Wednesday’s revelation that the UK has slipped further into recession has led calls for 'Plan B'. Largely speaking, the great and the good are calling for more government spending.
But guess what? Plan B is already being busily implemented. In fact, as I’ll show you today, government spending is fast spiralling out of control – only most people don’t realise it yet.
Today, I want to talk about how this grave situation could ultimately lead to the demise of sterling – and indeed a batch of other paper currencies.
Public spending is already horribly out of control
Public sector debt is usually described as a percentage of the size of the economy, or GDP. And right now public sector debt is scaling serious heights.
The chart below paints a very worrying picture of the scale of public debt in this country (bear in mind, it goes right back to the mid-seventies). Now that we’re officially back in a recession – in other words, GDP is falling – it means that any new debt effectively accelerates the blue line’s ascent.
The horrible truth of the matter is government spending is out of control. Though tax receipts are rising, government expenses are outpacing them. The government ended up borrowing £136bn for the year just gone – and that was way over initial targets.
As for this year, they’ve put in a target of £127bn. Horrific as that may look, it’s probably already out of date. The data coming in says they’ll miss. In fact, they’ll probably end up borrowing even more than last year’s figure.
And that’s despite the government’s one-off receipt of £28bn by nicking Royal Mail’s pension fund – a scandalous story we looked into at the time.
Government spending in June came in £500m higher than last year - analysts were expecting £500m less!
We are going the wrong way!
An exclusive report from The Right Side
At least one person knows how the system works
Tory MP Douglas Carswell puts it well: “This contraction is not a cyclical downturn, but the inevitable upshot of a failed 40-year experiment with monetary manipulation. Handing out candyfloss credit to all comers led to numerous bad investments that eventually had to come home to roost.”
Basically, this recession isn’t ‘normal’. It’s got a long way to run too; and government debt is set to rise to levels that were previously thought unimaginable.
While I’m downbeat about the economy as a whole, it doesn’t mean we should shy away from sensible investing. We can’t be so fearful that we sit on the sidelines as financial repression robs us blind.
While there’s always the risk of a blow-up (and we need our insurance in place for that), the chances are this will take time to get through. And as for ‘plans’, we’re likely to run all the way through the alphabet before we’re done.
I don’t see this government giving up their fight against the rise in public sector debt. And I guess it’ll cost them their jobs.
The next lot of politicians will get cracking on a new plan – the public will be clamouring for it. And that plan will take us closer to our ultimate destination – the demise of the current batch of paper currencies.
I expect us to get there before I hang up my boots for retirement. Get ready for a long and drawn out endgame. Unless it comes all of a sudden that is!
A good way of protecting yourself
So how can we protect ourselves from this fast evolving threat to our wealth? Well, it’s the last Friday of the month – that’s the day I visit my coin dealer. We have a deal and it’s working out very nicely. Every week, he keeps back two gold sovereigns for me at the prevailing price. Then at the end of the month, I settle up and collect my coins (eight altogether). This way he always has a buyer for sovereigns and I’m able to get an ‘average’ in-price throughout the year.
The idea of drip-feeding cash into an investment like this is very useful. It’s all too easy to get excited when the price is moving up and go running off to buy some coins. But that way, you’re always buying the peaks.
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