UK economy: Some good news from the IMF
Partly thanks to Ed Balls, the debate over the scale and timing of spending cuts in the UK is still very much alive. Next week I'll be taking a look at the arguments in detail, as part of the BBC's special season on the spending review.
But in the meantime, anyone who agrees with Mr Balls that the government is overstating the risk posed by the deficit may be surprised to hear they got some support this week from the IMF.
Not that many people noticed. Most of the (modest) news coverage of the new research released by the fund late on Wednesday focused on the prediction that Britain's debt stock would rise to 90% in 2015, compared to a government forecast that debt will peak at around 70% of GDP in 2013-4.
That sounds scary. But it's worth noting that the fund then expects the average debt ratio for the advanced economies to be 86%. The forecast for the US is nearly 110% of GDP and France nearly 95%.
More important, the 90% figure is an old forecast, dating back to the IMF's regular round-up of global prospects in April. Since then we've had a lot of tax revenues come into the Treasury that it didn't expect in April. Oh yes, and we had a general election, which brought in a new government and some much tougher spending plans.
The interesting nuggets in these new academic papers - once you've managed to wade through them - aren't so much the forecasts for the UK but the comparison with other countries, notably the US.
One paper tries to measure "fiscal space" - how much room countries have to run up more debt, before the markets lose confidence in them, and their borrowing goes onto an explosive path. Predictably, the authors conclude that Greece, Spain, Italy, Japan and Portugal have little or no room for fiscal manoeuvre. The executive summary asserts that Ireland, Spain, the UK and the US are also "constrained" in the amount of debt they can run up over the next few years.
Again, that sounds bad. Until you actually look at the research. It turns out that, yes, Greece, Japan and Italy are on very thin ice. According to the authors' modelling, there's only a 6% chance that Greece can take on significantly more debt in the next few years, without something very bad happening. There's a less than one in five chance that Italy has any room to borrow more.
But it turns out that the UK is in much better shape. What the authors mean when they say we're "constrained" is that they think there's very little chance that the UK or the US could afford to raise their debt stock by another 100% of GDP from where we are now. But that's quite a lot of fiscal space to play with, even taking into account the rising cost of health care and pensions, which the IMF is understandably concerned about. After all, the "unprecedented in peacetime" rise in debt in the past few years has been on the order of 35% of GDP - not 100%.
In fact, the study concludes that there's a more than 75% chance that the UK has room to increase its debt stock by another 50% of GDP before getting into a vicious debt spiral. Yes, you read that right - it thinks there's a good chance our debt could go to 140% of GDP without us getting into an explosive debt spiral (though by that time I suspect we would have long ago lost our AAA rating). In this we are in better shape than the US, where there's only a 50/50 chance they could sustainably raise their debt stock by that much.
Of course, all of this is built on a lot of speculative assumptions about interest rates and the likely future behaviour of governments and markets. No-one's suggesting that the chancellor - or a would-be chancellor - should put these estimates to the test. But, if nothing else, it shows how far even the IMF thinks we are from some of the doomsday scenarios you hear on the subject of government debt.
One of the other papers makes the point in a more straightforward way. It's called "Default in Today's Advanced Economics: Unnecessary, Undesirable and Unlikely" (the clue's in the title).
It says that the risk of a sovereign debt restructuring - or default - is being "significantly overestimated" by the markets, largely because people are overstating the benefits that countries like Portugal or Ireland would actually get from a restructuring.
Why? Because people are forgetting that the big burden these countries face isn't the cost of servicing the borrowing, but the borrowing itself. Of the 10 advanced economies with the biggest deficit problems, interest payments on debt now average around 3% of GDP. The real problem is the continuing gap between spending and revenues, even before they start thinking about servicing their debt (what economists call the "primary deficit").
The average primary deficit in these economies is more than 7% of GDP. As I've mentioned before, in the context of Greece, if a country has a large primary deficit it makes less sense to default or restructure the debt, because even if they stop paying any interest at all on your debt, they will still have to find a way to cover the ongoing gap between your core spending and tax revenues. And if you've just reneged on your promises you're not going to find the market very willing to plug the hole.
The authors take a long hard look at the debt and interest rate dynamics facing different countries over the next few years. Once again, the surprising news is that Britain comes out relatively well.
True, our primary deficit - before interest payments - is up there with the worst of them: 8.8% of GDP, compared to that average figure of 7%. But when it comes to bringing it down, it turns out we have some powerful forces operating in our favour.
For example, unlike nearly every other advanced economy, the IMF expects the interest rate we pay on our debt to be lower than our rate of economic growth over the next few years. When it comes to government debt ratios, that is very important: it means we don't actually have to deliver a primary surplus - a surplus before interest servicing costs - in order to stabilise our debt.
