Latest On Real National Debt

MONDAY, OCTOBER 19, 2009

Latest On Real National Debt

And they thought things were bad then...

The last time we calculated the real national debt - including all those off-balance sheet Enron items - we got to a figure of £1.8 trillion. But that was last year, and things have moved on since then.

Now Brooks Newmark has updated the numbers in a pamphlet for the CPS. He calculates the current figure at £2.2 trillion, or £86 grand for every single British household.

Here's how he gets there:

So the next time some soothsayer tells us our national debt is still low by international standards, we should remember that - our true debt is nearly 160% of GDP, much higher than most competitors on less than 100%.

Except of course, as beady-eyed readers will have spotted, Newmark's figure stillexclude a few of the debts we've blogged so often.

First, although most of the Crock and Bradford & Bingley debts are now included in our official national debt, Newmark has excluded the liabilities of our two bigsemi-nationalised banks - RBS and Lloyds. Adding them in would increase our debt by £2.4 trillion, more than doubling the total. To be sure, those liabilities are backed by the banks' assets, which are supposedly enough to cover us. But how lucky do you feel?

Second, he omits the costs of decommissioning our old nuclear power stations, which are a direct liability on taxpayers. When last sighted, we reckoned that amounted to £73 billion.

Third, he (and we) omit the scariest liability of them all - the cost of future state pension payments - ie the old age pension. When we crunched the numbers on that (based on the Turner Report's projections) we came to a nerve-shredding liability of £7 trillion. In truth, the current number is only around half that because the relevant discounting factor for future payments has increased (ie the yield on government index-linked bonds has gone from around 1.5% pa to around 3% pa). So let's call it £3 trillion.

Which means that if we wanted to be cautious - admittedly not something our present rulers have been much good at - we'd say our real national debt is now in the range £7-8 trillion. Or around £300 grand for every single household.

Gulp.

SUNDAY, OCTOBER 18, 2009

Breaking The Bank

The original bank breaker was 91 when he filmed this

What about those bankers, eh? What are they thinking of? No sooner do we bail them out, then they're stuffing their pockets again.

As we've blogged before, we have no problem with highly paid bankers.

Highly paid bankers, we like. As far as we're concerned, they can pay themselves as much as they can stagger home with.

It's just their huge subsidy we don't like. We don't see why we should subsidisethem to make a fortune at our expense.

To reiterate (see here for fuller version), our bankers have always got a whacking great subsidy from the rest of us via the explicit and implicit guarantees we provide on their debts. Which, as long as they were laying all those lovely golden tax revenue eggs, we were prepared to turn a blind eye to.

But when a whole batch of those eggs smashed open and we saw they weren't realgold, we naturally got somewhat pissed. Especially when the IMF told us it would likely cost UK taxpayers $200bn.

So given that, and given the fact that some of these banks are now in direct public ownership, and given the fact that their profit surge reflects the extraordinarily low interest rates implemented to shore up the banking system, you might have thought they'd go easy on the old bonus bonanza for a while.

Wouldn't you?

Nah.

No chance.

So what should we do?

As we've said many times before, the obvious and necessary step is to break retail high street banking away from investment casino banking (a new Glass-Steagall). We continue to guarantee (and heavily regulate*) high street banks, but investment banks are on their own. Granny's high street bank deposit is safe, but the Bastard Corporation's super-enhanced Teir 2 capital notes are not.

And we announce it loudly to the world. We say: "London remains the global centre of casino operations, and we will do everything to enhance its position, including light touch regulation. We celebrate and embrace its high rolling players. They can snuffle up as much as they like; they can buy up Holland Park and Oxfordshire; we will never impose punitive personal taxation upon them. But... and this is an important but... nobody should assume we are guaranteeing them at the tables, because we are not. If they lose your family fortune, it stays lost. Buyer beware."

Ah, you say, that's all fine and large. But Lehman was already a pure investment bank, yet when it went down it brought down the roof. So would a new Glass-Steagall actually work?

Sure, Lehman was a pure investment bank, so in theory its collapse should not have brought the world down. But the problem was that everyone had assumed the US government would stand by it. Nobody had ever said what we're proposing is said now, so when Paulson pulled the plug, it came as a huge shock. Nobody was any longer sure of anything.

If the rules were spelled out clearly in advance, we wouldn't have that problem. And because their cost of capital would increase, investment banks would find it much harder to grow so big they could never be allowed to fail.

Focusing on bankers' bonuses is focusing on entirely the wrong issue.

*Footnote - We've heard it argued that experience with the Crock shows that splitting investment and retail banking isn't the real issue - after all, the Crock was a pure retail bank. But actually, all the Crock proves is that our retail bank regulator was incompetent. The FSA did a truly shocking job of regulating Northern Rock, as the subsequent enquiries showed. And that experience ought to make us even more wary of assuming those same stumbling regulators are somehow capable of regulating global megabanks which incorporate both retail and investment banking under one roof. It's pure fantasy.