Catastrophic Potential of Massive Government Borrowing

The government is putting the British economy and the pound at risk with its £20bn "borrowing binge", Conservative leader David Cameron has told the BBC.

Mr Cameron said planning for a short term giveaway only to "whack up taxes later" could make the recession worse.

Source: news.bbc.co.uk...

Someone in a position of influence who's prepared to 'tell it like it is'. Yes, as Leader of the Opposition it's his job to hold government policy up to the light and hold them to account, but he could easily have toned this down for fear of upsetting the markets.

Listen to the (short) video in the article. He states that the bank recapitalization programme, while saving the banks from collapse, has failed to save the wider economy.

This clearly reverberates with recent experience in the US.

Some might also argue that bailing out failing institutions just prolongs the pain anyway.

What Cameron says about leaving an unfair burden on our children for the long-term reminds me of the concerns many have voiced in here (often very vehemently).

Here's another good point he makes: if people know they're going to be hit with big tax rises in future, they're less inclined to spend now. Businesses will also become very wary, he predicts.

So what's the alternative?

Announcing that a Tory government would abandon Labour's spending plans from 2010, he said to avoid tax rises it had to be brought under control now.

- I.e. a severe retraction in state spending.

This has now become SO much like the politics of the 70s! Left-wing government: solve everything by spending more; right-wing alternative: promise less tax & cut government spending. The only difference is that the incumbent left-wing leadership has recognized that blatant tax rises now will lead to unpopularity (and guarantee them losing the next election - as happened in 1979, leading to the Thatcher govt.), so they seek to fill the hole in tax revenues through massive increases in borrowing.

Not very prudent.

Just digging a deeper hole...



Related threads:

UK economy no better than in 1929 +Stirling at its lowest since 1996

What the hell is going on with the pound?

[edit on 9/12/08 by pause4thought]

Well stated...
Keynesian Theory has run its inevitable course...and the debt will have to be accounted for one way or the other eventually....now is as good a time as any

reply to post by RolandBrichter


I fear it is just human nature to prefer to try to make things easier now and not worry about the consequences years, even decades down the line. The electorate is therefore not up in arms about the risks of massive increases in government borrowing.

But it's a double whammy: if what he is saying is correct all this borrowing does is reduce the incentive for business to invest or for individuals to spend.

It is therefore economically short-sighted.

It's nothing but an attempt to increase the government's chances come election time.