In fact, the IMF thinks the UK could run a deficit, before interest costs, of 0.7% of GDP between 2011 and 2015 and still stabilise the debt. On average, the other advanced economies in this study have to run a primary surplus of 1 % of GDP to achieve the same thing. (It's a reflection of Greece's plight that it needs a primary surplus of 5.5 % of GDP to stop its debt ratio going up.)
Finally, the authors highlight the other big advantage that the UK has, which I've been banging on about for ages: the much longer maturity of our debt. Robert Peston underlined this a few months ago when he looked at how much different governments would need to raise in the financial markets over the next year or so. The IMF paper produces broadly similar numbers.
For example, in 2011, it calculates that Britain will need to raise about 13% of GDP on the markets (that's to cover both new borrowing and the old debt that needs to be rolled over). As you see, the figure for Japan is nearly 41% of GDP and the average for the advanced economies is just under 20% of GDP. And remember, these calculations don't take account of the good news on revenues since the spring, or the new government's tougher borrowing plans.
None of this is to say the IMF thinks it's fine we have a 10% of GDP deficit. Indeed, the authors explicitly praise some of the steps the government has taken to take control of the budget.
Certainly, there's no argument in these papers for an increase in spending along the lines suggested by Mr Balls. Quite the reverse.
But when you take a broader - global perspective - of Britain's budget troubles, it does start to make more sense why the international financial markets continue to see Britain's sovereign debt market as a safe haven, alongside Germany and the US. As bond yields for Portugal and the rest have ballooned over the last few months, UK gilt yields have gone down.
As the papers show, budgets everywhere are in a pretty bad state. We're not the best of a bad lot - the likes of Australia and Canada can take that prize. But we're by no means the worst. And when it comes to digging our way out, we have some important advantages that others lack.
~RS~q~RS~~RS~z~RS~07~RS~)
I'm 
© MMXI
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SF wrote: "Next week I'll be taking a look at the arguments in detail, as part of the BBC's special season on the spending review."
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How impartial will this be seen as in light of this:
http://www.telegraph.co.uk/culture/tvandradio/bbc/7978695/Mark-Thompson-BBC-chief-talks-to-No-10-about-selling-the-cuts.html
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It is always reassuring that there is someone worse off than yourself but that does not warrant going out and bashing the credit card. We can see that it is easy to get into debt but very hard to get out of it.
This at least feeds us some slack to begin restructuring our economy into value added activity and reforming the banks so that the taxpayer is not guaranteeing the losses on the races at Newmarket.
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Such optimism.
If I compare reckless spender "A" with high debts to reckless spender "B" with huge debts I should stand in awe and admiration of the first?
All based on predictions by those who could not/did not/would not/ predict the big mess that is now upon us.
What a tangled web we weave.
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But Stephanie the Condem Government is not about the just the tax/spend adjustment required by the deficit and the rate at which it is applied. It is about the 'Small State / Great Society policy. As the Spending Review Framwork says it is
" looking at role of government in society and how it can fulfil that role."
" challenge departments, local government and delivery partners to consider fundamental changes to the way they provide vital services."
by looking at:"
" how they can promote fairness by better targeting interventions; how they can promote freedom by encouraging a greater range of service providers,
challenge state monopolies and exploit the synergies between delivery bodies;
- and how they can promote greater responsibility by shifting power, funding and accountability into the hands of individuals and frontline professionals who are often better placed to allocate limited resources;
As Cameron has said the cuts will not be restored, and Maude as claimed that they have already gone faster than Thatcher.
I hope the BBC's Special Season on the Spending Review will report equally of the progress of the Condem Revolution as on the impact of cuts.
For those who want to read the whole document just search for its title as house rules stop prevent linking to p d f files on the ground that not everyone has p d f reader on their computer.
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This confirms what many of us said at the time. Osbourne's speech to the Tory party autumn conference in 2009, when he first started banging on about how the UK would face the same fate as Greece if the deficit was not reduced as soon as possible, was totally irresponsible.
It was designed to use fear to win votes for his party, an age old political technique, but it was only the treachery of the Liberal Democrats that brought him success. The overnight, apparent conversion of the Lib Dems to Osbourne's view, when offered 20 government jobs, was a shocking illustration of the corrupting influence of power.
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Could I just comment on the "Since then we've had a lot of tax revenues come into the Treasury that it didn't expect in April." Whose expectation is that? Surely it was part of Darlings policy including action on some capital projects. The June Budget effects are already apparent on services and construction. So expect bad news on the GDP figures for the next two quarters and apres Douglas... le delugue
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Lies damn lies and statistics.
Lots of gobbledegook and technical mumbo jumbo.
Let's stick to basics, we are not self-sufficient as a nation, therefore we need to trade externally to survive. What do we have to sell that is worthwhile to other nations that they can't buy cheaper elsewhere? Aus/Canada whom you mentioned have vast natural resources compared to their population sizes, therefore in the over-consuming world in which we currently live they are temporarily naturally wealthy with great balance of payment statistics.
