Wednesday, Feb 24, 2010
Hung Parliament Watch
The Telegraph: George Osborne: cut debt now or face economic disaster
In a stark warning the shadow chancellor said that unless cuts were made imminently to public spending budgets the financial markets will lose confidence in Britain, with catastrophic consequences.
Interest rates would soar and spending cuts would ultimately have to go even deeper to maintain even a minimum level of confidence.
The emergency cuts that would be needed would be “swingeing and savage,” if international confidence was lost. Mr Osborne said.
In a major speech to a City audience Mr Osborne said: “In the most extreme cases, countries that lose the confidence of markets effectively lose their sovereignty.”
Posted by devo @ 10:57 PM (2431 views) Add Comment
43 Comments
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1. paul said...
And just to be clear, the majority of the debt was not and is not spent on civil servants.
It was spent on buying banks or throwing money at banks and crack-fuelled schemes to bail out reckless overborrowers.
2. devo said...
Vince Cable, the Liberal Democrat treasury spokesman, added: “George Osborne’s latest economic commentary shows just how out his depth he is when it comes to the important economic issues. Slashing spending now could push the economy back into recession and inflict further structural damage on the UK that will make it harder to sustain our credit rating.
so we know vince cable's position
he fancies his chances as chancellor in a coalition government
3. Humpty Dumpty said...
I was at his speech at Cass Business School this evening. Osborne was going on about how the future economic system of the country should not be built on debt, but no mention of what should happen with the elephant in the room - the massive bubble of house prices that has been our substitute for productive growth over the last decade. He said to be absolutely clear that the Tories would not inflate debt away. Could they be planning to let the market correct?
4. paul said...
Vince Cable is right. Slashing spending would indeed be a disaster.
We need to offload our toxic bank assets and address the savings and investment returns imbalance rather than supporting the lame duck borrowers' economy.
5. devo said...
@paul said... We need to offload our toxic bank assets
can't be done
6. paul said...
There's a difference between can't be done and won't be done.
The government makes the laws in this country - they can do it if they want but they don't have the guts to crap on their friends in the banking world.
7. vacuouspolitician said...
Some interesting and revealing comments in this article.
lol ...Vince shouldn't be saying that!...that will just provoke a comment from a certain person on this site "He's a Fabian you know... rah rah...bad sort of chap...rah rah...sort of shifty eyed bounder that can't be trusted...rah rah"
The other thing that caught my eye was Norman 'skull and crossbones' Tebbit has a blog!
8. honest valuer said...
Politicians like Vince Cable make me laugh -like all potential borrowers they think they have a human right to spend more than they earn and that someone (they don't care who) will lend it to them. This mentality (which is found throughout all levels of Anglo Saxon societies) has to stop.
9. letsgetreadytotumble said...
Well, Vince is a Fabian, you cannot dispute that. And surely you know their mindset.
I see Osborne criticised a lot here, but the last Tory government left the economy in good order. I think some balanced cuts are necessary.
10. Crunchy said...
“In the most extreme cases, countries that lose the confidence of markets effectively lose their sovereignty.”
Now that would get Brown excited. (rubbing hands)
11. mrflibble said...
There seems to be two camps right now:-
1. Stop being a debt junkie and go cold turkey - if we do we are all doomed.
2. Keep the stimulus going and all the zombies lurching forward - if we do we are all doomed.
The country has boxed itself in perfectly.
12. krustyatemyhamster said...
Damn that Cable with his intelligence, objectivity and learning. Let's have Osborne, he's from good breeding stock don't you know.
13. Jacobite said...
Banks must be brocken up now and Glass stegall installed in reformed banks, I think it will happen in the long run anyway, to delay will make the transfomation even more painfull
14. alan_540 said...
@9 mrflibble... I agree with point 1 but point 2 is plainly not the state of opinion - people are saying keep the stimulus going and ease off as recovery grows - we are not doomed.
15. techieman said...
"but the last Tory government left the economy in good order". ZZZZzzzzzzzz. So we have never had a recession under a tory government?
The older i get the more the indoctrination of the public to suffer (voluntarily) at the hands of the two party system never ceases to amaze me.
