A trillion here, a trillion there, and pretty soon we’re talking serious money Britain is now one of the most indebted countries in the world. We have personal debts of £1.5 trillion; national debt rising to £1.4 trillion; unfunded public sector pension liabilities of another £1trillion; and all this on top of a £1.3trillion bank rescue programme. Britain is in deeper debt now than after the Second World War and our children will be paying it off for most of their working lives.
Of course, figures like these eventually become meaningless - a trillion won’t fit on most pocket calculators. Even the politicians can’t grasp them because they are literally astronomical - the kinds of numbers used for the measurement of the universe. But this fuzziness about value, is itself becoming an economic factor. Psychologically, we are already entering a pre-inflationary world, where value ceases to have any fixed meaning.
No, we’re not there yet. In fact, one measure of inflation, the RPI is expected to be negative for most of this year. Deflation, or falling prices, is seen as the immediate enemy by bankers and ministers. But the trillions of debt piling on top of each other tell us only one thing: that the next government will have little choice but to try to inflate its way out of the debt burden. The alternative: tax increases and public spending cuts would be politically unsustainable on the scale required. No matter what politicians in all parties may say now, inflation is their plan B.
The surest sign of this was the way the Budget made no serious attempt to explain how the government intends to pay back the colossal debts racked up during the bubble years, other than to make fantasy assumptions about growth returning to 3.5% in 2011. This ‘forecast’ was an insult to the intelligence of the electorate, and the Chancellor has rightly been condemned for delivering it. No serious economist believes that such a “trampoline” bounce back is possible.
Yet even on these fantasy forecasts, the government is STILL planning to borrow more over the next five years, than the total sum of all government borrowing for the last three hundred. There are doubts about whether the government will be able to raise even the £220bn it needs this year to keep its head above water. Public borrowing is running at 12% of GDP the highest in the G20 nations. Not even Ireland is in such a bad way. Britain is now heading inexorably for a debt crisis comparable to 1975/76 when a similar finance and property crash led to a run on sterling and a dash for the IMF. Only this time, it is much, much bigger.