We have declining natural resources and a very dense population. We are over-priced as a place to do business compared to most other places in the world. I just can't see what we can "grow our way out" of our debt predicament with.
Financial services can be based anywhere and are likely to move East progressively in the next few years. (HSBC will be the first of many).
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The International Monetary Fund (IMF) and the UK debt:
The IMF has stated that, when compared to gross GDP, UK debt could increase to 90.6% by 2015 (vs. 2007 44.1%).
Mind you this is far batter than the prognosis for the United States: 109.7 to GDP (vs 62.1% in 2007).
When looking at all G-20 countries, debt to GDP is projected at 115% for 2015 (vs. 78% un 2007).
The IMF (and I dare say the EU) wants a major change in the way countries deal with their deficits. Most countries have not adequately dealt with long-term fiscal plans e.g. pension and health care reforms.
I for one believe that deficits must be brought under control – quickly. That’s the sort of advice that your mother might give you, right? You can’t keep spending this way, child!
I’d also like to add my desire to see a Tobin Tax ASAP. Mr. Brown promoted such a tax, and please remember that even Tony Blair said that Mr. Brown was very astute economically. This tax would target all foreign exchange transactions, and these transactions number not in the millions but in the trillions. Even a Tobin Tax of limited percentage (say 1%) would generate revenue not in the millions but in the billions. This Tobin revenue should be allocated to debt reduction. This seems very fair to me since financial institutions carry out most of the foreign exchange transactions and financial institutions undercut our economies in the first place.
Tobin Tax ASAP.
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Stephanie
You are correct to highlight this IMF analysis and link it to the current UK political debate on the CSR for this autumn, which the BBC is also right to inform the public about, having due regard to its impartial constitution.
The summary seems to be that there is no scope for the type of spending increases currently advocated by Ed Balls, on behalf of the Labour Party.
However, the weaker housing price and retail sales figures and some other economic data recently would seem to suggest that the recovery is still rather too fragile for comfort. Public sector expenditure cuts of the high degree of severity that has been requested by the Treasury to government spending departments are likely to fundamentally undermine this nascent economic recovery.
In the same way that the Liberal Democrats adjusted their view on spending cuts, during the general election campaign, as a result of the Greek Sovereign debt crisis; a similar adjustment is required by the Cabinet before the CSR is signed, sealed and delivered.
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#64. dontmakeawave wrote:
"#55 J-F-H - I agree on your view of Ed Balls but I don't think you are correct about devaluation. It isn't necessarily deflationary.."
If it is not deflationary it isn't working!?
(This discussions on the previous blog revolve around currency devaluation and fixing an economic crisis. (see Harold Wilson 1967))
(We were talking about Ed Balls on the previous blog so now that Stephanie has joined us we can, I think, continue here.)
The real problem is not the external value of the currency (which can be 'fixed' by devaluation) but excess private debt. The debt problem in the UK has to be fixed for us to recover. We simply cannot run a society that has house prices in the capital that are 12 times earnings - society will collapse.
On the Euro (and why we must join ASAP/PDQ)
It is always possible to argue against joining, but unless and until we join 70% of the 'external' trade of the UK will suffer at the hands of bankers and this should be avoided if at all possible. It is possible as we are members of the EU and can join the Euro and make these 'exports 'part of our 'home market' thereby providing the UK with all of the internal economic advantages open to Chinese manufacturers. This stability outweighs the 'advantages' of competitive devaluation (which by the way is just a means of getting UK worker's pay down!)
We must deflate asset prices too!
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What about real debt figures... generally quoted at more than 4 Trillion. Ok alot of that are pensions, but it is still debt to be repaid. You need to compare like with like... what is the pension liability in the USA compared to here? I don't seem to remember hearing of 70% state based employment (with the burden of final salary pensions) in regions of the USA.
It still amazes me when I read comments, like one the other day from someone admitting they just retired (Civil Servant) with £83K lump and £26k a year pension, and that they had paid 4.25% extra, justifying that the pension is hardly something to boast about.
What people don't realise is that people like me, self employed, will need to have saved a pot in the region of £1 million to retire on that level of pension. But instead I'm going to be taxed more and more to pay his pension instead of building up my own.
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Another excellent blog. However what about the model where measures to reduce the deficit actually have a perverse effect. That is both cutting public sector jobs and slashing capital spending that worsens the deficit and potentially starts vicious spiral of lost revenues and increased transfer payments - such as redundancy and more benefit claims. The government is practising Micawber moneynomics and your analysis shows how unnecessary it is. Next event will be a further clipping back of projected economic growth no doubt justifying even more public sector cuts!
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How depressing.
This once great nation reduced to juggling its debts and maxing the credit cards just to survive.
Is that really what we have come to ?
