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Damned if they do, damned if they don't?

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Stephanie Flanders | 08:57 UK time, Saturday, 26 June 2010

In many ways, the argument over the right way to support the global recovery here at the G20 summit in Toronto is the mirror image of the debate at the London Summit last year.

G20 summit, London 2009Back then the argument was that governments needed to act together to prevent another Great Depression. Now the worry is that they will hurt the recovery if they withdraw that support all at the same time.

But there is one crucial difference. In April 2009, any student of economic history could tell you which policies would maximise the chance of recovery - or at least minimise the chance of economic catastrophe.

The hard truth about today's situation may be that there is no perfect mix of policies that can guarantee a strong recovery after a financial crisis this severe, and a run-up in sovereign borrowing this large.

Put it another way: we could be damned if governments do cut borrowing rapidly - with the global economy still fragile - but we could also be damned if they don't.

You can make the argument any number of ways - let me do it, in shorthand, by referring you to a handful of seemingly disparate events of the past day or two.

The best growth money can buy

First was the downward revision to US growth in the first quarter, from an annualised rate of 3% to 2.7%. That may not sound too bad, especially compared to much weaker growth rates for the UK and the eurozone over the same period - but it comes on the back of very disappointing figures from the housing market earlier in the week.

Growth was probably stronger in the second quarter, but the housing figures have many economists muttering about a loss of momentum later in the year. And remember - this is still the "best recovery that money can buy". Last year's stimulus is still having effect. Next year the money will have largely run out.

But if you look across the Atlantic to Europe, the news isn't much better.

Irish hangover

If there's a country in the world that has taken the tough decisions on borrowing, it is Ireland. As I've written in the past, the Irish government cut spending or raised taxes by more than 5% of GDP in 2009 alone, even as its economy was heading off a cliff.

Reporting on its latest consultations with the Irish, the IMF begins by pouring praise on the government, using words like "assertive", "resolve" and "credibility" in describing what the government had done - and how it had been received in the markets.

But that's about as good as it gets. The report goes on:

"Ireland is likely to emerge from its output contraction into a period of relatively modest growth potential and high unemployment.... The improved global outlook will help, but to a limited extent."

Finally, "home-grown imbalances from the boom years will act as a drag on growth. The unwinding of these imbalances--arising from rapid credit growth, inflated property prices, and high wage and price levels--will limit the upside potential."

So, Ireland may have done all the right things as far as the sovereign bond markets are concerned - the financial crisis has still left it looking at a bleak three to four years.

Not everyone is in the same boat as Ireland. But all governments are under pressure to demonstrate - to their citizens and to international investors - that they can both get their public finances in order and achieve a decent recovery.

As the Spanish government discovered recently, the promise of fiscal austerity, with no growth for years to come, is not much more credible to the markets than the promise to keep on clocking up the debt. Today the cost of insuring against a Greek sovereign default hit an all-time high.

The G20 leaders will paper over their differences in their final communiqué on Sunday - they can't paper over the fact that this crisis has left them very few good economic options over the next few years.

Comments

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  • Comment number 1.

    There are many that do make their current judgement based on economic history, yet the situation is so different, that the history does not work in my view

    The cuts are needed now and deep, as this will also alter the psychology of how we spend money, and will cause there to be a proper review of the role of the state, the NHS and the funding of both

    So that is my view, and the reason for my view

    In addition, we wasted a whole year whilst Gordon Brown couldn't call an election as he was so weak

    If he had called the election earlier we would have had a conservative government with a majority, yet I don't think that they would have attempted anything like the scale of changes now being attempted by the coalition

    This is the irony, in coalition there are far more radical changes than there would ever have been with a conservative majority

    Not a good time for Labour, or their tax, tax, tax, spend, spend, spend supporters

    That that seek to delay the cuts until the recovery is more established are wrong, primarily because IF there is no established recovery, we would then be overwhelmed with debt, and there would be many who think that the cuts will just not happen

    So, by cutting now, we will be in better shape, post medicine taking, irrespective of the backdrop

    All of Europe is now following Osborne's lead, and the Labour accusation that the Conservatives were alone in acting in this way, is starting to look incorrect and hollow

    Rather like I thought it would

  • Comment number 2.


    Forgive me if I suggest that there are no startling insights here. The truth is that we have to balance the books - and this can only be done either by spending less or earning more. The answer is likely to be a bit of both: and, if the books are going to balance then if we do not earn more then we will have even less to spend.

    Since we are talking about the whole economy, and what goes around comes around, there are feedback loops either way (vicious and viruous cycles). If we spend less, then there is less earned - and less to spend. If we earn more then there is more to spend - and more is earned.

    Either way, there is only on key to turning from here to a virtuous cycle and that is to earn more. The question is where is that earnings growth going to come from?

    Not from Government, and hopefully not from credit fueled consumption. So that leaves investment and exports to lead the recovery: and where is the investment going to come from, and where are the exports going to go?

    Until we answer these questions, and how Government can facilitate this process the debate is simply pushing the IOUs round in ever decreasing circles.

  • Comment number 3.

    It would be nice if we could provide a stimulus to help the economy through the hard times ahead. Unfortunately, our children and grandchildren cannot afford this because so much of their wealth has already been spent on us. The situation may be different in other countries, but for us in the UK, it is questionable that they (the children) could even afford the stimulus that there has already been.

    Ever since we got into difficulties with debt, both personal and national, there has always been going to be high unemployment and a prolonged recession - inevitably it takes time to pay down such enormous debts. The stimulus we have had has been a slight of hand to try and persuade the electorate that there wasn't a problem, but that's all it was. You can't stimulate a real recovery based on conjuring up non-essential public sector jobs and paying the people with borrowed money. Now, if it was surplus wealth built up in the good times that might be a different matter, but it wasn't.

    Even now there are so many contradictions in what is being proposed. For example, making the older generation work longer and so taking the jobs that would otherwise be available for the young unemployed. But so many of the young are coming out of the education system without the tools they need to succeed in work.

    It would have been much better not to have got into this situation in the first place through proper management of the economy - wise after the event, it's true - but at least we could stick to this approach from now on.

  • Comment number 4.

    Stephanie,
    The reason why there is no clear answer to the problem we are now facing is that, whether you are a cutter or a borrower in the spectrum of economic policies, everybody seems to agree that continued growth is an essential element in the solution. Those of us who are simple minded scientists and mathematicians, as well as the rest of society who have common sense, realise that the concept of sustainable growth at whatever level, forever, is complete nonsense. Economists and politicians must realise this as well but their jobs and electability rely on perpetuating the myth and they hope that the inevitable day of reckoning will not arrive on their watch.
    Perpetual growth is an illusion which seemed possible in a world with apparently infinite, as yet undiscovered, natural resources, and when populations were small, relative to these resources.
    Sadly the human race has tacitly assumed the validity of the myth and literally become too big for its boots, while everything else was shrinking. Even the fact that the housing market is seen to be a yardstick for economic success and a prime determinant of GDP should be ringing bells everywhere. Yes, it provides jobs which keeps the money-go-round moving, but unless we are exporting the houses to create real income it has no real bearing on the financial wellbeing of our country.
    Meanwhile we have no thoughts of tackling the huge and growing elephant in the room, which is population growth itself.
    Last year a government sponsered think tank produced a very useful and imaginative document titled "Prosperity without Growth", which has been completely ignored by politicians of all colours, while they encourage us to sleep-walk into a dire future which is all too predictable, and could have been avoided.

  • Comment number 5.

    The truth actually, by definition, is that the books are balanced. The government deficit is matched to the penny by a non-government surplus. This is just a matter of book-keeping, how the national accounts are drawn up. And over the last decade in reality the government's budget deficit has been mirrored by a substantial surplus in the corporate sector.

    People who keep repeating the anti-deficit mantra also need to explain why they are against private sector surpluses. Attempts to reduce the budget deficit make it harder for the private sector to save. By definition! The coalition appear either not to understand this, or worse...

    Please see Martin Wolf's series of columns about this issue, or read some of the late Wynne Godley's publications.

  • Comment number 6.

    I find it rather bemusing that the IMF's words are taken so seriously. Who cares if it (IMF) compliments Ireland on it's actions?

    Wasn't it the IMF who encouraged Iceland to pursue the liberal market model that has led to it's current economic situation?

    I'm afraid we've all been brainwashed for the last 30 years or so with this liberal market philosophy and where has it led the UK, to reduced standards of living for the poor and middle classes and massive enrichment for the privileged few.

    Don't let changes in computer technology confuse you into thinking standards of living have gone up over the last three decades, they haven't. We may now have fancier tv's, car's and computers because of technological advances, I'm really thinking about affordability of homes for most people, future job security and pensions for most people and general changes in our overall lifetsyles such as the quality of food we purchase and consume etc.

    The average worker now cannot afford a decent size home without having two incomes, the average worker now endures longer working hours in the UK then before and the average worker has far less job security and is expected to work far longer before they can even contimplate retirement. Even if the average worker does get to retirement age, their pension income is likely to be miniscule compared to the constant rise in cost of living (e.g. massive hikes in electricity/gas/food bills over the last 3-4 years alone) and that's if they get a pension in the first place (think of private companies going bust and being unable to pay out to ex-workers their promised pensions).

    Instead what we've had over the last 30 or so years is a steady move towards a corporate fascist state (particularly accelerated in the last 2 years with the giant handouts to the banking system at our expense). All governments (Labour and Conservative) have been completely beholden to corporate interests and have simply ignored the interests of the population who vote for them.

    Instead we're just in a race to the bottom, encouraged to pick each other off via slanging matches e.g. public vs private sector pensions, NHS or privatised healthcare, private vs public sector employment rights and the list goes on and on.

    All we are being encouraged to do, is to fight and squabble amongst ourselves over the crumbs left on the table, whilst the corporate and super wealthy walk away with the loot!

    Excatly how has "liberal" market economics benefitted the majority of the UK working population?

  • Comment number 7.

    Balancing the books is an absurd notion. All you can talk about is how fast we reduce the deficit and how slowly we can make the rate of accumulating national debt. The government has chosen to cut public sector budgets sharply and it remains to be seen how quickly, if at all, public expenditure falls and tax receipts climb. The activity of the public sector is a major factor in the development of the whole economy. Look for further downward revisions of growth in say 6 months - is that not the message of the Irish experiment?

