In these trying times almost all of us in the UK are struggling to pay the bills, to save some money or just to get by. But it is always as well to bear in mind those wise words of Mr Wilkins Micawber in David Copperfield, "Annual income £20, annual expenditure £19-19s-6d, result happiness. Annual income £20, annual expenditure £20-0s-6d, result misery." It is a simple homily but in this modern world it is widely disregarded. Everyone seems to be in debt. Billions are borrowed to buy houses which become more and more over-priced. A house is no longer a place to live but is becoming more of an investment for making money and ought to be kept in a bank vault rather than lived in. It used to be the case that no-one could borrow money to buy a house if the price was more than four times an annual income. That went out of the window in the years before the financial crash when liar mortgages became almost normal; ie a borrower could tell the bank or building society that they earned fabulous salaries of £80,00 or £100,000 per year or..... anything; Just take the price of the house that you wanted to buy, divide by four and that was your declared annual salary. No-one checked to see if it was true and soon everything collapsed. Things are not quite that bad now but still people are borrowing too much to buy over-priced houses and hoping that interest rates will remain low.
But it is not just private debt. The government has huge debts — and still they increase. By the time of the election in 2015, total government current debt will be about £1,400 billion. How are they going to pay that off? The annual interest alone will be £40 billion+. This debt figure does not take into account the money that will be needed to finance future public sector pensions — another vast sum. As the government declares what a wonderful job they are doing in reducing the extra amount they need to borrow every year because they spend more than they receive in tax and duties. They never mention these days the country's current account deficit. In the past, the monthly current account deficit was reported in news broadcasts and in newspapers. It was considered important — and it is. Now nobody bothers. The trouble is that it is BAD!
Our current account deficit is running at -£10 billion per month. This means that our imports exceed our exports by £120 billion per year. It is atrocious; it is absolutely incredible. The trouble really started in the 1980s when Thatcher told us that manufacturing was of no importance. She was wrong about that just as she was wrong about many other things. We need to make things which other countries want to buy and we need companies that are British owned. British owned allows us to keep control and to work for the benefit of UK Ltd. Sell off the companies and they can move manufacturing anywhere in the world that happens to be suitable. But until we start making things to sell, we have to sell off whole companies in order to balance the books. Any short falls in the old days were made up by financial services. But not any more. The government could, of course, jack up interest rates. This would bring down house prices, lift the value of the £ and would make our imports more expensive while encouraging our cheaper exports. But it probably will not happen before a general election.
The chart above shows how things have deteriorated in the last 20 years. During the days of John Major, the deficit ran around £10 billion per annum, an amount easily made up by financial transactions. But from the moment Blair took over the trading debt went up and up until now our trading deficit is 12 times worse than the rate under Major.
You know it makes sense. What does the government think? Nick Clegg thinks we should give everybody free school meals.
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