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Abject denial of UK's debt situation

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Jon Irenicus posted on Sat, Nov 3 2012 6:34 AM

Anyone want to have a go at this?

 

Content below:

 

Osborne and Cameron’s Big Deficit Myth

At times, like Thursday’s release of the latest GDP figures, I begin to wonder whether I’ve really lost the plot.  The news headlines and reading the mainstream media financial sections just do not make any sense… they seem to take Expansionary Fiscal Contraction*, Osborne’s economic strategy, at face value …. and their only question, is how long will the recovery will take!

(*The clue is in the name … simultaneous expansion/ contraction.)

Perhaps unsurprisingly, the best example of this ‘madness’, is the Telegraph’s  GDP figures vindicate the Coalition’s fiscal strategy …(1)  This echoes David Cameron’s sound-bite that ‘Today’s figures prove that we’re on track!’  Whilst George Osborne tried hard not to sound triumphal when he said that  ‘The economy is healing.’

What?!!

Fortunately, the intervening days have brought plenty of reactions which chime more nearly with my understanding.  Michael Meacher’s description is, as always, particularly insightful.  :

Clearly the worst of the recession is far from over, but we have been festooned with an all-out PR blitz to convince us that it is.   What it really exposes is how utterly desperate Cameron is to escape the impression ( and the political consequences) of endless austerity whilst at the same time tightening the screw to make sure it bites even deeper. (2)

The simplest way to understand George Osborne’s economic strategy is to consider its analogy to ‘asset strippers’ like Romney’s private equity investment firm Bain Capital…

Asset strippers are a form of corporate raiders that focus their attention on a target company. The goal is to gain ownership and control of the company over time. Once the company is in the control of an asset stripper, various assets of the company are sold off, often in order to handle the outstanding debt incurred when gaining control of the company. The strategy involves making sure there is a strong chance that once a portion of the company’s assets have been sold, the remaining assets will still be sufficient enough to operate the company at a profit or make the company attractive to potential buyers. (3)

 Which suggests that George Osborne’s task is to keep a balance between totally crashing the economy and still ensuring that it is sufficiently debilitated to justify ‘austerity’, which in turn justifies privatizing public services, lowering taxes for the corporations and the rich, lowering wages and shrinking benefits…

Conservative economist and journalist, Ramesh Patel more or less agrees with this assessment:

Finally!  Exposed!  The Deficit Myth!  So, David Cameron When are you Going to Apologise?’ (4)

‘… as the truth is the greatest enemy of the a lie I urge you to share this on Facebook, Twitter, Blogs, text and email … So the truth can be discovered by all. Finally, have no doubt, people have been misled by the use of the following strategy:

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it” Joseph Goebbels

 What is the big lie that Patel exposes?

Cameron is playing the blame game to depress confidence and growth to justify austerity. Secondly, to use austerity as justification for a smaller state to gain lower taxes. Thirdly, to paint Labour as a party that can not be trusted with the country’s finances again. Therefore, we Conservatives will win a second term because, people vote out of fear. The latter strategy worked the last time in office (18 years) and will work again because, in the end, elections are won and lost on economic credibility. Hence, as people believe Labour created the mess they won’t be trusted again. (4)

To be honest, this is hardly news to left-wing bloggers but finally, the Osborne/Cameron lies about the economy are being refuted by one of their own.  As the quote suggests:

Everyone is entitled to their own opinions, but they are not entitled to their own facts.

  What are the three deficit claims that Ramesh Patel exposes as untrue?

Below are the 3 deficit claims – the mess. The evidence comes from the IMF, OECD, OBR, HM Treasury, ONS and even George Osborne. The claims put into context are:

CLAIM 1 The last government left the biggest debt in the developed world.

After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7? Watch: Also, confirmed by the OECD Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.

Its common sense, in cash terms a millionaire’s debt would be greater than most people. Therefore, the UK would have a higher debt and deficit than most countries because, we are the sixth largest economy. Hence, its laughable to compare UK’s debt and deficit with Tuvalu’s who only have a GDP/Income of £24 million whilst, the UK’s income is £1.7 Trillion.

Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crises 2008 the debt had fallen to 35% – a near 22% reduction page 6 ONS Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down?

CLAIM 2 Labour created the biggest deficit in the developed world by overspending.

Firstly, the much banded about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was -7.7% – OBR Economic and Fiscal Outlook March 2012 page 19 table 1.2

Secondly, in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget ) and by 2008 it had fallen to 2.1% – a reduction of a near 50% – Impressive! Hence, it’s implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crises after 2008. See HM Treasury. Note, the 1994 deficit of near 8% haaaaaah!

Thirdly, the IMF have also concluded the same. They reveal the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It’s basic economics: when output falls the deficit increases.

Finally, the large loss in output occurred because the UK like the US have the biggest financial centres and as this was a global banking crises we suffered the most. Hence, the UK had the 2nd highest deficit in the G7 (Not The World) after the US and not as a result of overspending prior to and after 2008- as the IMF concur.

Claim 3 Our borrowing costs are low because the markets have confidence in George Osborne’s austerity plan and without it the UK will end up like Greece.

Yes, the markets have confidence in our austerity plan and that’s why PIMCO the worlds largest bond holder have been warning against buying UK debt.

The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased. As a result, the demand and price for bonds have increased and as there is inverse relationship between the price of bonds and its yield (interest rate) the rates have fallen. Also, the markets expect the economy to remain stagnate. Which means the price for bonds will remain high and hence, our borrowing costs will also remain low.

