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The 30 minutes of doom
The document discusses the dire state of public finances in the UK, with government debt projected to reach 900% of GDP, the level at which the Weimar Republic collapsed. It notes that government spending is unsustainable at 49.4% of GDP currently, and interest payments on the debt are projected to double to £88 billion by 2015. The author argues that printing more money through quantitative easing will not solve the underlying issues and will likely lead to high inflation. Three potential conclusions are outlined: expect inflation and maximize assets if adventurous; pay off debt and invest outside the UK if cautious; or prepare for government confiscation of assets, shortages, and social unrest if apocalyptic.
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The 30 minutes of doom
- 1. The 30 MinutesOf Doom
- 2. Let Me EntertainYou… • …with tales of: • National bankruptcy • Rip-roaring inflation • Lies, damned lies, statistics and spin • Chickens rattling in cupboards • Skeletons coming home to roost
- 3. Why is theGovernment so aggressive? • We all know that funds are short • What isn’t obvious from the lack of public discourse is exactly HOW short • Here is a short discourse to provide perspective
- 4. Some background • UKGDP £1400bn • Current growth rate 0.5% in last 2 years • 2011: – Government debt 98% of GDP – 2 years earlier than forecast – Govt spending 49.1% of GDP – Tax revenue 35% of GDP • 2012 increase in government borrowing was £125bn
- 5. Osborne’s spin • Governmentboasts about reducing deficit by 25%. • What this means is that our annual EXTRA borrowings have fallen from £160bn to £120bn • In accounting jargon – LOSSES OF £120BN • How many clients would last more than a year at that rate? • Well, they might if they could…
- 6. Print Money • Runningout? Cant pay your debts? • Start the printing presses. • And start a moral crusade against tax mitigation. • QE: the painless antidote to all our ills
- 7. Government spending • “Publicspending is an investment, not a debt.” according to the Public Services Union • “We used to think you could spend your way out of recession and increase employment by boosting government spending… I tell you that option no longer exists. And so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.” PM Jim Callaghan
- 8. Why is Goldimportant? • Few practical uses and no return • BUT: the volume of its supply is largely fixed, and annual production adds little more than 2% per annum • Therefore, fixing currencies to a fixed volume enforces stable currency • When governments resort to printing the price of gold rises because a fixed volume is priced in currency
- 9. History is litteredwith similar examples • “Those who cannot remember the past are condemned to repeat it.” George Santayana • “Everything has been said before, but since nobody listens, we have to keep going back and beginning all over again.” Andre Gide
- 10. Been here before •Worlds 1st paper currency abandoned in China AD 910 because of inflation • John Law set up the first General Bank in France in 1719 • Introduced paper currency backed by metals • Enthusiasm for paper encouraged trade and France boomed • Abandoned metal tie-in and kept printing
- 11.
