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David Cameron Invites A 'double-Dip Recession' If He Insists On Greek Medicine For Britain's Deficit

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http://www.telegraph.co.uk/finance/economics/7811591/David-Cameron-invites-a-double-dip-recession-if-he-insists-on-Greek-medicine-for-Britains-deficit.html

The main danger to the UK's credibility is when ministers spread fear in the markets and talk down the economy. Harsh cuts in public spending, as expected in the emergency budget on June 22, have the potential to push the UK into a double-dip recession.

Over the last two years the governments have responded to the financial meltdown by loosening monetary policy, lowering interest rates, providing extra liquidity, introducing quantitative easing measures, alongside expansionary fiscal policies.

Yet a number of these countries, mostly in the euro area, are following Greece and announcing fiscal austerity measures to tackle rising public debts and lower fiscal deficits. The IMF warned against such precipitate action.

Surprisingly, many economists and, most worryingly, the OECD recommend that the new British government follows Greece and the other economies by implementing fiscal adjustment programs. Mervyn King, the Governor of the Bank of England, even entered the fray, by advocating immediate public spending cuts. Interestingly, he was only speaking in a personal capacity and not for the MPC that actually sets monetary policy.

Proposing the same medicine in the UK as in Greece, though at a lower dose, seems a priori absurd, as the problems are fundamentally different because the two countries suffer from different pathologies.

The Greek crisis is the result of a steady loss of competitiveness, reflected in a ballooning trade deficit and relatively high inflation, and a rapid expansion of public sector spending.

Greece is characterised by endemic tax evasion, a poor tax collection infrastructure, parochial patronage policies, corruption and huge delays in the administrative courts dealing with tax disputes. This clearly does not resemble developments in the UK.

The recent increase in the debt burden of the British economy is driven not by structural inefficiencies, as in Greece, but from the 2007 financial crisis, the immediate economic contraction, and the government's expansionary response.

Public debt in Greece is the highest in the euro area at about 120pc of GDP. The country also has one of the highest fiscal deficits in the OECD, at 14pc of GDP. The UK's is 11pc.

In contrast, government debt to GDP in the UK in 2009 was 68pc –much lower than the euro area average of 79pc. While UK debt/GDP has increased over the past two years by about 20 percentage points, during the past decade it fluctuated around 40pc-50pc. The recent increase mainly reflects a rational Keynesian counter-cyclical policy in response to the global economic crisis.

These differences are reflected in government bond yields. Yields on long-term UK bonds are quite low, 3.58pc, very similar to US Treasury bonds. German bund yields are lower, at 2.56pc, reflecting the lower inflation expectations on the euro area.

In contrast, government debt to GDP in the UK in 2009 was 68pc –much lower than the euro area average of 79pc. While UK debt/GDP has increased over the past two years by about 20 percentage points, during the past decade it fluctuated around 40pc-50pc. The recent increase mainly reflects a rational Keynesian counter-cyclical policy in response to the global economic crisis.

These differences are reflected in government bond yields. Yields on long-term UK bonds are quite low, 3.58pc, very similar to US Treasury bonds. German bund yields are lower, at 2.56pc, reflecting the lower inflation expectations on the euro area.

In addition, only 20pc of UK debt matures in the next three years compared with 34pc for Greece. The ratio for the US is around 50pc and 40pc for Germany. So in contrast to Greece, the UK does not suffer at all from roll-over risk.

The forecasters' consensus suggests that Greece will suffer negative GDP growth of at least 4pc in 2010 and -1pc in 2011. So even if Greece succeeds in its fiscal consolidation plan the debt burden as a share of GDP will keep rising for the next couple of years, while the debt to GDP for the UK has already started falling.

While Greece would surely benefit from the recent slide of the euro, Greece does not have control of its monetary policy, which is decided in Frankfurt. In contrast the UK has exchange rate flexibility, which could prove quite useful in the adjustment.

Greece also has deep structural problems, mostly in product markets with oligopolies in almost every industry, closed professions, administrative and bureaucratic impediments to entrepreneurship alongside barriers to trade and exporting. In contrast, the UK economy is flexible, with fewer administrative burdens.

The diagnosis above suggests that the two countries are plagued with different diseases. There is zero chance that the UK will default on its debt. So each country needs a different treatment. The UK is demonstrably not Greece.

This guy is a genius why the hell did we get him off the MPC.

The UK has no roll over risk, fantastic as it's only 20% that matures in the next 3 years. Clearly there won't be a huge demand for limited supply of fresh debt and rates don't risk increasing.

You can tell why he's a proper economist and has become a professor so he can profess his expert knowledge to us all.

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http://www.telegraph.co.uk/finance/economics/7811591/David-Cameron-invites-a-double-dip-recession-if-he-insists-on-Greek-medicine-for-Britains-deficit.html

This guy is a genius why the hell did we get him off the MPC.

The UK has no roll over risk, fantastic as it's only 20% that matures in the next 3 years. Clearly there won't be a huge demand for limited supply of fresh debt and rates don't risk increasing.