  • Comment number 8.

    angloscotty @ 4: This is one of the best posts that I have seen on any of the BBC Blogs. A galaxy away (never mind world; too small!) from the unpunctuated and uncapitalised rantings that have become all too common, albeit normally in NR's section. It's a crying shame that those who really ought to read, mark, learn and inwardly understand it simply won't.

  • Comment number 9.

    What do the G summits actually do ? ( Apart from being a super-expensive quango ? ) .

  • Comment number 10.

    It is entirely possible to cut overall spending and increase investment at the same time.

    The coalition have cut spending - a good start - but they need to boost investment as well to provide growth in the economy.

    It is a great pity the NHS has been ring fenced - cutting there as well as benefits would free up substantial sums that could be invested in infrastructure, creating jobs and growth.

  • Comment number 11.

    >>"The G20 leaders will paper over their differences in their final communiqué on Sunday - they can't paper over the fact that this crisis has left them very few good economic options over the next few years."

    I think the G20 leaders are not going to "paper over the fact that this crisis has left them very few good economic options over the next few years" !!

    The main battleground is the revaluation of the Yuan !! Until recently, the Americans have been using the value of the Yuan as an excuse for their poor economic performance. In the coming days, weeks, months, we'll see the Yuan rise without serious impact on the volume of trade between the Chinese and the Americans. This will mean that the American trade deficit will grow ever larger simply due the rising value of the Yuan. Furthermore, it's been announced that the Yuan will be valued based on a basket of currencies (whose composition is still a state secret) !! The only sure fact is that the US $ will no longer the reserve currency of choice. This will have a direct effect on the value of the $ !!

    In a similiar vein, the rising Yuan value will also affect the European balances of trade !! This will make any "growth" that much more difficult to achieve, since much more "cash" has to be paid for the same amount of imports from China and that will have an inflationary effect on the local currency; be it £, Euros, whatever !! Therefore, those who assume that there will be any major *real* growth to produce a quick recovery will soon find themselves shouting in the wind !!

    Without the spending cuts, European governments will soon find themselves in an ever-tightening spiral down into the black-hole of economic disaster, Zimbabwe-style !!

    As for the Irish, I applaud them !! They are brave enough to take the pain now and wait out the (shortened) years in the wilderness !! It is fine for those to sneer at them and point out that they have no *instant growth and recovery* !! But when the Irish recovery happens, it will be solid while those who waited to make the cuts will suffer ever longer years in the wilderness !!

    And Soros is a predator !! Does anyone expect a predator to help their prey shore up their defences against him ?? He will do everything to weaken his prey so he can predate on them more easily !! Those who believe a predator's words will be led like lambs to the slaughter !!

  • Comment number 12.

    The moves of the Irish government were a spectacular failure, as predicted by Keynesian economic analysis, yet the IMF continues to praise Ireland for its courage! The fact is that the neo-classical economic model of deficit reduction first and foremost is a flawed one, based on the assumption of perfect markets and perfect information.

    At the moment the European governments have jumped headfirst into a race to the bottom to see who can cut fastest. If the UK cut in isolation it could probably rely on the stimulus packages of other nations to boost exports and so mitigate the effects of low aggregate demand domestically. Instead the US is watching with dismay as Europe forgets the Single Most Important Lesson of the 20th century with reckless abandon and undermines global recovery.

    Growth is paramount to tackling the deficit. The growth will now have to come from developing nations because of the cowardice and stupidity of the West. The IMF is almost always uniformly wrong. The best policy can be virtually guranteed to do the opposite of what it advocates. Sadly, if you don't have a degree in economics, which Osbourne does not, it is very easy to make the mistake of listening to these self-important clowns. At least there's no danger of a revival in inflation - there's no economic incentive to invest right now so the pressure on capacity is non-existant.

  • Comment number 13.

    #5 agog:

    "The truth actually, by definition, is that the books are balanced. The government deficit is matched to the penny by a non-government surplus. This is just a matter of book-keeping, how the national accounts are drawn up."

    Your comment on the face of it appears to be a little pedantic. However, if it has validity then it may be the external deficit, the balance of payments deficit which is the important factor to balance, but which seems to get little attention.

    Basically by continually exporting less than we import, our wealth is inevitably going abroad. Also, our companies and our property (our assets) are being bought up by people abroad. Inevitably, this reduces our future ability to generate wealth through our labours, because a proportion of the wealth and profit generated goes abroad. Although this is balanced in the book-keeping sense, the outcome is not one that we would wish to happen.

  • Comment number 14.

    I couldn't agree more with angloscotty, #4. Indeed as a retired research biochemist whose interest was the balanced metabolism of living organisms I would direct more bloggers to his comments. Continued growth ad infinitum is impossible. The discussion should be about what the steady state would look like; what inputs are needed and what outputs are required. Maybe one day humanity will waken up to the fact that, religious beliefs pushed to the side, continuous population growth is impossible, indeed we should be considering population reduction.

  • Comment number 15.

    I remain unclear about where on earth people get their ideas of fairness and equality, and thus bemoan how 'liberal' (whatever that means) markets can never deliver this. All over the world, across the entire spectrum of humanity there exists inequality. Whether it's the multi-billionaire who has more yachts than his contemporaries, or the slum dweller who finds an extra pair of useable shoes to wear, while his peers remain barefoot, inequality will continue.
    Here in the West we have experienced a quality of life way above that of the majority of the rest of the world. Unsurprisingly, these underprivileged peoples know this, and they want some of what we have had. Wealth will level down (for the masses, at least...maybe not for the super-rich), just as water finds its own level. There will most certainly be a steady and noticeable draining of wealth from the Established world towards the Developing. And this is fair, tbh. We have had our party, now it's their turn. No amount of G20 summits is going to change this.
    As a nation, how is the UK placed to recover from the downturn? Not very well placed, at a national level, I am afraid to say. The North Sea oil reserves are almost gone. As the windiest place in Europe, we could, I suppose, turn the entire nation into one massive wind farm, selling the energy generated to the rest of Europe. But this would mean saying goodbye to the Sussex Downs, the Yorkshire Moors, the Peak District and many more sites of natural beauty.
    Looking at how Britain made her money historically, colonialisation and the Industrial Revolution are the primary examples. I think the latter only came about because of the money generated by the former. Short of space exploration, there is no acceptable way (morally or otherwise) we can today stake a claim in other territories and then exploit their natural resources.
    Now that banking has been proven to be a flawed business in which to lead the world, we need to identify and develop another. Traditionally, that has never been the role of government in the UK. Maybe it's time to change, and perhaps we should be tasking our leaders with building a viable and vibrant future. Oh wait...they all promised to do that already.

  • Comment number 16.

    Government spending does not create growth, it merely diverts wealth from one activity to another.

    You cannot print wealth, or borrow yourself rich. Keynes was one of the worlds greatest ever confidence tricksters and his long con is now seen in all its glory.

    What is growth? Is it real wealth accumulation such as production, savings or assets, or is it more paper currency issued to paper overt the cracks and kick the can down the road for some other sucker to deal with.

    A situation caused by excessive credit and debt cannot be resolved by the issuance of more credit and debt.

    G20 = bread and circuses

  • Comment number 17.

    The problem for the G20 is debt.

    Debt has grown so large at the same time that the borrowers ability to repay has drastically reduced. The main problem is not government (sovereign) debt - it is personal and private debt. The economic children who prance and preen on stage at the G8/G20 just don't appear to get it.

    History and an understanding of economic history is very instructive. Newfangled economic theory and ideas related to regulation created the disaster and need to be entirely discarded. Nearly all so called economists educated since 1980 need to be re-educated and reformed. If they were right in their ideas then we would not be where we are today.

    Those who reject history are destined to re-live it, with knobs on! This is so true in the case of this economic collapse. In simple terms the global economy of the over leveraged countries is still declining and re-inflating the bubbles is being disastrous - yet this is exactly what is being advocated by President Obama's team. They seem to have learned nothing.

    We must first resolve the bubbles that created the economic disaster. The housing bubble is the most burdensome and difficult to resolve. But is must be resolved. House prices must decline to half previous prices. The over leveraged must be repossessed if they default. Interest rates need to return to rational levels. We have to get back to sane economic conditions. Pumping more liquidity into the over indebted is insane. We are giving an alcoholic more booze.

    Governments are grasping the government debt problem, but it looks as though the way that they are doing it is by transferring the debt to the private sector - this is daft and will not work as a way out of this terrible depression.

    To get out it is necessary that there is a period of debt-deflation. This has proven to be the only way out for capitalism in the past when we have had such an appalling economic depression (1930s & 1870s). I see no other solution that is based on any from of actual economic evidence. If this G8/G20 conference does not acknowledge this and act accordingly then they are condemning us all to an even longer depression and even more hardship for the poor (who always suffer worst!)

    I have set out before a series of economic steps that will get us through this disaster quickly. They will happen eventually and as an optimist I want to see them happen now, and not later. The patient has economic gangrene in the foot and unless the diseased foot is amputated the patient will lose the leg and later die. It will be painful, but debt deflation must take place.

    (Debt deflation also requires that assets with resale value must be re-marketed at lower price levels particularly so if the debt has been secured on the asset. If the debtor is unable or unwilling to repay the full historic debt the security requires that the debtor is disposed of the asset.)

  • Comment number 18.

    All Chancellors’ careers end in failure. Mostly because popular demand for optimism requires Chancellors’ to make dramatic growth forecasts for private sector investment and British exports. Those forecasts prove always to be way over-optimistic. That’s why Chancellors always fail.
    Neither the Chancellor Osborne nor OBR’s Sir Alan Budd knows whether the Budget’s huge gamble will produce the surge in private investment and exports they’ve forecast. And the OBR admits to only a 60% chance of success. Which is also a tad too optimistic.
    So it is with Frog spawn’s budget: he expects spectacular growths in both company investments and in exports to overcome deep cuts in family budgets and public services. It’s a familiar refrain: we’ve had the ‘Maudling dash-for-growth’ that ended in recession and sovereign debts. Next up, Chancellor Callaghan hoped we could avoid a long-overdue devaluation that was eventually forced on us, and its supposed advantage lost in a price spiral. So too it was with the ‘Barber Boom’ of 1971 that ignited a raging inferno of inflation that didn’t die until years after the ‘Lawson Boom’ of 1988-89 had died in the misery of the 1990-92 bust.
    Private investors simply won’t risk their money in unstable times: certainly not the shake-up that Frog spawns is inflicting. Investors want calm conditions - not stormy ones. Nor will overseas markets switch to the forecasted British supplies when our economy has been launched into such uncertainty.

