So how's austerity going?

Plechazunga

Maybe it's time to check in on how the government's policy of savage cuts in the middle of a recession's going.

Not all that well:

WeasteDevil

I've expressed my opinions on this before, in a thread in the General I think. With interest rates on borrowing as low as they are and still having a AAA rating, borrow as much as possible now and spend it on tangible shite.

Plechazunga

First Krugman, then the IMF, now me and Weaste

How much longer can Osborne ignore economic reason?

Team Brian GB

The reason why we have an AAA rating is because we are cutting spending and appear to be serious about it, irregardless of whether we can print our own money or not.

Team Brian GB

Personally I like ideas such as Clegg's today - get to the £10,000 personal allowance threshold as quickly as possible, especially as inflation is beginning to plummet away now.

MikeUpNorth

'Irregardless'?

Plechazunga

Yeah losing that rating is killing America, which has been growing since 2010

711

And we'll keep our rating after a couple more quarters of negative growth, will we? (and don't say we won't have any more negative growth, you said we wouldn't have any in the first place).

Team Brian GB

The Americans are home to the reserve currency of the world, the world has quite an interest in buying U.S. debt.

Team Brian GB

That would depend on how deep - a fall in GDP of 0.2% isn't exactly a recession, it is a stagnation in the same way 0.2% growth isn't exactly growth either.

MikeUpNorth

Stagnation calls for some sort of stimulus right?

RK

Irregardless?

I do agree with this though, possibly. What would be it's wider impacts?

rednev

Let's wait and see what the ratings agencies do when we go into recession and end up being forced to borrow even more than we are currently.

WeasteDevil

The reason we have a AAA rating is because our overall deficit and debt is seen to be serviceable, even though it's one of the worst in the western world, especially private British debt. Borrow billions now and invest, build roads, build high speed rail, give fibre optic cable to ever household with super fast broadband, give almost universal wifi coverage, build airports, build massive wind and wave farms (even a nuclear power station or two) to protect our future energy supplies, build the Royal Navy a load of big ships, invest in new technologies, etc. You won't be able to do it any cheaper than you can now, put it all off and it'll be far more expensive in the future. Create hundreds upon thousands of jobs in the process, get people skilled up so that when the recession ends, Britain is in a bloody good place to take advantage of it rather than relying on the City of London that half created the fucking mess in the first place.

You right wing weirdo!

Team Brian GB

Not when you cannot afford it you don't.

Plus the deficit in the last quarter fell by more than 0.2% so it should not affect us in that regard too much.

Plechazunga

Seems the world also has quite an interest in lending to us, the Swedes, the Japanese... the bond market is failing to play its much-vaunted role as debt policeman when it comes to pretty much any countries that are borrowing in their own currency.

Instead, it's fucking over Euro countries that are being forced into savage austerity by the Germans and can't let their currencies inflate.

That's the IMF I linked to, by the way - not Ken Livingstone or someone.

WeasteDevil

So it will take 1.5 years to get it down by 1%? And in the meantime the economy is shrinking, more and more people are becoming unemployed, thus reducing tax revenue to the exchequer even more? Good luck with getting the deficit down by a poultry 1% in the next ten years when our largest trading partner in the EU is going down the shitter.

Plechazunga

1% poultry

WeasteDevil

You don't get very big bits do you?

711

Aren't you assuming interest rates will stay at record lows for a long period of time, though? If the state could borrow low for 30 years or so then fair enough, but I doubt it can. Some sort of balance seems to be required, which is lacking at the moment.

Team Brian GB

Indeed so, I've seen you make this point before which has alot of validity. However with the deficit as it is, the worries internationally about debt, our own debt to GDP ratio and the enormous rate at which debt management as a part of the UK budget is about to grow are all reasons why we have to be frugal.

Plechazunga

Well you can create a shitload of ten-year bonds right now

German rates and American real rates are currently negative. Investors are paying them to lend to them. We're not quite that lucky, we just get more or less free money, which our nutjob ideologue chancellor is refusing.

Plechazunga

Why does that trump allowing a huge part of our economy to sit idle for half a decade? Generating wealth amounts to the same as cutting debt (and a bit of resultant inflation would cut it further). Investors recognise that, they're not stupid, unlike Osborne.

Team Brian GB

That assumes borrowing works, if borrowing doesn't work then instead of being stuck between a rock and a hard place we would be completely and utterly screwed.

MikeUpNorth

This is exactly why all these 'we've maxed out the credit card' analogies from the Tories have been totally disingenuous. When a person has a credit card, their income is not intrinsically linked to their expenditure, and so they can cut their debt without affecting their earnings. The same is not even remotely true of a country.

Plechazunga

Why wouldn't it work? Give me a historical example of a properly applied stimulus failing to create employment and boost productivity. Give me a theory of how putting several million people to work could not generate growth more than paying them while they looked for work.

