My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Having covered some aspects of fiscal policy and GDP ratios to national debt last week we can move on to how governments attempt to control fiscal policy: here is the link to last week: Issue 25
In this Issue we will look at how fiscal policy (government taxation and spending) is implemented and how deficits continue to plague all governments as their spending always exceeds their taxation income. The deficit is added to the total national debt which continues to grow, year in and year out. There is no certainty that this will ever be controlled and a final collapse of the system appears to be baked into the cake.
CHAPTER 5
GOVERNMENT FINANCES
“Government is not reason, it is not eloquence – it is a force! Like fire, it is a dangerous servant and a fearful master; never for a moment should it be left to irresponsible action.”
George Washington
Enter the International Monetary Fund (IMF)
Aware of the risks in the present crisis, the IMF, in late 2008 and early 2009, called on governments to establish fiscal policy strategies to help ensure the continued solvency of nation states:
- stimulus should not have permanent effects on budget deficits
- medium-term frameworks should include commitment to fiscal correction once conditions improve
- structural reforms should be identified and implemented to enhance growth
- countries facing medium and long-term demographic pressures should firmly commit to clear strategies for health care and pension reform [two of the largest national commitments]
To date, none of these proposals have been effectively implemented anywhere around the world due mainly to the inertia of massive public institutions and the continued pressure exerted by a cabal of international corporations, bankers and politicians whose aim is to maintain the status quo.
The nature of the national debt and budget deficits
The UK national debt is often confused with the UK Government budget deficit and was previously known as the ‘Public Sector Borrowing Requirement’ (PSBR) but now is officially quoted as the ‘Public Sector Net Cash Requirement’ (PSNCR), but in either case it is a euphemism for the rate at which the Government over-spends and needs to ‘borrow money’.
The last UK Prime Minister, David Cameron, was reprimanded in February 2013 by the UK Statistics Authority for creating confusion between the National Debt and the PSNCR by stating, in a political broadcast, that his administration was “paying down Britain’s debts“. In fact, his administration has been attempting to ‘reduce the deficit’, not the overall debt.
The national debt will continue to rise, even if the deficit shrinks, for as long as can be projected into the future; which is as good as saying forever unless radical and structural changes are made to the economic models.
The question of course remains, how long can this go on? Nobody has any answers but many have suggestions; all we know is that serious changes must be made to not only reduce deficits but actually start reducing the overall government debt by spending less money!
The public debt increases or decreases as a result of the annual deficit or, not often it must be said, a surplus. The budget deficit is the cash difference between government receipts and spending; it is as simple as that. All these politicians have to do is balance their books just like any other person or business.
Why they find this so difficult is beyond me; perhaps the mammoth undertaking is just too massive for any one group of people to undertake. Alternatively, perhaps there are too many vested interests determined to maintain the status quo because they have their “noses well in the trough of graft”. I will let the readers decide for themselves.
Funding government over-spending
The British Government finances its debt by issuing government IOUs called bonds or ‘gilts’; these are Government securities which are sold through the Bank of England and the bond markets and which we covered in previous Issues.
These securities are the simplest form of government bond and make up the largest share of British Government debt; a conventional gilt is a bond issued by the British Government which pays the holder a fixed cash payment (coupon) every six months until maturity, at which point the holder receives their final coupon payment and the return of the initial sum invested. Each bond is dated for a period of time from 1-12 months to 1-30 years and they each carry differing rates of interest and other characteristics which cause them to be ‘rated’ as good or otherwise for investment purposes.
National credit ratings influence the cost of servicing national debt through the rate of interest that is to be paid. The British national debt is rated by various ratings agencies, mainly the American ‘big three’: Standard & Poors, Moodys and Fitch.
On February 23, 2013 Moody’s downgraded UK debt from AAA to Aa1, the first time since 1978 that the country had been downgraded. Both France and the USA lost their AAA credit ratings in 2012.