  • Comment number 19.

    angloscotty #4 and thatmcgrath #14 are making a mistake that i've been making in spades until very recently . . . we're still equating growth with the inevitable depletion of resources and mushrooming pollution -- (ie capitalism and a finite planet are totally incompatible)
    . . . but i'm beginning to wonder about that.
    i can just begin to glimpse a future (probably much more equitable globally than we've been used to) in which we can indeed have sustainable long-term growth for everyone. . . in which we have housing, food, travel, entertainment etc etc provided in a way that does not plunder and destroy the planet, though it may change some of our consumption patterns and preferences. . . . .
    for example, the successors of the ipad etc can and will reduce dramatically the need for newsprint, books and all the transport costs involved. . . . smaller, much more energy-efficient vehicles will eliminate the use of oil-based fuels for local travel . . . food production can be totally long-term sustainable by reducing waste, producing far more items locally and so again cutting transport costs; the lastest generation of planes and trains can be totally sustainable well into the future etc etc. . .
    but this will only work if the offensively greedy consumption of the few is indeed brought back to a level sustainable if it was copied by all of us. . . .
    it's all doable. . . and will bring a better more interesting and rewarding life for all of us (even the super-rich over-consumers). . . but i can't see it happening without some kind of crisis or revolution or whatever. . . and how do we have a say then in the direction that will take us in . . . .

  • Comment number 20.

    Our debts approach one trillion pounds, not including "off balance sheet" liabilities. For those who would like to see what one trillion pounds looks like I attach a short film. It is US so visualised in 100 dollar notes so you will need to double it for 50 pound notes

    http://www.youtube.com/watch?v=LFRxiX0pQl4

  • Comment number 21.

    I find commenting on economics difficult. I can abstract the logic. However the numbers start to mean nothing to me. People present values as slices of pie or whatever but this still doesn't seem to address the wider simple four dimensional problem or any of the wider issues. Not very helpful. There is a point where monetary values, when not put in to context with other defined points become completely meaningless.

    What I see and hear development in the world today. That is if I'm not mistaken. Are government and non government quango churches trying to define their brands and regulations in a way that makes them acceptable and also profitable for the vast number of real people who need work and sustenance. It is these entities which blur the numbers somewhat. What real value do they give to people and their real lives as individuals and how much does personality and ideology by association with employment really count for?

  • Comment number 22.

    17

    The world's second largest economy does not have a personal debt problem

    How does your theory work there?

    ANSWER

    It doesn't work there

    In fact it doesn't work anywhere, as it is pure fantasy

    The current economic crisis bears no resemblance to any other, as the impact of IT, 24 hour news, and the fact that resources are now being used up so quickly, mean that this is a whole new ball game

    You should be proud of being a dinosaur, yet don't forget that they soon became extinct

  • Comment number 23.

    A continued fixation with housing markets as a measure of economic activity is surely the flawed "old economics" that created the debt bubble stick we are all being beaten with. I would have more confidence in the Conservatives "slash and burn" policies if their exampled models were not so flawed. They hold the Canadian fiscal policies of the 1990s as the reasoning behind the cuts - ignoring that these were cushioned by a large booming market next door in debt ridden USA. To add insult to injury the present Canadian government prognosticate Labour policy for cushioned reductions to protect weak growth world-wide.

    They promote the Swedish "free school" model for drastically privatising State Education, when even the Swedes are not convinced it has had any benefit, if not actually worked against the poorest in society. While, sneaking in funding of "failing private schools" into the "free" programme. Hence, yet again, the Tories take public funds to finance their private schools, and themselves.

    The use of the Irish experience in your article further indicates the isolation of economic commentators from the realities of their epistles. Irish "output contraction" is in reality millions of jobs, and dessimation of industry (their private sector), loss of manufacturing establishments such as Waterford Crystal have been devistating on a whole city dependent on its wealth creation. Let us put these glib economic phrases into their realities for people - industries with world-wide reputations closed for the sake of financial lunacy. In the case of Waterford Crystal, who for a decade was using EU/German largess to purchase failing British potteries, such as Wedgwood and Royal Dalton, the financial collapse fell on the Irish, as they workers did not have a Labour government that had protected their employment and pension rights. So your "output contraction" meant that the workers in Waterford were summarily dismissed, and their pension taken away (the workers in Wedgwood, et. al. were protected thus taking money out of Ireland to pay for British workers).

    It is time that economic commentators grasped the nettle and made public what the outcomes of boy George's budget are going to be. Especially as, under the blanket of financial necessity, much of the publication of information concerning Local and National government activity is to be removed. Attacks on Local Government "free newspapers" giving feedback to their communities; targets and reporting of standards within Local Councils to be abolished; Government information web-sites to be closed arbitrarily (information concerning road schemes; service privatisation all hidden). All done in the name of "budgetary necessity", which is unproven, risks dessimation of large areas of the country (surprisingly not in the Tory Heartlands) and finally gerimanders the electorial process into a Tory future, evermore. The "ruling classes" have jumped back with vengence - no wonder boy Cameron is so anti-European, where individuals are citizens with "rights" rather than "subjects" to be governed.

    Australia is looking even more tempting.

  • Comment number 24.

    Now the worry is that we will hurt recovery if we withdraw stimulus.
    Yep, that’s the question – or rather the American question, Obama’s question.
    I firmly believe that the economy will be hurt much worse if stimulus continues because stimulus is artificial. If the electric shocks of stimulus thus far applied to the "weak" economy have failed to stimulate growth, isn’t it time to take a different track?
    Europe has done so; Europe is on another track – a good track:
    - reduce the deficits,
    - stress test all banks,
    - ensure capitalization,
    - never ever again say any bank is too big to fail and
    - cease stimulating.
    That’s a policy that will work, and guess what?
    It is a policy that will work much quicker than you think. The Americans know this.
    Current stress testing (report due in July) will reveal some very interesting financial polution, like dertivates, credit defaul swaps, CDOs and other “stuff” that has been clogging the arteries of the EU.
    Until the United States pases real reform (as existed with Glass-Steagall) do not be fooled by its "new" reforms. Where are the regulatory bodies? Where is control on derivitives? What’s really changing except a few names?
    Ireland:
    Is making progress. Banks’ balance sheets have been purified by the sale of impaired assets (discounted) to the National Asset Management Agency (NAMA); this was followed by recapitalization to “adjust” the losses incurred on the transferred loans, as well as likely further losses on other transfers. This is called cleaning up the balance sheets to ensure accurate capitalization, and yes, it can be painful, BUT:
    It will place Irish banks in a valid capital position which will place them in a better position to access funding and assist in the recovery of the economy.
    While the costs of restoring the banking system is large, there is now certainty about the overall size of these costs.
    My bottom line: How likely is it that the country that caused the financial implosion, the country that is $13 trillion + in debt, is going to take the lead in bringing needed financial reform?

  • Comment number 25.

    Tudor in Amsterdam #19

    You seem to miss the point that your technological bonanza, reduction in usage of world cresources, totally rlies on one or two rare minerals (lithium being one of them) that are available in finite amounts and found in one or two places in the world. What future for the iPad when these are gone, where does the electricity come from to both charge batteries and manufacture such items? Where do the plastics comefrom once the oil runs dry?

    What one should be asking is what value there is in the bulk of our material world - 900 TV channels pumping out "same-same" programmes - news providers ad infinitum telling the same three or four stories. We rape our own backyard for the benefit of the "Murdochs" of this world who produce crassness in the extreme for self-engradisment. Profit, profit means theft, theft - your independence; your ability to think or voice opinions. What value you iPad when Murdoch charges you for everything that you may want to know?

    Technology, as with materialism, is a sham, that perpetuates the wealth of the controlling few at the cost of the desperate lives of the few. Much of our social "ills" result from materialism, those without the shiny things taking other peoples shiny things. Those with shiny things desperate to exclude others from having the same shiny things. Interestingly in this new age of monetary austerity - "works of art" are breaking records in the auction houses. How many jobs, schools, hospitals could have been financed by the money spent on things that are locked away for fear of somebodyelse gaining access?

  • Comment number 26.

    Leftie #18

    Even Osborne and Budd should be able to see that there is no "export boom" when major customers such as Europe and America are barely growing, faltering on the brink of further recession. That must at least see that China can out produce any British manufacturer both in terms of quantities and price. So, where will this manufacturing boom come from? Maybe boy Cameron is still watching his Star Trek and expects the Klingons or some other alien species to want good old British products - if only we were not actually busily assembling other nations' products. Remember, RBS just enabled Kraft (American) to purchase Cadbury (British) and the Conservative government wants to sell off the recently completed St Pancreas - Folkstone High-speed Rail Link for £1.5bn. Can somebody remind me of how much the initial Waterloo - Folkstone link cost, let alone the extension to St Pancreas, certainly many times more than £1.5bn!

  • Comment number 27.

    19th Economic History = 21st Economics and Economists? Very regressive?

    The reality is that the world economics/economies are moving faster than any Economic History student anywhere in the world? The world is still in two halves and the culprits are economists?

    Certain developing countries that are only 'growing' because they have adopted exploitative 19th century working and employment practices/models? This makes a lot of money for a few at the expense of the many as happened in Britain during the 19th century.

  • Comment number 28.

    In the UK we can improve our economy by working smarter?

    1) Don't shed or lose jobs - reduce working days or working hours depending on whether it is a front-line essential occupation already operating shifts 24/7?

    2) Stagger the working/education start times in the MORNING - as we know that the morning school run clogs all roads for everyone and wastes billions of tons in fuel; costs us all £1000s a year and causes enormous pollution in traffic jams all over the UK - madness?!!!

  • Comment number 29.

    De leveraging in Europe and the US is likely going to be painful for a long time to come. Probably any future organic growth has to come from the developing world, semingly India and China are the best candidates. If internal growth gets going in those countries then UK companies can participate and repatriate their earnings. Money comes back here and circulates.

