Humphreys fails to tell the whole picture on debt

When interviewing Ed Balls on the Today programme this morning, John Humphreys cited a McKinsey study to claim the UK's debt-to-GDP ratio was 469 per cent - "the highest in the world", yet fails to clarify the full meaning of this figure nor put it into context.

When interviewing Ed Balls on the Today programme this morning, John Humphreys cited a McKinsey study to claim the UK’s debt-to-GDP ratio was 469 per cent – “the highest in the world”, yet fails to clarify the full meaning of this figure nor put it into context.

The report in question, ‘Debt and deleveraging: The global credit bubble and its economic consequences’ in fact shows the 469% figure to be the debt ratio for “domestic private and public secor debt” (exhibit 1, page 10); when broken down into different sectors, however, government debt is 52 per cent (exhibit 20, page 7) – lower than Japan (188%), Italy (101%), France (73%), Germany (69%), Brazil (66%), India (66%), Canada (60%) and the USA (60%).

The report also says (page 14):

Many historic examples, from the US in the 1930s to Japan in 1997, show the danger of withdrawing support of the economy too soon.

Listen to the interview in full here, and read a transcript of the key lines below:

John Humphreys: “You dismissed entirely the question of how much we are now in debt and you say that I got it from a book [Rawnsley’s book] I didn’t, I got it from a McKinsey study, an outfit that you respect hugely, of debts of the world’s major economies, and on that basis I’ll give you a quick figure here, the UK’s debt to GDP ratio was 469%, the highest in the world, 459% for Japan…”

Ed Balls: “What debts do you include in that?”

JH: “All of them, the whole lot, your debts, public debts, family debts, mortgage debts, the whole lot, you encouraged a huge amount of spending…”

EB: “You’re making me rather more powerful than I thought, I didn’t realise I could be responsible for the debts not just of the government but every company, every household…”

JH: “The Government encouraged massive borrowing and never said hold on a moment.”

EB: “Absolute nonsense John, the fact is we had low interest rates, the fact is we had low inflation, an people were borrowing, we had a million more home owners and that was a good thing, what happened was a huge financial crisis which put deficits and debt up round the world, it’s on a scale of 1929, but the question is, do we learn the lessons of history?

“And the fact is, the last person to say we’ve got to cut spending and deficits now immediately before Margaret Thatcher was Ramsey MacDonald in 1931, and in my view David Cameron and Nick Clegg are repeating the MacDonald mistake of 1931, I fear that we’re gonna go into a period of profoundly lower growth and higher unemployment. This is a very, very dangerous time, and what you need from Labour is a candidate who actually understands the economy and can take the argument to the Conservatives.”

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