On 6 June 2010 The Daily Telegraph reported that the British Chancellor of the Exchequer planned spending cuts that would be similar to Canadian ones in mid-1990's. These were the very savage cuts of public spending: 20% a year for three years.
Below is a word of caution that the Chancellor is unlikely to get either from the mainstream media or his political friends (and foes).
Canada had to cut its budget deficit because its government overspent on typical public services. The country lived, for some time, beyond its means. Hence its debt had to be repaid and adjusted to an affordable level one way or another.
British budget deficit, in its vast bulk, is of completely different nature. It resulted from the government actions to save the financial institutions at the end of 2008. Although the British government has been spending too much for quite some years on the public services, it were the banks' rescue packages, stimulus packages that were used to plug the financial sector liquidity hole that make up for a vast bulk of the current budget deficit. We are not in debt because we spent too much on schools and hospitals but because we spent absolutely unbelievably extortionate amounts of monies on financial institutions (or, as Gordon Brown said, to "save the world").
As the author of this blog was officially informed (in writing) by HM Treasury, the government does not know the size of the liquidity hole in the financial system. Therefore it does not know how much (if any) more money (billions, trillions?, of pounds) it is still likely to pump into the financial system to assure the liquidity.
Therefore it is reasonably likely that, having completed a serious of savage cut, Canadian-style, the government will save, say, a couple of hundred billions of pounds. Possibly more. At that time, once the financial industry realises that the government liquidity ratio has improved, another liquidity crisis will crop up in the banking industry. And all the monies that government saved, putting a lot of ordinary folk in hardship, will be used to "save the world" again.
The government, hence the taxpayers, will end up back in square one, with the same massive budget deficit as now (or more), but living under massive austerity spending measures. It is quite clear that this is exactly the same mechanism as loan sharks operate, whose victims are squeezed for every penny. In this case the loan sharks is the financial industry who use the government to squeeze the taxpayers for every penny.
The British Chancellor of the Exchequer should be well advised that before he contemplates any cuts, he has to ensure that the financial industry's liabilities (current, potential or future) are completely isolated from the taxpayers. I.e. that, by legal and other arrangements, the government is prohibited from bailing out any financial institution. Otherwise all the savings, done at the huge costs to the taxpayers, destroying lives of many of them, are likely to become savings that, once again, will be pumped into the financial industry like at the end of 2008.
Below is a word of caution that the Chancellor is unlikely to get either from the mainstream media or his political friends (and foes).
Canada had to cut its budget deficit because its government overspent on typical public services. The country lived, for some time, beyond its means. Hence its debt had to be repaid and adjusted to an affordable level one way or another.
British budget deficit, in its vast bulk, is of completely different nature. It resulted from the government actions to save the financial institutions at the end of 2008. Although the British government has been spending too much for quite some years on the public services, it were the banks' rescue packages, stimulus packages that were used to plug the financial sector liquidity hole that make up for a vast bulk of the current budget deficit. We are not in debt because we spent too much on schools and hospitals but because we spent absolutely unbelievably extortionate amounts of monies on financial institutions (or, as Gordon Brown said, to "save the world").
As the author of this blog was officially informed (in writing) by HM Treasury, the government does not know the size of the liquidity hole in the financial system. Therefore it does not know how much (if any) more money (billions, trillions?, of pounds) it is still likely to pump into the financial system to assure the liquidity.
Therefore it is reasonably likely that, having completed a serious of savage cut, Canadian-style, the government will save, say, a couple of hundred billions of pounds. Possibly more. At that time, once the financial industry realises that the government liquidity ratio has improved, another liquidity crisis will crop up in the banking industry. And all the monies that government saved, putting a lot of ordinary folk in hardship, will be used to "save the world" again.
The government, hence the taxpayers, will end up back in square one, with the same massive budget deficit as now (or more), but living under massive austerity spending measures. It is quite clear that this is exactly the same mechanism as loan sharks operate, whose victims are squeezed for every penny. In this case the loan sharks is the financial industry who use the government to squeeze the taxpayers for every penny.