  • Comment number 30.

    23

    That is one mighty chip on your shoulder

    Did you complain when New Labour stopped legitimate protest anywhere near Parliament?

    I can only imagine that you did, based on your comments

  • Comment number 31.

    Lefty Loonie @6

    Could not have put it better myself.

    When the State does nothing for the People except harass,tax,fine, and work them into old aged Slavery then the People must just walk away from the State and its Elite.
    I believe it is called "The Great Disconnect."
    The Greeks and Icelanders understand this...not so sure about the English who seem to relish masochism. As in, "yes, blame me Britains economic and financial collapse it is all my fault."

  • Comment number 32.

    #27 corum-populo-2010,

    Your thinking is along the right lines. All that deficit/debt reduction is going to do is pauperise all of our economies.

    If you think that the QE stimulous was really 'phoney' money then you are limiting your thinking. The vast part of the wealth that is supposed to underpin the worlds economies is in fact equally as phoney as it rests upon the working of FR banking. All we are really doing is examening a series of symptoms and ignoring the true problem that causes them.

    In this instance we have concentrated our attention on money and its mirror image debt. What we have forgotten to concentrate upon is the identification and management of true wealth. When all the money is used-up we will be left with physical and intellectual wealth. It appears only then will we recognise that the answer always did lie within our own hands.

  • Comment number 33.

    Whatever the facts are UK journalists are obliged to report that Obama and the US have recognised that Cameron's policies are correct.

    My goodness we need pain and austerity; it can't come quick enough for me so I have acquired a hair shirt.

    But it would be nice if you could find just one sentence where Cameron is rebuked.

  • Comment number 34.

    Its just impossible to see where aggregate demand is going to come from.People I know in the public sector are holding back from big ticket spending like a new kitchen,car,leather sofa,decorating etc because they dont want to have no reserves left if they lose their jobs in public sector cuts next year.

  • Comment number 35.

    Private sector deleveraging is only going to intensify - our whole monetary system is failing, now that governments have max out their credit cards.

    More they try to fight to keep present system alive, only result will be more inflicted permanent, long term damage of destruction of jobs, economic structures, long-term unemployment and social alienation.

    When the whole world is bankrupt, inevitably the change will come, they are fighting losing battle. Only question is, what does it take to policy makers to realize? Solution to this mess was invented many years ago during WW2, but it is ignored by mainstream economists and policy makers. It's an simple idea - that governments finances should be set focusing solely what is best for the economy.

    http://en.wikipedia.org/wiki/Functional_finance

  • Comment number 36.

    David Cameron seemed to like the idea of a 200:1 ratio of top earner to lowest earner. More power to his elbow! Perhaps he could explain to the G8 and G20 what a good idea this is. Perhaps he could set an example by artificially capping the incomes of top earners to this level.
    Let's see. Do bank CEO's earn 200 times the salary of bank clerks? No . In fact some earn over 200 times the pay of the top paid Civil Servant. (Thanks for the info Dave. This transparency is great!)
    Yet this Government have the brass neck to cap the pay of any public sector worker earning over £21000. They think this is fair. I'd call it a mean and vindictive travesty.
    But of course such rules are only meant for the 'little' people.

  • Comment number 37.

    #8. At 10:45am on 26 Jun 2010, Radiowonk wrote:
    "angloscotty @ 4: This is one of the best posts that I have seen on any of the BBC Blogs. A galaxy away (never mind world; too small!) from the unpunctuated and uncapitalised rantings that have become all too common, albeit normally in NR's section. It's a crying shame that those who really ought to read, mark, learn and inwardly understand it simply won't."

    Seconded.

    Also would like to add, the whole crux of the articles title "Damned if they do, damned if they don't?" says it all. Who are they damned by - The Markets. That'ss all governemnts are pandering to, the mythical market God.

    We're doomed Captain, I tell you dooooomed.

  • Comment number 38.

    At 2:54pm on 26 Jun 2010, honestgradgrind wrote:

    When the State does nothing for the People except harass,tax,fine, and work them into old aged Slavery then the People must just walk away from the State and its Elite.
    I believe it is called "The Great Disconnect."
    The Greeks and Icelanders understand this...not so sure about the English who seem to relish masochism. As in, "yes, blame me Britains economic and financial collapse it is all my fault."
    ____________________________________________________________________

    This is brilliant. Journalists take heed. So how to maximise the Great Disconnect? Do nothing to help the state or its institutions, put your family and friends before the state, don't cooperate, be skeptical, respond with good old British sulleness towards the authorities. Damn the Great Society. The state has become an enemy, it wants your pension, your health, your job, and give you nothing. If you work for the public sector don't help the state; if you work with the public a friendly conversation with a client,an extra smile, is time wasted which could be spent on the job. Think before volunteering - does this help the state? Then don't. More ideas please.

  • Comment number 39.

    24. At 2:01pm on 26 Jun 2010, BluesBerry wrote:
    Now the worry is that we will hurt recovery if we withdraw stimulus.
    Yep, that’s the question – or rather the American question, Obama’s question.
    I firmly believe that the economy will be hurt much worse if stimulus continues because stimulus is artificial. If the electric shocks of stimulus thus far applied to the "weak" economy have failed to stimulate growth, isn’t it time to take a different track?
    ---------------------------------------------------------------
    A question worth asking. Taking up your illustration, I dont think I'd want someone turn off my pacemaker until they were pretty sure I was dead. Perhaps I'm just overcautious.

  • Comment number 40.

    I am reminded of a key social psychology text from the 1950's "When prophecy fails" (google the title if unfamiliar) which demonstrated what happens when a cult group with a strong set of beliefs is confronted by the the failure of these beliefs to come true. Basically a few will give up on it but most people change the prediction or find a get out clause to continue their belief.

    The message in Stephanie's post was mainly addressing the issue of uncertainty in dealing with the current economic mess but many of the respondents were quite happy to reiterate the same strong views about balanced budgets or it all being a capitalist plot that they have posted for weeks now. can I just point out :-

    1) that there are no simple solutions to any of this
    2) that macro economics is just not going to be the same as anyones household budget
    3) If we have any money at all then go out and buy something made locally and give it as
    present. You will feel better and the economy will have benefitted


  • Comment number 41.

    Thanks to most of the posters here. Was starting to feel depressed and lonely since the Coalition.
    There is hope. However long it takes. People will wake up to the real dangers.

  • Comment number 42.

    Isn't there something of a fallacy in Agog's argument (5. 10:12 AM June 26) ? For the books to balance many of the surplus assets held by the private sector must represent debts owed by the government. At some point these must be repaid out of taxes, paid by corporations and individuals alike. I regard the few gilt-edged stock that I own as part of my overall wealth but on maturation it is only my taxes and those of other private sector entities that will allow the government to repay me.

    That is not to accuse the whole cycle of representing some kind of giant Ponzi scheme - hopefully my lending to the public sector helps to generate real wealth. Nevertheless, doesn't there come a point, as in Japan, where the public sector deficit become so high that the population, taken as a whole, has no clear idea of how wealthy it is or isn't and takes the cautious approach of saving rather than spending?

    Whilst I suspect the current government has tightened up public spending too far I seriously wonder whether spending could realistically be raised high enough to get us out of this mess, given the actions of others around us. Wouldn't it be more sensible to keep printing money and wait until the Euro collapses and China can be bullied into raising the yuan?

  • Comment number 43.

    Forgive me if it's been said before, but perhaps we should call the bluff of the private sector, and see how they get on without the Public Sector they deride so freely. For instance we could cancel the ridiculous and near fraudulent PFI tricks, (trading in the contracts, for example), and tell various suppliers that a) 'cost over-runs' will simply not be paid and b) we're going to stop having useless kit like the Eurofighter (useless because it's no use for finding a bloke with kidney failure in a cave somewhere in the back of beyond - possibly). There's an awful lot of 'private' going on in the 'public' sector, and private cannot survive without it. See Noam Chomsky "Hegemony or Survival".

  • Comment number 44.

    Thanks to the 'finance geniuses', 'impeachable rating agencies', 'economic experts', and 'tough regulators', the current market sentiment is one of unadulterated fear. Consumers are reducing spending, Banks are so busy repairing their ruined balance sheets that they refuse (or are unable) to lend, and the housing 'money machine' has been switched off.

    Pardon my asking, but exactly where is this future growth going to occur?

    China - I don't think so!
    The financial sector - after sub-prime, derivatives, CDO's, CDO's squared, ARM's and CDS's, I have my doubts.
    Housing - unlikely.
    Trade - if only there were more buyers!
    Printing money - Dream on!

    So maybe - just maybe - we had better accept that ANY economic growth in the medium-term is as much as we can expect.

    But, hell, what do I know?...

  • Comment number 45.

    44

    The current market sentiment is one of opportunity

    It is the general public that has a sentiment of fear/concern

  • Comment number 46.

    45

    And who, ultimately, spends the money?

    Markets are composed of gamblers - real money talks and consumers (general public) have seen the light and don't like it!

  • Comment number 47.

    I agree with Kanzlerin Merkel about "intelligent austerity" not needing to necessarily rule out growth.

    I know from personal experience that there are many positive to reasonable austerity (not to be confused with miserliness): for example, it makes for young people who tend to be less spoiled.

    The key word is Balance here.

    And the danger is that too often, perception & perspective get in the way.

    People for whom "austerity" is defined as one less week at a posh resort quite often find themselves making decisions to keep employees' wages down at the minimum in the name of "austerity" -- thinking little of what it does to consumption levels in the world at large.

    I have seen the effects, here in the US, of having commissions of the affluent weigh in on whether a poor family of four ought to be going to the movies, paying for musical instruments or buying clothes on sale.

    The point is we are much more inclined to penny-pinch other people's money than to moderate our own luxuries.

    Suggesting people live within their means -- when they have jobs, are healthy, and have access to an affordable education -- is a good thing. Inflicting several decades of hardship on disenfranchised or marginalised families who are then more likely to fall victim to crime, to neglect their health or to end up with depressed and traumatised offspring is Unjust & Unwise. You wind up paying more for it down the line, in services & compensatory programmes.