You can tell why he's a proper economist and has become a professor so he can profess his expert knowledge to us all.

kill a keynesian today - for the good of the country

another one

link

When the problem is debt, going deeper in debt cannot possibly be the solution.

Yes, Paul, we lost a decade. Yes, Paul, we are going to lose another, not because we failed to follow your recommendations, but precisely because we did!

We had a chance to write off the debt and to let the insolvent banks go under. Instead we wasted over a trillion dollars bailing out banks that still are not lending (and wisely will not lend) because we never purged the debts that needed to be purged nor did we reduce rampant overcapacity.

We could have and should have forced the bondholders of Citigroup and Fannie Mae to take a hit. Instead, taxpayers who cannot possibly afford it, bailed out wealthy bondholders.

In addition, we tried all sorts of Keynesian nonsense like cash-for-clunkers and an$8,000 tax credits for houses. As soon as the tax credit expired housing went in the gutter. It is about to do so for the second time.

Bernanke will not know what hit him even though it is point blank foolish to stimulate housing when there is an ocean of housing oversupply already.

By the way, how many roads can you pave? We paved roads in our area that did not even need to be paved. Now fooking what?

This is exactly the mistake Japan made. Yet you want to repeat it with more absurd makeshift work.

The stimulus money is nearly out and you want more. You will always want more for the simple reason there is no real demand for goods and services, only an illusion of a recovery that comes from passing out "free money".

When you look in a mirror you see the illusion, what you should see is a Keynesian warthog. Substitute the words "Keynesian Economics" for "Real Economy" on that hag, and the picture is perfect.

As Europe found out, the will and the means to pass out "free money" is 100% guaranteed to end before a lasting recovery can take hold.

That dear Paul, whether you like it or not, is the mechanics of peak debt, compound interest, global wage arbitrage, and something you desperately need to learn: Austrian economics.

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Blanchflower is proving very useful to all those TV interviewees who oppose the government.

I feel as if I hear them using his name at least a couple of times a day. "Danny Blanchflower and others have said..." they always seem to begin. I wonder who the 'others' are. Assuming there are any others.

If I were them, and there ARE others, I'd start using their names as well as Blanchflower's. Repeating the same name over and over will surely start to sound like there's only one 'qualified' person who disagrees.

EDIT: Typo.

Edited by Ologhai Jones

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http://www.telegraph.co.uk/finance/economics/7811591/David-Cameron-invites-a-double-dip-recession-if-he-insists-on-Greek-medicine-for-Britains-deficit.html

This guy is a genius why the hell did we get him off the MPC.

The UK has no roll over risk, fantastic as it's only 20% that matures in the next 3 years. Clearly there won't be a huge demand for limited supply of fresh debt and rates don't risk increasing.

You can tell why he's a proper economist and has become a professor so he can profess his expert knowledge to us all.

Exactly. Instead of cuts we should be increasing the state budget and creating more public sector jobs so then everyone can have a job, and we can have zero unemployment and escape the recession completely. Forever. It's so obvious I don't know why nobody else has thought of it.

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The recent increase in the debt burden of the British economy is driven not by structural inefficiencies, as in Greece, but from the 2007 financial crisis, the immediate economic contraction, and the government's expansionary response.

As the UK is a largely service sector driven economy how do you increase productivity in shuffling paper about and how do you get shop floor staff to shift more goods which have been produced by other nations and stop the transfer of wealth?

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This is a load of shite, if you forgive my French.

As I posted in my blog, there is no recovery!

Wednesday, 9 June 2010

The mythical Recovery cannot be locked-in

One of the main arguments against immediate public spending cuts is the risk to damage the recovery, or, in other words, the deliberate decision to send various GDPs tumbling back into the red.

In principle, the argument stands: as a en economy falters, the government - any government - introduces various stimuli such as car scrappage schemes, boiler renewal programmes and even resort to print money through quantitative easing. That, in theory, jump starts the economy and in no time voila', we're back in black, with maybe just a little bit of inflation, which does not hurt anyone.

The problem nowadays is that western economies are no longer functioning according to the classic fundamentals of supply and demand, and, with the partial exception of Germany, rely massively in cheap imported goods and ultra-cheap credit to buy these goods.

Private and Public levels of debt are now so high that any attempt to cure a debt problem with a money shot is due to fail. As the patient becomes gradually more tolerant to the medicine, the dose needs to be increased until it becomes counter-productive. Looking at the eponential growth in size of the recent bailours, we are getting there very quickly.

What is being described as recovery by media and government bodies is basically the effect of the money shot. It's the high after the drug injection. None of that is structural, organic return to economic growth, as the growth we've seen from 2001 onwards has been artificial itself.

The crucial point is that, no matter what politicians do now, the double-dip will happen anyway. The only way to avoid that on paper is to print so much money to hide the disaster through inflation. But that would be even more painful than sending government departments through the equivalent of the diet Ronnie Coleman used to go through before winning his 8 Mr.Olympias.

The human aspect of this is of course critical, but we should not forget why we are here in the first place. The global economic model based on cheap goods and credit was unsustainable.

It still is.

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The Greek crisis is the result of a steady loss of competitiveness, reflected in a ballooning trade deficit and relatively high inflation, and a rapid expansion of public sector spending.