The British Chancellor of the Exchequer should be well advised that before he contemplates any cuts, he has to ensure that the financial industry's liabilities (current, potential or future) are completely isolated from the taxpayers. I.e. that, by legal and other arrangements, the government is prohibited from bailing out any financial institution. Otherwise all the savings, done at the huge costs to the taxpayers, destroying lives of many of them, are likely to become savings that, once again, will be pumped into the financial industry like at the end of 2008.
I feel the breaking up of the banks would be a good first step. Then allowing them to go bust if they fail, with only the depositors protected for upto 50k of their investment.
ReplyDeleteTHE INDEPENDENT UK
ReplyDeleteFriday, 4 December 2009
£850bn: official cost of the bank bailout
(and still RBS is demanding another £1.5bn in bonuses)
By Andrew Grice, Political Editor
Government support for Britain's banks has reached a staggering £850bn and the eventual cost to taxpayers will not be known for years, the public spending watchdog says today.
http://www.globalresearch.ca/index.php?context=va&aid=11204
The total UK public debts (excluding banks bailed out) has doubled up from 500 billion pounds in 2007 before financial crisis to more than 1,000 billion pounds in 2010.
It could help to realize about 70 billion pounds for public finance is UK government is to dispose stake in RBS and Lloyds, so the net costs of bail out would be around 800 billion pounds.
I can't believe everyone is lapping up the comparison with Canada in the 90s, and especially the proposition that the Canadians had overspent on public services. (It was rather high interest rates that were causing a (vested-interest-exaggerated) problem). "In September 1995 a video was leaked to the Canadian press office of John Snobelen, Ontario's minister of education, telling a closed-door meeting of civil servants that before cuts to education and other unpopular reforms could be announced, a climate of panic needed to be created by leaking information that painted a more dire picture than he "would be inclined to talk about." He called it "creating a useful crisis".
ReplyDeletethe story is covered in "How to invent a crisis in education", Globe and Mail (Toronto), September 15, 1995. The process whereby various vested interests exaggerated the financial situation is covered in Naomi Klein, Shock Doctrine, p257-259.
The bail out for banks is one off expenditure unless there is a second wave of financial tsunami.
ReplyDeleteHowever, the net public spending is recurrent unless UK government decide to trim down the deficits.
Pound Falls, Yen Rises; Fitch Says U.K. Challenge ‘Formidable’
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By Anchalee Worrachate
June 8 (Bloomberg) -- The pound declined against all of its most-traded counterparts while the yen pared losses after Fitch Ratings said the U.K. fiscal challenge is “formidable,” spurring demand for assets perceived as a haven.
The U.K. is lagging behind other European countries in publishing deficit-reduction plans as investor concerns over government debt loads increase, Fitch said today in a statement, the first by a credit-rating firm to discuss the U.K. since Cameron took office May 11.
Ka,
ReplyDeleteWithout any reform to prevent a re-run of the crisis, why would it not happen again? A repeat is exactly what one would expect.
Nick
Fitch, Bloomberg et al... all vested interests. Why suddenly are we being told our way of life that we have had for decades is unaffordable? The market wants to move in to take over sectors run by the state. We are being sold a pseudo crisis to make this happen.
ReplyDeleteHi NikB
ReplyDeleteThe only difference between Japan (public debts more than 200% GDP)/China and UK/Europe is Asian Countries’ public debts are funded by their nationals with little or no external debts owing to foreigners.
The situation in UK and Europe is different. You can’t ignore credit rating agencies such as S&P or Fitch if you still wish to fund your country spending spree from debts.
Ka,
ReplyDeletewe shouldn't fund spending from debt then. We should issue money debt free, as Abraham Lincoln did to finance the Civil War with Britain. Failing that we can still assess whether the propositions put about by the ratings agencies are reasonable. I haven't seen evidence that the debt stocks are high by historical standards (cf, for example, post WW2 period). So it seems to me a hysteria is being whipped up and used to force through privatisations and other measures that benefit financiers and other vested corporate interests. There is plenty of precedent for this, well documented as I referenced earlier.
These are the same ratings agencies that rated subprime mortgage securities as AAA. Why should we believe them when they tell us that government debt is unsafe??