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13. At 4:28pm on 03 Sep 2010, Alesha Soba wrote:
How depressing....
....Is that really what we have come to ?
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Yes.
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continuing #10 above
The trap that we are within and have as yet no plans to escape from is the debt trap. Neither slashing spending (for doctrinaire reasons?) nor Keynesian expansion will work unless the private debt bubble is tackled. Both are whistling in the wind.
We cannot run a society with house prices at 12 times earnings. This must be fixed. As I see it the only way to fix it is to squeeze the debt out of the system and the only way to do that is by increasing interest rates. It would be best if this happened over as short a period as possible consistent with the speed of being able to bail out the housing lenders.
Houses with more than 70% equity will be OK those with less will need to tackle the problem as best they can. No matter what we do to currency exchange rates this problem will persist. There is no way the alternative solution of quadrupling pay can possible be contemplated because interest rates would then be forced through the roof and the system would then collapse. There is no way to solve this problem without bailing out the banks again either way. We ( and all political parties) are still in denial. People with less than 70% equity in their property should arrange their finances to prepare to be repossessed! This is what 12 times earnings means make no mistake.
This also justifies and validates my earlier idea that we are in the start of a Long Depression as in the 1870s - but first we must acknowledge the reality and face the problem or all hell may break lose and a far far bigger problem result. Happy Friday!
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This is all brought to us by the same folks who caused it all. Tends to be self-serving. As no one has actually done anything it is difficult to see the enthusiasm. They are all wishing their way out of the recession with no real plans and the on-going unwillingness to hold accountable those who caused it all. If the IMF is to be believed where were their forecast for the housing bubble...nowhere..even supportive in many cases.
Liars, lying for liars with the rationale of it being in the interest of governments that the people not know the truth. Banks borrow from governments at 0% and lend back at 4%...wish I could have a piece of that. That is right, we do all have a piece of that..we pay the 4%.
Only outcome that is possible when the corrupt who caused it all are still in control. Nice that the banks and governments have decided to pretend that it never happened. Only economists could accept this kind of thinking. Sounds like the old cheap chicken soup recipe: first steal a chicken.
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Let us hope Stefanie's reporting of the spending review will be less biased towards the left as is so often the way with the BBC. I am sorry but I cannot view Ed Balls comments on the deficit with anything other than derision. I even read that DM is considering him as shadow chancellor if he is made leader. In which case we are all going to need to take a run off the nearest cliff if they ever get in. This article should not act as any encouragement for us to ignore our burgeoning debt. The coalition are right to give reducing this the priority it deserves. The triple A rating must be kept or we will really be in the mire. I also agree with #15 in that private debt and house prices must fall if we are to find a way out of this. Interest rates inevitably must rise soon to stem inflation but this will only make paying the debt down even harder. The elephant in the room is also the pfi problem which still does not seem to get any press but this is only going to get worse.
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Ed Balls is the main reason there was not a coalition deal done with Labour and the Liberals.
He completely stymied the talks and it is thanks to him we are getting all these cuts!
He is completely unfit to lead the country and has a cheek to even open his mouth let alone campaign for leadership after this behaviour when he along with a few hasbeens loke Blair, Reid etc sabotaged the fragile and slight but nonetheless important chance Labour had after the election to avoid Tory Rule.
And the same goes for Ed Milliband and Andy Burnham.
They should join the coalition with the Tories as they did more than anyone else to make it work!
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18. At 11:15pm on 03 Sep 2010, onward-ho wrote:
Ed Balls is the main reason there was not a coalition deal done with Labour and the Liberals.
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Were you there?...no!
You pillock!
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Hi Stephanie,
when trying to access the IMF new research mentioned in your second link I get a 'not for proles' message, no matter.
This is the interesting bit
"Default in Today's Advanced Economics: Unnecessary, Undesirable and Unlikely"(the clue's in the title).
It means, in the opinion of the IMF, that default is not acceptable.
The IMF rattles its sabre and nations are supposed to sit up and take notice, presumably we are supposed to ignore the fact that Iceland stood up to the IMF, the people were threatened with being labelled a pariah state, an outcast unable to trade with the rest of the 'civilised' world, and what happened ?
Nothing, Nada, Zilch.
If all of the world is up to its eyeballs in debt (as these reports suggest) then to whom do we owe all the money ?
It is, and has been for some time, a great confidence trick.
The IMF lead a nation to the edge of the precipice and they both look down, the IMF suggests to that nation that unless it follows their prescription to the letter then over it goes, and in the past nations have blinked, swallowed and reluctantly accepted the medicine.
Iceland similarly were led to the edge but in their case the Icelandic people suggested that the abyss was indeed wide and deep, in fact wide enough and deep enough to accommodate the both of them.
The IMF blinked first and Iceland is still here.
The IMF with this document is desperately trying to reassert its authority, sadly for them it is too late.
