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Wednesday 15 May 2013 17.31 BST

US budget deficit's fall should make European 'austerians' think again

Budget shortfall predicted to drop to 4%, from 10% in 2009, vindicating Obama's policy of US growing its way out of debt

Phillip Inman, Economics correspondent

If only the "austerians" had listened. According to the latest forecasts, the US budget deficit will shrink to 4% of GDP this year.

The slide from 2009's 10.1% budget shortfall is one in the eye for the Tea party and any other advocate of "contractionary expansion".

Worse for the fans of austerity, forecasts published by the US congressional budget office expect the deficit to fall to 2.1% of GDP by 2015 as tax revenues soar.

By comparison, the UK's official forecaster, the Office for Budget Responsibility (OBR), expects a budget deficit on a Maastricht treaty basis of 7.6% this year. Not until 2017 will it fall below the Maastricht maximum of 3%.

The Obama administration was regularly battered by critics who said the deficit would balloon without massive budget cuts. The president resisted much of the rhetoric and put in place a stimulus plan. It was weaker than economists such as Paul Krugman and Joseph Stiglitz wanted, mainly because constitutionally required cuts in local state spending went ahead regardless. But it was still a stimulus plan and by last year it was helping millions of workers find jobs and this year is making serious inroads into the deficit.

Trevor Greetham, a director at Fidelity Worldwide Investment, congratulated the president on his strategy.

"The anti-austerity camp will get a boost today," he said. "It is increasingly clear that the Obama administration was right to put off fiscal tightening and focus reforms in the medium to long term. America is growing its way out of debt. The deficit is shrinking because tax revenues are coming in better than expected and a rise in house prices has seen the two government-sponsored lenders, Fannie Mae and Freddie Mac, repay some $95bn (£60bn) to the Treasury.

"The good US fiscal performance stands in stark contrast to the UK, where front-loaded spending cuts and tax rises have hurt the economy and caused a shortfall in government revenues. The OBR expects the deficit to shrink to a manageable level by 2017 but this forecast, like all of the previous ones, relies on sustained economic expansion of 2-3% a year. It is hard to believe this level of growth will be achieved especially as next month will see another year of cuts tacked on the end of what has become a rolling five-year austerity plan."

Greetham is one of the few City investors to say loudly and consistently that austerity was the wrong medicine. In 2011 he contradicted George Osborne's message that the UK was like Greece. He said then it was more like the US and should adopt the same remedy.

And Japan is moving in the same direction. Even now Tokyo is looking to boost government spending by 2% to 3% as it seeks to generate growth and reduce its almost perpetual 10% annual deficits. Alongside this plan is the expansion of the money supply by the Bank of Japan, which together with the spending boost will be the ultimate test of the Keynesian answer to a slump.

Yet many will argue the Obama administration has done enough to show that Keynesianism works and it is only ideology that has hindered growth in the UK and Europe, not the availability of an oven-ready solution.

http://m.guardian.co.uk/business/economics-blog/2013/may/15/us-budget-deficit-austerity-stimulus

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It's not been discussed because it's just a joke - little more than fiddling with figures (chosen selectively) and outrageous propaganda.

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market ticker take

This is completely out of hand. The media continues to cite the so-called "expectation" that Treasury will run "only" a $600-odd billion deficit this year, and they cite this as source:

This shows ~$488 billion in operational deficits from October 1st to April 30th.

There's a problem with this number however -- it does not reflect reality.

In other words it is a bald and intentional lie

http://market-ticker...www?post=220813

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Wednesday 15 May 2013 17.31 BST

US budget deficit's fall should make European 'austerians' think again

Budget shortfall predicted to drop to 4%, from 10% in 2009, vindicating Obama's policy of US growing its way out of debt

Phillip Inman, Economics correspondent

If only the "austerians" had listened. According to the latest forecasts, the US budget deficit will shrink to 4% of GDP this year.

The slide from 2009's 10.1% budget shortfall is one in the eye for the Tea party and any other advocate of "contractionary expansion".

Worse for the fans of austerity, forecasts published by the US congressional budget office expect the deficit to fall to 2.1% of GDP by 2015 as tax revenues soar.

By comparison, the UK's official forecaster, the Office for Budget Responsibility (OBR), expects a budget deficit on a Maastricht treaty basis of 7.6% this year. Not until 2017 will it fall below the Maastricht maximum of 3%.

The Obama administration was regularly battered by critics who said the deficit would balloon without massive budget cuts. The president resisted much of the rhetoric and put in place a stimulus plan. It was weaker than economists such as Paul Krugman and Joseph Stiglitz wanted, mainly because constitutionally required cuts in local state spending went ahead regardless. But it was still a stimulus plan and by last year it was helping millions of workers find jobs and this year is making serious inroads into the deficit.

