The US is pretty open about its fiscal problems. There was no progress whatsoever on the government shutdown over the weekend, and confusion and capriciousness reigns.
Dennis Gartman sums it up in his daily letter like this:
“One moment the Army, Navy and Air Force academies, for example, are scheduled to play football games, and the next moment they are not… oh, and the next moment they are. The decision is made to close the national parks while other government offices are kept open. The American Battle Monuments Commission is closed; the Appalachian Regional Commissions is open. The Bureau of Public debt is open; the Broadcasting Board of Governors is closed… sort of. The Yosemite National Park is closed; the Denali Commission is open… and we could go on.”
It would be mildly amusing if it didn’t make the US look so silly: “with each bit of confusion the US looks more and more like a Third World nation and less and less like the world’s reserve currency nation.”
But if you are shaking your head sadly at the lunacy across the sea, don’t forget that things aren’t so great in the UK either.
Liam Halligan ran through the problem in the Telegraph this week. When George Osborne became chancellor, the deficit was 11% of GDP – ie every year we added the equivalent of 11% of our total output as a country to our national debt every year. Now that number is 7.4%.
That sounds good, but it is worth pointing out over and over again that our national debt is still growing at a stunning speed: 7.4% of the GDP of the seventh largest economy in the world added to our debt pile is not exactly peanuts. Our total debt has actually rise by 45% under Osborne. 45%! That’s why we now spend more on the interest on our debt alone than we do on defence.
Not long now, says Halligan, and we will be spending more on debt servicing than we will be spending on education. How’s that for “an outrageous disservice to our children and grandchildren”?
At his party’s conference last week the chancellor promised that the UK would be in surplus – ie would stop making the debt bigger and have a go at making it smaller – by 2020. That might happen.
But it is worth remembering that he first pledged to be in surplus by 2014-15. Then he revised his target to 2017-18. Now its 2020.
The US might be looking pretty silly at the moment. But we aren’t exactly covering ourselves in glory over here either.