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This comment was removed because the moderators found it broke the House Rules.
21 Nothing but right wing paranoia. Are you a Tory voter on the Tebbitt, Hannan etc wing - hardly, as the Tory Party now controls the BBC. Perhaps UKIP or the BNP then?
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A good balanced piece which tends to point up the deficiencies of both Labour and Tory. Labour broke the first rule of economic management which is to pay down debt during a boom. The Tories are threatening to break the second rule which is to keep spending during a downturn. Countercyclical government spending is the key to any successful economy. Owing to Labour's mismanagement, there have to be some cuts, but if the CSR is too severe recovery will be very slow.
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My position is a central position and entirely reasonable. Anyone who does not hold my position too, is biased.
The point about bias is to recognise that it exists and to interpret everything that comes from that source accordingly. There is no such thing, in an absolute sense, as the correct position about what will happen to the economy in the future. The best we can hope to receive is a range of views and then we, as individuals, can decide the balancing point according to our own prejudices. Only with hindsight will we know if we were correct.
For many years I had the feeling that the BBC had (for want of a better phrase) a bias against the Labour government. It was a pity that the Tory opposition was so ineffective at that time. Now it seems to be questioning Con/Lib policies. Surely that is the role of any media organisation which is trying to achieve balance. ITN does a similar job. The result is that we get counter arguments and can make up our own minds. Providing a balanced view, is done in the context of government pronouncements and the influence of other media.
Steph's article about the IMF is simply part of this process. I don't even have to agree with it to value its part of the process we should all be taking to form our opinions in the light of new information. I do not object to any opinion which runs counter to my core beliefs, I consider them and decide what to do about them.
Some may argue that the BBC has a special position in our country. Come up with a non-circular argument against my first sentence and I might agree with you that an 'unbiased view' is achievable.
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The debt business knows that if you owe £100 then this can be recouped by seizing your assets, but if you owe £1Bn then its the lender that is vulnerable to defaulting.
The level of indebtedness of governments, individuals and companies will in the end lead to wholesale restructuring because it cannot be sustained. The process by which this will happen depends on a number of factors, but they could be massive devaluation of currencies, formal defaulting on debt by governments/companies, individual bankruptcies or writedowns.
The world cannot simply go on creating new money then allowing a tiny group of individuals and/or nations to simply accumulate yet more cash then seek to lend it back to the real economy and receive yet more money in debt servicing costs.
At some point reality must intrude and the lack of real value in these overissued currencies must unravel. At the moment the value chain makes profits by producing goods & services in an ultra-low cost environment (e.g. China/India), then ships them to a mature consumer marketplace (i.e. here), where more profit can be made through retail margins and through lending to individuals and governments to provide the cash to pay for these goods & services. Meanwhile the people that would have produced these goods & services in the consumer economies are unemployed and the cost of this is also borne by the consumer economies.
But the idea that this can simply go on and on with the consumer economies racking up yet more debt and central banks creating more currency ad infinituum is clearly impossible. The confidence in thses currencies and the debtors' ability to pay must in the end crack and the true (much lower) values of these currencies and debts will be revealed. We have the choice if sitting on our hands until a trainwreck happens (which it nearly did with the banking crisis) or we can address it in a managed way that allows time for individuals, companies and nations to adapt.
Normally the exchange rate market would correct this over time by raising the value of the producer currency and devaluing the consumer currency, so equalising the cost:price balance to make imports more expensive and exports less profitable, but clearly this isn't happening - particularly with the Chinese currency. Also the world's investment in dollar based reserves and trading has artifically held up its value beyond that which it would command as just another currency.
For the UK keeping the £ would seem to allow us more flexibility than going into the Euro to devalue, but this is a lot less practical than you would think. Firstly it would generate huge inflationary pressure here, in that all our energy and much of our food as well as imported manufactured goods would go up in price, so further damaging our economy. Secondly, it would damage our credit standing, so driving up the cost of borrowing - more inflation. We'd have to raise interest rates, putting up borrowing costs & mortgages.
There is no way out of this other than to address how our trade relationships operate - its all very well espousing freedom and free trade, but in a world of rigged foreign exchange rates, cartels like OPEC and authoritarain labour markets in China, all this "freedom" does is to lay us open to abuse.
And things are about to get a whole lot worse - global food supplies are now under acute pressure and raw materials are in short supply in many areas. If we allow UK unemployment to skyrocket, which seems very likely given the level of public spending cuts in such a short timeframe, our economy will undego a major contraction which will take down large numbers of perfectly viable businesses with it, just as it did in the 1980s when the incoming Tory government slashed spending.
All This will do is to compound the problem by shrinking the tax take while increasing the welfare bill, just as it did in the 1980s - it will not deliver the reduction in UK PSBR it is aimed at and will simply dig us deeper into debt, reduce living standards and creating yet another lost generation of unemployed your people.
