Fallacy of Borrowing

I thought I'd knock this out before George Osborne's speech this week at the UK's Tory Party conference beats me to it.

Back at the beginning of our human existence someone figured that they were better at making well balanced spears with a good sharp flint on the end of them. In fact, they probably realised that instead of spending all the time traipsing around hunting for food, and getting the odd kicking when it went wrong, that it was easier and safer to stick around the home to boot. In exchange for their craft, they would be rewarded with food for contributing to the success of the hunt.

Buoyed by the thought of being a craftsmen, it's not hard to take the next logical step of offering your services as a pointy stick maker to a larger group, or perhaps groups, in return for a share of the spoils. This really smart idea removed the associated risk of a life threatening maiming.

Then some other really, really bright spark invented money and started to use an artifact as a store of value. This meant that they could buy weapons from the pointy stick makers and sell them to the hunters. Of course they needed to live properly themselves, so they decided that buying a stick would cost them one money unit and selling a pointy stick would cost two money units. Hey presto, we've invented the world of finance.

Then the really, really, really big wheeze was invented. Lending. "I'll give you three units of money today if you pay me back four units of money next month."

Suddenly the human need to get more kicks in and about twenty thousand years later we've borrowed so many units of money that there's little chance of us paying it back. Some banks were so clever in the way they invented money that suddenly they found they had no money at all. Their computer systems said they had boat loads of the stuff, but when the lid was lifted the cupboard was most definitely bare.

These bright banking people had borrowed so much money that they didn't realise none of it existed! How clever is that?

Here in the UK, our government has binged on borrowing over the last few years. Initially everything was going well. The previous Tories had managed to run up a few bob owed to pretty much everyone going, then the economy picked up and Labour decided they'd start spending all the tax money that came in. Then the economy started to slow, Labour borrowed money to spend it on civil service jobs and suddenly the national debt is making us look like the Titanic. When the wheels come off with Government spending this time, it's going to take generations to pay it back.

Now we're in a situation where everyone's having to spend more money to keep the economy going. That means most likely they'll need to borrow more.

I think of my late father-in-law. He saved frugally to pay cash for his own house and borrowed very little. In the early 1900's policeman and civil servants were not allowed to borrow money. Banks did lend money, but only to those people they felt could afford it.

We can't afford to borrow more money. To say that we can is just foolish.