Trevor Greetham, a director at Fidelity Worldwide Investment, congratulated the president on his strategy.

"The anti-austerity camp will get a boost today," he said. "It is increasingly clear that the Obama administration was right to put off fiscal tightening and focus reforms in the medium to long term. America is growing its way out of debt. The deficit is shrinking because tax revenues are coming in better than expected and a rise in house prices has seen the two government-sponsored lenders, Fannie Mae and Freddie Mac, repay some $95bn (£60bn) to the Treasury.

"The good US fiscal performance stands in stark contrast to the UK, where front-loaded spending cuts and tax rises have hurt the economy and caused a shortfall in government revenues. The OBR expects the deficit to shrink to a manageable level by 2017 but this forecast, like all of the previous ones, relies on sustained economic expansion of 2-3% a year. It is hard to believe this level of growth will be achieved especially as next month will see another year of cuts tacked on the end of what has become a rolling five-year austerity plan."

Greetham is one of the few City investors to say loudly and consistently that austerity was the wrong medicine. In 2011 he contradicted George Osborne's message that the UK was like Greece. He said then it was more like the US and should adopt the same remedy.

And Japan is moving in the same direction. Even now Tokyo is looking to boost government spending by 2% to 3% as it seeks to generate growth and reduce its almost perpetual 10% annual deficits. Alongside this plan is the expansion of the money supply by the Bank of Japan, which together with the spending boost will be the ultimate test of the Keynesian answer to a slump.

Yet many will argue the Obama administration has done enough to show that Keynesianism works and it is only ideology that has hindered growth in the UK and Europe, not the availability of an oven-ready solution.

http://m.guardian.co.uk/business/economics-blog/2013/may/15/us-budget-deficit-austerity-stimulus

The situations of the different countries/continents aren't comparable, America has allowed it's property market to drop, has cheap gas plus more and more sources of energy at home, lots of people on not-very-good welfare that actually want to work etc etc. They have some cuts coming up as well that will impact things but still the general flow is with them for now.

If Labour, and then the Coalition, had accepted the inevitable in 2008, things would have been a lot worse but the UK would be on the way up by now.

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It hasn't been discussed 'cause it doesn't chime with the

* Anti FED

* Pro gold

* hyperinflationist

* Austrian

mindset.

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market ticker take

This is completely out of hand. The media continues to cite the so-called "expectation" that Treasury will run "only" a $600-odd billion deficit this year, and they cite this as source:

This shows ~$488 billion in operational deficits from October 1st to April 30th.

There's a problem with this number however -- it does not reflect reality.

In other words it is a bald and intentional lie

http://market-ticker...www?post=220813

Absolutely. The level of lies is simply astounding. As Denninger states, 'there has been a net $762.6 billion of new debt added to the Federal balance sheet, not $488 billion'. He continues - this will be the third year running, at present rates, with nearly-identical cash-basis fiscal deficits of about $1.2 trillion ($1,200 billion) dollars.

I expect a deficit of over 1 trillion, ignoring whatever spin/lies they choose to wrap up their announcements in.

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It hasn't been discussed 'cause it doesn't chime with the

* Anti FED

* Pro gold

* hyperinflationist

* Austrian

mindset.

If there's going to be a debate about this, let's at least have an honest one, there so many things wrong with this article.

Let's concentrate with the first, and biggest falsehood of them all, there is no austerity.

Taking just the UK figures (Click Here), the government have been running a budget deficit of over 8% of GDP every year since 2008 (almost identical to the USA, Click Here). The UK has 0% interest rates, and in terms of percentage of GDP has run the largest QE programme of any of the G20 nations' central banks (The UK 25%, The USA is about 12% so far, and Japan about 10%).

According to this article, if it were honest, the UK should be rocketing out of recession (rather languishing in stagnation with our output still lower than 2007), because we have a run a looser monetary policy and equivalent budget deficits to the USA.

The correlation that this article refers to is a non-existent.

Edited by GradualCringe

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Dunno what the OP is on about, it has been discussed. But as RK says anyone not towing the neo-liberal line gets the internet equivalent of a lynching by a screaming mob in fairly short order. An awareness of sectoral balances would tell you that if the US is running a trade deficit (and some nations must given that world trade sums to zero) and if the private sector in the aggregate wishes to save, then a public deficit must be run and that attempts at forcing the reduction of the deficit will result in, as night follows day, a recession. Running the deficit and going for growth will allow the private sector to pay down the debts, as it does, private consumption and spending increase, tax take goes up and therefore the deficit will reduce over time. This is what we are seeing in the US at the moment, despite the best wishes of the Republicans to trash their country.