All the main political parties in Britain agree that the national debt is too high, but there is disagreement as to the remedy. As of 2012 the national debt was forecast to approach 100% of (GDP), far above the government’s sustainable investment rule of a national debt no greater than 40% of GDP. The size of the debt can be reduced in several ways all of which are not without financial and political pain:
- economic expansion, which tends to cause tax revenues to grow and also leads to lower spending on welfare benefits
- an improvement in the banking sector, taking the pressure off government intervention
- cuts to public spending
- defaulting on all or part of the debt
- tax increases
- inflation, which reduces the total value of the existing debt over time
Unfortunately, large scale cuts in public spending have the potential to significantly dampen consumer demand and, by reducing economic growth, slow the increase in tax revenues. One significant aspect of advanced economies is their reliance on the level of spending by consumers – ‘consumerism’.
Almost 70% of the UK GDP is made up of consumer spending such that when an economic slowdown occurs the economy goes into freefall (recession) with rising unemployment, less spending and further unemployment causing a vicious cycle. It is this cycle which the UK coalition government tried to break in 2013 and everyone is still feeling the pain through their austerity programmes.
Politicians fail to effectively address government deficits
In the UK Parliament, there is disagreement between the political parties regarding the national debt; Conservative Party politicians typically advocate a larger role for cuts to public spending. By contrast, the Labour Party tends to advocate fewer cuts and more emphasis on greater government spending in order to stimulate growth.
Unfortunately as each parliament lasts only five years it engenders short-term policy-making and causes sudden changes in direction as each party in turn comes into power. Sadly the general outcome is that nothing really gets done properly or long enough to take effect; the country continues to drift, muddling on, as the deficits mount up and the nation becomes poorer. Drastic action is needed to change the very nature of our political and economic systems if we are ever to make progress in the right direction to improve everyone’s lot, not only for the privileged few.
This piece of the jigsaw is fundamental in our overall picture, now emerging, of a dysfunctional global system designed and run by an oligarchy of bankers and politicians whose main objective is to accumulate more and more resources and wealth to the exclusion of the rest of world.
Unless there is a will to change and improve the lot of the majority surely a revolution of some kind is inevitable? We witness every day the influence of the internet together with FaceBook, Twitter, Skype and all the other technologies that allow people around the world to know more about what is happening every minute.
The ‘powers-that-be’ can no longer hide behind their veil of secrecy, although they will still try with groups such as the ‘*Bilderbergers’, but to no avail; the truth will out, it’s coming soon to a country near you.
*Bilderbergers 2013 – From: presstv.ir
The 2013 meeting of the Bilderberg Group is currently underway, with the usual clampdown on media coverage, but it appears that “big data” is one of the main topics on the agenda. Big data refers to the massive amounts of information that are currently being gathered through the use of modern technology. The Bilderberg Group mostly uses big data to analyze global mega-trends and the information gathered by intelligence agencies. Other topics of discussion this year include economic growth, US foreign policy, Africa’s challenges, cyber-warfare, and online education. The meeting opened in Watford, England on June 6- 9.
British Prime Minister David Cameron, International Monetary Fund chief Christine Lagarde, Amazon founder Jeff Bezos, Google chairman Eric Schmidt, and former US secretary of state Henry Kissinger are some of the people attending the 2013 Bilderberg meeting. This year, a larger contingent of activists is protesting against the meeting. The Bilderberg Group is an invitation-only community which holds annual meetings with approximately 140 guests attending. It is comprised of many wealthy and influential people in the fields of politics, banking, business, the military, and news media.
Although the names of attendees and the agenda for meetings are available on their website, the group holds its meetings in private and there are no press releases about them, which has raised suspicions about the Bilderbergers. The group first convened in 1954 at the Hotel de Bilderberg in The Netherlands, which the group was named after.
To be continued next Saturday
Of course there are those who distrust and/or dislike Alex Jones, but I always enjoyed his coverage of the Bilderberg conferences. I remember a headline on the free internet that summer of 2013 which said “Jeff Bezos, Bilderberg Approved“. And the next thing you know, by fall of that year he bought the Washington Post.
Do you believe in coincidences?
Thanks AP (the better one)
Thanks Uncola for that observation which I didn’t know, so as you say there are many coincidences throughout the whole book and I do believe in them sometimes but for me the whole cabal has it in their hands to influence governments, finance and the economy to their own ends.