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Will Enforced Austerity Solve Anything?


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While I know lots of daily mail readers on this forum will

argue for cuts the reality is that these cuts won't solve our problems.

Millions of people will lose their jobs in 2011 and many more will be working in the black Market. The result will be a deeper black hole in public.

Even if house prices fall which I doubt they will, people won't be in a position to invest......just look at Ireland. In Ireland the banks have lost confidence and mortgages are up to 10% above base rates.

The only solution for Britain is to power out of recession through public spending and it has to be paid for by taxing those that can afford to pay through income tax.

So I increase public spending by 100 billion. What do I get for my return? Nothing nada, zilch. Then another 100 billion is required the year after and the year after. And for proof go and ask Obamawamawigwam. America is really powering out of recession. Whereas Germany which has introduced austerity cuts to the budget and just passed a law that means in future It is illegal for the German state to spend more than it receives in income is mired in the worst recession ever.

The only solution is to cut govt spending and incentivise private businesses that create wealth to prosper. Which is what is happening.

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What front line service is being cut. Name them.

Here in West Sussex Care assistants to the disabled., Youth Clubs, Day Centres, Fire Services, Libraries etc (nb you will be delighted to know that if you lose the loss of both legs and confined to a wheelchair that is only a 'moderate' disability.)

,

http://www.theargus.co.uk/news/8730237.West_Sussex_County_Council_unveils___79m_savings_plan/

http://www.bbc.co.uk/news/uk-england-sussex-11857104

http://www.westsussex.gov.uk/living/social_care/adults/getting_social_care_support/changes_to_adults_social_care.aspx

http://www.theargus.co.uk/news/8722986.5_300_strong_petition_against_West_Sussex_care_home_closures/

This is £ 75 million from a Council that hardly ranks as loony left and lost much of its rate support grant under Labour

Still it will all be worth it when the Direcxtors at Lloyds HBOS and RBS get their bonuses.

Edited by realcrookswearsuits
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Definately no austerity so far for the UK. Budget 2010 is £696 billion, versus Budget 2009 which was for £671 billion.

These budgets all cover the old Labour 4 year spending review so are largely meaningless.

The first budget for the new spending round is not until March 2011

Edited by realcrookswearsuits
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What do we do about the deficit and ever increasing level of debt? Sound like you are saying that we should have just carried on as before. It was labour who said ' sorry there is no money left' or we could just increase taxes and remove tax credits. Don't really see where all this money to 'power out of recession through public spending' is going to come from unless income tax is really increased massively.

Even if the government were running a budget as tight as a gnat's chuff we'd still have entered recession in 2007. Ireland were frequently running a budget suplus before the real estate market overwhelmed their banking system for example, but the levels of debt consumed everything.

The nation's finances are screwed because they're taxing incorrectly. Instead of taxing production they should be taxing the freaking housing market!!

Edited by Chef
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Even if the government were running a budget as tight as a gnat's chuff we'd still have entered recession in 2007. Ireland were frequently running a budget suplus before the real estate market overwhelmed their banking system for example, but the levels of debt consumed everything.

The nation's finances are screwed because they're taxing incorrectly. Instead of taxing production they should be taxing the freaking housing market!!

Yep.

The Irish government ran a budget surplus until they went mad and decided to bail out the bankers, the bond holders and many of their property developer chums.

In fact in future Ireland is going to be the classic case study for this crisis since they have slavishly followed the neo liberal paradigm since the 1990s yet have still seen their economy unravel in spectacular fashion. Unsurprisingly when the bills came to be made the capitalist free market went out the window and it was bailouts all round for the banks and the politically well connected while it was austerity for the rest of the propulation.

One thing this crisis has revealed is that those who have proclaimed the competitive free market model to the mass of the people for 30 years have been monumental hypocrites since when the game turned sgainst them it was socialist bailouts from the taxpayers to ensure that the rich and powerful did not lose out

This old song has never been more apposite

'It is the rich that get the pleasure and the poor that get the blame'
Edited by realcrookswearsuits
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Here in West Sussex Care assistants to the disabled., Youth Clubs, Day Centres, Fire Services, Libraries etc (nb you will be delighted to know that if you lose the loss of both legs and confined to a wheelchair that is only a 'moderate' disability.)

,

http://www.theargus.co.uk/news/8730237.West_Sussex_County_Council_unveils___79m_savings_plan/

http://www.bbc.co.uk/news/uk-england-sussex-11857104

http://www.westsussex.gov.uk/living/social_care/adults/getting_social_care_support/changes_to_adults_social_care.aspx

http://www.theargus.co.uk/news/8722986.5_300_strong_petition_against_West_Sussex_care_home_closures/

This is £ 75 million from a Council that hardly ranks as loony left and lost much of its rate support grant under Labour

Still it will all be worth it when the Direcxtors at Lloyds HBOS and RBS get their bonuses.

but none of those are really cuts.

