When I wrote in support of the 20 economists who sent a letter to the Sunday Times urging quicker action to tackle the deficit, the one gnawing worry in my mind was the past foolishness of economists writing letters to papers. This morning more than 60 economists have put my mind at rest. A majority of those signing letters have decided to back the wrong side of the argument, restoring my faith in the way the world works!
Readers of this site will be tired of hearing of the build up of unsustainable public debt. This is indeed a very slow crash so far. Unfortunately the fact that to this point it is slow and happening in little steps rather than as a headlong rush does not make it any less real.
The government is now having to pay more for its borrowing than a year ago, despite the purchase of £198 billion of government debt by the Bank of England. The pound is inching lower, and has already devalued by around one fifth in this crisis. This morning the pound is at $1.54, comparing it to another heavily indebted country.
Interest rates for the private sector have been forced up to high levels, with people haivng to pay 18.5% for credit card borrowings and 4.5% for a mortgage. Businesses are paying well over 5% and some over 10%. This is the price of regulatory failure over the banks and the weak bank balance sheets which the government finances and the rash monetary policies have created. There is a price to pay for excess public spending, in short term higher rates for the private sector, and longer term higher taxes to squeeze enterprise more.
It is intruiging that only now have some of the newspapers really gone to town on the debt. Yesterday’s figures showing the state borrowed another £4 billion in January were not especially shocking. They were, as the Treasury points out, the kind of figures you would expect given the published forecasts for massive borrowing this year.
There are signs of hope in the reaction. The fact that January is usually a month when revenues exceed spending is just an excuse. I guess what is happening is that the British establishment is coming round to the view of the 20, not the 60 economists. Lots of “serious” people now agree that the deficit is too large. It is time for a new Dunning resolution – “The debt has increased, is increasing, and ought to be diminished”.