The new British coalition government is about to announce a programme of extensive cuts in public spending in order to reduce the UKs ballooning deficit thus essentially giving the finger to President Obama’s demand that G20 countries, especially in Western Europe, should be wary of  reducing national debt too quickly.

So here, in very simple and easy to understand language, is a basic economic FACT to help Obama (who has never run a business in his life) grasp the essential difference between government expenditure and private sector expenditure.

Spending cuts do not destroy resources. They hand the money back to the private sector, where they generate higher returns and wealth-creating jobs. As Margaret Thatcher used to say, the government doesn’t have any money of its own: it all comes from the private sector. So, in terms of reducing the deficit, a pound cut from public spending is worth more than a pound of extra taxation.

Governments of the richest industrialised nations, including Britain, are reaching the limits of their borrowing capacity. Having bailed out the banks, they have now been bailing out each other, with the crisis ricocheting back to banks that have also been lending to the same governments. We are running out of lenders of last resort. If there is another crisis, some heavily indebted countries won’t find it easy to support the European Central Bank and the IMF.

Thank you, Mr President – now you can get back to your golf…..