The ConDems' answer to this is to claim that there will be a renaissance of the private sector, once the public sector is reined in and no longer "crowds out" business, creating 2M+ new jobs, investing £400Bn in new capacity and increasing exports by a third. The only problem is that the very opposite is happening - job creation is slowing rapidly, investment has gone off a cliff (bankers blamed - scapegoating if ever I saw it) and the balance of payments is worsening.
PLEASE can we focus on these ludicrous claims for private sector growth in the context of the spending review? The whole strategy hinges on this private sector growth - if it isn't going to deliver, the whole cuts exercise is revealed as self-defeating, damaging and can only be the result of political dogma, not real world economics.
Once we strip away the veneer of the ConDem "economic policy", we can reveal the true nature of the problem, and begin to confront it. If the growth isn't going to happen and the job loses in the public and private sectors materialise at the rate they are currently being announced, can the UK sustain over 5m unemployed in the next 2-3 years? I don't think so - and I do not believe anyone can seriously claim the government has a mandate to go down this road, which will take us back to the darkest days of the Thatcher era of civil unrest, core businesses going down like ninepins and skyrocketing interest rates.
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Excellent blog-once again showing that, if you look at the data, the enthusiasm for cutting public spending is ideological and there is no basis in claims this is required by financial markets and unavoidable. The other key feature that keeps us out of difficulties is that we have (although cuts will damage staffing of tax collection)a well functioning tax system. Sadly, if the ConDem coalition succeeds in pushing through its cuts agenda then the quality of life in the UK will,in my view, be needlessly reduced.
4. cping500 makes reference to the 'Big Society', and this notion, that there will be mitigation of the effects of cuts arising from action of individuals, is being pushed strongly by Mr Cameron. As someone with an enthusiasm for markets Mr Cameron must know that the work of the Chicago economist Gary Becker casts severe doubt on the likelihood that there will be an outpouring of private citizen effort in the era we are in(at least if the economy does not shrink or grows). Becker points out, in his 'theory of time allocation', that we need time to work/educate ourselves/train etc but also that we need time to enjoy/use the goods we can afford with our income. As incomes rise and we can afford a larger basket of goods we need more time to enjoy them -we can get partial mitigation by choosing activities that are expensive but require less time (snorting cocaine, using faster means of transport, restaurant meals etc) but we are basically stuck with twenty four hours in a day. As incomes rise the value of time goes up, ever greater consumption opportunities crowd in on our time. This can be used to explain a whole variety of changes in our society-decline in church attendance,decline in attendance at political meetings, the choice of a smaller family size (children particularly young children are time consuming and mother's wages have risen). The value of time is just too high to most of the population for them to take on new, time consuming, citizen activities.It may be that Cameron will get support from the bored elderly with copious free time (but given that I believe they are the most self-centred and selfish in the society (I am one of them)I wouldn't hold my breath). The young energetic and high earning just won't spare the time. Big Society is a cosy vision, it would make me feel good to think that we had that sort of participating society, but, like Andrew Lansley's Dr Finlay's Casebook vision of the NHS, it ignores the reality of 2010 UK.
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17. At 9:29pm on 03 Sep 2010, juliet50 wrote:
Let us hope Stefanie's reporting of the spending review will be less biased towards the left as is so often the way with the BBC.
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Stef's blog tends to be reasonable impartial - she criticises both Lab and Con pretty evenly, unlike other blogs
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FAO Stephanie Flanders
An interetsing point of view but this shows the care that is needed in making international comparisons of national debts and deficits.
The most important factor of debt management and which I am afraid is largely ignnored by your analysis is the ability of a a nation to manage its own debts and deficits in terms of its own 'internal efficiency'.
What is needed is an international measure of this debt management efficiency rating based on the economic profile of the various countries taking into account e.g.:-
base intererest rate comparisons
currency adjustments on borrowings
net tax base revenues - v- debt ratio
government spending on e.g. defence, health, benefits, education etc
When all this is weighed into the pot - I think that the position for the UK is much, much weaker than your analysis would suggest as the UK is bloated and at risk with a wayward financial sector; bloated public sector, 10-15 million population on low wages/benefits; huge spending on wars defence, high costs of living/fueld/imports, ongoing wars and global punching above our weight and means commitments.
The resultant amount left to UK politicians to tackle the New Labour debt mountain is therefore very restricted and little prospect of real growth in UK govt revenues depsite GDP fiddling.
I'm sorry ... but the deficit needs cutting heavily so that our children and their children have a real and reasonable future in the UK and not just to assist Ed Balls' failed political trouble making career. The need for hard cuts is a long term necessity for planning the UK economy
We just havn't seen a meaningful analysis yet ... that shows what is really hapenning with the UK finances ... Hint! Hint!