What will probably complicate matters are external shocks such as the EU and China. I am also not fully sure of the international effects of Abenomics either.

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What will probably complicate matters are external shocks such as the EU and China. I am also not fully sure of the international effects of Abenomics either.

i.e. inflationary bubbles in equities, commodities, energy, bonds and real estate.

Bernanke, Abe and the banksters have blown up the world again.

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It hasn't been discussed 'cause it doesn't chime with the

* Anti FED

* Pro gold

* hyperinflationist

* Austrian

mindset.

If all was hunky dory we would not be in gold. I would much prefer to have my cash in the building society getting a decent above inflation rate, as used to be the case.

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It's not been discussed because it's just a joke - little more than fiddling with figures (chosen selectively) and outrageous propaganda.

oh please, take off the tinfoil and look at the evidence

these sorts of comments really should be reserved for Fox News

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Dunno what the OP is on about, it has been discussed. But as RK says anyone not towing the neo-liberal line gets the internet equivalent of a lynching by a screaming mob in fairly short order. An awareness of sectoral balances would tell you that if the US is running a trade deficit (and some nations must given that world trade sums to zero) and if the private sector in the aggregate wishes to save, then a public deficit must be run and that attempts at forcing the reduction of the deficit will result in, as night follows day, a recession. Running the deficit and going for growth will allow the private sector to pay down the debts, as it does, private consumption and spending increase, tax take goes up and therefore the deficit will reduce over time. This is what we are seeing in the US at the moment, despite the best wishes of the Republicans to trash their country.

What will probably complicate matters are external shocks such as the EU and China. I am also not fully sure of the international effects of Abenomics either.

no-one needs to be running a surplus....all we need is inflation....everyone could run on a trade deficit with everyone in inflation.

because....everything costs more.....

Thats a big reason the Central bankers aim for 2%....it is almost a guarantee that flat economy records 2% growth.

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The situations of the different countries/continents aren't comparable, America has allowed it's property market to drop, has cheap gas plus more and more sources of energy at home, lots of people on not-very-good welfare that actually want to work etc etc. They have some cuts coming up as well that will impact things but still the general flow is with them for now.

If Labour, and then the Coalition, had accepted the inevitable in 2008, things would have been a lot worse but the UK would be on the way up by now.

Basic macroeconomics: you don't cut government spending during a time of private sector weakness (i.e. a recession), unless you want to cause an economic death spiral.

There is so much evidence now that austerity causes more harm than good during a depressed economy, that the 'argument' is now over. The austerians fiddled their excel spreadsheets and based their 'analysis' on a series of ideologically-driven hunches. And people are genuinely suffering because of it.

Time and time again, Keynesian economics has been proved right, both in the past and since 2008, and the austerians have been proven wrong. How many times does Keynesian economics needs to be proven correct before people accept the facts in front of their very nose? How many predictions do people like Krugman have to make which turn out to be right? At what point will the austerians accept that they are wrong, what more evidence could they possibly need?

Edited by Dr_Mibbles

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Basic macroeconomics: you don't cut government spending during a time of private sector weakness (i.e. a recession), unless you want to cause an economic death spiral.

There is so much evidence now that austerity causes more harm than good during a depressed economy, that the 'argument' is now over. The austerians fiddled their excel spreadsheets and based their 'analysis' on a series of ideologically-driven hunches. And people are genuinely suffering because of it.

Time and time again, Keynesian economics has been proved right, both in the past and since 2008, and the austerians have been proven wrong. How many times does Keynesian economics needs to be proven correct before people accept the facts in front of their very nose? How many predictions do people like Krugman have to make which turn out to be right? At what point will the austerians accept that they are wrong, what more evidence could they possibly need?

Im sure Keynes had another bit in his theory....that was to save up during the boom years.

I just wish more Keynesians actually called for keynsianism in the boom...

We are way past the point of no return with the growth in government.

Denninger has graphs, for the US, that shows ALL the growth the US has enjoyed in the last 30 years has been increase in government.

Still with the Deficit at all time highs, money stolen from pension funds and the Bank of England to prop it up, QE and all the rest of the bailouts, i dont see much austerity.

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We don't actually have Keynesian economics because nobody ever saves during the boom times.

And what happens when the government spends more than it has is well known as well, we have countless examples of currency collapses all through human history.

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The article is, of course, a load of crap. Let's look at the actual numbers to see why. First, UK government spending over the last few years as a % of GDP:

2007-08 41.0 2008-09 44.5 2009-10 47.7 2010-11 46.8 2011-12 45.4 2012-13 43.1 2013-14 44.4(source http://www.guardian.co.uk/news/datablog/2010/apr/25/uk-public-spending-1963)

Now the US numbers:

2008 37.16

2009 42.83

2010 40.97

2011 40.51

2012 38.42

2013 38.01

2014 37.3

(source http://www.usgovernmentspending.com/spending_chart_2008_2018USp_XXs1li111mcn_F0t#copypaste)

Oh, look, UK government spending is higher all the way through, rose more quickly at the start of the crisis and has fallen more slowly as it's gone on than US government spending. There is no f*cking austerity in the UK. Maybe if there was we'd be recovering now as well.