    People everywhere should be encouraged to resort to borrow only with restraint, judiciously & using the credit carefully to advance their own prudent growth -- not "for fun" or wild lifestyle enhancements (such as 90 thousand square foot mansions christened "Versailles").

    But those who do have more than enough money to live on in grand style should not be discouraged from spending on worthwhile things. And that above all applies to governments that are, indeed, by any definition, rich.

    Cut out the waste; fight corruption; resist incompetence (of the kind, for example, that contributed to the catastrophic oil spill in the Gulf of Mexico, enabled by many incompetent government bureaucrats). But don't expect those that are already barely scraping by to cut meals, eat from the rubbish kip, and accept an early & painful demise as the price to be paid for your continued tenure in positions of privilege & power.

  • Comment number 48.

    4. At 10:08am on 26 Jun 2010, angloscotty wrote:
    ==========================================================================

    What a refreshing change from the moronic ravings of the free-market fundamentalists who infect the blogs on this site, and who badly need some education on the basics of the exponential function. A concept that most of them, unfortunately, are too thick to grasp, they prefer to worship at the altar of the "invisible hand", chanting their mantras and repeating by rote their ludicrous axioms, which, of course, they never even think about, much less question. But they aren't all stupid- some of them do understand where this is taking us, but are simply self-serving hypocrites, preaching a gospel that will destroy us all. In the meantime, however, their nests are well feathered. Future generations? The rest of humanity? Why should they care?

  • Comment number 49.

    46

    Everyone spends money

  • Comment number 50.

    # 38. At 3:48pm on 26 Jun 2010, Davidethics wrote:

    .............."More ideas please."

    One of the things we're working on is mass tax revolt i.e. don't pay any tax you can either withhold or don't need to pay. For example mass non-payment of Council Tax similar to the Poll Tax Revolt, don't buy what you don't need that is VAT rated, don't buy excess fuel, fags or alcohol, in fact don't buy any at all if you can resist. Self employed will not submit tax returns or pay NI. Some employers have come on board which is significant in itself.

    There are other things we're working on to hit the banks and I've mentioned them before but no action is planned until 2011 when our growing numbers will make a difference. We have a coalition of our own working away quietly in the background, they want austerity, we'll give it to them, the people's version.

  • Comment number 51.

    Many thanks to the small band of bloggers who are prepared to share my views. To the other wishful thinkers who seriously believe that we can grow our way to a better world based on borrowed money and continue to provide an ever increasing "wealth" of public sevices and infrastructure to support the demands of an ever increasing population,all I ask them is to consider what you are left with if you expand into a vacuum? Answer......Sweet FA.
    We humans have been raiding Mother Nature's larder for centuries, and kidding ourselves that it could go on for ever in spite of the blindingly obvious signals to the contrary. We now have a situation best summed up by a comment I heard about a year ago.
    "We are all sucking on the rear teat of a dying cow!" It seems that many people still believe the solution to our ills is just to suck harder!

  • Comment number 52.

    50

    Great way to make sure that the public sector that you wish to 'defend' has no funding at all, and even more cuts are made

    Keep it up, seems like you know what you are doing.....(NOT)

  • Comment number 53.

    Like all Gordian knots cutting through it with a scalpel like blade is the simple and quick solution. To do this you need to have a clear concept of what the end game looks like. At present the fixation is to try and re-invent the past so that it works. This will fail. Relying on those now addicted to gambling to provide proper finance (as opposed to credit) and grow the global economy sustainably is a triumph of hope over experience. The time has come to take control of finance away from the banks and financial institutions that are now an inherent part of the problem and will never be part of the solution. To do this requires a quantum leap in the view of the role of the individual in society and the economic role they perform. This is as much a sociological and political leap forward as it is an economic one.I am not talking about some kind of utopian left wing ideal but rather a hard headed analysis of the world as it is and its potential for sustainability rather than the blinkered visions of both left and right who between them seem able to miss the blindingly obvious in pursuit of their own stunted view of the world. Sadly the leadership of the world do not seem capable of this kind of leap of insight at present and seem determined to lead us back to disaster. I may be wrong but somehow I doubt it.

  • Comment number 54.

    #52. At 6:37pm on 26 Jun 2010, Kevinb wrote:
    50

    "Great way to make sure that the public sector that you wish to 'defend' has no funding at all, and even more cuts are made

    Keep it up, seems like you know what you are doing.....(NOT)"


    Err....that's the idea.

    Tell me honestly, do you expect all this to pass without protest, all unions are gearing for a fight, socialist parties are organising up and down the UK, there's motivation not seen for many years. These groups have conflicts of interest when they take action against labour governments but no such reservations with Tories at the helm.

  • Comment number 55.

    4, 51 & 53 and similar.

    I am delighted to share your views.

    I just hope that this latest economic calamity is sufficient to convince the various leaderships that fundamental
    changes are required.

    'Enough!' is a powerful mantra.

    Try it.

  • Comment number 56.

    54

    The more protest, the more the rest of the public will side with the Government against the so called Public Sector

    So, your strategy, in protesting against cuts, is to reduce funding so that there are more cuts, and to turn public opinion against you

    Not very clever is it?

  • Comment number 57.

    I endorse the group praising ANGLOSCOTTY. His piece is well-written and correct.

    While economies do grow, it is difficult for mature economies to grow faster than the growth in productivity. Who believes that governments are better at making investment decisions than people who stand to lose their own money? 'Stimulus' money can prop up the economy and prevent a damaging free-fall for a while, but we really have to face up to the fact that money has been DESTROYED in the crash. We need to adjust to living in a poorer country.

  • Comment number 58.

    I wish people would start talking about the balance of payments .GDP is surely like turnover is for a business .Turnover tells us nothing about the profits or viability of a business . The turnover of a business might shrink drastically but its profits improve - if for example it gave up activities that didnt pay much .
    What has mattered in the past and must still matter now , is how much our gov has borrowed from ' abroad ' , rather than how much gov has borrowed ' at home ' ( from our citizens and institutions ). The gov has also made life easier for itself by trashing savings interest at home .
    Secondly , as a samll business owner , I am not going to consider expanding with the threat of cuts in a vague future . Roll em out now , get it over with so we can plan ahead.
    Thirdly , linking earnings and pensions. So if earning dont go up ( eg civil service salaries frozen ) - pensions wont go up . A lot of people seem to think the opposite , huh ?

  • Comment number 59.

    #56. At 7:40pm on 26 Jun 2010, Kevinb wrote:

    "54

    The more protest, the more the rest of the public will side with the Government against the so called Public Sector

    So, your strategy, in protesting against cuts, is to reduce funding so that there are more cuts, and to turn public opinion against you

    Not very clever is it?"


    I would like to thank the UK Public Spokesperson for having the time to come on this blog and speak for 60million people(ish). I am suitably chastised and realise the folly of my intended actions.

    :-)

  • Comment number 60.

    Stephanie,

    You say that the outlook for Ireland is bleak for the next 3 or 4 years (despite its having taken severe deficit reduction measures). Well, what's wrong with that? Three or four years' stand-still seems like a reasonable price to pay for years of excess.

  • Comment number 61.

    You can mock, yet this is precisely the strategy YOU said was the aim

    HERE IS A POLL, IF THEY COUNT IN YOUR LEFT WING FANTASY WORLD

    YouGov’s post budget poll
    Posted on June 24th, 2010 by Anthony Wells
    YouGov’s post-budget poll for the Sun shows a broadly positive reception. Overall 57% think Osborne made the right decisions for the country as a whole, with 23% thinking he made the wrong decisions. 42% think he made the right decisions for them, 33% the wrong ones. Overall government approval is up since before the budget, from 41% at the start of the week to 46% now. Headline voting intention stands at CON 42%, LAB 34%, LDEM 17%.
    In YouGov’s pre-budget poll the two obvious concerns for the government were that the public were evenly split on whether the cuts would be fair or unfair (34% thought it would be fair, 35% unfair), and whether they would push the country back into recession or not (40% thought it might). Osborne seems to have made progress with swinging public opinion behind him on both counts. The proportion of people thinking that the deficit will be reduced in a fair way has risen 11 points to 45%, the proportion of people who think cutting the deficit now might put the country back into recession is down to 33%. Overall 50% thought that the budget was fair, compared to 27% who thought it was unfair.
    Asking about the specific measures, all but one measure met with the support of a plurality of respondents, with the most popular measures being the rise in personal allowance on income tax and the tax on the banks. Reducing tax credits for families earning over £40k, limiting housing benefit, increasing capital gains tax, restoring the earnings link and helping councils freeze council tax all met with overwhelming support. Support for increasing the pension age to 66, reducing corporation tax and (slightly surprisingly) scrapping the planned increase in tax on cider all met with lukewarm support. The only measure that was opposed by a majority of respondents was the VAT increase – this was supported by 34%, and opposed by 54%.
    Despite the overall approval of the budget, people were actually very pessimistic about its short term effects. Optimism about people’s own financial situation over the next 12 months has fallen, with a net optimism falling from minus 43 before the budget to minus 48 now. 55% of respondents said they thought the budget would increase unemployment in the next year or two (19% disagree) and 44% think it will increase poverty (32% disagree).
    52% of respondents thought that the Liberal Democrats were right to back the budget, this included 69% of their own voters. 17% of Lib Dem voters thought that they were wrong to do so.
    Finally YouGov asked if people thought the economy would be run better if Labour had been in power instead, or if the Conservatives had obtained an overall majority. In both cases people expected the economy would have been run worse, and found the same when asked if Labour or Conservative governments would have looked after the poorer better, or would have better helped people like the respondent. Notably Labour supporters overwhelmingly thought that the Conservatives alone would have been doing a worse job, perhaps suggesting that the Liberal Democrats will be able to sell a narrative that they have tempered a Conservative government (in fact, even 22% of Conservative supporters thought that the Conservatives alone would not have been as good at protecting the poorest in society).
    The poll was conducted between Tuesday evening and Wednesday afternoon, so not quite as rapid as some of the instant reaction polls we’ve seen after budgets in the past. All the same, at past budgets we have sometimes seen bad news from the budget emerge in the days that follow, which could alter the public’s reaction. The initial response, however, seems to be that people see the budget as pointing to hard times ahead, but are broadly supportive of it.

  • Comment number 62.

