5% we are back at 1:1, I think.

rick_chasey

Only if you then borrow another 5%.

Debt is fixed right? If you borrow £1m with whatever interest, you've still borrowed £1m.

rjsterry

I'm slightly lost as it looks as though you just rewrote my example with different figures. The debt is increased from 100 to 105.

rick_chasey

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

Dorset_Boy

I think Rick is correct assuming you haven't borrowed any more, (which if you are running a deficet won't be the case).

Government issues £100 million of gilts over 15 years, say, at 3% pa.
That debt won't change, they will still owe £100m in 10 years time.
Each year the Government pay £3,000,000 in interest on those gilts.

So long as they are not having to borrow to pay the interest then that debt won't increase.

A problem could arise at the end of the 15 years when the government has to repay those gilts (which they do by issuing new ones). The interest rate demanded by the market may be significantly higher (2012 rates vs 2023 rates for example), and so the cost of servicing the debt rises significantly.

In reality, the government borrows more and more each year though.

Although Rick seems to suggest there is no limit to the amount a government can borrow because theyt can just print the money, in reality the markets have to be willing to buy the debt from the governement (which they weren't willing to do under Truss), and excessive debt will devalue the currency which is hugely inflationary.

rick_chasey

Dorset_Boy said:

Although Rick seems to suggest there is no limit to the amount a government can borrow because theyt can just print the money, in reality the markets have to be willing to buy the debt from the governement (which they weren't willing to do under Truss), and excessive debt will devalue the currency which is hugely inflationary.

I'm not suggesting that. I'm suggesting the market limit on that is decided in large part by the combination of the current debt to gdp ratio and the market's anticipation of what that ratio will be in the future.

And as per the IMF, austerity isn't necessarily going to help improve the ratio, so I am questioning the value of austerity.

TheBigBean

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

rick_chasey

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

surrey_commuter

rick_chasey said:

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

in the years you complain about for sh1t growth when the numbers were below trend
2011 - 1.1%
2012 - 1.4%
2013 - 1.8%
which is about 1% a year below trend so making our economy 3% lower than it could have been if the Govt had kept spending hgh to keep us at trend. This level of spending would have added 8% of GDP to our debt so adding a net 5%.

Anyway you are being slippery as you used to shout "look at Japan" as a reason why debt ratio was irrelevant. You assured us the only number that mattered was debt servicing costs and they were virtually zero.

Now debt servicing costs are £100bn a year which is approx 5% of GDP and 10% of Govt spending.

Dorset_Boy

rick_chasey said:

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

Ahh, the hindsight benefit.
Even the outgoing Economic Secretary at the Treasury in 2010 said there was 'no money left'. The markets at the time would not have accepted increased borrowing, in fact they were keen on the opposite.
There really wasn't much opposition to austerity at the time. Your favoured party agreed to it too.

So, only with the benefit of hindsight can a case be made that it MIGHT have been wrong at the time.

You and your favoured economists would be better arguing that it was probably the only option at the time but was enforced for too long, and / or was too harsh.

wallace_and_gromit

surrey_commuter said:

rick_chasey said:

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

in the years you complain about for censored growth when the numbers were below trend
2011 - 1.1%
2012 - 1.4%
2013 - 1.8%
which is about 1% a year below trend so making our economy 3% lower than it could have been if the Govt had kept spending hgh to keep us at trend. This level of spending would have added 8% of GDP to our debt so adding a net 5%.

Anyway you are being slippery as you used to shout "look at Japan" as a reason why debt ratio was irrelevant. You assured us the only number that mattered was debt servicing costs and they were virtually zero.

Now debt servicing costs are £100bn a year which is approx 5% of GDP and 10% of Govt spending.

Japan is somewhat unusual of countries with a large Debt / GDP ratio in that it is almost wholly unreliant on overseas investors.

Similarly the US is different in that the chances of a "US Treasury buyers' strike" is lower than the risk of a gilt strike or an Italian government bond strike. (Logic here is as we head to the Apocalypse, the USD will be the last financial asset standing, though even this would yield eventually to water, food and weapons.) So the US government can borrow freely with fiscal metrics that would scupper most other nations.

The UK is at the mercy of unsentimental overseas institutional investors.

rick_chasey

Dorset_Boy said:

rick_chasey said:

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

Ahh, the hindsight benefit.
Even the outgoing Economic Secretary at the Treasury in 2010 said there was 'no money left'. The markets at the time would not have accepted increased borrowing, in fact they were keen on the opposite.
There really wasn't much opposition to austerity at the time. Your favoured party agreed to it too.

So, only with the benefit of hindsight can a case be made that it MIGHT have been wrong at the time.

You and your favoured economists would be better arguing that it was probably the only option at the time but was enforced for too long, and / or was too harsh.

Here's a chart around net debt to GDP ratios over time for the UK.

(and you know that it is tradition, or now was, tradition for outgoing secretaries to leave a joke for their replacement > I think that one ranks as one of the most costly and overblown jokes in British history).

Pross

rick_chasey said:

Dorset_Boy said:

rick_chasey said:

TheBigBean said:

rick_chasey said:

if on Jan 1 you take out a 5% of GDP debt and by Dec 31st the economy has grown by, say, 3%, that debt you took out on Jan 1 is no longer worth 5% of GDP but 4.85%.

I think you are getting muddled and surrey_commuter's point stands. In your latest example, the debt to GDP ratio has worsened, so surrey_commuter is arguing that the additional debt isn't helpful.

What's being muddled? My example there isn't to demonstrate the gdp/debt ratio worsened - just that proportions don't stay static, but what you borrowed on x day does.

We have a tonne of people here arguing austerity works in the face of evidence to the contrary?

