Unfunded Promises? No such thing!

All Govt spending  comes back as taxation eventually. Where else can it go? So, there’s no such thing as “unfunded promises” or “unfunded spending”.  Now that the UK’s election campaign is well underway we are hearing  accusations along the lines that their opponent’s sums “don’t add up” ,  or “they haven’t done their costings properly” . It is  from both sides. It’s not just the right wing that doesn’t understand how money flows in the economy. Labour is just as bad, and maybe even worse, than the Tories at the present time.

Money arrives in the economy when government spends it in and leaves the economy when government taxes it out. More can’t leave than arrive for other than a limited amount of time. It’s physically impossible.

The government doesn’t tax it out because it needs the money. Why would it? It’s created it in the first place. The UK government hasn’t adopted the euro, the UK government still has total control over the issuance of its own currency. It’s like saying a theatre needs to collect its theatre tickets because it needs the tickets. Or the Post Office needs to collect back its stamps because it needs the stamps.

The government imposes taxes to cancel its stamps and tickets – effectively. It does that to prevent high inflation in the economy. So, providing inflation is under control, government spending can be allowed to rise – especially if there is slack in the economy and there is an unemployment and underemployment problem. If inflation isn’t under control spending needs to be trimmed back or taxation increased.

If we are worried about the future economy that our children will live in, we only need think about the one we live in now to know what the real worries should be. What do we thank or blame our predecessors for? We thank them for the railway network, the road system, the health service , the education system etc. We blame them for some of their past environmental practices which mean that rivers have to be cleaned up, buildings which should be white are actually black with accumulated soot, some of their slipshod practices over the disposal of nuclear waste etc.

Do we worry about the ‘debts’ they accumulated? Not at all. They are of no consequence to us now.

Never mind the deficit just vote for the recovery!

It’s difficult to know who to back in next month’s UK elections. Europe is a major issue which the most normally sensible parties, or at least the parties who the public normally consider to be the more sensible,  have largely chosen to ignore  in the run up. The events in the eurozone are highly significant, in particular the Greek crisis,  yet those in the most pro-EU parties don’t want to talk about them at all.

There’s next to nothing about it on Labour’s main website, Labourlist, for example.

Funny that!  Those who believe in a united Europe, as many of our more ardent EU advocates clearly do, should feel as strongly about unemployed young people in Spain or poverty in Greece as about hardship in the UK.  Yet, if they ever remember to make a critical comment, it is not because they wish to change anything. The just expired Parliament has seen a complete absence of Labour opposition to any new laws or powers for the EU.

If the UK today had 50% youth unemployment as the south of Euroland currently suffers, Labour would never let us all hear the end of it – and rightly so. If the UK had Greek levels of unemployment, and a Greek cost of living crisis which has depressed average real incomes by almost a quarter since 2007, again we would not hear the end of it, as Labour would rightly think it completely unacceptable. So why is it that these people who believe in pan European solidarity have nothing to say about the scandal of poverty and joblessness in large chunks of Euroland? Why are they not insisting on new policies for the EU?

The situation is far from ideal but it’s probably best to vote for the party who you feel will produce the best recovery. The recovery, when it happens, will fix all deficit problems. Firstly a healthy economy will mean increased taxation revenue. Secondly, if the economy is healthy no-one is going to worry about debts and deficit anyway. The US$ is surging at present as investors buy up $ securities. Are they worried about a $17 trillion (or is it $18 trillion by now?) debt?

I don’t think so. There are those in the USA who can’t make head nor tail of it all and are pushing for a balanced budget. I can’t see them getting anywhere but heaven help us all if they do!

Balancing the Budget !

As election time draws near in the UK , and the US presidential election campaigns start to get underway across the Atlantic,  we’ll no doubt hear a lot about this topic shortly, if we haven’t already.  Apologies if you’ve heard this all before but the political and economic mainstream still don’t grasp it. Political parties will accuse their opponents of making “unfunded promises”, and of having “black holes” in their budgets etc . Nations’ finances will be likened to a household.

Except that Sovereign Governments, like the USA and UK are issuers of currency. They aren’t at all like a household. If a household has a deficit of say £10k pa then, generally speaking, spending cuts of £5k coupled with an extra £5k of earnings will fix the problem. How many times do we see see the same logic applied to countries too? It never works. It can’t work. Governments afterwards wonder why. It isn’t difficult to understand:

Money Flow

Money coming into the Private Domestic Sector , which is essentially what we all think of as “the economy” can only be from two sources. Government spending directly into it (Gsp) , and payments from overseas for exported goods and services. How can anyone possibly think that reducing Gsp isn’t going to affect Taxes paid? Every £ or $ collected in tax originally comes from Govt spending.

The ability of the economy to deliver taxes to the government has to be directly related to its income. Reducing its income will  make us all poorer and reduce our ability to deliver those taxes.  Spending cuts won’t do anything like as much towards reducing that deficit as is usually supposed.

How much simpler could it be?

And yet if the “balanced budget” cretins get their way what will happen?  The government will makes cuts, tax revenue will fall and the deficit will end up not much different to what it was previously. The cretins will then argue they didn’t make enough cuts and that they’ll need to make more on the second round. And so it will go on, with increased levels of unemployment and business failures at every stage.

We just can’t let this happen. It’s madness.  Instead of forcing the budget to “balance”, we should should look at balancing all the money flows to maximise our economic potential.

Eurozone electors have been sold a lemon!

Being sold a lemon means you have been tricked into buying something which is seriously defective. When you say that something is a lemon it implies that it is useless because it fails to work properly.

lemononwheels

That’s a pretty good description of the the German dictated piece of financial engineering known as the Euro. It must rate as one of their worst ever engineering efforts. Even the much maligned East German Trabi is an engineering marvel by comparison.

Trabant20-540x304

Unlike the euro system, the Trabi has a starter motor to re-start the engine  after it has stalled!

The Euro, and the GSP rules that go with it, is clearly not fit for purpose. The Greek electorate is more than justified in demanding it be fixed under warranty. However, the makers have just declined, and are even insisting that the problems are all of the customer’s own making. No-one else has reported any problems! Except the Spanish, the Irish…….

There has to come a time when the buyer has to consider a  “lemon” is much more trouble than it is worth. The buyer  needs to stop making any further payments,  ask for a refund, ask for damages too,  and ultimately get rid of it.

European lemmings!

I hope Martyn Turner doesn’t mind my addition of a second cartoon pic to his excellent first one!

Martyn_Turner_February_21_2015

Martyn_Turner_February_21_2015_2

Edit: These look more like pigs than lemmings. Gadarene swine maybe?