I really think fiscal rule is the least of a worry right now. Things are so bad that being pragmatic, we need to accept a little bit of inflation pain. For sure, the HM Government is not going bust at this debt level.
However, it HMG (and G7) does nothing, then maybe HMG will go bust as global depression will hit its tax revenue hard and if this goes on, plus a deflationary spiral, at some point, the HM Gilt will get no buyer (what would anyone want to lend money to a government whose economy is crashing ?) and HMG will go bust indeed.
We are beyond the traditional fiscal conservative thinking now (it should have been done long ago), we are now at a stage of attempting to preserve the future.
In 1930's there was a lack of infrastructure and the government didn't have a huge amount of debt.
As such, the government can borrow and be relatively productive in that the end result is debt, but with productive assets.
The UK is current indebted, and has the infrastucture. The Keynesian solution is barking.
The solution to the UK is massive cuts in public spending. 30-50%, and the resulting savings used to reduce taxation. This is also enables interest rate cuts.
The other thing to do is to stop unfunded state sector pensions. All new contributions have to be put into a fund. Then the state has to be concerned about its knock on effects of its policies. If you want to implement windfall taxes, you can but your pension suffers. It aligns the interests nicely.
Nick
"we need to accept a little bit of inflation pain."
You obviously aren't living on your savings!
"Yes, the months ahead are going to be tough. But I remain optimistic that our free democracy and free-market economy will survive this crisis, as well."
Don't Jump article from Laurence Kudlow.
Wat,
You and some of the posters above seem to be under the impression that the public sector is somehow running out of money.
This is clearly an erroneous impression as recruitment firm Hays says that public sector recruitment was up by 15% in the first quarter. Now, you're not seriously telling me that they'd be recruiting like mad if the money had run out , are you?
Let's face it, that would be recklessly irresponsible, wouldn't it?
http://www.independent.co.uk/new...ket-
956712.html
Sorry, it's not public sector recruitment that's up by 15%, it's recruitment spending. You'd imagine the two might be closely related though.
Anecdotal evidence is that the public sector has been losing people (and very good people) to the private sector at quite a high rate - and in education in my area it has been going on for a long time. Some may now be regretting it and trying to get back in (but that should result in lower recruitment spending because they will be knocking on the door rather than needing to be persuaded).
In the Interwar Period Britain had huge debt, largely to USA. It had enormous debt servicing costs consuming 21-30% tax receipts until Chamberlain cut War Loan from 5% to 3% and Britain defaulted on US WWI debt repayments.
The huge debt overhang from WWI plus Churchill's Gold Standard disaster in 1925 led to a straitjacketed economy in Zombieland servicing debt in US Dollars.
That is why Interwar Europe was a mess - Russia no longer a growth export market and Central Europe hobbled - Smoot-Hawley to cap it all off.
The problem now is that Britain has Monetary Base Control something the BoE has never been able to implement because of incontinent Government borrowing - Brown has added to the problem by substituting PFI for Gilts and leaving insurers and pension funds with mismatched portfolios into which they injected CMOs as a surrogate Gilt.
The Pension Funds were stuffed with Equities inflated by Buybacks funded by Debt and are now caught on a deleveraging cycle with Brown having plundered their income stream for many years.
For the individual Cash is king and the future has no positive DCF because risk-weighted it looks absurd. The whole of British Savings policy has been a subsidy to Institutions - ISAs, Pension Plans - all subsidise the institutions not the saver.
No other sector has been as subsidised and subject to lax regulation as Finance and none has been as reckless in selling shoddy products without warranty
Commenting by HaloScan
