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Thatcher’s legacy on debt: cut spending, destroy earning capacity

Mrs. Thatcher was once asked: What is Thatcherism? She replied “living within our means”. So what is her legacy in this regard? In the two decades from the mid 1980s private household debt rose to the level of total national income (£1.5 trillion), financial debt following her deregulation of the banks rose to 5 times total national income (a total of £7 trillions), and public debt after the crash of which her policies sowed the seeds will rise to the level of total GDP by 2016. These are the highest levels of indebtedness, living beyond our means, in British peacetime history.

‘Living beyond your means’ also entails earning the money you need to buy what you import in trade with the rest of the world. In 1980, Thatcher’s first full year in office, the balance of trade in goods was in surplus to the tune of £1.3bn. In 1990 when she left office, it was in deficit by £18.7bn, and it has steadily eroded ever since then till last year it actually reached £106.3bn, nearly 8% of GDP, a level that is unsustainable – it will lead remorselessly to the collapse of the currency. Her decimation of UK manufacturing industry made it impossible for Britain to pay its way in the world: our current balance of payments was in surplus by £1.7bn in 1980, but it is now in deficit by £57.7bn. The country has never lived beyond its means on this scale ever before in it s history.

Thatcher also set great store by ‘sound money’, ensuring that the currency held its value through restraining inflationary credit creation and giving priority to productive investment. What actually happened was that the money supply, broadly stable in the 1960-70s, soared 5-fold to £500m a year by 1990 and then continued to rise exponentially to £2.3bn a year by 2011, a 20-fold increase in the money supply after Thatcher dismantled all controls over bank credit. Throughout much of this period the money supply was ballooning at a rate of 12% a year when inflation was averaging only 3-4%. This was the era of unsound money that led directly to the financial crash of 2008.

‘Living within your means’ also involves safeguarding and nurturing the assets which are the basis of your wealthso that they provide the foundation for security and future growth. Thatcher’s policy of entrusting the whole of Britain’s fundamental wealth-creating capacity to the market did the referse. The foreign takeover of Britain’s water and electricity, steel and car industries, and assorted key companies like BT, P&O, BAA, Pilkingtons, Abbey National and Cadburys have left the UK exposed in strategic sectors that threaten the integrity of the national economy. This is not ‘saving the country’ but rather sacrificing it to the vagaries of the market in a manner that no other modern industrial nation has ever done.

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