There is a strange quiet amongst a lot of the commentators that I listen to or read when it comes to the macro economy. That quiet represents agreement, and then the fear that when quite so many are in agreement, somehow, somewhere, something happens and it just doesn’t work out as everyone thinks it is going to.
This agreement is based on one basic principle. It is that there is only one palatable way out of this current debt pile built up, not just by the UK but by all other western economies as well, other than a massive structural change like the change at the end of the Bretton Woods system in 1971. That way out is ‘inflation, inflation, inflation’ - but I am not sure that one will take off as a successful property TV show!
Why – and what’s happened? Well you’d have to be living under a rock not to have noticed the global pandemic – on the back of that, massive amounts of money have been borrowed (i.e. printed) and government bonds issued (many bought back by the countries own central banks, which is confusing at the best of times).
The amount we are going to be talking about once the dust settles in the UK will sit between £750bn and £1trn in my view. This is on top of a debt pile that was around £1.6tn before the pandemic got underway – so the UK national debt will have grown by around 50-70% from a starting point that was already quite high by historical standards (60% of GDP was the EU mandate, originating from Maastricht). We will, in the UK, be sitting at more like 120% once the economic recovery really kicks in and we don’t have a massive cash requirement to make up for vastly reduced tax takes and expensive Covid recovery/coping schemes such as the CJRS (Furlough) scheme.
It continually frustrates me that politicians use the national finances and compare them to an individual, especially when they want to cut spending. They make out like the country needs to run its finances like you or I – revenue, spending, debt and when there’s no more to borrow, they are bankrupt. That’s not reality at the national income level – it is more accurate to say that if you look fiscally prudent, you can carry on borrowing money under the current system almost ad infinitum.