Hi NickB
ReplyDeleteTake a look at the funds performance in 2010, you should know where international monies are flowing into or out of…………
Best Performance:
(1) Technology & Telecoms
(2) North American Smaller Companies
(3) Global Emerging Markets
(4) North America
(5) Asia Pacific Excluding Japan
Worst Performance:
(1) Money Market
(2) Absolute Return
(3) UK Gilt
(4) UK Index – Linked Gilts
(5) Protected
I wonder how UK Government can make up funding to source the Olympic Game event in 2012 without cutting essential budgets for social works (e.g. parenting, children, family, anti-social behaviors, homophobic hate crime, youth crime & drug and alcohol issue).
Ka,
ReplyDeleteTo some extent the financial markets will follow wherever the heard instinct leads them. I would gladly chop the Olympics to save cuts elsewhere. But you don't answer the points made above.
International monies are still being parted in Asia. A lot of people in UK still believe house price can go higher, however the transactions volume told another story (liquidity drain out). IPOs in Hong Kong ranked number 1 in 2009 in term of money raised even overtook New York in USA. This is not a big deal if you look at the money raised by right issue which exceeded the IPO amount. Liquidity in Asia market is just abundant.
ReplyDeleteI strongley disagree with this article. The economy was based on ever increasing debt and an assumption of eternal growth BEFORE the banking crisis, and this is the issue which needs to be addressed.
ReplyDeleteEven without the recession caused by the debt bubble bursting, we need to be positioning ourselves for the recession to end all recessions when the oil starts to run out.
Hi NickB
ReplyDeleteAs regard to you Abraham Lincoln thingy, do you know how much households debts are in UK?
It’s almost equal to GDP of 150 billion pounds.
debt stocks are high by historical standards (cf, for example, post WW2 period)…………………history is history, you can’t live in the past.
ReplyDeleteUSA, Canada, Australia and New Zealand have once been a British Colony, what about now? You have to look forward and move on.
issue money debt free?
ReplyDeleteWho is the winner in G. Brown cohort?
Bankers, properties speculators, extravagantly paid civil servants, BTL properties owners and those who take advantage of housing bubble squander on things they don’t need on money they don’t possess.
Who is the loser?
Pensioners and savers who suffer technically negative interest rate. In fact everyone through hyper-inflation to eat out their monthly pay.
People will nag at government if there is any increase in profits tax or income tax. However, no one notice about the stealth tax (hyper-inflation) caused by reckless acts of government to introduce endless quantitative easing (money printing out of the thin air).
The more BOE to go down the QE measure the more international capital will repatriate from UK and the higher the stealth tax (hyper-inflation) as a result, and foreigners to dump UK gilts and pounds and all sterling denominated assets including properties.
It’s all about fairness.
Someone said tax those who have caused the global recession (world banks) when they are in profit. Penalise the same banks if they are seen to be taking risks with public money and those who benefited from properties bubble stoked up by easy credit from financial institutions.
Rather than lay the bills (hyper-inflation stealth tax) on those everybody especially those that are poor and vulnerable.
Ka,
ReplyDeleteNo, judging by your own figures debt stocks are not high by historical standards. You say UK debt is equivalent to GDP. Post WW2 it was around 250% of GDP, with many other European countries having similar debt levels. We tried to reduce that with an austerity program, they did not. The result? They prospered in comparison to us.
Re Lincoln etc., I don't see your point. The example shows that another money system is possible, one that does not rely on privatised money issued as debt through the banking system. Governments can spend money into existence. Kennedy did this too, incidentally. As did the Mongol empire. Sir Josiah Stamp, one time head of the Bank of England, advocated a similar system. A good book on all this is "The Grip of Death" by Michael Rowbotham.
Regards,
Nick
No matter what……..be it returns to Gold Standard, you must have the necessary gold billions (where G. Brown sold British gold when it hit market bottom 10 years ago) to support the issue of sterling pounds.
ReplyDeleteDo you think there won’t be any consequence for spending spree by just switching on the (Money) printing press? Decade of painful austerity is reasonable since Tony & Gordon did overdraft future generation’s wealth. It’s now pay back time!