Secondly, the UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off – which increases the price of bonds and reduces the effective rate. Note, how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because, we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because, we haven’t defaulted on its debt for over 300 yrs.

David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and I.

Overall, when the facts and figures are put into context these juvenile deficit narratives and sound bites (“mere words and no evidence”) simply fail to stand up to the actual facts. The deficit myth is the [most] gross lie ever enforced upon the people and it has been sold by exploiting people’s economic illiteracy. (4)

So, David Cameron when are you going to apologise?  But more importantly, when and how are we going to stop George Osborne in his economy-wrecking, asset-stripping spree?  The economy is currently foundering because of a lack of demand, not the deficit or government overspending.  The last word is left to Michael Meacher MP:

The root cause of this global dilemma is that for the last 30 years, growth under conditions of neoliberal capitalism has been driven by financialisation of the economy, in particular the use of debt to create demand.   It has been assisted also by steadily phasing out constraints on trashing the environment and by mis-pricing non-renewable natural resources like oil and water, all in the false name of puffing up demand and thereby future profits.   Debt does allow consumption and investment to be enhanced in the short term, but of course it has to be paid back in the future.   It warps the production-consumption balance between the present and the future, and if allowed to get out of hand generates unsustainable imbalances.   This is exactly what has happened…..  Expansionary fiscal contraction, Osborne’s fantasy model, has been revealed as the pretence it always was.  (5)

[Emphasis added]

Related Posts:

http://think-left.org/2012/09/25/the-fundamental-deceit-of-theres-no-money-left/

http://think-left.org/2012/08/20/has-george-osborne-been-taking-trans-atlantic-lessons-from-the-jude-wanniski-and-the-republicans/

Cameron and Osborne dwell on Bullshit Mountain, UK

http://think-left.org/2012/10/15/how-to-be-a-deficit-owl/

THE UK’S BUDGET DEFICIT IS RISING NOT FALLING

(1)  http://www.telegraph.co.uk/comment/telegraph-view/9633368/Good-news-on-GDP-bad-news-for-Labour.html

(2)  http://www.michaelmeacher.info/weblog/2012/10/camerons-worst-of-recession-is-over-will-come-back-to-haunt-him/

(3)  http://www.wisegeek.com/what-is-an-asset-stripper.htm

(4)

http://www.huffingtonpost.co.uk/ramesh-patel/growth-cameron-austerity_b_2007552.html

(5)  http://www.michaelmeacher.info/weblog/2012/10/does-anybody-know-where-the-long-term-growth-is-to-come-from/

 

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Kakugo replied on Sat, Nov 3 2012 11:50 AM

This sounds much less of a matter of fact article than an half hearted attempt at defending the situation the financial situation Whigs left behind.

It also fails at another point: I may be badly informed about the UK, but in the rest of Europe "austerity" doesn't mean "slash expenses" but "raise taxes". Everybody, even the usually fiscally conservative Swiss, is scrambling to extract more blood from the hapless patient to cure anemia. I'll try to get an MD with a similar thesis and see how far I'll get.

Finally there's another thing that made me smile. The whole "assets strippers" shtick resembles what people said when the Thatcher Cabinet decided to put an end to the nationalized economy. If you like me were around in the era you'll remember the cries of "selling the family silver to Johnny Foreigner". Substitute evil capitalists (old Marxist dialectic is making a huge comeback together with the rest of that hateful ideology, no matter what Gary North says)  for Johnny Foreigner and nothing has changed.

There's more to it but I am in a hurry right now...

 

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I'll start out with this:

Claim 3 Our borrowing costs are low because the markets have confidence in George Osborne’s austerity plan and without it the UK will end up like Greece.

Of course the fact the Bank of England keeps interest rates so low has nothing to do with it? Recently the Goldman-Sachs puppet running Italy had this to say to Angela Merkel (who will go down in history as the peacetime equivalent of Bethman-Hollweg): "Italy will have no debt crisis as long as the ECB keeps rates low". Low rates mean going into debt is cheap. Near zero rates means going into debt can be easily done at well below free maket rates.

Let's move on to:

CLAIM 2 Labour created the biggest deficit in the developed world by overspending.

In financial jargon overspending means spending more than you take in. Governments have a huge advantage over private entities: not only they can increase income by taxation (threat of violence: imagine if Samsung could send people around forcing people to buy mobile phones and refrigerators at the point of a gun) but they have a myriad other methods they can use to disguise overspending, chief among which are inflation and accounting trickery. Remember: it's a serious crime if you cook the books but perfectly legal if the government does it. Even Germany employed financial trickery in 2001 to meet EMU goals (by writing off the books the huge unfunded liabilities of their health system) and the less we talk about what Italy and Greece did (with full blessing from Brussels, Paris and Berlin), the better.

Financialisation of the economy, in particular the use of debt to create demand.

I agree with this phrase: it's a consumer-based command economy or, as Solzhenitsyn put it so well "a Soviet Union with well stocked stores". However let's not forget where the orders come from. Big banks are junior partners in crime, like the getaway driver. They cannot print money on their own accord (though they'd like it). If leftists want an end to this the only solution is a saner monetary politic or, even better, an end to fiat money. That way they'll also see the correct pricing for their precious natural resources based on simple demand and supply. However, knowing leftists very well, what they intend is not "end this madness" but "print money to finance welfare and make work projects". 

 

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I still don't get why there is so much bickering over trivialities when the UK is in a serious debt crisis. They seem to want to bury their heads in the ground about it and instead bitch about the other party being to blame. The thing that gets me the most is all this whinging about austerity. The UK has barely introduced any cuts! Apparently spending isn't even below 2007 levels.

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