Debt is easy to get into, but difficult to get out of. In 2008-9 the debt crisis was all about people who had borrowed too much on mortgage, and banks which had lent too much. On both sides of the Atlantic that is being sorted out. Gradually people are paying off debts, and taking out fewer and smaller new mortgages. The rules have changed, making it more difficult for people to borrow too much to buy a home.Ā The better banks have raised more money to pay any losses. The weaker banks have been given state support.
Now the problems have switched to the governments. Many of them have borrowed too much, and made it worse by propping up weak banks with state money. This summer has seen big worries about Greece, Portugal, Ireland and Cyprus. There are developing concerns about Spain and Italy.Ā Recently even the USA has had a wobble, as the politicians fell out over how to control the debts the US state is building up.
Why does this matter? Because all taxpayers have to help pay the interest on the debt, and one day have to help pay it all back. Government borrowing is our borrowing ā itās a grand collective mortgage, on top of our own personal mortgage and credit card debts. It matters because if the government takes on too much debt, it can land us all in the mire. Far from being friendly and caring to borrow more to pay for our public services, it can get out of hand. When you borrow as much as Greece the interest rate the state has to pay goes through the roof, then the markets refuse to lend you any more. That leads to bigger and more rapid cuts in public spending, and poor economic performance as the politicians belatedly seek to get on top of the problem.
Ā IĀ have been busy this summer talking about and explaining the UK economic problem. The UK has borrowed too much. It is still adding to the debt on a large scale. Ā I agree with the Coalition government that they need to curb the debt before it swamps us all. This government plans to increase the state debt by Ā£485 billion over five years ā thatās Ā£8000 each, or Ā£32,000 for a family of four. I do not understand those who think this is not enough, and want the government to spend and borrow more.
I also think they do need more to promote growth. I am pushing for another package of measures to make it easier to do business in the UK, and to take some of the pressure off private sector business and family budgets. Some tax rates could be lowered to get more revenue in ā some rates are now putting people off saving, investing and bringing money to the UK. Some regulations are expensive and not very effective, and could be tamed or removed. The state owned banks still need changing, so they offer more support for small and medium sized enterprise.
Thereās a lot to do this summer, as we seek to fend off the Euro crisis and keep our recovery on track.