Friday, Feb 19, 2010
Printy printy
The Telegraph: It's official: the crisis in UK public finances has taken a turn for the worse
The support the economy received last year stopped a recession turning into a depression so was worth it. But the latest news reveals that our crisis in public finances is getting worse, while the real economy should prepare for a return to negative growth.
Posted by devo @ 08:02 AM (2308 views) Add Comment
20 Comments
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1. debtfree said...
falling tax revenues + rising unemployment + rising social costs = depression.
this is a vicious cycle that will intensify this year.
off to makro today to swap most of my soon to be worthless sterling for food :o)
2. devo said...
fear of unemployment = reduced spending = depression
3. debtfree said...
Higher taxes, higher interest rates, more money printing, devaluation of currency, social unrest...
It's not looking good is it !
4. debtfree said...
Don't know about you, but lower house prices is becoming the least of my worries.
5. jack c said...
"negative growth" again - even in Mrs Thatcher's time as PM the idea of the economy shrinking wasnt outlawed
6. Neil B said...
Its not all doom and gloom: House prices rose 1.2% in January! Yay!
7. ontheotherhand said...
Pound getting hammered and gilts too. What foreign idiot would want to buy our debt when they get devaluation and inflation?
8. Fraggle said...
The reason we have vicious/virtuous cycles is because we encourage them by policy. Monetary policy consists of greater and greater amounts of debt because if we were to stop people would "lose confidence". Fiscal policy consists of greater and greater government stimulus and interference because if we were to stop people would "lose confidence" again. We fear losing confidence because our debt economy relies on more debt being taken out in the future. Our entire economy is built on the psychological state of the public being forever happy forevermore. How exactly does anyone expect that to work? It's an open loop/positive feedback system, and they never work.
Until we grow up as a species and realise that the slump *has to happen* because our monetary system is hogwash, this crisis - like Japan's - will never end.
9. estrader said...
It is because it snowed in January, a lot. Retail sales fell twice as much than was expected because of 'the cold snap'...those anti-global warming people are ruining the economy.
10. tom101 said...
debtfree @4, couldn't agree more!
11. Crunchy said...
1. debtfree
You have cottoned on to the safest investment yet. Better late than never, shucks!
"HYPERINFLATION FOOD SHORTAGES."
12. icarus said...
The basic idea is to have a virtuous cycle in which wages and profits go into workers buying what they produce and profits go into investment, generating the next cycle of wages and profits. Keynes simply suggested that when there was too much saving and too little spending the government should step in to keep up aggregate demand and keep the circular flow going. Keynesian economics isn't working now because this circular financial flow has been reduced by the siphoning off of funds to the finance sector. (In 2006-7 in the US financial sector profit was 40% of all profit, and this would have been higher if you factored in bonuses.) The contrary circular flow is from banks (credit) to debtors (debt repayments) to the extent that puts a massive debt overhang on the economy, tranferring funds from debtors to creditors. It's no longer too much saving (as in a Keynesian world) but too much debt that is constricting the benign circular industrial/commercial flow. The enrichment of the few at the top is at the expense of aggregate demand and a functioning economy. Finance capital trumps industrial capital.
The inability to pay debts forces bankruptcies, reduces bank credit and spending power and willingness to invest in the real economy and causes depressions. But policymakers draw the opposite conclusion. If debts are strangling the economy the policymakers' answer is not to write them down (let the bubble burst) but to keep them in place in order to support asset prices so that banks have the wherewithall to lend yet more, and borrowers have the asset collateral to borrow, and thus "save" the economy. They have no answer to an asset-bubble burst other than to create other asset bubbles. You end up with people spending so much on housing that they can't buy the goods and services they produce.
13. estrader said...
@icarus
I've never liked the idea of Keynesian economics and now I am convinced it ought to be consigned to History.
You might be interested in this video, it is worth watching.
http://www.youtube.com/watch?v=6XbG6aIUlog&feature=youtu.be&a
14. Cool_hand said...
9. icarus said...
I've always taken this view, high house prices means more and more of our money is used to service our debt and less is available to put into the real economy. High house prices serve no-one apart from EA's, banks and speculators. Government should allow the correction, however painful that maybe, so we can back to a more balanced economy.
15. Goldbug9999 said...
"Keynes simply suggested that when there was too much saving and too little spending the government should step in ..."
All well and good so long as the converse is also applied i.e. the same intervention is applied when there is also too much borrowing, which has starkly failed to happen when it was arguably needed.
16. greenmind said...
Not Von Mises again! I dont care how right thy are about the follies of Keynsian economics, those guys are REPULSIVE!
17. paranoia blue said...
greenmind @11
“Fair do’s” shoot the messenger, if you must, but take careful note of the message.
18. icarus said...
estrader 10 - my comment was not a blanket repudiation of govt deficit spending to support aggregate demand when the weakness of the latter is threatening recession. It's simply that the circular financial flow in the real economy has been constricted by what is effectively massive rent gauging by the finance sector, a problem that Keynesian deficit spending can't fix.
In the 19th century one view was that a rise in land prices was good - rents and landlords' income rose and their spending on their coachmen, gamekeepers, butlers etc. kept the economy going. The other was that as land prices rose this made food and shelter more expensive, so industrial wages had to rise and this made British goods uncompetitive. Present policy takes us back to the landlord economy.
19. Fraggle said...
@18 Is this another job for Land Value Tax man?...
20. icarus said...
"gouging"