US dollars is still a hard currency and retain the reserve currency status is because Middle East crude oil is being priced in USD. If China want to by oil or other commodities it needs to acquire US dollars.
ReplyDeleteKa,
ReplyDeleteI think you will find that the Gold Standard has been abandoned some time ago! Sterling is a (minor) reserve currency, so it has demand independently of the goods we produce, like the dollar. More fool the rest of the world for accepting this situation.
Your concerns about inflation are misplaced.
The current banking system is the biggest printing press ever - this is what causes the housing bubbles you alluded to earlier. In contrast, if the government took control of the money supply by taking it out of the hands of bankers, it would be able to control the amount in circulation.
Austerity is unreasonable - what is going on is the engineering of a pseudo crisis to dispossess the man on the street. Though I agree that we need to re-engineer the economy back to production rather than consumption.
Hi NickB
ReplyDeleteDon’t confuse quantitative easing with credit creation.
The term quantitative easing describes a form of monetary policy used to increase money in an economy…………………….the central bank purchases financial assets (mostly short-term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has created ex nihilo (out of nothing). Quantitative easing is sometimes described as 'printing money', although the central bank actually creates it electronically 'out of nothing' by increasing the credit in its own bank account.
There are two types of money in a fractional-reserve banking system, currency originally issued by the central bank, and demand deposits at commercial banks. By the working of the modern banking system, banks expand the money supply of a country whenever a new loan is created. The most common mechanism used to measure this increase in the money supply is typically called the money multiplier.
There shouldn’t be any problem for monetary authority to increase money supply in the economy. The only problem is the government use the QE to create money for its spending spree, creating un-sustainable budget hole.
ReplyDeleteWhat need to happen will happen! Austerity is unavoidable.
ReplyDeleteThat explains why Mervyn K dares to raise the base interest rate. He knows there is no way he could withdraw QE measure and pull the plug for oxygen to the government machinery.
ReplyDeleteAs for total debt im a bit confused obviously straight after WW2 there was the Marshall Plan, and obviously there was massive rebuilding and a large debt burden incurred for that. Or are you talking about another period? Because if the former of course there was no austerity since we were borrowing to invest to produce things not (as now) to consume…….
ReplyDeleteThe difference between huge deficits in WW2 and the current crisis is…………..money at WW2 is being put into productive use and help to rebuild the country rather the current bail greedy bankers and property speculators.
If you look at the Euros and Pounds exchange against Swiss France and current gold price, you should know foreign capital is departing Euro Zone and UK.
ReplyDeleteThe UK end Europe economies are having structural problem. Lowering the interest rate won’t help. The government spending in UK is almost 50% of GDP and some EU states are even higher to almost 80%. In China the proportion of government expenditure is just about 17% of the nation’s GDP and 22% in United States. There are plenty of rooms for these two countries to raise tax filling the government’s funding hole.
ReplyDelete1in every 5 working population in UK is public sector employees where all communist members in China accounts for 10% of the population.
I would say UK and Europe is a socialist state and China and USA are entrepreneurial state!
If you compare the inflation rate in the USA which is about 2% and Europe of 1.4% at present with that of UK’s 3.7% (which growth steadily throughout recent months), you would wonder how USA and Europe could contain inflation rate at such low level.
ReplyDeleteEveryone thinks increasing liquidity in the economy will lead to hyperinflation but you shouldn’t forget US dollar is still a reserve currency. What USA does is to socialize inflation among Central Banks across the world in that it helps to contain local inflation in States.
What I foresee in UK is stagflation.
ReplyDeleteConsumers goods inflation but assets price deflation.
Why Japan government debt is standing at more than 200% of GDP but Japanese Yen is still strong? Although the Japan Government is heavily in debt but the Japanese households are rich. There are high savings rate in Asian countries, for instance for each $ GDP generated in China $0.50 is being saved.
ReplyDeleteWhereas UK households debts (exclude business sector debts) at about 1500 billions pounds more than UK GDP, if we take into account the households debts with UK government altogether will sum up to about 4 trillion pounds. It is obviously not sustainable.
