Myths about UK Government Debt and the £1.1 trillion Crisis We Face

UK debt rose dramatically at two times under modern capitalism – to fund the world wars and the rebuilding of the economy after the war. The debt built up during the Second World War and in its aftermath was finally paid off 60 years later with most of it repaid by the 70s as the UK and world economy experienced a period of unparalleled expansion. Most of the loans were to the US government at 2% per year – we are on average now paying 5% on our current loan book (£950bn) and 33% (£305bn) of our loans have to be repaid/renewed over the next five years. Our current economy has had the second deepest recession of modern capitalism and only a third of pre-recession output has been recovered that was lost and we are heading for a long period of a stagnant/declining economy. The government estimate that even with the cuts the debt will grow by £540 bn over the next 5 years. This is based on growth estimates by government above the city estimates. The city estimates will prove too optimistic themselves so the debt will be larger and there will be fewer revenues to pay the interest on the debt. This interest – again conservative – will be £250 bn over the next five years. This means that we will have to find conservatively £1.1 trillion over the next five years! 33% of our debt is held by foreign governments contrary to what some in the labour movement have been saying.
On the debt incurred after the first war and during it – this was borrowed from the US. It declined in the early 1930s because we and other governments defaulted on it when the US government, after the Wall ST crash, asked for it back early. This played a major part in freezing up world credit that led to the great depression. Sounds familiar?

Finally on the high level of private debt, this is what is at the centre of the debt/deficit/cuts. It is the losses over the last three years – estimated globally to be running at $2.3 trillion –that banks have made on private loans that led to the bail outs and the recession. It was paying for these bailouts and the shortfall in revenues as welfare expenditure increased during the recession that is at the root of our ballooning debt and deficit. Having high private debt goes hand in hand with having high and increasing levels of public debt spread right across society and countries.

The government is going to cut £83bn over five years which is 9% of the £1.1 trillion we have to find over the next five years. This is based on optimistic estimates about the economy. The government and city economists have got this wrong consistently over the last three years.
We were almost alone in January to March 2009 in calling the recession/near depression and the near collapse of the financial system and the bankruptcy and near bankruptcy of several banks and the collapse of the housing market. The LeftBanker is currently ranked 4th by Bloomberg amongst 1000 global analysts for the accuracy of economic forecasts.
Be wary of those who say the debt is not a problem and that has been bigger in the past. There is a very good reason for that as we have spelled out above. It is likely with the cuts and reduced growth they bring on will mean at some time we will have go to the IMF. Their cuts as a condition for loans will be much tougher.
We have to show that we are facing a crisis – which the coalition is walking blindly into it. But we have to build an alternative solution that does not mean we pay for a crisis made by the bankers, governments and the wealthy.