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Savage Spending Cuts As Global Economy Slows Is Folly

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http://www.guardian.co.uk/business/2010/may/23/government-borrowing-coalition-government

Massive cuts in spending on public sector staff and services will increase unemployment and risk the economy slipping back into recession, economists warned as the coalition government plans to make an extra £6bn of savings in 2010.

More than 240,000 public servants could lose their jobs over the next year compared to just over 100,000 planned by the previous Labour government as ministers block Whitehall departments from replacing departing staff and quangos are shut down.

Private firms that supply the public sector are also expected to be hit, taking unemployment above 3 million for the first time since the early 1990s.

David Blanchflower, who was one of the few economists to predict the severity of the recession, said the government was pressing ahead with cuts based on dogma and ignoring recent developments that allow it to boost investment.

He was joined by Julian Le Grand, professor of social policy at the London School of Economics and a former Downing Street adviser, who said the UK was in danger of pushing itself into recession. Le Grand was a signatory to a letter by 35 economists last month that argued the government was ignoring the lessons of the 1930s when government cuts made the situation worse.

Blanchflower said figures last week showed the public finances were in a better shape than predicted and allowed the Treasury to scrap its planned cuts. A slowdown in growth in the global economy also showed the UK government needed to keep spending. He said an export-driven recovery would be restricted by slow growth in the eurozone and the US and public sector spending was needed to fill the gap.

Blanchflower, professor of economics at US university Dartmouth College and a former member of the Bank of England monetary policy committee, has criticised economists at investment banks for persuading politicians to slavishly follow the demands of the bond markets. Investors in government bonds want to reduce their risks and are demanding Britain and other indebted nations repay their loans at an accelerated pace.

Blanchflower believes Britain is in a better position to ward off the markets than Greece or Spain after a 25% devaluation of sterling and £200bn of quantitative easing by the Bank of England. UK debt is also repaid over a longer time frame compared to other countries which need to renew their borrowing every couple of years. Much of the Greek debt at the heart of the crisis has to be resold every three months compared to an average of 12 years for UK debt.

Collapsing stock markets in Europe and the US also reveal concerns that global growth is about to slow down, partly as a result of the collapse in demand across the eurozone, but also driven by the hangover from the sub-prime lending boom and bust in the US.

Oil futures prices have slumped almost 20% during May. Commodities including platinum and zinc have followed suit. The London stock market is down almost 10% after slipping below 5,000 on Friday before recovering to 5,062. At the beginning of the month the FTSE 100 stood at 5,553.

"The improving public finances suggest the stimulus package is working. But it needs more time and there needs to be more of it, especially when there are still few signs the private sector is standing on its own two feet without government support behind the scenes," said Blanchflower.

Most City economists believe early signs of growth in the economy allow the chancellor George Osborne to begin cutting without any risk to the recovery. They also consider government borrowing last year that reached 11% of GDP to be too high.

Phil Shaw at Investec Securities said: "We would not run away with optimism on the back of the data. The government's borrowing position is only slightly less horrific than previously thought and it would be misplaced to describe a deficit of just under 11% of GDP as 'good news'. The new chancellor is in no way about to scrap plans for a significant fiscal consolidation at the 22 June emergency budget."

Influential City economist Stephen Lewis at Monument Securities said the government needed to show the markets it could control the deficit, though he warned that positive economic figures in recent months were not a guide to the future.

"That pattern suggests that the data flow, even if it remains generally positive in the near term, will offer no guarantee that the upswing in the global economy from 2009's low point will be sustained. If sovereign debt concerns are accompanied by worries over bank liquidity any more significant than those influencing the credit market, another dip in world economic activity would seem a sure thing," he said.

TUC General Secretary Brendan Barber joined the chorus of disapproval against cuts, arguing that contrary to City expectations, tax revenues have not declined as seriously as expected and as a result borrowing, although high, is far from being out of control.

"The measures taken over the last two years to stimulate growth and get people back into work have protected the public finances from the worst predictions.

"But with the economy still fragile, the new government would be wrong to put this at risk by introducing spending cuts now. Not only will this damage the economy but it could create an even deeper deficit."