In view of government spending in UK take almost 50% of the UK GDP that has a crowd out effect blocking resources available for capital formation/investment in commercial sector. Government is not a wealth creation entity but a wealth destruction entity. What government does is just to transfer payment via tax from the rich to the poor.
The financial and services industry accounts for 70% of UK’s GDP. UK produces nothing and exports nothing. UK is now the 10th largest exporting country in the world just above Hong Kong. Hong Kong has no production for decades except propping up the estates markets and selling luxury properties to rich PRC people.
ReplyDeleteFinancial services industry is just zombie sector. If the government did not inject money into major banks or nationalized some of them, they should have been gone in 2008. What they relied on to survive is the un-precedent low interest rate, ripping off pensions and savers to help filling out their bad loans.
China is piling up commodities/resources, mines in Australia, Brazil & Africa instead of fiat currencies such as US dollars, Euros or Pounds.
UK is not United States nor Eurozone!
ReplyDeleteWhile the exact margin of spare capacity in the economy must be open to debate, at this early stage of the recovery it is more likely than not that this will bear down on inflation for some time. That is what has happened overseas, with inflation in the year to April standing at 2.2pc in the US and just 1.5pc in the eurozone.
In 2007, the UK had the world's third largest current account deficit, despite significant oil revenues, according to the IMF. This was mainly the result of a large deficit in the trade in manufactured goods. During May 2008, the IMF advised the UK government to broaden the scope of fiscal policy to promote external balance.
It has been suggested that the UK initially lagged behind its European neighbours because the UK entered the 2008 recession later. However, German GDP fell 4.7% year on year compared to the UK's 5.1%, and Germany has now posted a second quarterly gain in GDP. Commentators suggest that the UK suffered a slightly longer recession than other large European countries, as a result of government policy dating back to the policies of the Thatcher government of 1979, in which UK governments have moved away from supporting manufacturing and focused on the financial sector.
If UK does not pursue radical change in its economic structure, it will ultimately lose its triple A rating and follow the path of Greece.
ReplyDeleteUK is following the path of Greece…………………….
ReplyDeleteGreek inflation at 5.4 pct in May
June 8, 2010 7:38 AM ET
ATHENS, Greece (AP) - Greece's statistics agency says inflation in the debt-ridden country stood at 5.4 percent on the year in May, a sharp increase as the government implements austerity measures that include higher taxes on consumer goods.
The jump came after a 4.8 percent gain on the year in April.
The statistics agency's figures released Tuesday show inflation was fueled by spikes in prices on alcohol and tobacco products, which jumped by 16.9 percent compared to May 2009, and a 20.3 percent increase in transportation costs.
The government sharply raised taxes on alcohol, tobacco and fuel this year, as part of a package of austerity measures that released a euro110 billion ($130 billion) package of rescue loans from the International Monetary Fund and other European Union countries that use the euro.
Double digit inflation rate in UK at the end of year is not a dream…………………….
ReplyDeletebefore the crisis, lending is very easy in greece (with AAA rating). gov't and people spent future money with low borrow rate. with increased in money supply without increased in GDP caused velocity to increase (too much money chasing too few goods). that lead to inflation. Usually gov't or central bank can increase interest rate to reduce velocity but greece gov't have no power to control euro interest rate.
after the crisis.a weaken in euro makes import more expensive than before. that directly increase goods price.
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?symbol=GRD
If the current British Government does not deal with the sovereign debts crisis, the market will deal with it anyway. I can foresee billion pounds note will soon emerge in light of impending hyperinflation (something like 100 trillions Zimbabwe bank note).
ReplyDeleteHyperinflation in Zimbabwe began in the early 2000s, shortly after Zimbabwe's confiscation of white-owned farmland and its repudiation of debts to the International Monetary Fund, and persisted through to 2009. Figures from November 2008 estimated Zimbabwe's annual inflation rate at 89.7 sextillion (1021) percent.[1] By December 2008, inflation was estimated at quindecillion novemdecillion percent (6.5 x 10108%, or 65 followed by 107 zeros).