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13. At 4:28pm on 03 Sep 2010, Alesha Soba wrote:
This once great nation reduced to juggling its debts and maxing the credit cards just to survive.
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This once great nation was great on the back of the colonies.
Even William Digby and British historian agreed that without the “Venture Capital” which was looted from Bengal, the Industrial Revolution might not have happened.
http://socyberty.com/history/the-stolen-wealth-of-india-during-british-rule/
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While reading this blog, I cannot help but wonder, has Murdoch overtaken the BBC?
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Excellent blog-once again showing that if you look closely at the data, the enthusiasm for cutting public spending is shown to be ideological, and there is no basis for claims that deep cuts are required by financial markets. The other key aspect that will keep us out of difficulties is that we have (although cuts will damage staffing of tax collection)a well functioning tax system. Sadly, if the ConDem coalition succeeds in pushing through its cuts agenda then the quality of life in the UK will,in my view, be reduced needlessly.
4. cping500 makes reference to the 'Big Society', and this notion, that there will be mitigation of the effects of cuts arising from action of individuals, is being pushed strongly by Mr Cameron. As someone with an enthusiasm for markets Mr Cameron must know that the work of the Chicago economist Gary Becker casts severe doubt on the likelihood that there will be an outpouring of private citizen effort in the era we are in(at least if the economy does not shrink or grows). Becker points out, in his 'theory of time allocation', that we need time to work/educate ourselves/train etc but also that we need time to enjoy/use the goods we can afford with our income. As incomes rise and we can afford a larger basket of goods we need more time to enjoy them -we can get partial mitigation by choosing activities that are expensive but require less time ( using faster means of transport, takeaway meals etc) but we are basically stuck with twenty four hours in a day. As incomes rise the value of time goes up, ever greater consumption opportunities crowd in on our time. This can be used to explain a whole variety of changes in our society-decline in church attendance, decline in attendance at political meetings, the choice of a smaller family size (children particularly young children are time consuming and mother's wages have risen). The value of time is just too high to most of the population for them to take on new, time consuming, citizen activities. It may be that Cameron will get support from the bored elderly with copious free time (but given that I believe they are the most self-centred and selfish section in the society (I am one of them)I wouldn't hold my breath). The young energetic and high earning just won't spare the time. Big Society is a cosy vision, it would make me feel good to think that we had that sort of participating society, but, like Andrew Lansley's Dr Finlay's Casebook vision of the NHS, it ignores the reality of 2010 UK.
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Trying to get to grips with economic theories, I have been surprised at how much appears to come from philosophical standpoints and not just fact. The ways of calculating inflation appears to change to help the current economic theories holding sway at the time.
The fact that Americas debt beggars belief but is viewed by some as the norm/reasonable considering the financial climate, leaves me bemused.
What happened to the future debts of Europe because of its enormous pension deficit-that was allegedly going to bring the Euro down- never mind the existing increasing debt.
"the IMF expects the interest rate we pay on our debt to be lower than our rate of economic growth over the next few years"
I am all for being positive but what about the lump sum of debt and what if rates go up and what if the economy does not expand?
That brings us to the point of how economies are measured- by everyones spending. Is that a true way of telling how an economy is doing? Perhaps we should encourage the Beckhams to start spending more in the UK and all will be well.
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It all looks meaningless considering that our children might be facing far greater problems than ours surreal owing paper money to shylocks.
Don't want to scare you but we should be looking into this instead the size the UK/USA dept per GDP!
Supervolcanoes could trigger global freeze in 2074.
http://news.bbc.co.uk/1/hi/sci/tech/628515.stm
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#32 Dillars,
I can understand your dilema. You have to remeber that, when talking about economics, you are dealing with very little law (in the scientific meaning) and a very large mountain of theory. To exacerbate matters, economists have to rely upon the input of other specialists (mathematicians, sociologists, philosophers, lawyers, political accademics, etc etc.) to help form their own studies - and naturally they cannot be masters of those disciplines. To further exacerbate matters they are then dealing with information the collection of which, method of administration and interpretation is not in their hands - hence commonality and accuracy is compromised.
Let us take a brief example: In the present crisis it has been claimed that consumption (of higher levels of debt) has decreased due to people, households and companies "paying down debt". Yet in all of these areas the levels of debt has risen (all be it at a slower rate). So how do you square that circle?
Now, if we return to basics regarding economics then we may find at lest a truism that can help us. One of the simple definitions of economics that has always attracted me is that economics is the study of the management of Scarce Resources. Therefore, in its simplest form this means Time, People and Resources. Note, it does NOT include money which has (1) demonstarted itself not be scarce and (2) is a mere oil of the transaction between the 3 scarce resources. Hence debt (and the levels thereof) has more to do with accounting principles than it does with economic theory or policy.
