Honestly, just when you think you’re having a spot of blogger’s block somebody comes along and says something incredibly stupid and *phut* its gone.
So, for perhaps the first (and almost certainly last) time let me say “Thank you David Cameron.”
The country has got an overdraft. The interest on that overdraft is swallowing up things that the nation should otherwise be spending money on.
We don’t have an overdraft, do we? Talking as though we do makes you…
- …sound like an economic illiterate.
- …lend a sense of urgency to a situation which makes you further sound like an economic illiterate.
For point 2, I can point to the recent downgrading of Spain’s credit rating. Part of the reason for this was that Spain has moved a head with steps to reduce its deficit. Spain is still facing 20% unemployment and does not have its own currency so the Government’s spending was doing a great deal to help prop up its ailing economy. That support is being withdrawn and will likely have dreadful consequences.
But I digress, because it is his rhetoric I want to focus on. When it comes to the broader charge of economic illiteracy, we don’t even need to move beyond your humble host to see how stupid Mr Cameron is.
I bank with the Halifax. If I go overdrawn then at the moment they charge me £1 a day up to £2,500 and then £2 a day for anything over that. If I made full use of my £2,500 overdraft for a full year I would pay £365 pounds for the privilege. That’s an implied interest rate of around 15%. In actual fact, given that I have only been overdrawn by a few pounds for a few days this year, the actual implied interest rate I have faced would be slightly above 100%.
If I wanted a personal loan, Halifax has offered me an interest rate of 9.9%. Personal loans are a far cheaper way of borrowing money and it should be no surprise that this is a better rate than I received for my overdraft. If I wanted a mortgage, this money would be even cheaper still. So when David Cameron is talking about “The Nation’s Overdraft” what interest rate does that mean we are facing?
Bargain? You betcha! The Government retains considerable latitude to continue to run a deficit in the short and medium term. I would argue that it would be beneficial for it to do so until growth is better entrenched. Some Lib Dems agree with me, and I hope the party I helped campaign for operates a restraining hand on their partners.
It isn’t of course particularly good news that Governments are still able to borrow so cheaply. It implies that everything else in the economy doesn’t want the money, that they’re not investing, not hiring, not growing. It also implies that people expect future growth to be weak, if things were expected to get better soon then they wouldn’t want to tie up their money in something that returns so little.
Coalition ministers often talk about the nation’s credit card (15.9% Halifax have offered me, which is nice) but it is criminally misleading to think of a nation’s finances in this way. We shouldn’t be worrying about is that our debt is going to quickly become unaffordable, because it almost certainly isn’t. We should be happy we have a relatively cheap way to soothe the pain that this recession has inflicted on millions of people, we have that tool and it is called government.
Filed under: Economics
[...] the spinning of cuts see also: It all rests on an If…., This country doesn’t have an overdraft you twat, Why Cameron is wrong about the 8m “economically [...]
[...] Interest rates have gone down since things began to go tits up in Europe. The deficit last year was smaller than predicted which gives us more leeway this year. [...]
I think you need to learn a few econmics lessons. Even with a low interest rate, if you can’t afford to pay off the debt, the debt will increase. And increase. And increase. It will get to the stage where, even with a low interest rate, the amount to pay off the interest will be very large. Possibly larger than your income.
The problem with the country is that it has used it’s nice flashy credit card so much during the Labour years that when the income drops a bit (due to the recession) it suddenly finds it difficult to pay of the debt.
Just look at all the lessons on how to handle a credit card debt. If you only pay off the minimum, you are not paying off the debt. The CC’s interest rate has nothing to do with this. All it does is make the time before the debt gets out of hand longer.
This is what the country is having to do at the moment. Pay the interest not the debt. Paying off the interest means the debt still increases.
[...] As such, it’s all very convenient fit with Cameron’s ‘overdraft’ narrative, as also critiqued nicely by Left Outside. [...]
[...] David Cameron describes the UK’s debt as an overdraft it doesn’t matter that he’s wrong, it is easy to understand. When a Government’s finances are compared to a households it is [...]
[...] email fired from the hip on hearing the radio prattle about, including constant reference to the ‘overdraft’, and a totally uncontested interview with Matthew Sinclair of the TaxPayers Alliance. I am frankly [...]
[...] As Paul says the deficit is not looming over Britain. We have run deficits through a recession which have helped mitigated much of the worst of it. As the employment situation continues to stagnate deficits don’t loom, arguably they shine. A minor annoyance is that the Taxpayer’s Alliance is given a free run to complain about Britain’s overdraft. Britain can borrow at an interest rate of 3-3.5% for 10 years, if I had an overdraft like that I’d be over the moon. I repeat this country doesn’t have an overdraft, you twat. [...]
[...] economics is simple for David Cameron: The country has got an overdraft. The interest on that overdraft is swallowing up things that the [...]
[...] analogies may be wrong in terms of proper economics - even David Miliband got the hang of that – but that hasn’t stopped it being [...]