Our Addiction to Debt

Ladies & gentlemen, Modern Monetary Theory is dead! The last 3 years of hyper inflation have put paid to the notion that we could print money without facing the consequences of inflation.

The biggest challenge facing the next government is going to be the challenge of managing the public deficit and debt whilst trying to keep a lid on the money printers. Currently our debt is 100% of GDP and our deficit is 5% of GDP before we have even entered recession. In crude terms that means at the current rate of borrowing our debt would double in just 20 years! In reality, however, it could be much quicker than that.

Most economists are predicting a severe global recession between now and 2026 on the scale of 2008 or possibly worse. If this does happen our nation’s finances are in no position to weather the storm that is ahead if we see a significant rise in unemployment.

Richard Hughes, the chair of the OBR (Office for Budget Responsibility), said the OBR’s projection of a debt to GDP ratio of more than 300% within the next 50 years could prove to be an under-estimate. “If shocks continue with the same intensity over the next 50 years, this could push debt up to 435% of GDP by the mid-2070s,”

Clearly this is unsustainable in any real sense. What we will end up with is the monetisation of debt, where the Bank of England is forced to regularly print money in order to stabilise the GILT markets. This will embed inflation into the economy meaning persistently higher interest rates for businesses and households. It will also lead to asset price inflation which will exacerbate inequality even further.

The economic conditions were are facing could be nothing short of a new great depression if we do not take immediate action to return growth to our economy.