And if somehow it didn't, well we could feasibly default. But there was an IMF paper reviewed by the Economist last year showing that defaults don't actually have a major impact on long-term growth, provided they're properly handled and the country is therefore re-admitted to the markets within a couple of years.

Also, families with credit cards don't control the money supply.

Team Brian GB

You'll find plenty of Americans who don't look favourably on what Obama's stimulus achieved.

And why do people keep putting out this line about paying people unemployment benefits as opposed to giving them jobs - particularly in the public sector? How much do you think someone gets in JSA and housing benefits as opposed to working full time?

711

Depends on what you regard as the public sector. If the money's spent on infrastructure then it's public sector spending, but it can be spent through private companies, and spent on things that improve efficiency for the rest of the private sector, like communications and power, and the spending will generate private sector investment to supply goods and services, and the workers will spend their wages on goods and services from the private sector, and the whole fecking lot of them will pay tax on it all, and all of them will be interdependent to some extent or other because of something the tories just don't get - society, it's how it works.

Excal

Reasons in part for this:

• Confusing ARRA with TARP
• Confusing micro with macro (e.g. if I don't have a job, the economy's not getting better)
• Racism

mjs020294

Irregardless - Definition and More from the Free Merriam-Webster Dictionary

WeasteDevil

Yet you are a massive supporter of projects such a Crossrail in London? Do you think that's coming out of cash reserves?

You're talking nonsense, with borrowing costs at historical lows, you're basically getting money for free, not to spend on pen pushers, but to spend of real infrastructure projects that might just be to the advantage of the economy as a whole in the longer term, not just your back yard, kick-starting growth in the process. Country gets things built - check. Companies get orders - check. Companies employ people - check. People pay taxes - check. People use their newly discovered income to buy things and help other businesses grow - check. Those business employ more people - check. Those people pay tax to government - check.......

Team Brian GB

Crossrail was planned before austerity and its funding comes from a variety of sources, as such we would be building it anyway as opposed to doing so in order to stimulate the economy for the sake of the economy -any express transport scheme in London is guaranteed to make its money back.

Team Brian GB

Though it isn't free money is it - British national debt is racing toward 100%, even with the Government's austerity strategy our spend on debt management will be rising from £40 billion in 2010 to nearly £65 billion in 2015.

Plechazunga

You won't find many serious economists claiming that it didn't boost growth and jobs at all (as distinct from those arguing that it was too small to really turn round the jobs situation). A few Chicago purists, but even they're having to back down in the face of sustained if weak growth.

And surely, as a conservative, you're not really arguing that working full-time is not of more benefit to the wider economy than claiming benefits?

Obviously you have to pay it back, but it's free money in the sense that it hardly costs anything in interest, the tiny amount it adds to those debt management costs will be easily recouped many times over from its effect on growth. Then factor in some eventual moderate inflation which will further reduce debt. (Again, the IMF is arguing for higher inflation targets).

And that's without the actual value of the long-term investment in infrastructure, energy etc., which could be great.

Frosty

That statistic alone appears to show that there will be an argument in favour of further cuts in 2015, a self-fulfilling prophecy.

All this also shows how useless Labour has been in presenting an opposition to these cuts. The fact that the Conservatives are leading in the polls tells you that.

711

I see Boris is out criticising bank bonuses (The real Boris, not cut&paste Boris).

Seems to be often looking for opportunities to take the opposite stand to Cameron nowadays, positioning himself for a takeover should Cameron fall. Best tactic for a man with his ambition I'd have thought.

Team Brian GB

The plans take them into account, it is one of the reasons they are cutting so quickly as under labour's plans to half the deficit the costs would reach nearly £100 billion by 2020.

Team Brian GB

You wouldn't just need growth, you'd need a mini-boom - the stimulus would have to stimulate the economy entire and sustain it which is no mean feat, considering the sort of sums I imagine you are suggesting we would likely need at least 3.5% growth in a year if not 4% to offset any costs to the deficit and similar in the following years - such growth we have not seen since Thatcher was in office.

Team Brian GB

We are currently cutting at the rate of about 2% of GDP a year give or take - about £28 billion, therefore if we ploughed £28 billion into the economy we would require £56 billion growth to offset it and shrink the deficit by the due amount which is a huge figure given the state of our economy and that of the world economy.

I am not in favour of stimulus packages in our fiscal position anyway but especially not when there is such a question mark hanging over the Eurozone, if we could assure ourselves of their integrity and that it wouldn't blow up in our faces then is a somewhat different matter but we cannot.

Don't Kill Bill

It's not working is it? The whole plan, the thinking behind the plan, the rationale behind the thinking behind the plan. Shouldn't manufacturing be growing by now given the drop in the exchange rate?