Tuesday, April 06, 2010
A general election has been called. A few simple calculations show the magnitude of the problems the next government will inherit. Forget politics, no government will have any choice; economics will dictate.
This year our national debt will exceed 800 billion pounds. Over the next 2 to 3 years it will pass the 1 trillion pound mark, that is 1 thousand thousand million pounds.
These are the official figures, the real total of government debt is much more. The true figure should include off balance-sheet, stealth debt such as the Private Finance Initiative, and commitments for under-funded public sector pensions.
Total British debt is the sum of state and private borrowing. Private debt is currently estimated at 1.4 trillion pounds.
Total British debt must be more than 2 trillion pounds, and increasing.
This is an unprecedented, catastrophic total. Interest payments alone must exceed 100 billion pounds annually. It will be a massive burden on Britain, its children and its grandchildren.
To get some idea of the magnitude of these figures, try the simple experiment suggested by the BBC.
Imagine we started to repay debt at the rate of 1 pound per second: how long to repay 1 trillion pounds?
Well, there are 60x60x24 = 86,400 seconds in a day;
so a million seconds is 11.5741 days;
and a billion seconds is 11,574.1 days, or 31.688 years [assuming 365.25 days / year];
and 1 trillion seconds is 31,688 years.
Therefore, at 1 pound per second it will be 31,700 years before our debts are repaid;
if we increase repayment to 100 pounds per second we need 317 years;
and that takes no account of interest.
At 1 pound per second we pay 31.56 million pounds annually. That is 0.000032% of 1 trillion pounds. To pay 3% interest on 1 trillion pounds requires 30 billion pounds annually, 82.2 million pounds per day, 951 pounds per second.
These sums - interest and repayment of capital - are impossible to achieve. Can a country go bankrupt? I guess the International Monetary Fund would be the receiver, and dictate socially devastating economic strictures: a recipe for revolution.
Governments have an option denied to private borrowers. Governments can print money, undo the link between money and value, create inflation, and destroy the debt. The Bank of England printed 200 billion pounds during the past year, to buy government debt.
This is a sophisticated, dishonest means of default.
Inflation renders a currency worthless. It breeds poverty, lawlessness, ugly politics and violence.
Inflation created by insupportable reparation debt destroyed the Reichsmark, with disastrous consequences for Germany, Europe and indeed the world.
But the resolution of an inflation crisis must be the creation of a new currency, a fresh start built on a ruined country and a devastated reputation.
So I would advise Brown and Cameron secretly to pray to lose this election. The next prime minister has a task impossible to fulfil; he can expect only criticism, ignominy and grief. Better to be in opposition and watch the storm destroy the governing party; this crisis must come to a head before an election 5 years from now.