The 100-year Japanese residential mortgage
ReplyDeleteA recent innovation (year 2002) in the Japanese real estate industry to promote home ownership is the creation of a 100-year mortgage term. The home, encumbered by the mortgage, becomes an ancestral property and is passed on from grandparent to grandchild in a multigenerational fashion. We analyze the implications of this innovative practice, contrast it with the conventional 30-year mortgage popular in Western nations and explore its unique benefits and limitations within the Japanese economic and cultural framework. Through the use of simulation, the conclusion is reached that the 100-year mortgage has failed to increase the affordability of homes. Instead, affluent homeowners are more likely to employ long-term mortgages as an estate-planning tool to reduce inheritance taxes.
In Japan, house price is even priced out than UK for generations……………so price adjustment (deflation) through generations is reasonable.
ReplyDeleteWhy Germany and France possess the strongest economy among Euro Zone?
ReplyDeletehttp://img130.imageshack.us/img130/7837/householdssavingsrate.gif
Take a look at reasons for US dollars triple A rating:-
ReplyDeletehttp://img408.imageshack.us/img408/1957/sizeofgovernment.gif
Why German’s housing market won’t collapse after financial crisis and Germany’s banking system is most robust in Europe? It’s because Germany is careful to avoid bubble economy built on housing bubble like UK.
ReplyDeleteWhy Hong Kong does not have any exports? If it does, not competitive at all.
How Germany can keep its product competitive in international market? The key is to prevent rental costs soaked into the final product costs.
“Germany is using caps to prevent price increase. The root of housing bubble is inflation. Inflation is the result of government around the world printing money.
Inflated money "bypassed" German housing market and went into other countries' housing and stock and raw material and oil and food market.”
See below:
http://www.youtube.com/watch?v=H8JuTZOiSRg
US ECONOMY
ReplyDeleteAgriculture
Agriculture is a major industry in the United States and the country is a net exporter of food. The United States controls almost half of world grain exports.
Products include wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish.
Manufacturing
Main article: Manufacturing in the United States.
The United States is the world's largest manufacturer, with a 2007 industrial output of US$2.69 trillion.
Main industries include petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining.
UK ECONOMY
ReplyDeleteDuring August 2008 the IMF warned that the UK economic outlook had worsened due to a twin shock: financial turmoil as well as rising commodity prices. Both developments harm the UK more than most developed countries, as the UK obtains revenue from exporting financial services while recording deficits in finished goods and commodities, including food.
In May 2009 the European Commission (EC) stated: "The UK economy is now clearly experiencing one of its worst recessions in recent history." The EC expected GDP to decline 3.8pc in 2009 and projected that growth will remain negative for the first three quarters of 2009. It predicted two quarters of "virtual stagnation" in late 2009-early 2010, followed by a gradual return to "slight positive growth by late 2010".
It has been argued that heavy government borrowing over the past cycle has led to a severe structural deficit, reminiscent of previous crises, which will inevitably exacerbate the situation and place the UK economy in an unfavourable position compared to its OECD partners as attempts are made to stimulate recovery, other OECD nations having allowed greater room for manoeuvre thanks to contrasting policies of relatively tighter fiscal control prior to the global downturn.
Why Germany, Japan, China and USA have a strong economy? It’s because they have a strong manufacturing sector while UK does have a mumbo jumbo government.
ReplyDeleteTotal UK personal debt at the end of December 2009 stood at £1,460bn. The twelve-month growth was 0.7%.
ReplyDeleteTotal lending in December 2009 rose by £1.2bn; secured lending increased by £1.2bn in the month; consumer credit lending increased by £0.1bn - the first increase since June 2009 (total lending in Jan 2008 grew by £8.4bn).
Total secured lending on dwellings at the end of December 2009 stood at £1,234bn. The twelve-month growth rate was 0.9%.
Total consumer credit lending to individuals at the end of December 2009 was £226bn. The annual growth rate of consumer credit remained at - 0.5%.
Average household debt in the UK is ~ £9,000 (excluding mortgages). This figure increases to £18,722 if the average is based on the number of households who actually have some form of unsecured loan.
