Defecit debacle!

As you all know I am a lefty liberal in my political views. Today I wish to remind any of those unfortunate to come across my blog to remind you all of where a large part of the UK's budget deficit actually came  from. 

Gordon Brown

Do you all remember 2008? The year a lot of chickens came home to roost! Now I may be wrong here but my understanding is that a lot of banks had a lot of "toxic" debt, debts that could never be collected. A major part of this debt was contrived from the so called sub prime property market in the United States. This was the part of the US mortgage market where mortgagees were at the limit or beyond of their ability to pay. What many Brits haven't understood is that this market was worth more than the UK's entire GDP. 

Now let us have pop at bankers. A lot of banks, but importantly those in the UK too, had not only invested in this market but had also devised ways to sell and package this debt to other banks in such a way as to make it almost impossible for the banks to truly check how exposed they were. As long as the debts were being serviced it seemed few really cared. Until 2008 that is.

When it was realised by the money markets that many banks did not have the cash to cover their debts they stopped lending to each other completely. It was news to me that many of these banks (Northern Rock in the UK for instance) just borrowed money from other banks rather than capitalize from their own savers. So these banks crashed and burned. 

Or they would have done if the UK government hadn't stepped in. The UK government stood in for these UK banks and the tax payer took the hit in the form of a huge budget deficit.

I was discussing the outcome with some accountant friends some months later. We all agreed, as we had mortgages with affected banks, that had the government not stepped in it was entirely possible we would have been looking at a foreclosed mortgage, a collapsed property market with all this availability and thus a massive personal debt burden we would probably never recover from. That was a worst case scenario, another lender may just have bought the debt instead but there was no guarantee. 

So deficit reduction is now the outcome. 

It should be noted the Conservatives had no alternative plan.

Whilst I support the concept I rather believe that the current Conservative philosophy goes much deeper than just deficit reduction. I believe they have a much deeper desire for less public services and smaller government. 

So the economy seems to have turned a corner into growth. Although a financial commentator on radio 4 likened the "It's working" stance of the UK coalition to a man who has just stopped beating himself around the head with a baseball bat saying "Wow! it doesn't hurt anymore!"

The battlefield now is to get some benefit into people's pockets, other than the already rich.