    #61. At 8:06pm on 26 Jun 2010, Kevinb wrote:

    "You can mock, yet this is precisely the strategy YOU said was the aim

    HERE IS A POLL, IF THEY COUNT IN YOUR LEFT WING FANTASY WORLD

    YouGov’s post budget poll
    Posted on June 24th, 2010 by Anthony Wells
    YouGov’s post-budget poll for the Sun shows a broadly positive reception."


    Behave Kev.

  • Comment number 63.

    I'm sure I'm not the only one who is old enough to remember post-war austerity - even as a young child? No cars of course, buses with about 100 passengers, uncleared bomb-sites, low pay, no consumer goods etc etc - a sense that nothing could ever change or get better. How does it differ this time round? Well, we weren't going after the poor with quite such detemination last time. We've a whole lot of things to sell off this time too- though they may have to be wrested from the hands of the rich. I wouldn't suggest this is the government to do this? Given the aggressive comment re the cost of public service on recent blogs - perhaps we can sell them to China? I am being facetious of course to those who don't see it, but I was told recently that the Longbridge assembly line is doing very well now relaid in China - let's sell off a reasonable chunk of British industry too -about say 25%! No where did I get that number? It's been done before - notably by Thatcher and cronies. The trouble is what to do with all those people left over? The free-marketeers on this blog will of course go straight abroad searching for the best market for their skills and demonstrating their superior entrepreneurship and positive attitudes. The doctors can all go with them - they'll need them. Judging by this week's contributors that will actually solve most of it. No, of course I have no beef with the private sector or anyone doing a job of work, or supporting those who are genuinely in need - I am however fed up of people sitting behind desks complaining about public sector professionals who do a real job with real people. It cannot possibly help anyone to cut beyond the rational point after proper consideration of need - it costs much more to build prisons and to repair the effects of civil disobedience. These are not questions for us here really, but who is actually considering and planning where the nation is going. I await the spending review with real horror for what it could mean to our way of life, our values, and our sense of what is fair.

  • Comment number 64.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 65.

    63

    The Labour government have a lot to answer for, as without them, we wouldn't need these cuts

    Manufacturing also fell far more sharply between 1997 and 2010, then 1979 and 1997

    Don't let the facts ruin your point, though

  • Comment number 66.

    65
    You write nothing but nonsense.

  • Comment number 67.

    5 Agog
    "The government deficit is matched to the penny by a non-government surplus. And over the last decade in reality the government's budget deficit has been mirrored by a substantial surplus in the corporate sector.People who keep repeating the anti-deficit mantra also need to explain why they are against private sector surpluses. Attempts to reduce the budget deficit make it harder for the private sector to save."

    This is nonesense. A deficit is indeed matched by private sector capital, but that capital has been generated in the US, Suadi or whatever nationality the investors are who have bought the UK debt.

    The UK still needs to pay it back, and is not generating the the wealth to do that.

    Why does reducing the deficit make it harder for the private sector to 'save'? They can always choose to save either in corporate bonds or interest bearing deposit accounts. Its not some kind of duty of a government to borrow foreign private sector capital. That is absurd.

    Being against deficit is not being against private surpluses. There is no explanation to give. You reasoning is simply not joined-up.

  • Comment number 68.

    66. At 8:59pm on 26 Jun 2010, commissionaire wrote:
    65
    You write nothing but nonsense.


    Which part is nonsense? It is all factual...By all means interpret the facts differently, yet you can't change them

    Which part is nonsense? Or do you just inhibit a fantasy world like most sad old socialist wannabbees

  • Comment number 69.

    67 NonLondonView
    Sorry to correct you, but at least 80% of the public debt is owed to UK pensioners and investors. The fact that almost all the debt is denominated in £s is the clue. Don't forget, our pensioners are also owed debt from other countries too.

    Agog's point is correct as a matter of accounting certainty. The private sector's desire to save, can only ever be funded in the UK either through net exports (which the UK simply cannot do), or as a result of government spending, which distributes money into the economy.

  • Comment number 70.

    The IMF reported in February that if G20 countries cut their (direct) oil and gas subsidies in half they would cut government debt loads by 17 %. Seven oil and gas companies yielded a total of 171.2 billion in profits in 2009, according to the Financial Times –do we really need to be giving them handouts when the same governments are making a to-do about the need to cut programmes and services.

  • Comment number 71.

    It makes a hell of beans if these leaders agree or disagree. The bottom line is that the economic system in its current from is fundamentally flawed or the world would not be in this predicament and dilemma that keeps on repeating every so often. All the financial hierarchies keep on doing is some temp. fixes with adjustments, manipulations, juggling figures to deliberately hide the true state of financial state of their respective countries and blaming others for the pit falls. The problem lies at the top of each nations central banking authority and the legislature that set up the rules and laws. Prime example is the US Federal Reserve System, an organization run like the Mafia under the tutelage of the god father, the Chairman and some 12 banks in select cities, with a Governor and board of self interests and self righteous cronies all of the conservative republican bend, ideology of inequality, rights only of their kind, their malignant narcissism, chronic scape goating, uncorrectable grab bagging and always sacrificing the masses with coercion, reckless abandon and impunity to maintain the status quo. This private entity always act for the interests of the private, secret and perpetual stock holders, who control the organization that has no audits, no amenability, transparency, follow no rules or regulations and is not answerable to any body.

    The end result being that the US Government winds up with monster deficit and monster debt owed the Chinese, Arabs and others. Further more then allowing these too big to fall private investment banks meddling and fiddling with economies of states like Greece, Portugal, Spain some African nations with their corrupt to the hilt politicians and use of these malfeasance scheme of derivatives and hedge fund tricks and gambling.

    These private bankers all being associates and affiliates of the Mafia like Organization the Federal Reserve, that manages the taxpayers money for its own self interests, its self righteousness and all these so called economists brain washed to follow fundamentally flawed financial ideology.

  • Comment number 72.

    Commissionaire, you worry me. I thought you and your type had been put peacefully to sleep, alongside Arthur Scargill and "Red Robbo". Why oh why do you trot out the tired old cliches? Why do you expect intelligent people to accept unthinkingly that the Government have a desire to destroy various sections of our society (the working class/poor people/old people/needy/disabled etc etc etc). If you stopped to look at these allegations you would recognise them to be insane conclusions to draw from the plans to eradicate waste wherever it can be found. Surely all of us should be looking to do that? I certainly do it in my own life. I try and use less energy, for example. But not so that I can put the energy workers out of work because I don't like them. Nope, I do it so that I can spend less of my hard-earned cash.
    These old 1970-style views you have really do need to be dropped now. It's unhelpful to everybody, and certainly won't make any contribution towards sorting out the mess in which we find ourselves.

  • Comment number 73.

    To me it is all a matter of balance and I do not see much around.

    Something of husbandry, you hand on what you have been gifted as an environment in all measurands in at least the same conditon as you recieved it and where possible in better shape.

    That includes economic balances. This blog is full of vested interest comments. I suspect they are wasting their time. Rebalance has to occur and the forces involved are greater that can be opposed. The process will force a new behaviour. Personally I think it is long overdue.

    Meanwhile the world is now down to 130 gray whales total population, breeding females 20. Something about the breeding ground now being threatened due to oil exploration, Now what was I saying about husbandry. It is essentially a matter of values. The whole system is in tilt. The economic problem is just an aspect of the whole problem. As far as the UK goes it has to do more at home to provide work and import less.

    BTW Stephanie I thought you said in interview that economist can't say where the economy is going, only where it has been. So how does that square with your figure of 3 years. Seems a short period to me to sort out fun-de-mental structural problems and embedded long term debt, and to redirect economic activity, just a thought.

  • Comment number 74.

    North Sea Halibut.

    Now what did I mention about people who focus on winning usually lose. And the way forward in conflict was to focus on the oppo losing. Now how do you suggest your proposed civil disturbance actions will acheive that.

    I have said that I have you marked down as a loser and nothing you have said so far tells me anything otherwise.

    ''The approach to the UK's mission in Afghanistan's Helmand province, in 2006, was flawed, according to a senior military officer involved in planning the deployment of troops.

    Rear Admiral Chris Parry said Armed Forces leaders had "immature" ideas and had not expected to fight the Taliban.''

    http://news.bbc.co.uk/1/hi/uk/10300703.stm

  • Comment number 75.

    Should I act as a 'discussion stumulus'?
    NO! You all shout.
    Alright, I will then.
    @43 Right on Gleckitoon!
    @44 (+@46) You know as much as, or possiblt more than, the OBR, The Massed Band of the Economists and politicians put together. Tell it how it is!
    @45 "The current market sentiment is one of opportunity" -to make money? - literally! No change there then.
    @ 47 A lot of sense here. Worth thinking about.
    @ 58 Interesting new perspective. Needs taking into account.
    @ 61 Just not getting it. Re-read above and free your mind.
    @ 63 Another cogent analysis added
    @ 66 A little unfair to Kev who can be reasonable and fair, but, tending towards the perceptive. (Sorry Kev needed to inject a little humour - knew you wouldn't mind.)
    Warning!!! Danger!!! This blog is seriously close to getting somewhere. Apologies to earlier posters but brevity insists...

  • Comment number 76.

    68
    All you write is nonsense.

  • Comment number 77.

    65. At 8:38pm on 26 Jun 2010, Kevinb wrote:
    "The Labour government have a lot to answer for, as without them, we wouldn't need these cuts"

    Quite right Kb! It still hasn't penetrated the skulls of those numerically illiterate deniers that between 2001 and 2007 the British Govt. were overspending beyond our GDP growth. Hence we borrowed some £300 billion in those years and when the party stopped we had no money in the locker! Simples!

  • Comment number 78.

    68. At 9:19pm on 26 Jun 2010, Kevinb wrote:
    66. At 8:59pm on 26 Jun 2010, commissionaire wrote:


    Which part is nonsense? Or do you just inhibit a fantasy world like most sad old socialist wannabbees


    nononononononononnonononononoononoononononnoonononon

    ROFL

    THE LABURIALISTS, HEAD IN THE QUICK SAND COOLER have overspent by £500.000,000,000, over a decade of replacing red tape with new IMProved pink ducktape provided by their whiter than whiter I know types in banking circulation of their horn of putative plenty .... and you accuse them of of INHIBITING A FANTASSY world.




