A look at the changing profile of energy production in the UK.

In the early 1960s, coal provided 81% of UK energy needs By 2010, this had fallen to 30%. At peak times in cold winters, coal use can increase to 40% of the UK’s electricity production. Despite a revival in coal production in the last year. A third of our current coal power stations are expected to close by 2016 so that they meet EU air quality legislation.

The % of electricity from coal has continued to fall. (The big drop in 1984 was the coal miners strike.)

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A helicopter money drop is a form of monetary policy in which a Central Bank prints money and distributes it directly to households/consumers. The aim of helicopter money is to boost nominal GDP, overcome deflation and help reduce unemployment. In normal circumstances, printing money will be inflationary. Economists usually suggest helicopter money in a liquidity trap and period of deflation.

The idea of a ‘helicopter money has been referred to by Milton Friedman and picked up by the Chairman of the Federal Reserve, Ben Bernanke. One image of ‘helicopter money is a  helicopter dropping cash from the sky, which presumably would be picked up and spent pretty quick. On a more practical vein, it could involve the Central Bank sending a cheque in the post to people across the country.

In a period of severe deflation, the cash sent could even have an expiry date. Meaning you have to spend it in 6 months or lose it. This expiry date will prevent people just saving it.

Purpose of Helicopter Money Drop

• Increase the money supply
• Target higher inflation
• Increase aggregate demand in the economy when conventional monetary policy has failed. (e.g. in a liquidity trap with zero nominal interest rates)

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Recently, I was researching a post on US v EU unemployment. No.1 on Google (a news result) was a post with some observations on EU vs US economic policy. This paragraph caught my attention

…But many European countries have completely mismanaged their budgets for continued government stimulus, which lends to the argument of free market supports that Keynesian economics is unsustainable. Greece is relying on the most recent bailout to pay its bills and creditors want to see further cuts. Spain is also cutting spending, while dealing with a revived separatist movement of the Catalan province that does not want to pay the country’s bills. Both of these countries have the eurozone’s highest unemployment rates of 25 percent apiece. (AIM.org)

A few observations sprang to mind:

1. Europe is not pursuing Keynesian economics! To slash spending in a recession is the opposite of what Keynesian economics proposes. You could argue Keynesian economics (stimulus spending in a recession) is not going to be helpful, you could argue fiscal stimulus is undesirable when bond rates are rising; but, I don’t even think the most ardent critic of Keynesian economics would try to argue countries in the Eurozone are actually pursuing Keynesian economics.

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The amount of debt interest a government needs to pay depends on two factors:

• The amount of outstanding debt.
• The interest rate on government bonds.

Higher bond yields will increase the cost of future borrowing.

Note: There are quite a few different ways of measuring government debt / financial liabilities, therefore you may come across slightly different statistics for debt interest payments as a % of GDP. I have indicated source of data where possible.

Debt interest payments as a % of GDP / Tax revenue give a reasonable guide to how manageable the government’s debt situation is. For example, Japan has a national debt of over 220% of GDP, yet net debt interest payments are forecast to be only 1.4% of GDP in 2013. Italy by contrast is facing a higher interest burden, with over 5% of GDP going on net debt interest payments.

It is worth noting that in the case of UK and US, net interest payments are not exceptionally high as a % of GDP.

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