It aint the goverment its the business cycle.
16. techieman said...
Mr Fibble is right :alan @ 11 "people are saying keep the stimulus going and ease off as recovery grows - we are not doomed." So what! When did "people" know what its all about?
Let me clarify my last point (12) slightly. Yes governments can stretch out the business cycle but simply put its like a bungy - the more they stretch the cycle the more the cycle will move the other way and bite them in the ar5e, at a certain point in time. That is why you try to dampen down the cycle in the boom times (fiscal or monetary policy or both) and then have some money left for when the cycle goes the other way. In other words you smooth out the cycle. When the cycle bites them in the ar5e is what they dont know. Whether thats under a Labour or Conservative government makes no difference. The cycle doesnt say..."oh we cant contract now because the tories are in power".
Since the austrian school believes the cycle is due to excessive bank credit, is anyone seriously trying to tell me that the tories would have stepped on the toes of the bankers during this boom?
Thats why i say we should be having a debate on how to de-politicise the economic decisions made. Of course thats easier said than done, since the man on the clapham omnibus would be pretty clueless. Any suggestions?
17. alan_540 said...
So you're saying remove economic decision making from politicians who may not make the best decisions because of political expediency, fair enough. Who would be best placed to make these decisions? BoE? But please don't suggest the bankers!
18. alan_540 said...
Just re-read that comment and it doesn't make much sense (nothing new there then), what I meant was would a completely independant BoE be best suited, but please don't suggest the banking community as a whole - that would be like putting the fox in charge of the hen house (or any similar analogy that pleases you).
19. tenant super said...
Mr Flibble @ 9... I though the limp dims were arguing for a 'middle way' between options 1 and 2.
I believe that we need to go back into recession because our economy relies so much on consumption. The civil service and quangos need mass shut-downs and redundancies if we are to have any chance of a decent future. I know someone who works for Lacors the labelling and quality quango. Much of their work is duplicated by trading standards and other agencies and apparently they just have endless meetings eating posh sandwiches at tax payers expense.
If any government has the guts to purge these parasites, many of them have very few skills that would make them attractive to the private sector at a time when job competition is fierce, so we'd see a rise in unemployment and an inevitable drop in consumption.
20. techieman said...
alan - thanks for the response. No actually im not suggesting anyone. I just think its a debate that should be had. I am also not saying its right. It could be for all or some of the decisions. Anyway maybe thats why the markets loved the implementation of an "independent" BoE so much??
Maybe a swiss model of government? Lets just look around and see if we can find something that a. works and b. de-politicises it. [as much as we can]. Its a huge topic but actually one ive never seen really addressed. Maybe i am too far outside the "box" ? :-).
Its good to compare a managed economy with a laissez faire situation. i think (but dont know) if you compared both periods you would get a similar look to the cycles under each.
21. Neil B said...
"Unless cuts were made imminently to public spending budgets... interest rates would soar".
Yes please! When can we have this? I'm almost paying my bank for the privilege of saving with them.
22. mrflibble said...
@11. alan_540...
"people are saying keep the stimulus going and ease off as recovery grows - we are not doomed."
The more you give a junkie drugs the harder it is to come off those drugs. The powers that be are trying to keep the plates spinning in the hope we can somehow stage a recovery, but the stimulus prevented a real crash, hence we cannot recover, we have nothing to recover too. At some point we are going to have to take some pain, then and only then can we move on and truly recover.
23. alan_540 said...
I agree. Some people will lose their jobs & homes, others will take pay cuts, it's going to begin to feel like a recession at some point, so may as well get it over and done with. I was just pointing out that if you believe what Labour are saying, stimulus will be eased back as recovery takes over. Now this could be the case, but that raises the question of would the amount of stimulus needed be eventually more damaging than the correction? I don't know the numbers, but presumably the threat of UK plc losing it's AAA rating is just because some economists think that that could be the case. The medicine could be worse than the disease maybe.
24. nomad said...
mrflibble@18. On the nose. Unfortunately further delay is taking the decision out of our hands and into the hands of the international community.
25. freemanphil said...
WHY THE SILENCE FOR THE PAST FOUR YEARS THEN, JACK?!