  • Comment number 79.

    BTW Stephanie I thought you said in interview that economist can't say where the economy is going, only where it has been. So how does that square with your figure of 3 years. Seems a short period to me to sort out fun-de-mental structural problems and embedded long term debt, and to redirect economic activity, just a thought.
    ----------------------------------------------------------------
    Only a short-term fix is on the cards. Then its back on the roller coaster.

  • Comment number 80.

    Kevinb: I think you have the measure of NorthSeaHalibut & commissionaire: in which case why respond to them and thereby increase their airtime? I suspect NorthSeaHalibut is probably a student inhabiting a childish fantasyland where "it's all a conspiracy, man", while commissionaire is longer in the tooth and still harks back to the glory days of chanting "Maggie Maggie Maggie Out Out Out...").

  • Comment number 81.

    69. Charles Jurcich wrote
    "67 NonLondonView
    Sorry to correct you, but at least 80% of the public debt is owed to UK pensioners and investors. The fact that almost all the debt is denominated in £s is the clue. Don't forget, our pensioners are also owed debt from other countries too."

    Your figure is wrong. 35.1% of UK gilts are held overseas. (Source ONS) A further percentage is held indirectly via UK banks and investment companies. WHere does your 80+% figure come from?

    But its really irrelevent who holds it, or that penny-for-penny it can be accounted for. Its still DEBT and still has to be repaid. The clue is in fact that its called "debt" ;-)

    I just don't see the relevence of the source of the money that was lent to us...? How does that make the debt any more acceptable or managable?

    If there was "no problem" with a defecit then why is there rioting on the streets of Greece and a public austerity program? Why didn't they just carry on borrowing forever?

  • Comment number 82.

    #80. At 11:12pm on 26 Jun 2010, HaslemereBoy wrote:
    "Kevinb: I think you have the measure of NorthSeaHalibut & commissionaire: in which case why respond to them and thereby increase their airtime? I suspect NorthSeaHalibut is probably a student inhabiting a childish fantasyland where "it's all a conspiracy, man", while commissionaire is longer in the tooth and still harks back to the glory days of chanting "Maggie Maggie Maggie Out Out Out...")."

    I wish.

  • Comment number 83.

    So many words, so little sense. This is a ramble but read it to the end please - many of you talk sense but let's be honest - economics is a complex subject - too complex for simple solutions - I quote my old professor Mervyn King, and I trust him to get what he can right. I could also quote the many phrases I heard in my childhood "neither a lender nor a borrower be" "live within your means" etc - some of us appear to have lived beyond our means but still don't want to pay the price - that seems to be the real issue to me - "reap what you sow" comes to mind - so let's just get on with life and live it as best we can, like I suspect we always have, and we'll get by rather well I expect

  • Comment number 84.

    #74. At 10:09pm on 26 Jun 2010, YellowBrickRoad wrote:
    "North Sea Halibut.

    I have said that I have you marked down as a loser and nothing you have said so far tells me anything otherwise."


    Seeing as this blog has descended to a personal level I'd like to say you couldn't be more wrong. For reasons I won't divulge on a public forum every day I draw breath is a win-win for me. I've seen the gates of hell and lived to tell the tale. Believe me, I've won already.

    #80 HaslemereBoy

    For the record I'm a fity year old civil servant with a previous history in banking. If you don't like my politics don't read my blogs, I won't be offended, it's not that important to me either I come on here to learn, comment, preach and impart more than a little sarcasm. I have spats with some bloggers but it doesn't mean I don't respect their opinions, after all I'm not sure I'm right - yet! Who is? I actually admire KevB and YBR, they're focussed on what they believe as am I. More power to all our keyboards I say. I don't have to agree with everyone though.

  • Comment number 85.


    it easy to slam socialist, but reading these bloggs gives me the impression that the present system is breeding communism not made it extinct like some believe
    ps the spelling and grammer in this blogg is very poor so some of you will not even both reading it
    I and many like me have nothing worth while to contribute, and therefore will hopefully get no more air time
    so talk between yourselves and understand nothing

  • Comment number 86.

    81. NonLondonView
    As ar as the source of the 80% figure, I believe it was in The Times farely recently, but I'll check. I think that although the gilts may be held by companies overseas, they often still represent UK pension funds in addition to their own, but again I will have to check.

    As far as the extent of the debt is concerned, our government debt is issued over much longer time periods, making it much easier to pay back than say Greece, whose bonds are often 2 or 3 years, as opposed to our 10-13 years.

    In addition we have our own fiat currency which we can devalue if necessary to pay back the debt, Greece is tied to a Montery Union currency which it cannot devalue. We would not need to devalue our currency, but the fact we can reassures bond markets meaning we pay lower interest rates.

    In theory the government can change the structure of its banking system so that it never has to borrow money to spend, when it has a deficit, but that would take too long to explain. Search for Professor William Mitchell (CofFEE - Centre for Full Employment) and find his personal blogs where he goes into substancial detail about how this works, and why we should not be afraid of it.

  • Comment number 87.

    #73 Yellow Brick Road,

    Now here's a funny thing!

    I agree with your statement:

    "It is essentially a matter of values. The whole system is in tilt. The economic problem is just an aspect of the whole problem. As far as the UK goes it has to do more at home to provide work and import less.

    BTW Stephanie I thought you said in interview that economist can't say where the economy is going, only where it has been. So how does that square with your figure of 3 years. Seems a short period to me to sort out fun-de-mental structural problems and embedded long term debt, and to redirect economic activity, just a thought"

    Though before people start putting the flags out, we still differ in what caused and sustains that tilt. However, a start is a start.

  • Comment number 88.

    The universal problems of debts, deficits, risks I think relates to the 'Universality or universal inadequacy of Money' (i.e. as a store of value).

    This tends to concentrates power in the hands of those who can amass money and create massive debts elsewhere.

    Those who hold the money take fewer risks with their money in an uncertain world/economy especially where there is uncertainty and systemmetic and other risks such as sovereign debt.

    We need to revise our money so as to take account of the new circumstances so that our government (BoE) issues money that works properly for ordinary taxpayers and not just for the super rich, banks and bankers and bureaucrats.

    We don't know how to do this ...yet... but we must find out and experiment so as to learn how to this. The important feature of any 'new money' is that ordinary consumers must understand any alternative values put on their money ... and the real impact must be to change bank behaviour quickly so as to induce e.g. retention of sovereign UK income/capital in the UK or e.g. encourage banks to lend to UK SME's, radical/large scale new job creation projects.

    By doing this we can easily make up for the loss of transactions in the cuts - v spending deficit reduction dilemna as described by some as reduced government spending 'growth' .... in our antiquated GDP growth measurement model ... new money isued by the Bank of England could itself get the UK buzzing very quickly and as the UK has its own currency ... be easliy organised in preference to QE with universal GBP currency ... going stright into the hands of bankers and greedy city speculators.

    It's our money itself that is the problem ... it is too 'universal' and 'versatile' and enables the banks to 'over-manipulate' the store of value in our money. Reform the money ... and we also reform the banks and take control of systemmic and other risks and enable the central banks to have more effective control over money supplies, tax haven hoardings.

    Worth a serious discussion at some stage? ... and Yes it could be chaotic if not implemented properly ... and Yes ... this is not intended as a joke ... I think that this is our future and would only really work for economies like e.g. Japan and/or the UK with their own currencies and with well defined national borders.

    Its the money ... it is now unfit for purpose.

  • Comment number 89.

    72. At 10:01pm on 26 Jun 2010, Dinersore wrote:
    Commissionaire, you worry me. I thought you and your type had been put peacefully to sleep, alongside Arthur Scargill and "Red Robbo". Why oh why do you trot out the tired old cliches? Why do you expect intelligent people to accept unthinkingly that the Government have a desire to destroy various sections of our society (the working class/poor people/old people/needy/disabled etc etc etc). If you stopped to look at these allegations you would recognise them to be insane conclusions to draw from the plans to eradicate waste wherever it can be found. Surely all of us should be looking to do that? I certainly do it in my own life. I try and use less energy, for example. But not so that I can put the energy workers out of work because I don't like them. Nope, I do it so that I can spend less of my hard-earned cash.
    These old 1970-style views you have really do need to be dropped now. It's unhelpful to everybody, and certainly won't make any contribution towards sorting out the mess in which we find ourselves.
    -------------------------------------------------------------
    Peacefully put to sleep? Careful, you'll get in trouble with Aunty Moderator.
    Next. Everyone knows that Conspiracy theories are far more entertaining than listening to political 'Dinersores'. Actually they probably have an equal chance of turning out to be true.
    Further. You need to look through your telescope the right way round. It almost seems that you equate those unfortunate enough to suffer 'hard times' because of our current problems as societies' waste. But it wouldn't be their fault if their job was a waste of time or was no longer needed. No , surely you couldn't mean that.
    Finallly. The last part of your comment is blatantly nineteen-seventiesist in tone. Let's set up a quango to examine this blatant unfairness/derogotory language immediately. I could be the Chairma ....Chairperson. Pay's good. 'I could do that. Go on. Gi's a job. Go on.' How quickly we forget.

  • Comment number 90.

    #88 nautonier,

    It's a night for it!

    I agree with the drift of your comment- especially the need to fing new systems.

  • Comment number 91.