Firefighters - they are merging two services to create one. So hopefully one mangement team not two. Note there is no indication of firefighters losing there job apart from the Union activist saying.

Care home - being used currently used as a day centre for fit and able elderly people. It is to be changed to be used only for elderly people with dementia and disabilities. Again not a cut but a change to a real need.

What these so called cuts are doing is just cutting out the excess that we thought we could afford and now know we can not.

Edited by ralphmalph
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Austerity has failed in every country it has been tried in. From Estonia, to Ireland, to Greece. It also kept the South East Asian countries in a perma recession after their 1998 crisis.

The fundamental issue is, the modern economy is so prodigious in its production what we face is a demand crisis. But economists are stuck in a different era and like a broken record always thinking it is a supply/inflation crisis.

We need far more consumption, far more money flowing into peoples hands. Already millions are sitting idle for lack of work. And many millions more are spending half their working day idle for lack of business. Introducing austerity into that is just idiotic. Its like a plant becoming sick from lack of water.. then the IMF coming in and saying the plant needs to cut back its water intake, so rationing the plant further.

But its nearly impossible for people to imagine that the 'excesses' we saw in the last decade, were actually far less than the modern production is capable of delivering. Just like in the great depression the first decade of it countries kept trying austerity, thinkng they had to repent for excess consumption during the 1920's. It wasn't until they finally, grudgingly admitted those policies were failures, and started unleashing the floodgates that things started rolling again.

Sadly we could have at least a decade of countries trying austerity, and going in and out of depression.

+1

And this is what is causing inflation not the other way around.Manufacturing plants worldwide running at 30% to 50% capacity.Prices rise because modern manufacturing is all about operational leverage.Most manufacturing could raise production by 50% and youd see prices falling.

What people arent getting is the inflation has already gone through the system,all that credit expansion has already been consumed,.The big problem is malinvestment.Government deficits are supporting a welfare state of consumption not investment.IMO the answers are simple enough.Claw in the welfare state ie benefits at the same time as spending on infrastructure.New roads,new trains,new telecoms.Push the money to the workers alongside massive tax cuts on earnings,income tax,NI,council tax etc.

Of course the other huge problem is China not consuming enough.They need to increase their welfare state to encourage spending.Austerity while printing money that goes straight into commods is a disaster.What we have now is austerity for the workers/people alongside massive printing pushing up prices.

The only way out of this mess is higher dissposable income through higher earnings or lower prices or both.Anthing else will be a disaster.The bankers are still calling all the shots it seems.

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It'll solve me having to pay way over the odds for a house, because they'll become cheaper in price.

It will weed out those who thought the money would forever keep flowing,, who spent to much, saved too little, or who just didn't care or know about debt and saving.

Even younger people who are more innocent, especially the smarter ones coming into the workforce, might gradually prefer to accept austerity and opportunity from the fall out.

Better that than face paying today's rent prices or even higher ones, together with purchase prices, because printing money kept so many businesses and individuals protected from having to suffer any real changes in their lifestyle, value of their assets, properties, or change in business conditions. Even with riots and protests for many years, people suffering on the breadline, it should allow a new economy to eventually take hold. Force us to change and adapt. As it has always done.

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"Before the crisis in 2008 everyone took on a lot of debt. Back then it made sense for many of us to take on debt. For example the bottom 40% of the US income distrubution hasn't had a real wage increase since 1979."

"Levering up, is a little like going double or nothing in blackjack. If you've taken on debt from a mortgage you hope your house will increase in value. If you think there's a high chance the value will increase you might go double or nothing and take on a bigger mortgage."

Even that youtube video explainer who is obviously against austerity points out its a gamble, to get into debt, or be reliant on house prices rising. I've not gambled on any house, have never even owned one, or been in any debt for many years. He might not want those at the bottom end of the income distribution who've gambled to lose out. What about the people who didn't gamble and the young people coming through into the workforce. If we stop those who gambled from losing out in austerity, then other savers and young people will have to should the burden for them. That is not fair.

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+1

And this is what is causing inflation not the other way around.Manufacturing plants worldwide running at 30% to 50% capacity.Prices rise because modern manufacturing is all about operational leverage.Most manufacturing could raise production by 50% and youd see prices falling.

What people arent getting is the inflation has already gone through the system,all that credit expansion has already been consumed,.The big problem is malinvestment.Government deficits are supporting a welfare state of consumption not investment.IMO the answers are simple enough.Claw in the welfare state ie benefits at the same time as spending on infrastructure.New roads,new trains,new telecoms.Push the money to the workers alongside massive tax cuts on earnings,income tax,NI,council tax etc.

