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Britain A World Champion Of Growth

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While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world. Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy.

This week the IMF World Economic Outlook praised Britain’s rapidly improving economy and upgraded 2013 growth projections by 0.5 percentage points, to 1.4 percent. That may not sound like much, but this improvement comes when almost every economy is being downgraded — and compared with last year’s miserable 0.2 percent growth rate, it feels almost like a boom. Does this experience prove that David Cameron was right to persist with his unprecedented program of spending cuts, tax hikes and fiscal austerity? The answer is no, for two reasons.

First, the British government, despite its tough fiscal rhetoric, has actually relaxed its efforts at deficit reduction and has effectively abandoned its commitment to balanced budgets.

Secondly and more importantly, this year’s revival of growth in Britain has resulted directly from an audacious government policy to promote huge increases in highly-leveraged mortgage debt.

Bizarrely, the government’s plan to create a property and mortgage boom attracted little attention among economists, even though Osborne described it clearly last March, promising to create £130 billion of new debt over three years, a credit stimulus worth 4 percent of GDP annually. Although the proposed credit stimulus was roughly three times the size of this year’s fiscal tightening, many economists ignored it. They simply dismissed the possibility that the Cameron government would actively encourage a massive buildup of highly-leveraged consumer borrowing, while continually reiterating its slogan that “you cannot cure debt with more debt.”

Reuters

Doing the same thing over and over again and expecting different results.

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Doing the same thing over and over again and expecting different results.

Government policy since the 1970s:

Step 1: Flood the system with debt.

Step 2: Protect the private institutions that create the debt.

Step 3: Cross fingers.

Labour, Tory, LibDeb or UKIP they all bow their heads to the almighty debt system.

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Doing the same thing over and over again and expecting different results.

Kaletsky appears to fully approve of it. Massive debt sorted by massive debt on that debt. Never a problem with excess debt is it? Excess savings, so why the QE? Get younger people to the stage where they're borrowing and will never pay down any capital, to prevent rebalancing and allow the oldies/landlords/reckless to keep their HPI gains. Excess savings, so why the QE? Koff.

Recessions are caused by excess savings and this means that higher borrowing, whether by the government through fiscal policy or by the private sector through the housing market, is a necessary condition for economic recovery. Nations that try simultaneously to reduce their public and private debts are doomed to stagnation, with monetary policy almost powerless to help when interest rates are near zero. Britain now understands this, while Japan apparently does not. Could someone please explain it to the budget warriors in Washington?

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Secondly and more importantly, this year’s revival of growth in Britain has resulted directly from an audacious a mad and moronic government policy to promote huge increases in highly-leveraged mortgage debt.

Corrected.

Well it's the words the Institute of Directors and some bankers used to describe the policy.

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Just to make clear, mentioned Kaletsky because it's his article, the link to the full article at the end of Rollover's post. Kaletsky seemingly endorsing HTB and OsCam's policies, and wanting to avoid 'stagnation', in my view on behalf of existing home-owner price interests, for additional debt requires other people to take it on.

About the only thing I agree with is that HTB2 had a near instant impact when it was announced, as buyers factored in HTB2 and were prepared to offer more for property, in expectation it will lift house prices in the future.

The number of houses I've seen sold to since March and come back to market as rentals, makes me think landlords have big faith in what HTB2 will do for prices. Just like the announcement of a date for the end of the main component of miras had people rushing to pay much higher prices for homes in the late 80s just before that crash.

Now HTB2 pushed forward from January 2014 to now. Soon to be properly tested, on whether banks are going to be that eager to actually use the scheme, or find ways to avoid it, and whether any real number of 'good borrowers' actually want to use it, to pay higher prices.

responding to the rapid increase in house prices that started within days of Osborne’s March announcement

http://blogs.reuters.com/anatole-kaletsky/2013/10/10/learning-budget-lessons-from-japan-and-britain/

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highly-leveraged consumer borrowing, while continually reiterating its slogan that “you cannot cure debt with more debt.”

Ahh, but its not public debt, so our worthless and infantile media can still tell us 'the national debt has stopped rising'

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Secondly and more importantly, this year’s revival of growth in Britain has resulted directly from an audacious government policy to promote huge increases in highly-leveraged mortgage debt.

Yeah "audacious".

'Forward, the Light Brigade!

Charge for the guns' he said:

'Forward, the Light Brigade!'

Was there a man dismay'd?

Not tho' the soldiers knew

  Some one had blunder'd:

Theirs not to make reply,

Theirs not to reason why,

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highly-leveraged consumer borrowing, while continually reiterating its slogan that “you cannot cure debt with more debt.”

Ahh, but its not public debt, so our worthless and infantile media can still tell us 'the national debt has stopped rising'

Covered today in the Guardian Business leader from the author of Fantasy Island...very much the wrong sort of growth

http://www.theguardian.com/business/economics-blog/2013/oct/27/uk-economic-recovery-shaky-ground

3% plus growth for 2014 is all that matters in view of the 2015 election.

Edited by crashmonitor

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From the guardian link:

UK economic recovery built on shaky foundations - again

Growth will depend on easy money, rising debt and a temporary fall in inflation from falling food and commodity prices

From the main part of the article it looks like the recent BBC News using the word output rather than growth in announcing the latest increase in GDP is a bit misleading to say the very least.

Edited by billybong

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From the guardian link:

From the main part of the article it looks like the recent BBC News using the word output rather than growth in announcing the latest increase in GDP is a bit misleading to say the very least.

.....like saying turnover instead of profit. ;)

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.....like saying turnover instead of profit. ;)

Indeed but it's doubtful there was any increase in UK output at all. Certainly not enough to claim that the small increase in GDP was due to an increase in output - aside from QE output that is..

They seem to be trying to pretend and convince that the growth is real growth rather than just pretend (QE) growth.

Apparently Iceland's GDP is higher.

Edited by billybong

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Covered today in the Guardian Business leader from the author of Fantasy Island...very much the wrong sort of growth

http://www.theguardian.com/business/economics-blog/2013/oct/27/uk-economic-recovery-shaky-ground

3% plus growth for 2014 is all that matters in view of the 2015 election.

Assuming the Conservatives get elected in 2015, what will they do? Continue the borrowfest or go for a short, sharp correction? I expect the former, because they could've corrected after the last election, but they didn't.

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Assuming the Conservatives get elected in 2015, what will they do? Continue the borrowfest or go for a short, sharp correction? I expect the former, because they could've corrected after the last election, but they didn't.

War.

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