Average household debt in the UK is ~ £57,937 (including mortgages).
If you add to this the December 2009 pre budget report figure for public sector net debt (PSND) expected in 2014-15 (excluding financial interventions) then this figure rises to £116,390 per household.
Average owed by every UK adult is ~ £30,252 (including mortgages). This is 129% of average earnings. Average outstanding mortgage for the 11.1m households who currently have mortgages now stands at ~ £111,132.
What Cameron do is just to pin point and eradicate non-productive activities………………..
ReplyDelete(a) Against the current background of a still-subdued economy and falling prices, most experts are concerned that deflation poses a serious threat to the economy. Hence they are of the view that the central bank should consider measures to counter deflation. We suggest that a fall in many goods’ prices, which is erroneously labeled as deflation, is actually the result of the liquidation of various nonproductive activities that are undermining real wealth generators.
Consequently, a policy that aims at countering deflation in fact reinforces nonproductive activities and delays the chances for a durable economic recovery.
(b) Yes, I absolutely agree. Deflation isn’t evil at all.
Take a look at China. Its production activities help to drive down the world’s goods price.
One of the scenarios that led to deflation is when a country’s productivity per population is increased. It is only GDP (production per year) grow faster than Money Supply that will lead to spare products and hence deflationary force.
Peter Schiff said:
ReplyDeleteThe real danger will be if we follow our own foolish advice that Europe appears to have rejected. Treasury Secretary Timothy Geithner has bluntly suggested that European governments should print and spend money in order to keep their economies out of recession. In reality, cutting government spending is a far better stimulus. Maintaining lavish budgets through the use of the printing press will only result in disaster. Not only will such action fail to avert a double-dip recession, but it will practically ensure an inflationary depression.
As I have said before, we can't simultaneously grow the economy and grow government. The latest jobs report shows that we are just growing government. If that trend doesn't soon reverse, investors will start betting on the collapse of the dollarzone.
IN CHINA GDP IS USED TO MEASURE ECONOMIC GROWTH WHEREAS IN UK/EUROPE GDP IS A MEASURE OF GOVERNMENT EXPENDITURE.
What has happened in Britain is little different from what has happened everywhere else in the developed world.
ReplyDelete"Forty years ago," said an Englishman on the phone yesterday, "Britain had 8 million people in manufacturing, making things, and 3 million people on the public payroll, consuming them. Now, those numbers have almost completely reversed. And it gets worse. Every day, 126 people are added to government employment in Britain, while 1440 private sector jobs are eliminated."
This comment has been removed by the author.
ReplyDeleteSTOCKHOLM, June 9 (Reuters) - Iceland's central bank signed on Wednesday a currency swap deal with China, a move seen boosting confidence in its battered currency and further paving the way for the removal of the island's strict capital controls. Iceland is picking up the pieces of its shattered economy following the 2008 collapse of its top banks and crown currency at the height of the financial crisis. It has boosted reserves and focused on improving liquidity as it prepares to lift foreign exchange controls and return to global capital markets.
ReplyDeleteGross domestic product
ReplyDeleteGDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).
Y = C + I + G + (X − M)
In Europe and UK, GDP is equated to G (Government Spending) since…………..
Consumption (C) = hope the ponzi scheme still work & foreigners keep on buying gilts to support UK Government Spendings.
Consumption = credit bubble has been burst & unemployment is high; so it must be reduction.
Investment (I) = land costs/labour costs in UK is too high and it’s not conducive for investors to plough money for capital outlays.
Net Exports (UK produces nothing & exports nothing; so it must be a net imports).
GREAT DEPRESSION? NO SIGN TO HAPPEN IN ASIA YET!
ReplyDeleteChina Exports Jump Most Since 2003, Property Prices Rise 12.4%
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By Bloomberg News
June 10 (Bloomberg) -- China’s exports jumped the most in six years and property prices rose at a near-record pace, signs that the economy is withstanding the sovereign-debt crisis in Europe and remains at risk of overheating.
