29 Mar 2013

The End Is Nigh

Money Week are predicting a financial Armageddon in the near future.

The basic idea is that we've over-committed ourselves to welfare spending. At the same time private debt (my hobby horse) has also sky-rocketed. Money Week put the UK's total debt at something like 900% of GDP though I struggle to see where they get this figure. Private debt is about 440% and static, and government debt is 73% and rising. They seem to derive the other 400% from welfare spending commitments. We can just about get away with it for now because interest rates have been getting lower for 30 years. The problem will hit when interest rates start to go up again and the government will not be able to afford to pay it's debts. This will trigger a downward spiral. And interest rates have reached their nadir according to Money Week. Sometime soon they'll be going up.

Since their track record of predicting disasters appears to be pretty good this seems to be worth taking seriously. They also have history on their side. No nation in history with this level of debt has avoided financial collapse. It's only a matter of time. They're offering some free advice on the problem, and some free issues, so tying the prediction into a circulation drive. This looks a little cynical, but they do appear to be sincere in the warning.

In the Video version you see the text on the screen one sentence at a time and some one reads it out in a detached and emotionless voice. It ain't hardly Max Keisier. Frankly I think they wasted their money creating a video that is mainly the same text and audio - and has no controls, no timer (it's over 30 mins long) and no way to embed it elsewhere. I don't think it adds much to reading it for yourself. And in the video the charts tend to flash by too fast. I'd suggest reading it for yourself and lingering over the charts.

Now the charts are problematic. They present all their charts in £ terms. So government spending is going sky high in real terms, but such a chart doesn't take into account population growth or the growth of the economy (which both grew exponentially till 2008). I think this detracts from the story a little as it's choosing rhetoric over clarity. Spending as a percentage of GDP is a totally different picture. It's still going up, but the situation is less bad than say 1945 - and Money Week choose to make it look much, much worse.

Yes, the British population is ageing, but immigrants tend to be young and have larger families. What is this doing to the population profile?

I asked a couple of the heterodox economists I know on Twitter and they reckon it's scaremongering in search of customers. "They're trying to sell stuff". Probably true - they are a business. But perhaps it's worth having a gander at the argument to see for yourself.

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Keep is seemly & on-topic. Thanks.