Debt, deficit and the economy

I suppose, when it comes to voting in national elections, as far as countries like the UK and US go, irrespective of the plethora of issues that concern people, the one the majority want convincing most about is who will deliver best regarding the economy, i.e. do what is necessary to create relative prosperity for the country in general and the individual voter in particular, and however strongly he/she may feel on issues like health and the environment or social justice, the one about the economy is more likely to stand out. I recognize when pressed on my understanding of economics, this is one subject where my eyes tend to glaze over, and yet I try to make informed choices, as a voter, based on my incomplete knowledge.

I am not going to argue here who I consider, either side of the Pond, will best deliver on the economy or any other matter, and recognize that this will be a hotly debated topic and the ideal is for those in government to do what it takes both to create a strong economy as well as attend to all these other matters. Not entirely related, but not unrelated either, is the question of debt and deficit, with the ideal that part of that delivery is to reduce the national debt and deficit (a rather tall order). Because the terms are often misunderstood, it is well to define them first, and here I refer to an article titled: “UK debt and deficit: All you need to know”:

Debt simply refers to the amount of money owed by the UK (or whatever) government. This is the debt that has been built up over many years by many governments – the running total if you like.

The current budget deficit, or surplus, is the difference between the government’s everyday expenses and its revenues; in other words, between what it spends and what it receives. In recent years, it has spent a lot more than it receives, so we are used to hearing about a budget deficit.

For both UK and the UK, each year the deficit in spending compared to income continues to rise, which means the debt will rise accordingly. Checking out debt clocks (here for the UK and here for the US) can be a scary prospect (the UK debt is circa £2 trillion and the US debt is circa $20 trillion and maybe three times that) and there seems little indication that a deficit reduction will be achieved soon and debt will fall, begging the question when the bubble will finally burst, which in the financial crisis of recent years looked as if it would happen but for trickery, bamboozlement and bail outs avoiding this. The UK Conservative led governments of recent years have been committed to a program of austerity and spending cut backs, in order to eventually arrive at a negative deficit. While claims are made of economic growth, evidenced by new jobs created, the counter is the poor are those who suffer most and the rich are doing fine thanks, meaning that it cannot be expected to remain the party in power should the opposition manage to get its act together.

Looking across the Pond is an even more daunting prospect. (I understand) the approach of the previous administration was to boost the economy by spending money it did not have (I need to check this out). Arguably, they failed to do so and what resulted was increase in welfare and reduction in jobs. The current administration is committed to tax reform and tax cuts, but also with cuts in welfare payments, and has laid claim with some justification that since coming to power in January $4 trillion has been added to the value of the stock market and 1 million new jobs have been created. What is frightening though, and this is something where blame cannot be laid entirely at one administration, is that the Federal Reserve prints money it doesn’t have and has dominated the financial system since its creation 104 years ago (see here for an explanation) and that there is a black hole that has gobbled up $40 trillion (see here for an explanation) thus making the real US national debt $60 rather than $20 trillion.

In conclusion, while I confess to my relative ignorance, I have also placed a stake in the ground to the effect I am committed to better understanding how the economy works and encouraging others to do likewise. I believe people need to be empowered in order to make government accountable and not be fobbed off by those who claim to understand what is going on but are more likely to line their own pockets rather than work on behalf of the populace in general and address the scandals behind debt, as well as meet the people’s needs.


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