Tag Archives: eurozone recovery

Osborne’s real aim is not budget surplus, but attack on Welfare State & public sector

Osborne’s proposed goal of a budget surplus in the next parliament is absurd on several counts.   First, the politics of austerity for a full decade 2010-20 is surely untenable.   The unrest after just 3 years is already clearly mounting, and the idea that the lid could be held down for another 7 years is fanciful, especially since any further additional departmental or welfare cuts earmarked to be made during 2015-20 will be much harder to implement once the earlier reductions have been pocketed.   Second, the plan is utterly dependent not only on securing those cuts, but also on achieving a long period of high growth.   But where is that growth engine to come from, when investment has crashed and is shockingly low, wages are still falling, exports are stymied, and the eurozone is deeply troubled?   Gathering hopes that a hesitant recovery will endure are pinned on a growth model that has been proven not to work, based largely on consumer borrowing and housing mortgages.   Osborne’s bringing forward stage 2 of Help to Buy from the middle of next year to next week will only exacerbate the the housing bubble that has already unmistakeably begun to develop.
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0.7% growth after 5 years of wage cuts & spending squeezes should be apologised for, not lauded

When all the usual suspects gang up to tell you the UK economic recovery is well under way, beware.   Today’s announcement by the ONS that its initial 0.6% growth estimate for the second quarter of this year has now been upgraded to 0.7% is insignificant when put into perspective against the recoveries of the 5 other UK recessions in the previous hundred years.   This time the economy still remains 3.3% below its pre-crash level in 2008, while at the same stage of cycle (i.e. 5 years on from the crash) it was nearly 5% above the pre-crash level in the early 1980s, 6% above pre-crash in the 1920s, 6% above pre-crash again in the early 1930s, 7% above pre-crash in the early 1970s, and nearly 10% above pre-crash in the 1990s.    Of course any growth at all is welcome against the wretched background of flatlining over the last 4 years, but come on, at this stage 0.7% is to be apologised for both historically and in comparison with other other economies emerging from recession this time round – Britain still 3% down, but France 1% down, Germany 2% up, the US 4% up and Canada 6% up.

There are other reasons too for a good douse of scepticism about the current champagne-popping in the City and the Treasury.   Manufacturing was up 0.7% in the second quarter, but has still plummeted 10% below its pre-crash level.   Exports were up 3.6%, but imports were up more, and the balance of payments in traded goods is still more than an annual £100bn in deficit.   Unemployment still remains at the exceptionally high and unacceptable level of 2.5 million, and there has been no re-balancing of the economy from finance to industry.   Bank lending to industry still remains obstinately negative as it has been for the last 5 years, and virtually no reform of the banks has been put in place despite the continuing stream of scams of misfeasance.   And Osborne’s ill-fated Help to Buy scheme, offering significant increases in mortgage availability without any increase in housing supply,  threatens to unleash yet another major housing bubble, exactly like the previous three in the last 40 years.
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GDP up 0.6%, real wages down 9%, why aren’t they on the streets?

It’s not often I think Ed Balls is too kind to Osborne, but his response to Osborne’s ‘UK economy on the mend’ after a meage 0.6% second quarter growth rate is one of those occasions.   Presumably he was afraid of being accused by the Tories of talking down the economy if he said the truth that this so-called ‘recovery’ is pathetic after 3 years and still very fragile.    But really he should be pointing out the facts that Britain’s situation is still parlous and will almost certainly worsen again soon because the foundations of a genuine recovery are simply not there and none of the lessons of the 2008-9 financial crash have been learnt.

First, put 0.6% into perspective.   Including this last quarter, over the whole 3-year period that the Tories have been in power  the average quarterly rate of growth has been 0.17%.   By comparison in the 4 quarters before the election in 2010 the Labour government achieved an average quarterly rate of growth of 0.5%, three times higher, but that was stopped in its tracks by Osborne’s love affair with austerity.   Second, even after this media-choreographed inflation of ‘recovery’, the UK economy is still, 5 years after the recession began, 3.3% below the output level it achieved just before the bankers’ ramp crashed in 2008.   By comparison again, most of the eurozone countries (including Germany and France) which Osborne likes to blame for his travails have already recovered their pre-crisis levels of output.
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Osborne goes for broke – making Britain broke

Is there anybody left in Britain who seriously believes that Osborne’s strategy is a success and the right way to cut the deficit?   Well, yes, step forward, John Redwood.   But who else is there?   The perversity of carrying on with the present policy is mind-blowing.   Despite the savagery of the cuts already inflicted, the whole object of this callous policy – to reduce the level of government borrowing – is actually going into reverse.   Instead of meeting the OBR target for borrowing of £120bn for the current 2012-13 year, it is likely that borrowing will actually soar to £160bn.   The cuts are now expected to continue till 2020, as Cameron announced recently, so that austerity is stretching for at least a decade and a half, and quite possibly more.   Equally disastrous, the deficit on traded goods, which reached £99bn in 2010 is now likely, on the basis of the latest mid-year figures, to reach £120bn in 2012, or 8.3% of GDP.   These results are nothing less than calamitous.
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For an economic car crash like this Dr. Osborne should be struck off

It is difficult to exaggerate the magnitude of Britain’s current economic disaster.   The latest figures issued yesterday showing a 0.7% contraction in the second quarter are nothing less than momentous.   The UK economy is now 4.5% below its pre-crash peak in March 2008.   This is stunning for 3 reasons.   First it indicates that in the last 4 years the economy has shrunk by over £70bn, an amount equal to three-quarters of the total UK deficit.   Second, it is far worse than Germany, the US and even Russia, all of which have now grown since their pre-crash peak, and worse even than Spain and Japan.   Only Italy and Ireland have done worse than Britain in the EU.   Third, and most seriously of all, it shows the weakest recover by far of any of the 5 deep recessions that have plagued Britain over the last century.   At this point in the cycle, compared with  just over 4 years from the start of the downturn, even the Great Depression of 1930-34 had given way to 2% growth – in today’s terms an increase in the size of the economy of some £60bn as opposed to the current fall of £75bn.
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Who will speak for Britain on the economy?