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So overall debt is going up but the deficit is going down and this is portrayed as growing your way out of debt?

Do I have this correct?

Hey, worked for clinton right?

If I steal a few hundred billion out of social security for a couple of years, i can sell its assets and turn the deficit into a surplus. Hey, it'll become an unfunded liability, but i'll be long gone by the time that becomes problematic.

And people think Clinton is one of the 'better' Presidents. There is no good or bad, there are simply better liars.

Worth mentioning Cameron has done the same thing with Royal Mail pensions, which made our deficit appear smaller over the last two years.

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The article is, of course, a load of crap. Let's look at the actual numbers to see why. First, UK government spending over the last few years as a % of GDP:

2007-08 41.0 2008-09 44.5 2009-10 47.7 2010-11 46.8 2011-12 45.4 2012-13 43.1 2013-14 44.4(source http://www.guardian....c-spending-1963)

Now the US numbers:

2008 37.16

2009 42.83

2010 40.97

2011 40.51

2012 38.42

2013 38.01

2014 37.3

(source http://www.usgovernm...n_F0t#copypaste)

Oh, look, UK government spending is higher all the way through, rose more quickly at the start of the crisis and has fallen more slowly as it's gone on than US government spending. There is no f*cking austerity in the UK. Maybe if there was we'd be recovering now as well.

I did the same thing with my previous post, except with deficit spending as a percenage of GDP (US and UK are almost identical in terms of deficit spending as a percentage of GDP).

The UK has also run the largest QE program of G20 central banks so far, at asset purchases totalling 25% of GDP so far (http://www.housepric...ost&p=909323998), and therefore the loosest monetary policy too.

If the pro-interventionist crowd want a debate, let's at least start it on honest terms, rather than with hot air and labels.

Edited by GradualCringe

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Basic macroeconomics: you don't cut government spending during a time of private sector weakness (i.e. a recession), unless you want to cause an economic death spiral.

There is so much evidence now that austerity causes more harm than good during a depressed economy, that the 'argument' is now over. The austerians fiddled their excel spreadsheets and based their 'analysis' on a series of ideologically-driven hunches. And people are genuinely suffering because of it.

Time and time again, Keynesian economics has been proved right, both in the past and since 2008, and the austerians have been proven wrong. How many times does Keynesian economics needs to be proven correct before people accept the facts in front of their very nose? How many predictions do people like Krugman have to make which turn out to be right? At what point will the austerians accept that they are wrong, what more evidence could they possibly need?

Explain to me in numbers how the US 'stimulus' response is any different to the EU 'austerity' response.

All I see is rhetoric.

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oh please, take off the tinfoil and look at the evidence

these sorts of comments really should be reserved for Fox News

I think you are guilty of reading rhetoric and not the evidence (the UK has run the loosest monetary policy of all the G20 nations, and equivalent deficits to the US, all to achieve stagflation):

Previous Post

I would be a pro-interventionist myself, if someone on that side of the debate could unequivocally show me the benefits.

In reality, all I've seen since the start of ZIRP, QE, and deficit spending, is my stagnant income being able to purchase ever less, and extremely wealthy bond holders become ever richer at everyone elses' expense.

Edited by GradualCringe

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The article is, of course, a load of crap. Let's look at the actual numbers to see why. First, UK government spending over the last few years as a % of GDP:

There's your problem right there: in a growing economy, this naturally falls back. During a recession, it naturally increases (without dramatic spending cuts).

The Keynsian position is very simple: if the private sector is going through a huge de-leveraging shock and weak demand, you don't suck life out of the economy by imposing austerity, since governments are supposed to run a deficit during the bad times to prevent the economy entering a death spiral

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I think you are guilty of reading rhetoric and not the evidence (the UK has run the loosest monetary policy of all the G20 nations, and equivalent deficits to the US, all to achieve stagflation):

Previous Post

Which Keynsians predicted would be the case, due to us being in a liquidity trap. Monetary policy is pushing on a piece of string, there is nowhere productive for the QE money to go - businesses certainly don't need it, there is no cause to borrow for investment when there is weak demand for your product or service.

Monetary policy alone is not effective during a once-in-a-century deleveraging shock. Fiscal policy is what really counts - without demand for good and services there will be no private sector growth, and no closing of deficits.

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  • 242 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% +
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      • up 5%



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