Friday, 28 August 2015

Those dreaded debts, public and private.

Ann Pettifor writing in The Independent claims that the fact that total private and public debts in China are 250% of GDP is a problem.

The first problem there is that UK public debt (never mind private debt) just after WWII was also 250% of GDP, but that didn’t cause any obvious problems in the 1950s or 60s, during which period, that debt gradually declined. (Compare that with the fact that in the US and UK half the population are having a nervous breakdown over the fact that public debt is approaching 100% of GDP, and you’ll realise you’re living in a mad-house, if you didn’t already know that)

But there’s worse to come. In fact you may need to tighten your seat belt. According to this source, UK SME trade debts are nearly three times GDP. So if we add to that the trade debts of LARGE enterprises, then presumably the total will be five or six times GDP.

Then there’s UK household debts which like several other countries are roughly equal to GDP. And UK government debt which is approaching 100% of GDP, as mentioned above.

So we can be pretty sure that total UK debts are up to the 600% level. However, I’ll be sleeping soundly.

My main objection to those debts is the role played by banks in organising them, i.e. intermediating between borrowers and lenders, and the fact that banks are subsidised.

If government (i.e. taxpayers) are IN NO WAY ON THE HOOK for debts, then all and sundry can lend as much to each other as they like. And if some of them make silly choices and go bust as a result, I couldn’t care less, cynical old me.

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