Of course the other huge problem is China not consuming enough.They need to increase their welfare state to encourage spending.Austerity while printing money that goes straight into commods is a disaster.What we have now is austerity for the workers/people alongside massive printing pushing up prices.

The only way out of this mess is higher dissposable income through higher earnings or lower prices or both.Anthing else will be a disaster.The bankers are still calling all the shots it seems.

hyper inflation solves nothing....and where is the wage inflation?

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"...the IMF is more or less a branch of the US Treasury, even though it has a European director. Its past role has been extremely destructive."

"...it’s quite striking to see the advice that the Western powers are following, the programs that they’re following, and compare them to the instructions given to the third world."

"Indonesia had a huge financial crisis about ten years ago, and the instructions were the standard ones: “Here is what you have to do. First, pay off your debts to us. Second, privatize, so that we can then pick up your assets on the cheap. Third, raise interest rates to slow down the economy and force the population to suffer, you know, to pay us back.” Those are the regular instructions the IMF is still giving them."

"What do we do? Exactly the opposite. We forget about the debt, let it explode. We reduce interest rates to zero to stimulate the economy. We pour money into the economy to get even bigger debts. We don’t privatize; we nationalize, except we don’t call it nationalization. We give it some other name, like “bailout” or something. It’s essentially nationalization without control. So we pour money into the institutions. We lectured the third world that they must accept free trade, though we accept protectionism. "

- Noam Chomsky

Source

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Enforced austerity is a placebo for right wingers and so called libertarians, but we've been through all this before with Thatcher. If she couldn't make it work then why do they think their methods will succeed when hers failed?

We need growth imo, not austerity.

In what way did Thatcher fail? I remember things being a lot better under her, and her winning 3 elections in a row.

The policies at the time inspired people to work hard and be self sufficient. Today we have policies inspiring people not to bother and be dependent on the work of others.

Sorry but what this should really mean is low taxes, where I spend my money on what I want. Those that dont work dont have any money to spend. Sounds fair to me.

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...there will not be hyper inflation, and interest rates will not stay low indefinitely...the markets can't afford it. ;)

I hope not...but the two proposers above feel that moneyprinting is the only way out.

thing is, the idea of giving people more buying power is clearly attractive...to people. it just doesnt work though, as seen time and time again in history. Money has to be fairly rare for the market to give it a value....if there were £10 notes lying everywhere in the street, the only thing of value would be the leafblower to clear the path.

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I hope not...but the two proposers above feel that moneyprinting is the only way out.

thing is, the idea of giving people more buying power is clearly attractive...to people. it just doesnt work though, as seen time and time again in history. Money has to be fairly rare for the market to give it a value....if there were £10 notes lying everywhere in the street, the only thing of value would be the leafblower to clear the path.

but would you be able to swap the leafblower for beans and ammo, the one true currency, well 2 actually but whos counting

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I hope not...but the two proposers above feel that moneyprinting is the only way out.

thing is, the idea of giving people more buying power is clearly attractive...to people. it just doesnt work though, as seen time and time again in history. Money has to be fairly rare for the market to give it a value....if there were £10 notes lying everywhere in the street, the only thing of value would be the leafblower to clear the path.

They are printing money to try to control the deflation....it is a fine balance, they have to be careful to get it right, there are many things outside of their control and it can sometimes over compensate itself....there is a time for everything and now exports are very important for our growth......when import prices begin to off-set this and sterling begins to weaken, rates will have to rise to survive. ;)

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They are printing money to try to control the deflation....it is a fine balance, they have to be careful to get it right, there are many things outside of their control and it can sometimes over compensate itself....there is a time for everything and now exports are very important for our growth......when import prices begin to off-set this and sterling begins to weaken, rates will have to rise to survive. ;)

using high powered money to counter the defaults in bankers credit is a very very dangerous game.

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In what way did Thatcher fail? I remember things being a lot better under her, and her winning 3 elections in a row.

The policies at the time inspired people to work hard and be self sufficient. Today we have policies inspiring people not to bother and be dependent on the work of others.

Sorry but what this should really mean is low taxes, where I spend my money on what I want. Those that dont work dont have any money to spend. Sounds fair to me.

Moral hazard has to apply to all sections of society including the financial industry.

My last post on the UK sketched a scenario in which the very large 2011 funding programme for UK banks, discussed in the June BoE FSR (back issues all available here), could be quite problematic, in adverse markets. I hinted that if there was sufficient disorder, we might find the limits of the Implicit Sovereign Guarantee Moral Hazard Trade.