He let the debt get rung up and is now calling for devastating austerity to divert socialism towards paying off the bankers. We need DEFAULT. We were tricked into this debt, most people didn't know it was coming, we were bum rushed by the Bank of England and New Labour. We do not own this money. Lets tell them to shove it up their ass.
Duplicitous criminal.
26. letthemfall said...
letsgetreadytovotetory:
"Well, Vince is a Fabian, you cannot dispute that. And surely you know their mindset.
I see Osborne criticised a lot here, but the last Tory government left the economy in good order."
Ho ho ho. What you are really saying is that you are a confirmed Tory supporter and not prepared to think beyond that. Whether or not VC is a member of the FS is neither here nor there. His reasoning and consideration for the impact of politics on people are what so many of us admire.
27. luckyjim said...
Techieman,
Here is a suggestion.
Economic policy should be decided by referendum. This would stop governments distorting the cycle for political reasons.
Of course, as you say, the man on the Clapham omnibus is 'pretty clueless' so only people with at least a degree in Economics would be alowed to vote. Unfortunately YOU would not be allowed to vote but you could still express your opinion on here.
Better ?
28. techieman said...
LJ - :-).
29. str 2007 said...
Very Good LJ
Don't listen to him techieman.
Off topic techieman, what did you make of the ''inside day' on the S&P yesterday ?
30. Goldbug9999 said...
"1. Stop being a debt junkie and go cold turkey - if we do we are all doomed.
2. Keep the stimulus going and all the zombies lurching forward - if we do we are all doomed."
We need a real recession (cold turkey) because that forces the social and economic restructuring necessary for a sustainable recovery. Of course its going to be painful but the people who have over extended themselves, the benefits spongers, the unproductive public sector workers etc are the necessary collateral damage. But so what - noone forced anyone at gun point to take out too large a mortgage.
31. mountain goat said...
TM - "any suggestions"
Stick with the managed economy but try learn from the situation and plug the leaks.
laissez faire is no good since the financially powerful will play the cycle even more than they already do.
The managed economy where the government tries to dampen down the cycle in the boom times (fiscal or monetary policy or both) and then have some money left for when the cycle goes the other way, seems best for social justice. But right now the managed economy is in danger because of the sovereign debt problem. It means the sovereign cannot call the shots anymore because they are at the mercy of creditors. It is possible that they will try print their way out of trouble but as I said only with an agreement from the creditors.
This is why I expect more crash and panic, 3rd wave, double dip, whatever, to focus minds. As opposed to kicking the can down the road with more deficit spending and wishful thinking.
32. techieman said...
Hi STR2007
Well LJ has added to the debate at least! Although i am just advocating some kind of split between some of the political powers there are at the moment. For example politicians would still make decisions regarding spending, but how much they can spend in the aggregate is controlled. An economic think tank if you like. But i would be first to accept its a bit utopian and would need a real shift in peoples ideals and ideas.
As for the inside day, i was pretty bearish if there was an inside day AND if we closed below 1100. As you know we didnt, which means that today isnt as bearish as i would have liked. So i think we are just looking for some direction. So basically its a steelers wheel market.... where range trading works until there is a breakout one way or the other. We are also stuck between some of the MA lines.
The jury is out until we break 1092 to the downside or 1115 to the upside - basis cash. Then we might have a better idea of where we are off to.
http://www.youtube.com/watch?v=jpWzbZGk3eA
33. techieman said...
MG
"The managed economy where the government tries to dampen down the cycle in the boom times (fiscal or monetary policy or both) and then have some money left for when the cycle goes the other way, seems best for social justice."
yes if they did but they dont do they?? And then they say stupid things like they have eradicated it.... and what i cannot believe is that we fall for it (even if some of us aint go no degrees innit). Gordy - the man that brought us out of recession... but hang on didnt he tell us we wouldnt get into one? The longest boom in post war Britain.
I could have the longest boom in my personal life if i kept on running amok with my loans / credit cards and banks would underwrite it ad-infinitum... but, at some point in time guess what.. you have to pay it back [or default]! And the longer i have and the larger the credit the more serious it gets when i have to pay it back.
