Markets. Why they are important.

I agree that there's lots of bureaucracy and paperwork, I just disagreed with the implicit contention that that was all we'd had for our money. I also agree more could have been done for less, but that's true of all human activity!

Ahem. Sorry. Pet rant.

Family tax credits and SureStart I concede are good investment but both need continued investment. There are areas of SureStart I think could have been managed better and achieved with less funding.

Every Child Matters, B23 and the FS -> EYFS, the new diploma schemes, the Rose report (among others) and stopping compulsory MFL at KS4 with the intention of introducing at KS2 with no proper training for teachers are less effective IMO. Early Years Educations has become increasingly paper-work based, there have been yearly increases in paperwork since I trained (at least it feels like it it!) and you only have to look at the syllabus of the DCE to realise just how much of a shift there has been from practical skills to legislation and paperwork knowledge. Ticking boxes for continuous assessment in schools puts a huge strain on teachers' time and I honestly think my mother spends more time trying to work out the systems she's supposed to be using (with her 1980s postgrad in computer science!) than she does actually planning her maths lessons. The curriculum changes and new ways of terming things thought up by Govt think-tanks mean she hardly knows whether she's standing on her head or her feet and she's a good teacher. Just swamped. And she's not alone...

RBS and Lloyds are doing better because they have written off most of their bad debts (or insured them, in the case of RBS) and because the economy has now improved and there are lower levels of bad debt.

RBS has also benefitted from strong activity in investment banking - commission on clients trading stocks, bonds, currencies, etc.

The thing I think is missing in this dicussion is the role of tax, which of course is the other main way the government raises money to finance spending.

People should also keep in mind that their own rate for borrowing on mortgages and the like is firmly entwined with the rate the government pays.

And unlike Greece, we can inflate our way out of a debt crisis ...

FrakkedUp: a large chunk of change was spent on SureStart; another chunk was spent on family tax credits. Neither could be characterised as paperwork, regulation and reviews. Both are clearly invest-to-saves.

Re: return on banks. The reason the banks could make a return was because they had little competition and completely taxpayer-underwritten risk as they lent money to the government to pay for the deficit. Truly, robbing Peter to pay Paul.

« MmeLindt Tue 11-May-10 15:59:16
Well it does really depend what you spent it on. In the same way that if I blow my pay on a diamond ring I don't really have anything to show for it. If I spend it on an OU course, then I may be able to get a better job with better pay because of that.

If GB spent the cash on schools then it is an investment in the future. ?

Only if that investment is sustained and effective. Cuts mean it?s not likely to be sustained and I am yet to be convinced about the effectiveness of what he?s spent on. A lot of paperwork, regulation and reviews from where I?m sat.

Your diamond ring could be a very nice investment ? land and diamonds hold their value very well. Your OU course might be a good investment, but it might not. It depends what you did the course in and what your result ? the return on your investment ? is. By the same token it depends where you invest the money in education and what the returns on your investment are. Sending 50% of people to university is no good if they come out with Mickey Mouse degrees from Donald Duck University.

A swift deal is needed. Not necessarily a Tory deal, not any particular kind of deal but ?a deal? so whoever lent us money knows they?re going to get it back. The markets were boosted by the Euro deal, which helped mask the UK election result, they dropped when GB announced he was resigning and today with a real prospect of a coalition (I don?t think it matters whose) they are more stable. I don?t want to test this theory but someone announcing that it?s all off.

Re: a return on the banks ? that was possibly the most sensible investment decision GB ever took. Banks make money for their shareholders...

And thank you AlouiseG!

The problem with regulation is that you can't regulate markets. You can only regulate the participants in the market - so the results of regulation are very unpredictable. This doesn't mean you shouldn't try.

Policywonk - That's one of the things I meant to say. There is NOONE who can speak for the Markets. Everyone who purports to do so is doing it to support their position in the Market. To encourage something to happen that they want to happen or to make people THINK that they want a particular thing to happen.

Interesting post Quattro.

I agree that we are not being held to ransom by the markets, but pressure is being applied to affect a swift deal, using the markets as an excuse.

policywonk- I love this "'I wanted the Tories to win, I had the champagne in and everything, and I am beyond furious'"

I've been thinking that all kinds of people have been running around saying "It's MORALLY wrong that I didn't get the result I wanted. So someone should give it to me" ;)

Quatt, it's not so much (right now) that the market is holding us to ransom. It's that people are running around saying that the markets are holding us to ransom (ie 'the markets will punish us if there's no deal soon!') and trying to use that line, as MmeL says, to force the democratic process. AFAIK the markets have been relatively sanguine.