The 48.5 percent gain in exports from a year earlier, announced by the customs bureau today, surpassed all 32 estimates in a Bloomberg News survey of economists. The trade surplus widened. Real-estate prices rose 12.4 percent across 70 cities, the statistics bureau said separately.
Japan’s Consumer Confidence Gains as Economy Expands (Update1)
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By Aki Ito
June 10 (Bloomberg) -- Japan’s household sentiment rose to the highest level since October 2007, even as Europe’s debt woes roiled markets across the globe.
The confidence index climbed to 42.8 last month from 42 in April, the Cabinet Office said today in Tokyo. The median forecast of six economists was for sentiment to be unchanged.
The world’s second-largest economy expanded at an annual 5 percent pace last quarter, extending its export-fueled rebound from its worst postwar recession, a revised report showed today. So far, Europe’s turmoil has yet to damp growth in Japan, according to economist Tatsushi Shikano.
INFLATION IN UK WOULDN’T COME DOWN EVEN IN ECONOMIC DEPRESSION, SO INFLATIONARY DEPRESSION OR STAFLATION!!!!!!!!
ReplyDeleteNot so roseyBloomberg: IMF Says Risks to Economy Have Risen ‘Significantly’
Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth
1. paul said...Oh so the downside risks to the economy are significant so ... interest rates won't rise today to combat the inflationary threat identified two weeks ago.
Business as usual then - Cameron and King's warnings about inflation not being the answer are just water under the bridge.
Back on course for financial ruin then.
In view of foreign investor are fretting about the UK debts mountain, and no way they can’t put more stakes in Gilts. So, the viable option to balance the public book is to raise tax.
ReplyDeleteI prefer the government to cut public spending than to raise tax or stealth tax (hyperinflation).
Why don’t we allocate resources to help the poor & vulnerable (e.g. pensioners, disabled or children) rather than keeping people on public payroll that deliver nothing.
ReplyDeleteThe British Government can’t manipulate everything. If the inflation rises to double digit but BOE insists to keep base interest rate at 0.5% so as to postpone the house price collapse, then the Sterling Pounds will crash instead.
ReplyDeleteIt’s all about fairness.
ReplyDeleteTony and Gordon stole wealth from our future generation, and left over baggage of debts on their shoulder. It is now David and Nick to propose the increase of University tuition fees which is equivalent to robbing our future generation. Even the Chinese official knows providing free education to its youngsters is in fact an investment in human resources, and plan to waive University tuition fee in the next 15 years.
UK University students once graduate will have to repay mountain of students loan where UK Government is still wasting the nation’s money.
Why don’t we scrap ministers’ expenses claims and all meaningless government’s projects and put the money into better use (use that provides bright future for our future generation).
ReplyDelete-- Portugal approves the government's latest austerity package in its final vote on the legislation.
ReplyDeleteJune 9 - Austerity minded Liberals win Dutch elections but deep divisions over policy will make consensus on bringing government finances under control tough to reach - the deficit is expected to reach 6.6 percent of GDP in 2010.
May 27 - Spain wins parliamentary approval for its 15 billion euro ($18.4 billion) austerity package by just one vote.
May 25 - Italy's cabinet approves a 24 billion euro austerity package with the aim of cutting the deficit to 2.7 percent of GDP in 2012 from 5.3 percent in 2009.
June 7 - Merkel's coalition agrees a package of budget cuts and taxes to bring Germany's structural deficit within EU limits by 2013 and revive her political fortunes.
Is UK’s 6 billion pounds budget reduction out of total budget deficits of 156 billion pounds qualify as a genuine cut?
UK Government Debt & Deficit
ReplyDeleteDeficit 11.4 % of GDP
Government deficit as a percentage of GDP
In the calendar year 2009 the UK recorded a general government deficit of £159.2 billion, which was equivalent to 11.4 per cent of gross domestic product (GDP).
At the end of December 2009 general government debt was £950.4 billion, equivalent to 68.1 per cent of GDP.
Hi Ka Ming, thanks for your stunning contribution to my blog (which was read by hundreds if not thousands of readers). Could you please send me your contact e-mail address to my e-mail: g.pytel98@imperial.ac.uk ?
ReplyDeleteBest
Greg