34. Fedup said...
@Flashman,
Why not accept the business cycle for what it is, and just not allow governments the sort of economic power that they currently have?
I'm so very fed up with huge public outcrys along the lines of "government has to do something" or "why was this allowed to happen", when a person/group of people, make bad decisions and then get their fingers burned, with the subseqeuent "government action" then causing all sorts of dreadful unintended socio-economic problems further down the line (causing further public outcrys for "action" or "omnipotent" leaders, government grabbing yet more power, further reliance on government, less cause for individuals to think for themselves, further erosion of freedom, and yet more unintended consequences, and so on, and so forth).
People seem to want freedom without realising what "freedom" really means, and so we now have (in the UK it would seem) a contradictory freedom, where people are free to make their own choices, but can then expect charity/bail out (ultimately funded at everybody elses' expense and freedom), when their decisions lead to a consequence they did not forsee, nor find favourable i.e. in the context of the banking crisis, privatised gains, and socialised losses.
We have collectively sleep walked into the current, dreadfully egregious two party system of representation, because we simply do not know the meaning of the word "freedom".
35. str 2007 said...
Techieman
The rolling S&P has the numbers down to 1089.8 as I type looking bearish, I assumed based on the FTSE falls, may reverse I guess when they open ? Nice head & shoulders formed thoug on the 4 hour.
Re: governement spending.
Yes I agree, governments seem to constantly drop us in it because of overspending/robbing peter to pay paul and juggling election times.
The idea of budgets set by an idependentlt elected Economics body may indeed offer more stability.
IMO it's stability that the business people want on which they can make their investment decisions.
I myself currently feel very reluctant to invest, not because they've created stability with the bailout, but because we haven't 'yet' seen the expected re-set.
Hence myself along with (I assume) alot of others are expecting a second wave down and are sitting on their hands, effectively creating the 'double dip' recession.
36. str 2007 said...
Fed Up
Am I missing something, why are you wrting to Flashman ?
37. Fedup said...
@str 2007
Sorry, meant "Techieman", I was replying to his call for suggestions.
38. alan_540 said...
@30 goldug.... Any correction will hit people across the board - those that have been responsible or not, so to justify a correction "just cos it's gonna affect the feckless" is unfair on your part, who knows, you may lose your job, and I'm sure you would feel aggreived at that.
39. str 2007 said...
alan540
So far this recession has hurt the prudent far more than the feckless.
From what I've experienced my income has been massively reduced due to low interest rates aswell as lower work income due to the recession. Whilst feckless friends of mine have had there mortgages reduced by between £500-£1000 per month. One's has been reduced by £2000 per month. None of these people needed any extra money.
They have all been effectively handed a new 4x4 on their driveway plus a good holiday by this government.
The people who've paid are those without huge debts and pensioners.
It's an absolute disgrace.
Bitter me,....not many.
40. braindeed said...
Luckyjim @27
Economic policy should be decided by referendum. This would stop governments distorting the cycle for political reasons.
It would get stuck on during the second half of Celebrity jungly Ice Factor, and Have Broon & Dave on the panel ya-booing each other.
41. Goldbug9999 said...
# @30 goldug.... Any correction will hit people across the board - those that have been responsible or not, so to justify a correction "just cos it's # gonna affect the feckless" is unfair on your part, who knows, you may lose your job, and I'm sure you would feel aggreived at that.
Thats true but its a risk I'm prepared for and willing to take. So far this "pretend" recession has infact already hit me quite hard: 6 months without work last year, massive devaluation of my savings and investment and yet without any of the usual compensating factors (e.g. massively cheaper houses ...). Like many others I've been effectively robbed to bale out the feckless. So I say BRING IT ON, lets have a total collapse of the global credit system, our welfare state etc etc.
42. Goldbug9999 said...
"Economic policy should be decided by referendum."
Would make no difference - the predatory majority of beneficiaries of the current system (BTL landlords, scroungers, home owners, public sector workers etc etc) would simply continue to vote themselves more of my money.
43. tom101 said...
Why not have general election every two years? I don't think cost should be an issue with todays technology. Should be able to do it all online....