And a fair bit did go on bailing out the banks. Though hopefull we will see a return on this.

The Market and people who claim to represent The Market are two different things.

The Market is a complex system made up of all the participants - this includes all of us though in most cases by proxy. It can't have emotions, opinions, morals or be regulated anymore than the sea can.

What we does have all those things is the participants in the markets. This is why economic theories are important. Not because they are true but because people believe in them, so if you know that certain people will do certain things as they hold certain beliefs you can make money from them.

As to what Gordon spent it on, he spent it on:

1. Massive increases in health spending - the figure I saw was 300% in real terms

1. Wars and stuff

1. Lots on education - not seen the like for like figures

Quatt - you summed up what I was thinking.

It's not as if the markets are telling us what to do, just that they will react to our actions.

There's no point us shaking a fist at them, any more than a sailor shaking his at a storm. It is what it is.

If the UK had shrunk the public sector wage bill and borrowed to build, say, a fantastic broadband and rail network that I really would have been happy about.

Borrowing to invest is what markets like but borrowing to spend they don't.

I think there is clear confusion here on the role of the markets and the role of government.

So I'd like to address the points made by Policy and Mme Lindt about the government being effectively held to ransom by the markets.

Government borrows money from the markets. It pays interest. The rate of interest will go up (and we will have to pay more interest and have less to spend on education, health, benefits etc) to the extent that the UK is viewed as a bad credit risk

Bond yields vary according to the length of time, the currency and the credit rating. So AAA is a high investment grade which will attract a low rate of interest. Greece's bonds were trading at a yield of around 40% at the height of the crisis.

The fact is that the Labour government has been less fiscally prudent, we are in a significant amount of debt and our credit rating is vulnerable. Another Labour government - with no solid plans for how to address the deficit - would have had an impact in the international markets.

No-one is holding you, the electorate to ransom. It's merely that your vote has consequences.

Lymond that is my understanding too, that a lot of it has been wasted rather than invested in infrastructure.

Beachcomber - agree with you about Greece and that is probably why the bond Market is reasonably relaxed about the UK at the moment.

Mme.Lindt - Glad you liked the Paul Mason blog. I follow him on Twitter and bore impress my dh with his every tweet!

FWIW - I also don't think the bond markets should decide the UK government. But because we owe them so much, the interest rates we pay (which they set) will impact us significantly

Hasn't Gordon Brown spent a lot of it on hiring people/paying benefits, so that now for the first time more than 50% of the country gets their money from the government, leaving less than 50% to work in the private sector... something which is the long run is unsustainable? Figures may not be right, this is something DH was blabbing on about the other night while I was watching rather an exciting episode of Lost!

Moodys, the rating agency, said yesterday that it wil wait to see who eventually ends up in te UK coalition Govt and what budget it publishes before deciding whether to downgrade the UK Govt debt.

If they did downgraded, interest rates throughout the economy would immediately rise. That woudl affect us all and immediately.

It seems from the news that the Lab-Lib alliance is now definitely off and the Gilt market is still rising on the basis the Lib-Con alliance will happen. That is good for the economy and all of us and our children who will have to eventually pay the money back.

Sometimes speculators and markets do things we like as smallwhitecat rightly says.

Income generating investments are not the only way of stimulating an economy. Anyway the government did spend money on income generating investments when they bailed the banks out and when they converted some of the country's gold reserves into invested currency reserves.

Well it does really depend what you spent it on. In the same way that if I blow my pay on a diamond ring I don't really have anything to show for it. If I spend it on an OU course, then I may be able to get a better job with better pay because of that.

If GB spent the cash on schools then it is an investment in the future.

Of course it does. But the government didn't spend money on income generating investments. Hospitals and schools are undisputedly good for the country but they don't earn an income. (Obviously a well educated and healthy workforce will earn an income one day, but that will be in the long term, not within the next 2 to 5 years.)

But your ability to pay it back depends on what you did with it. Your assuring your creditors that you spent it on what was agreed when you borrowed it protects your credit rating - see above post about Greece.