    What should G20 sort out? "Debt" is a shorthand for "wealth distribution" vertical and geographical. I remember from my school lessons that there are different strategies for different games - depending on game's (estimated) sum and available information - so much for vertical distribution (i.e. it is easier to convince the population that the sum of the game is far above zero when it really is, thus it is easier to restrict players to less aggressive strategies. Another hint - a geographical one is this: Investment generates Savings AND NEVER THE OPPOSITE. It is Western investment in Asia, US investment in Germany etc. etc. that generated savings. It sounds counter intuitive. One tends to imagine a worker/small farmer saving for years to open a workshop or a local diary... That was never the truth (always a marginal part of private investment). On a basic level: even in middle ages and before the main engine of investment was trust/debt. One hardly stood a chance of accumulating enough claims on other producers output to significantly expand ones own. Only a trusted trades master could have taken tools and proverbial "corn" on credit; employ apprentices and further production. Hence this sort of production can't be realized, because money to purchase it hadn't been created prior to production. Thus emerges need for more trust/debt or foreign exchange of goods. Savings (material - non financial savings - "spare" goods for which only potential but not effective demand exists) had been created. This model demands constant creation of money/trust. This model crushes when the propensity to invest diminishes - the moment the curve crosses its second derivative's line we are doomed until enough capacity is destroyed to encourage next investment cycle. So far so simple, and since Venice in the Middle Ages it was working fine, because there was enough canny folk that believed they will have had outsmarted all the competitors as soon as the new cycle begins. In the last 30 years most of investment got geographically divorced with savings. In the last century or so most of the investment is done by huge corporations - they don't count on substantially outsmarting each other! Here the process stalls. Hardly anybody with no proven technological and commercial advantage dares to invest! You need both whip and carrot (usually governmental) to make a modern corporation invest beyond absolute necessity. Their best strategy should be to play for a stall/draw/stalemate. Corporation hate governments encouraging bubbles - they are compelled to enter an investment race which they hate. Governments love well blown bubbles - they keep them in power for so long! The discussion in G8 and G20 is about whom all the savings really belong to. It's a rather fundamental one, because trust is a result of implementing some sort of social structure/culture/civilization and it is rather hard for us to score on this one at the moment as we seem to destroy ours at home. A most disparaging is fact that one wants to invest in a community or society with deeply ingrained values, stable laws, transparent power structures, high mobility and flexibility. High rate of investment destroys it all! (Kind of “don't boil your broth, keep it simmer”).

  • Comment number 92.

    Morning Stephanie,
    I hope that you are enjoying yourself in sunny Toronto!
    It seems to me that the G8 and subsequently the G20 are simply pointless talking shops which produce NOTHING at all but cost a great deal.
    In the latest we have that nice Mr Obama telling the world not to cut spending because it could hurt American growth.
    In the last 5 years I have read articles from economists and journalists about the miracle of growth of ICELAND as well as IRELAND and how we (UK) need to follow their example and become a wealthy nation.
    I feel desperately sorry for the peoples of these countries because they are going to have to pay with their jobs and livelyhoods for the excesses of the bankers and the wealthy entrepreneurs (some of whom, I feel, should now be in gaol).
    It is very difficult for the ordinary man in the street to begin to understand the effects of macro economics and I spend many hours a week following developments in Asia and the far East to try and understand what is coming next as these3 nations are leading and we are following economically.
    Growth from India and China, not without a stable West they won't.
    Recovery in USA I don't believe it, they have much more financial pain to go through yet. The motor manufacturers in the US will be the next "too big to fail" catastrophy even after they have been restructured and had massive goverment subsidies. The market money men are taking large short positions on these companies and that must tell you something.
    The US, under that nice Mr Obama, have shot themselves in the foot with their oil drilling moratorium but the ordinary people seem to want it so it becomes politically (not economically) expedient and there are elections in the offing.
    No, the G8 and the G20 will discuss political options to enhance their considerable power and wealth and they will have no effect on national policies.

  • Comment number 93.

    It is amazing how now we all now have the solutions, or if not that, the reasons why were in the doldrums. This blog brings out all the I told you so's, blame merchants, those who do not wish to take personal responsibility, those that blame the banks, politicians,Iceland,IMF, China or whoever I can to make me feel better. The fact remains if everyone was so smart previously when we all enjoyed the boom times, everyone riding high as we all watched the "slow motion train wreck" transpire then we might have wised up sooner! It is too late now, the price must be paid. The Gurus of economics who watched the demise from the sidelines then, some even helped manufacture it are the same folk who now advise us all how to resolve the mess. Lovely stuff really.
    No matter how each government handles the ongoing crisis, whether it should be by cuts or whether they should try to spend their way out one thing is certain, Get ready for PAIN PAIN and more before it is over, strikes, winter of discontent style, as we all force down the anti vemon for the times when we chose to fly high, blanking reality and spending above our means.

  • Comment number 94.

    Unfortunately we will get nowhere in terms of protecting real people and real jobs from suffering until such a time as sovereign governments realise that they control the market in their own currency and can dictate terms.

    The main problem is intellectual. It is easy for people to understand if you say a government has to 'balance the books', because that equates with their personal experience. That is the monetarist position and it is 100% wrong.

    In accounting terms a government 'deficit' is just the other side of the ledger from our 'net savings and investments'. If one shrinks, then so must the other.

    A government with a fiat currency is never financially constrained, and so it should ignore the financial issues and instead concentrate on the real stuff in the economy.

    But while we run a system where it is seen as more important to give consistent profits and protection to the very wealthy rather than sensible jobs and housing they can afford to those who have to work for a living, then no doubt the diversion of GDP and 'debt' ratios will continue. And those who can't afford lobbyists will suffer.

  • Comment number 95.

    "But its really irrelevent who holds it, or that penny-for-penny it can be accounted for. Its still DEBT and still has to be repaid. The clue is in fact that its called "debt" ;-) "

    There are a couple of things you are overlooking.

    - firstly the debt is denominated in Sterling. Therefore if it is lent by non-Sterling bodies their debt is at exchange rate risk.

    - second is that the government owns Sterling is sovereign in it and can create as much of it as is sensible at any point in time.

    At the moment the political mumbo jumbo flying around tries to equate a government with a household. 'You must balance the books' they say, and so the government voluntarily gives up its currency flexibility and does so. This means the following happens:

    - firstly the currency exchange rate remains far too fixed and doesn't buffer shocks in the real economy. Great for international investors. Not so great for domestic businesses and jobs which can't compete with India and China because the currency doesn't adjust the value of our labour to compete.

    - secondly the government has to act 'pro-cyclically' to cut expenditure at the same time as the private sector is cutting expenditure. All so that it can 'settle debts' and keep those international investors in clover

    - thirdly it unnecessarily issues bonds, which provide rich people with risk free assets to park their money - 'funded' by a stream of taxation from ordinary workers.

    The effect of all this can be seen in Ireland - the only buffer left has to absorb the shock. And that buffer is jobs. Usually the jobs of those who work for a living, ie those who can't afford lobbyists to protect their interests.

    And yet the government - if it had the political will and financial nous - could move the buffer from jobs to the exchange rate. For example, one strategy would be to simply create the money to pay the interest on the bonds outstanding, to settle any bonds that came due and to underwrite the bond auctions.

    The people that would pay for it would be the foreign purchasers of sterling bonds and importers of foreign goods. Uk purchasers of the bonds (which are normally the pension companies paying pensions to those in retirement) would still carry on as normal.

    In the meantime we can continue to absorb spare capacity in the economy which would reduce the automatic stabilisers and keep the tax flowing from work. It would be a transfer of real wealth from foreign asset strippers to domestic workers.



  • Comment number 96.

    "I regard the few gilt-edged stock that I own as part of my overall wealth but on maturation it is only my taxes and those of other private sector entities that will allow the government to repay me."

    No they can repay you whenever they like regardless of the tax situation. The government just creates the money to settle the bond.

    The coupon you are receiving from a bond is very similar to 'tax credits'. It is a risk free asset that pays an income from the state. Because the government is paying you, they probably aren't paying somebody else due to the constraints they put on themselves. So arguably your 'coupon' is keeping somebody unemployed that doesn't have to be.


  • Comment number 97.

    Ah, but Stephanie got it right and yet, by all the long "No, no, no; this is the right way" comments, it seems political allegiances conquer vision with the BBC readership! Same old ping pong rather than meeting in the middle anyone?

  • Comment number 98.

    Nei Wilson - it's all rather obvious, but what do you need all this G20 business for then? You can not create an isolated economy on our current level. Every currency manipulation will be countered by global market actions at best, protectionist measures at worst. Countries who follow sorts of policies advised by you either support them with superb raw material exports or fall prey sabotage from within and outside - inflation soars or output drops under administratively controlled prices. Animal spirits: thirst and hunger, need of shelter and procreation instincts drive us into a spiral of competition. With social animal the latter of the three sublimes into social hierarchy thus there is no end to "status enhancement".

  • Comment number 99.

    94. At 06:15am on 27 Jun 2010, Neil Wilson wrote:
    "Unfortunately we will get nowhere in terms of protecting real people and real jobs from suffering until such a time as sovereign governments realise that they control the market in their own currency and can dictate terms."

    Sorry NW, not all Governments control the market in their own currency. All the Eurozone for starters and neither do we. Yes, we have avoided a slump and a credit crunch by Quantitive Easing but that's a short term measure to address a liquidity problem. Even China has had to bow to economics and allow the Yuan to float (a bit). To reduce your premise to the absurd - reductio ad absurdum - you only have to look at Mugabeland to question your premise. And no we can't dictate terms. If we need foreign investment and foreigners to invest in Govt. bonds, we need to maintain probity in our affairs. Unless of course we want to decouple ourselves from the world like N.Korea!

    "The main problem is intellectual. It is easy for people to understand if you say a government has to 'balance the books', because that equates with their personal experience. That is the monetarist position and it is 100% wrong."

    It's not a monetarist position. Monetarism is about the supply of money in the economy and has nothing to do with balancing books. If you contrast Monetarism to Keynesian economics, monetarism maintains that changes in money supply greatly influence aggregate demand. And that, any attempt by a government to increase aggregate-demand (by injecting more money in the economy) will, in the long-term if not earlier, result in higher prices.

    "In accounting terms a government 'deficit' is just the other side of the ledger from our 'net savings and investments'. If one shrinks, then so must the other."

    I think you are mixing up Government expenditure with money in the economy as a whole. A Government needs to balance it's books because in the long run continually ramping up of Government debt will lead to a funding crisis.
    As it stands we will be paying some£70 billion a year by 2015 to fund our debt. Do you not think it wise for the Govt. to rein in spending - balance the books - to avoid "wasting" taxpayers money in paying for debt servicing?

  • Comment number 100.

    It still bothers me that so much reliance is being placed on the housing market. Unless as a simple chap I am much mistaken, this would be the same market which was behind the original crash. It is fuelled by silly amounts of credit, and is wholly imaginary in terms of 'worth' of the value of bricks and mortar. We should instead be looking to a properly regulated, affordable and socially responsible renting system. People are being encouraged to burden themselves for life for an aspirational mirage. Let the economy evolve around something solid rather than something as reliable as marshmallow.

 

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