Excuse me please – excuse me – somehow I feel like Norman Gunstan – now what is the difference between foreign investment – trade deficits?
England is a rich, developed country – inward investments that is to say foreign investments – almost always affects growth adversely – unless of course it brings technological and managerial advances with it and never more obviously so – than when interest rates are struggling against the zero bound – and every country is urgently trying to export excess savings.
Economist should agree therefore that it is good for England to get much more foreign investment, and everyone also agrees – that it is bad for England to have a much bigger trade deficit.
Well the majority of idiots ‘Don’t know it’s the same thing’
Yes foreign investment = increased trade deficit.
There is no difference – further debt to be incurred by an already indebted nation operating on zero interest rates.
In this case I am talking about £18 billion – for a new nuclear power plant to be constructed in the UK by the French energy company – EDF Work – and China’s main nuclear operator. (1)
The world’s biggest Credit Agencies – warned the company EDF Work – it faced a credit-rating downgrade if the Hinkley Point project went ahead. On this project – finance will be provided by China Investments.
My question is – if the Credit Ratings Agencies warned EDF Work – why have they not extended this warning to the UK?
Is this not a Credit Ratings Agency’s job – or is it to protect the U.K. Credit rating?
They have no trouble threatening a change to the ratings should the UK leave the EU – they also threaten Brazil, Venezuela and Greece.
What is the difference?
There technically is no difference – I would hazard a guess it is politically motivated with Brexit and on the debt side – the Rating Agencies turn a blind eye.
Technically it does not matter if it is an indebted Company – or an indebted Country.
The balance sheet impact is the same – servicing capacity to cover increased debt is the same.
If foreign investment = increased trade deficits – it is obvious that the debt has to increase.
Where are the credit agencies when you need them?
Now you know why I feel like Norman Gunstan.
The French energy company ‘EDF Work’ on the first new nuclear power plant in the UK for 20 years is set to begin within weeks after the French energy company EDF and China’s main nuclear operator agreed a deal on building the £18bn project.
Earlier in October, two of the world’s biggest ratings agencies warned the company it faced credit-rating downgrades (2) Hinkley Point went ahead.
The Guardian states that “This deal is backed strongly by the chancellor, George Osborne – it is contentious because it commits British energy users to potentially expensive payments to EDF and CGN to supply energy once the plant is built.
Homeowners and businesses will need to pay £92.50 per MW hour for Hinkley electricity over 35 years, compared to a current wholesale price of £40.”
The French company – EDF needs the Chinese investment because it is burdened with high levels of debt and is expected to sell about €10bn (£7.4bn) of assets in the next five years.
Meanwhile the United Kingdom is burdened with high levels of debt and is relying on continued trade deficits – debt in the foreseeable future.
The U.K. is in deflation – technically for the last two quarters.
God forbid – should the global economy continue in its downward spiral, UK’s deflationary trend continue and recession knocks at the door – yes a little bit sarcasm.
If one looks at history then one should realize a lagging indicator of a recessionary climate – is not only the drop in commodity prices – but the highest increase in taxation revenue collected – through the penultimate partying years – this has been recorded for June 2015 – a question for the Exchequer though – can these tax debts be collected when the music stops?
Then – the question to Cameron and Osborne – where does an already indebted Government get the money required to stimulate the economy?
Yes – they do laugh as one George Osborne knows and has indicated that cheap money is available through Bondholders.
The problem is ignored – the debt – I have covered this before on this Blog and the hidden debt undertaken by Osborne in 2008 and prior Governments.
Official figures have the debt at around 90 percent of GDP – a little searching necessary and The Centre for Policy Studies (at end of 2008 mind you) argues that the real national debt is actually £1,340 billion, which is 103.5 percent of GDP.
This figure includes all the public sector pension liabilities such as pensions, and private finance initiative contracts (and Northern Rock liabilities).
No substantial reduction of debt has been made since the end of 2008 and in fact the Government has been borrowing ever since.
It should be noted – from the last figures that I reviewed – on the UK expenses – the estimate for total government pension obligations was well north of £5 trillion – which are presently being funded at a rate of 6% up until late 2013.
Of these – public sector employee pension liabilities are only being funded at around 58% of GDP – is that good?
These statistics and charts omitted social security related liabilities that are ‘unfunded’ and are estimated still in the range of £3.8 billion.
Add another £2 billion for the unfunded shortfall in the National Health Service – as elaborated on my last blog on the UK.
One should seriously question from where one thinks that the money to pay for this is going to come from – especially as household debt is close to 100% of the UK GDP?
Increased taxation and further austerity measures will not do the trick.
Chart courtesy of EconomicsHelp
That debt in itself inspired by low interest rates introduced by the Government in 2008/9.
These numbers are as bad – as many of the other usual suspects – that is to say i.e. the P.I.G.S in the Euroland.
The music has stopped – the global trade has declined – will continue to decline and the Goverments, IMF and the World Bank rely on lagging indicators.
So when will the Bondholders and Investors wake up?
Chart courtesy of EconomicsHelp
The same applies to Rating Agencies – however – if they are aware of the indebtedness of any Country and the subsequent increased indebtedness through the media – do they themselves have an obligation to Bondholders and Investors?
From this chart – obviously not – everyone ‘thinks’ the party is to continue.
How does one service debts in a recessive economical climate?
The cost of paying interest on the government’s debt is very high. In 2017 debt interest payments will be around £70 billion a year – with the public sector debt interest payments will be the 4th highest department after social security, health and education.
Debt interest payments could rise close to £80bn given the forecast rise in national debt – and no increased taxation revenue will not fill the gap.
This is as much as the UK Defense Budget annually.
Stupid is what stupid does.