'

So, to sum up a plausible bad scenario, the banks can’t fund, the sovereign has to pay high short rates, and the UK is once again left with a bunch of undercapitalized, unprofitable megabanks whose employees have just paid themselves a ton of money. That’s October 2008 revisited, except that this time there’s an extra helping of sovereign contagion a la Ireland or Iceland; and we thought we’d bailed our banks out already. Higher funding costs wouldn’t help our heavily-leveraged and politically crucial housing market much, either.

Now, with a spot of luck, I am just being a worrywart; for instance, the UK banks’ stock of liquid assets, reported by the BoE, is very large, at ~£475Billion: that will help, if there’s a crunch. But it happens that UK officials do judge this to be a good time to indulge in a bit of backscratching with the Eurozone, on funding. And no wonder the politicians are piping up about bonuses again; so we see some proaction there, too, in word, if not in deed:

Britons facing years of budget austerity find it “galling” to see banks continuing pay large bonuses after billions of pounds of public money was used to bail out some of the biggest institutions, Cameron told a news conference in Brussels today.

Galling indeed, though not as galling as watching the continuing unwillingness, or sheer inability, of politicians everywhere to tackle the problem of moral hazard in the financial markets, without which all this “austerity”, even if you believe the economics, is obviously pointless.

http://www.nakedcapitalism.com/2010/12/the-british-mess-iii-bank-of-england-tiptoes-around-sovereign-risk-worries.html

The banks could certainly do with a dose of the medicine that Thatcher dished out to British manufacturing industry in the 1980s but I am not holding my breath waiting for any of the current major British political parties to provide it. When Cameron lets a financial institution go under and forces all concerned to eat their financial losses then I will accept we live in a true liberal free market democracy. All the time they get rescued with public money then it is just crony socialism for the rich paid for by austerity measures imposed on the rest of the population.

Edited by realcrookswearsuits
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Even that youtube video explainer who is obviously against austerity points out its a gamble, to get into debt, or be reliant on house prices rising. I've not gambled on any house, have never even owned one, or been in any debt for many years. He might not want those at the bottom end of the income distribution who've gambled to lose out. What about the people who didn't gamble and the young people coming through into the workforce. If we stop those who gambled from losing out in austerity, then other savers and young people will have to should the burden for them. That is not fair.

I dont think you really understand the true purpose of the austerity program

It is not designed to benefit savers, the prudent, the young or those who eschewed debt. If governments and Central banks had wanted to achieve that goal they could simply have raised interest rates which would have forced all borrowers to pay the true risk cost of their loans. The prudent would have reaped their reward in higher returns for lending the money. Unfortunately, that solution works best before the bust really kicks in. Applying it now would also result in mass defaults which would cause both imprudent debtors and creditors to go under in the process wiping out quite a lot of vested interests. Instead, the aim is to save the financial industry and all those who depend upon it for their wealth. This requires the rest of the population to bear the burden of rescuing it via low interest rates which sees inflation wiping out their savings, lower returns on pensions, cuts in services, unemployment, higher taxes and reduced government spending. Basically one sub section of the British economy and society is going to eat everything else so it can survive.

You getting a job, a house or any future at all is the last thing on their minds.

Edited by realcrookswearsuits
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What do we do about the deficit and ever increasing level of debt? Sound like you are saying that we should have just carried on as before. It was labour who said ' sorry there is no money left' or we could just increase taxes and remove tax credits. Don't really see where all this money to 'power out of recession through public spending' is going to come from unless income tax is really increased massively.

But it's not spending that caused the problem, it was the bailout and the subsequent recession caused by the banks removing finance from business.

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'Austerity' is an exaggeration and an excuse to enshrine public sector entitlements through a sympathy vote while cutting public sector services and increasing taxes to keep the ball rolling.

An example. My local council East Hertfordshire recently consulted on savings in next year's budget. As they put it 'The Government's Comprehensive Spending Review announced last month that funding for East Herts Council will be reduced in real terms by 28 per cent over the next four years.' Boo hoo I hear? Perhaps, except the reality is quite different. The consultation amounted to a survey on how much to cut some basic local services (including provision of public toilets, token xmas get-togethers for elderly residents, youth groups) which when totted up came to just 310k.

In the financial year 2009-10 total allowances paid to members (councillors – not all full time) amounted to 431k.

The notion of austerity on a local level is nonsense. The majority of initial cuts could easily be covered through means of social accountability and responsibility by those who work to serve us. If they did indeed work to serve us.

(Thanks to the poster Protect Rural England for highlighting some of the issues local to me).

real cuts wont come till there is a REAL disaster.

meanwhile, payscales remain, no pay cuts, pensions remain, and the deficit remains at least unchanged.

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