- 12. If you thoughthat was bad…
- 13. And that’s justthe bit you can see • Add in personal debt… • And our debt is 5 times our GDP • More than Italy, Portugal, Spain … • …and more than double Greece • It’s the same as Japan who have had 20 years of stagnation to get there • And that is just RECORDED debt
- 14. The bits youdon’t see • A well-known Scotsman likes to discuss UNRECORDED debt – off balance sheet financing in the local jargon • Current estimates suggest a further £5 trillion • Which puts total debt at 900% of GDP – The level at which the Weimar Republic collapsed • For the USA it is a staggering $200 trillion against GDP of $14tn
- 15. It hasn’t alwaysbeen this way
- 16. Government Spending 2011(£bn) Category £bn % of GDP % of spending Healthcare 121 8.7 17.5 Education 92 6.6 13.3 Pensions 119 8.5 17.2 Defence 46 3.3 13.9 Welfare 114 8.2 16.5 Protection – police, fire, law etc 33 2.4 4.8 Transport 22 1.6 3.2 Government 18 1.4 2.6 Other – agri, housing, consulting 81 5.8 11.7 Interest 45 3.2 6.5 TOTAL 690 49.4 100.0 GDP 1396 100.0
- 17. Interest burden • In2011, it was £44bn (6.5% of GDP) • Debt burden projected to double by 2015 • Therefore: simple maths suggests interest payments will rise to £88bn • …assuming interest rates stay as they are • Government defaults are normally forecast to become likely when interest reaches 12%
- 18. It’s a bigassumption…
- 19. Where did itall go? • In the time it takes to read this sentence the government will have spent £175k • £26bn on failed computer systems • £76bn on Trident • £18bn on ID cards • Asset Recovery Agency cost £60m and recovered £8m • In 2006 alone, £57m in benefits paid to dead people • Annual benefit fraud £3bn • £800m on programme to make teenagers “feel more European” • EC CAP has recently decided to pay farmers twice for the same land • The cost of collecting tax is the same as 1958 and four times that of Switzerland • Decommissioning Sellafield - £67bn and counting • £250k legal costs as Chris Huhne to deny charges before changing plea
- 20. The cossetted publicsector Public sector Private sector Average gross pay £20,200 £19,200 Average hours 36 pw 37.5 pw Annual sick 13d 5d Final salary pension 88% 16% LA pension deficit £54bn Taking all factors into account, public sector earnings are estimated to be 33% higher than private sector In Rhondda Cynon Taff, there are 17 officials earning between £100k and £200k, a county of only 232k residents and income per head at 64% of UK average
- 21. Spot The Trend •1970 GDP £52bn National Debt £33bn 63% – Gives rise to the Lost Decade • 1978 GDP £169bn National Debt £79bn 47% – Causes the winter of discontent • 2015 GDP £1600bn National Debt £1500bn 94% • Inflation has bailed Britain out in the past • But in prior years we didn’t have: – Huge state dependence for income – Massive unfunded promises on pensions • In Wales, 75% of the population is dependent on the state for income • In Scotland, its even higher
- 22. Post War • TheNational Debt was far higher after the war • It had popular approval • Demographic factors permitted debt to fall as % of GDP: – Women entering the workforce – Massive housing as generations stopped living together and bought their own houses – Baby boom brought lots of children into a population where many older had died
- 23. Its our fault •In 1909, there were 10 workers for every pensioner • In 1960 there were 5 workers for every dependent (pensioners and children) • Currently less than 50% of the population have jobs • State pension was affordable when the life expectancy was 48 and it wasn’t paid until 70. • Now life expectancy is 83 with pensions paid from 65. • Current pension promises from the government amount to £5trn.
- 24. Crisis? What Crisis? •Government spending set to rise to £735bn in 2015 from £690bn in 2011 • That is forecast to be 41% of GDP • Therefore GDP expected to be £1,792bn • That is a rise of around £25% • So where does growth come from?
- 25. QE: a crashcourse • £375bn printed in the last 4 years • £34bn lost in tax revenues because QE depresses gilt returns and reduces pension fund income • Government thinks is the answer to the government’s problem because… • GDP inflates, debt is static • But the Weimar Republic collapsed when debt exceeded 900% of GDP
- 26. Tax Burden • Newfiscal report suggests 60% of tax paid by 14% of taxpayers • Government committed to reducing burden on lower earners • So guess where it is going to come from • New pension proposals will cost £1600 per household per annum
- 27. Conclusions? • If youare adventurous: expect inflation, maximise debt, buy assets and as long as you can pay your way there might be riches if the banks don’t go bust
- 28. Conclusions? • If youare cautious: pay off debt, buy gold and other precious commodities, build reserves and invest them outside the UK, concentrate on income rather than capital and stand back to watch the play unfold
- 29. Conclusions? • If youare apocalyptic: Government confiscation of private assets in the interests of fairness, food and power shortages, riots on the streets, Britain becomes owned by the Chinese
- 30. Just remember… • Its only money • Money is just a medium of exchange • The assets still exist • Plants still grow • Winds still blow • People will still need businesses so concentrate on PEOPLE AND BUSINESS, not MONEY