Speaking at a Demos event last week, Labour's shadow chief secretary Liam Byrne said the Tory cuts campaign was confused.

"During the election campaign the Conservatives boasted of a £12bn cutback on top of Labour's £15bn of efficiencies. Now we are told it's £6bn, and that its £6bn subject to some kind of assessment from the Treasury and the Bank of England. And there is still a mystery over how much of that money will be reinvested to save jobs and how much will go towards paying down the deficit. So there is an awful muddle at the heart of the coalition agreement on one of the most important questions in today's political debate."

Hilarious stuff here, Blanchflower at his best.

So more govt deficit spending is going to increase wealth over the longer term? This is only true if debt really is wealth.

Good to see that Blanchflower believes that the UK govt can beat the markets and there won't be a run on sterling. I mean every time in history govts have taken on the markets the govt has lost, thankfully it will be different this time!

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David Blanchflower, who was one of the few economists to predict the severity of the recession

This article has just suffered a sudden and complete loss of credibility.

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This article has just suffered a sudden and complete loss of credibility.

Exactly.

Danny "advocate keeping interest rates low at all times and eventually it will be the correct thing to do" Blanchflower.

The man is either an idiot or as bent as a nine bob note. His preferred policy of perma-low interest rates is a significant part of the reason why we are so f@#ked :angry:

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http://www.guardian.co.uk/business/2010/may/23/government-borrowing-coalition-government

Hilarious stuff here, Blanchflower at his best.

So more govt deficit spending is going to increase wealth over the longer term? This is only true if debt really is wealth.

Good to see that Blanchflower believes that the UK govt can beat the markets and there won't be a run on sterling. I mean every time in history govts have taken on the markets the govt has lost, thankfully it will be different this time!

The fact Blanchflower is clearly talking rubbish as you cant spend beyond your means indefinately because the market will force cuts on you through currency carnage this article highlights the stupidity of the tories winning the election. The cuts will inevitably lead to the main leg down in the depression which is going to be far more brutal than anything the last 3 years has seen

All labour will have to do is highlight how they had saved the economy with their strategy (backed up by them bringing the country out of recession), which by that time people (non Labour voters this time) will completely agree with due to the much lower living standards and disappearence of paper wealth across all classes.

They are highly unlikely to last beyond 2012 and the next govt is likely to be a much bigger Labour Majority than 97

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free money is good. unless you have it already.

Blanchflower...you are the weakest link....goodbye.

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Exactly.

The man is an idiot and as bent as a nine bob note. His preferred policy of perma-low interest rates is a significant part of the reason why we are so f@#ked :angry:

I've corrected for you. :P

His fundamental problem is that he thinks this should be a standard V shaped recession - public sector sucks up the slack and once private sector starts to recover public sector can hand over again. This is bolloxx: private sector is and will remain in the doldrums (L shaped recession / depression) and therefore what he says makes no sense because the government cannot support prolonged stimulus without collapse of the currency or printing into hyperinflation.

He needs to get a grip. Things are not the same as they are in his book or the book (notice singular) he read when he was in education.

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He needs to get a grip. Things are not the same as they are in his book or the book (notice singular) he read when he was in education.

i actually read the same book as him whilst in education

mr_bump.jpg

but i didnt use it as a sound basis for running an economy

Edited by Tamara De Lempicka

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I've corrected for you. :P

His fundamental problem is that he thinks this should be a standard V shaped recession - public sector sucks up the slack and once private sector starts to recover public sector can hand over again. This is bolloxx: private sector is and will remain in the doldrums (L shaped recession / depression) and therefore what he says makes no sense because the government cannot support prolonged stimulus without collapse of the currency or printing into hyperinflation.

He needs to get a grip. Things are not the same as they are in his book or the book (notice singular) he read when he was in education.

It's also a problem due to the statist nature of our Government. The public sector sucking up the slack wouldn't get reversed in the good times - they'd just find other things to interfere with and spend the money on.

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It's also a problem due to the statist nature of our Government. The public sector sucking up the slack wouldn't get reversed in the good times - they'd just find other things to interfere with and spend the money on.

Have govt jobs ever been reduced during a boom?

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:lol:

I thought that was a wimbledon article!

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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