Originally posted by miko2d
Money is created (not necessarily printed) before it can be loaned and/or spent.
Well I wish you'd come over here and explain that to the British Labour Government Chancellor of the Exchequer, Mr. Gordon Brown. He doesn't know about this, and draws up spending plans without knowing where the money is going to come from to pay for those plans. Of course, his solution is always the same - higher taxes after the event.
The previous Labour Government (1974-1979) was
even worse than the one we have now. They got into power on the promise of ending the three day week to which Britain had been subjected as a means to conserve fuel through the winter of 1973/74. Of course, the only way they could end the three day week was to buy off the National Union of Mineworkers, who were on strike in pursuit of a wage settlement in the order of 30%. Behind the miners stood an array of other workers, all wanting
their wage settlements, of a similar magnitude. The railway workers got 28% in 1975, for example.
Well guess what? Britain simply didn't have the money to pay those wages. So it had to be printed/created/whatever. That, coupled with the fact of much more money in the economy chasing the available goods
and the fact that the Labour Chancellor, Denis Healey, had had to raise the
basic rate of income tax to a punitive 35% led to the highest rate of inflation Britain has ever known. In July 1975 it reached 30% when expressed as an annual rate. My salary increased by more than 50% in a year, but I was worse off - because I was paying much more tax as well as having to pay much more for goods and services.
So there you have it. I lived through that period and got to know all about inflation - and the spending that resulted from negative real interest rates.
But I agree - socialism is evil, and simply doesn't work. Very fortunately, our salvation was delivered in the form of a new Prime Minister in 1979, Margaret Thatcher, who inherited a legacy of 83% income tax (with a 15% surcharge on investment income) and turned all that around so that the top rate of tax was 40%, and abolished the investment income surcharge.
"New" Labour is now undoing all the good work that was done in the 1980s.
I'd better leave it there, as Dowding will be along to flame me. Straffo too.
The Reagan-Thatcher years formed the most glorious passage of 20th century British history.