The news that Britain is now in the grip of a double-dip recession for the first time for 37 years and struggling with the slowest recovery from slump for 100 years is grim.   What makes it intolerable is that there is an alternative way out staring us in the face, but no leaders in politics or business or finance have either the courage or the vision to demand it or promulgate it.   Osborne is fanatically fixated on his endless and self-defeating austerity package, and Labour, while relishing the political throwback from a disastrous economic strategy, is still stuck on the mealy-mouthed mini-version that the government should cut less far, less fast.   As a plan for avoiding the gathering collapse, that is a show-stopper.
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All today’s biggest problems can’t be solved within present power structure

What is really striking about the UK’s biggest problems today is that they are all insuperable unless there is a strategic change in policy which almost always requires a big shift in the power structure.  

The banking crisis will not go away so long as central banks, either in the Eurozone or the UK, believe they can solve it by shovelling vast quantities of money into the banks as a means of stimulating growth – €1 trillion in the case of the ECB funding in particular Spanish and Italian banks, and £325bn in the UK’s case via QE – when the problem will instead be solved by spending a fraction of those sums on public investment in needed economic projects and job creation.   But that will require a fundamental change in the monetarist mindset of the likes of Merkel and Osborne.

There will be no long-term economic recovery of the UK while trading deficits in goods are colossal (£100bn in 2010) and constantly require the economy, whenever growth gets going, to be damped down or the currency devalued in order to prevent the balance of payments rocketing out of control.   But that requires systematically prioritising manufacturing over the City of London, and the Tories who get half their funding from the banks will never do that.
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Osborne imposes biggest consumer squeeze for 35 years

The latest evidence showing UK disposable incomes fell last year by 1.2%, the biggest fall since 1977, together with marking down economic growth in the last quarter of last year to -0.3%, is a frightening warning that the UK may still, despite Ministers and the City puffing up the recovery, be heading for another recession – a bouble dip whether mild or more severe.   The drivers are high energy prices, relentless government cuts, and the Eurozone sovereign debt crisis which, even if collapse has been averted, still seems likely to be headed for a recession in the Euro-area.   The obvious question arises: how much worse has this got to get before Osborne is forced to change course?   How long can he continue to crucify the economy on the cross of the bond markets?

There are two ways to cut the deficit.   Osborne’s involves weaker (or even non-existent) growth, which means lower tax receipts and higher benefit spending, and by also dragging down aggregate demand  it pulls growth down another notch, and the cycle starts again with the risk of a self-reinforcing downward spiral.   That is a ver real risk when only 6% of the cuts have so far taken effect, and 94% is still to come.   Indeed that is exactly what happened when this so-called ‘expansionary fiscal contraction’ was tried twice before in the last century.   The Geddes Axe in 1923 and the May Committee in 1931 stifled growth, rocketed unemployment, and stalled recovery all the way to the Second World War.

The alternative way to cut the deficit is a jobs and growth strategy which would put the unemployed back to work, reduce benefit spending, and have a direct impact on growth in a way that quantititative easing and credit easing will never do.   The only argument that Osborne has ever used against this strategy is that the bond markets would never stand for a rise in expenditure that increased the deficit.

But that is exactly what Osborne has just done by giving away £3bn to the super-rich, when there is not a shred of evidence to support the Treasury myththat tax avoiders will come flooding back home from Bermuda and Monaco in order meekly to pay their taxes because of a 5p cut.   Equally Osborne has chosen to give away another £1.5bn to big business through the 2% cut in Corporation Tax, even though these businesses are already sitting on an unprecedented stash of £700bn, equal to half Britain’s entire GDP, which they’re not spending.   Why? – because there’s no growth and aggregate demand is still falling.   That £4.5bn that Osborne could have used instead, without in any way disturbing the bond markets, to generate a quarter of a million jobs.   That could have marked the beginning of a real turnaround in the British economy.   It is unforgiveable that the Tories are still determined instead to bleed the economy into the ground in order to push through at whatever cost their ultimate ideological objectives of shrinking the State, squeezing out welfare, and privatising whatever is left of public services.


-0.2%: Cameron can run, but he cannot hide

Cameron’s  seeking to explain away yesterday that the national economy was now shrinking by 0.2% in the last quarter of 2011 won’t wash.   He blamed high inflation, Labour mismanagement and the eurozone problems.   High inflation is irrelevant to a contraction of national output which is clearly down to lack of demand because of squeezed incomes.   So far from Labour mismanagement being the cause, it was Labour relaunching growth in the first half of 2010 after the deep slump of 2008-9 that produced an economy growing at more than 1% a year in the second half of 2010, which Tory austerity managed first to flatline through the first half of 2011 and then actually to contract at the end of 2011.   As for the eurozone crisis last summer, the UK economy was already falling into decline up to a year previously.   Cameron’s points are all bogus.
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