This doesn't apply to the UK? Clueless.

In fact the Monetary ***** Committee have spent the last 10 years trying to ignore and divert attention away from all of these obvious points.

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As the UK is a largely service sector driven economy how do you increase productivity in shuffling paper about and how do you get shop floor staff to shift more goods which have been produced by other nations and stop the transfer of wealth?

we are a nation of shopkeepers.

shame the high streets are full of banks and EAs and shuttered £ shops.

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kill a keynesian today - for the good of the country

another one

Hmmm.

The main 'keynesian' era was from roughly 1945-73. Characterized by steady growth, very low unemployment, surprising lack of financial crises, insignificant underclass and progressive improvement in living standards for everyone.

The `moneterist' era started in the 1970s (1979 in the UK) and still continues. Characterized by fluctuating - but generally lower - growth, recurrent financial crises, explosion in long term unemployment and an explosion in inequality such that all the proceeds of growth accrue to a small number of people at the top.

The solutions to the financial crisis are barely 'keynesian', since throwing money at the banks - especially without full nationalization and control -is a pretty poor way of boosting aggregate demand.

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http://www.telegraph.co.uk/finance/economics/7811591/David-Cameron-invites-a-double-dip-recession-if-he-insists-on-Greek-medicine-for-Britains-deficit.html

This guy is a genius why the hell did we get him off the MPC.

The UK has no roll over risk, fantastic as it's only 20% that matures in the next 3 years. Clearly there won't be a huge demand for limited supply of fresh debt and rates don't risk increasing.

You can tell why he's a proper economist and has become a professor so he can profess his expert knowledge to us all.

WELL Now I know that the problem is Mr Cameron and Osborne talking the economy down, they had better do the politician thing and tell us it's all in good shape and recovering well as Mr Brown and Darling got 'all the big calls right'. C**P. The markets won't care what you say if you can't pay the debts.

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http://www.telegraph.co.uk/finance/economics/7811591/David-Cameron-invites-a-double-dip-recession-if-he-insists-on-Greek-medicine-for-Britains-deficit.html

This guy is a genius why the hell did we get him off the MPC.

The UK has no roll over risk, fantastic as it's only 20% that matures in the next 3 years. Clearly there won't be a huge demand for limited supply of fresh debt and rates don't risk increasing.

You can tell why he's a proper economist and has become a professor so he can profess his expert knowledge to us all.

I agree with Blanchflower. Deflation is the enemy. Money supply in the US is contracting at an enormous rate and that will affect the UK economy adversely.

Now is not the time to be throwing millions on to the dole. :(

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I agree with Blanchflower. Deflation is the enemy. Money supply in the US is contracting at an enormous rate and that will affect the UK economy adversely.

Now is not the time to be throwing millions on to the dole. :(

Look at the trade deficit, this country is going down hard and unless what is in place is ripped up PDQ the country will be finished for good with a long unending grind to the bottom. Not just for your lifetime but those of your childen and all their offspring.

Edited by OnlyMe

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I agree with Blanchflower. Deflation is the enemy. Money supply in the US is contracting at an enormous rate and that will affect the UK economy adversely.

Now is not the time to be throwing millions on to the dole. :(

£50 JSA will buy a hell of a lot more in a deflation than it will now.

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which begs the question why did they waste so much money trying to save the system in the first place if they're going to just accept the inevitable now anyway? might as well just left it at one big recession and saved the coin.

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which begs the question why did they waste so much money trying to save the system in the first place if they're going to just accept the inevitable now anyway? might as well just left it at one big recession and saved the coin.

To pay off the banksters.

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I'm puzzled by this hysteria.

The only cuts slated for this year are the £6bn.

Whatever comes after that won't even start until next year and the impact will take a while feeding through.

Blanchflower's wonderful stewardship of the economy actually resulted in the biggest fall in output since the 30s so this is like taking a lesson on child minding from Gary Glitter.

That said, I think Greece are f*cked.

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I'm puzzled by this hysteria.

The only cuts slated for this year are the £6bn.

Whatever comes after that won't even start until next year and the impact will take a while feeding through.

Blanchflower's wonderful stewardship of the economy actually resulted in the biggest fall in output since the 30s so this is like taking a lesson on child minding from Gary Glitter.

That said, I think Greece are f*cked.

you miss the point..cuts are bad..paying more for things is good.

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I agree with Blanchflower. Deflation is the enemy. Money supply in the US is contracting at an enormous rate and that will affect the UK economy adversely.

Now is not the time to be throwing millions on to the dole. :(

Deflation is part of the natural economic cycle, it cannot be avoided. If you hadn't inflated the economy to unsustainable levels you wouldn't get deflation.

Edit for repeating the same line.

Edited by interestrateripoff

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Deflation is part of the natural economic cycle, it cannot be avoided it cannot be avoided. If you hadn't inflated the economy to unsustainable levels you wouldn't get deflation.

Indeed.

The Great Depression was created by the recklessness of the 20's, not the lack of inaction or incorrect action of the 30's.

That is why central bankers always argue for more stimulus - it is to cover up their own ****** ups more than anything else.

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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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