I think we can agree austerity has lots of bad impacts, on health, equality, services blah blah.

So there needs to be a really good case for austerity > and I think we all agree that a bad debt/gdp ratio will cause much more problems (and ultimately, much more costly and painful austerity if it all goes wrong and the gov't defaults).

But if we take the evidence that says that austerity on average doesn't improve the ratio, and that it only works in certain conditions (that were not present when the Tories did austerity in the UK), why are people so desperate to argue that austerity was the right thing to do in 2010?

Ahh, the hindsight benefit.
Even the outgoing Economic Secretary at the Treasury in 2010 said there was 'no money left'. The markets at the time would not have accepted increased borrowing, in fact they were keen on the opposite.
There really wasn't much opposition to austerity at the time. Your favoured party agreed to it too.

So, only with the benefit of hindsight can a case be made that it MIGHT have been wrong at the time.

You and your favoured economists would be better arguing that it was probably the only option at the time but was enforced for too long, and / or was too harsh.

Here's a chart around net debt to GDP ratios over time for the UK.

(and you know that it is tradition, or now was, tradition for outgoing secretaries to leave a joke for their replacement > I think that one ranks as one of the most costly and overblown jokes in British history).

I assume you've chosen a graph with the 'x' axis starting just after WW2 to wind up those that don't like dodgy graphs (or so you can then complain that people are having a go at your graph rather than the wider issue)?

rick_chasey

No, it's just the "max" option on the chart on this website:
https://tradingeconomics.com/united-kingdom/government-debt-to-gdp#:~:text=Government Debt to GDP in,percent of GDP in 1990.

Pross

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

rick_chasey

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

surrey_commuter

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

rick_chasey

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

Are you just gonna ignore the IMF study?

Dorset_Boy

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

And when the coalition took power, the ratio was the highest it had been for over 40 years, including the disaster that Britain was in the 1970s.
So that reinforces the view at the time, that austerity was a sensible was forward.

The post 2010 part of the graph is then wonderful hindsight that the market would stomach more borrowing.

surrey_commuter

rick_chasey said:

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

Are you just gonna ignore the IMF study?

Unless you start reading my posts and/or stop projecting viewpoints on to me then I am going to stop engaging with you on this subject.

rick_chasey

surrey_commuter said:

rick_chasey said:

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

Are you just gonna ignore the IMF study?

Unless you start reading my posts and/or stop projecting viewpoints on to me then I am going to stop engaging with you on this subject.

You’re advocating austerity when the evidence says that doesn’t make a difference?

rjsterry

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

To what sunny period are you referring and which roof do you think should have been fixed? The last one I can think of we almost literally fixed the leaking roofs of schools. Supposing that had been put into reducing debt rather than education: do you really think things would be any different now?

wallace_and_gromit

rjsterry said:

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

To what sunny period are you referring and which roof do you think should have been fixed? The last one I can think of we almost literally fixed the leaking roofs of schools.

2002-2007 spring to mind. Whilst there was lots of leaking roofs fixed in this period, this was via PFI, which defers the impact on public finances many years into the future.

Had fewer PFI contracts been entered into, then post-GFC, we'd have had leakier roofs in schools etc. but with more flexibility to address the social issues resulting from the GFC, without sustained historically high levels of borrowing.

Similarly, whilst all the other stuff Labour invested in was likely "good" the more marginal stuff might have been better left uninvested in as this would have freed up fiscal headroom for direct action post-GFC.

FWIW, I think the problem with "austerity" in the UK was that it was too focused on cutting spending in unsexy but vital areas (e.g. libraries and early years education) rather than biting the bullet and raising taxes. The latter approach spreads the pain, whereas a lot of Coalition spending cuts were disproportionately focused on a relatively small number of people. And some of the cuts e.g. the Overseas Aid budget were probably counter-productive in that they saved little money, but at a lot of cost in terms of reputational damage and/or stirring social unrest.

focuszing723

...

rick_chasey

wallace_and_gromit said:

rjsterry said:

surrey_commuter said:

rick_chasey said:

Pross said:

All that graph tells me is that debt to GDP had started rising sharply around the time of the GFC and that it got back under control as austerity was introduced.

Sure, but in the context of "Britain has run out of money in 2010 so austerity was the only policy choice", I'm arguing that by many standards that plainly wasn't the case.

Later on the debt/gdp ratio was even higher and the cost of servicing was lower, and historically the burden had been even higher still.

and yet we spent £120bn on debt servicing costs last year

imagine how much rosier everything would look if successive Govts had not reset the fiscal rules so they could justify borrowing ever higher amounts instead of fixing the roof when the sun was shining

To what sunny period are you referring and which roof do you think should have been fixed? The last one I can think of we almost literally fixed the leaking roofs of schools.

2002-2007 spring to mind. Whilst there was lots of leaking roofs fixed in this period, this was via PFI, which defers the impact on public finances many years into the future.

Had fewer PFI contracts been entered into, then post-GFC, we'd have had leakier roofs in schools etc. but with more flexibility to address the social issues resulting from the GFC, without sustained historically high levels of borrowing.

Similarly, whilst all the other stuff Labour invested in was likely "good" the more marginal stuff might have been better left uninvested in as this would have freed up fiscal headroom for direct action post-GFC.

FWIW, I think the problem with "austerity" in the UK was that it was too focused on cutting spending in unsexy but vital areas (e.g. libraries and early years education) rather than biting the bullet and raising taxes. The latter approach spreads the pain, whereas a lot of Coalition spending cuts were disproportionately focused on a relatively small number of people. And some of the cuts e.g. the Overseas Aid budget were probably counter-productive in that they saved little money, but at a lot of cost in terms of reputational damage and/or stirring social unrest.

FWIW IMF study doesn’t rate tax rises either.