Are you any more clear after that? - well neither am I. However, I do know that until we lose the economic sophistry and return to basic principles then economics will remain the prisoner of the charlatan, the rogue and ...... (maybe that is all encapsulated by the greedy and the politicians)
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Glad to see someone is reading the Imf reports ,they seem to have got some focus.
I think it would have been helpful if you had commented on their work on tax take and I have yet to see anyone report on their work on debt interest rates and growth.One of the reports summarises it as a 40% growth in debt /gdp (approx to G7 and us) raises real interest rates by 2%(longterm) and lowers growth by 0.5%.
I believe we are at what the OECD head calls a Yogi bear moment there are two paths and you want to go down both.
To me the choice is either spend more raise debt incur higher interest rates and inflation and their lowering effects on growth
or lower expenditure keep lower interest rates resulting in deflationary pressure and lower growth.
I don't believe there is a high growth option unless you are an exporter.
This is because the readjustment is deleveraging and it is difficult to see any route where pain is not felt over a longish period (McKinsey study of previous financial downturns suggests 5yrs).
I guess no one would really have wanted to start from here but the reduction to the deficit will be necessary so the debate is about when .Clearly the right route is to do the budget plans and give yourself room for adjustment.
It was a major failing (one of several)of the last government not to conduct the review last year to give a base for reasoned debate.
Finally an observation the elephant in the room is the demographics /ageing and healthcare costs .
If you want to scare yourself read the tullet prebon work on exponentials
specifically the one on sovereign debt based on the BIS projections that contains this quote
" a system that combines excessive consumption with mortgaging of the future simply doesn't work."
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Pilsden (35 above)
'the elephant in the room is the demographics /ageing and healthcare costs'.
That particular elephant will turn out to be a mouse as more health-conscious older folk live longer and more productive lives than their parents could have hoped for. Technology will continue to depreciate the value of manual labour, and successful countries will be 'knowledge economies'.
My worry is that, in its zeal for cuts more savage than is required in the interests of strategic long-term debt reduction, this government will undermine the conditions of long-term success by failing to invest sufficiently in the education and training of the young, and by failing to encourage life-long learning to enable older people to adapt to changing needs.
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When will the interest rates rise and house prices crash?
As I have been waiting and waiting to get a good deal on a house for too long. Our older relatives will no longer be with us before they get a good return on their hard earned savings from the building societies
An added benefit will be that the hoi talloy of Chigwell and surrounding areas, will have to find something else to gafore about other than their inflated house prices.
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35. agree with you that our near and medium term outlook is for low growth(if any). 36. Agree with you too about the demographics it's all relative and 75 year olds will be fitter and more able to work than 60 year olds were a couple of generations ago. The only problem I can see here is the availability of jobs for a large working population. Unless we all accept less work there will not be anywhere near enough to go around.
It is not an option to keep borrowing to maintain a public sector and military commitments that we can not and will not be able to afford.
37. Interest rates will not go up because of any UK reasons such as runaway growth or UK caused inflation. They will go up when rates go up elsewhere forcing us to protect the value of our currency by doing likewise. Basically whilst they are low in the US and EU they will stay low here. When they move so will ours. We have so much spare capacity in this country in terms of labour that there will be no internal pressures on inflation. It will be commodities like oil and food prices together with a devaluation of our currency making imports more expensive that will be the only upward pressures on inflation.
World economic woes are basically caused by too many people chasing too few jobs and consuming too many finite resources. It will get worse (with the odd artificial respite) until we recognize and address this fact. (or nature does it for us).
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So, here's a naive sum:
If government spending reduces by the anticipated 25%, why should we not expect GDP to reduce by 25% as well? [*]
In other words, in an economy with over 50% of GDP devoted to the public sector, why do/should we expect that the private sector will remain unaffected or --- even grow?
I'm an academic engineer which means, unlike Germany or France, my job is not in the public sector. However, almost the entirety of the department's budget is public money. My neighbour working for the cement/aggregate industry tells me that the company is scaling back it's activities by 50% to match expected government spending.
So, what is the coupling between the totality of the private sector and public spending? This has to be part of the Treasury Model; so what number do they use? Is it credible?
[*] One answer would be that the whole private sector exports (or could export) it's output. But surely no one believes that.
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38. Thats it then thanks 38. I'll get my coat, as it seems like you know exactly whats happening in the future, based on the past.
When the manure starts hitting the fan even you will not have forseen it quite as perfectly
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What a load of balls from the BBC's economics editor. Propaganda perhaps? If only there were a mechanism for resetting the world economy. Oh hang on, there is. It's called war! The greatest and most global economic failure in history will surely be followed by the greatest and most global war in history. I suggested this nearly 2 years ago on Peston's blog and my view has only become firmer since. Heartened to see people throwing shoes & eggs at Bliar today. Depressed to see more people queueing to buy his book.
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Stephanie, in her reasoned analysis said:
"As the papers show, budgets everywhere are in a pretty bad state. We're not the best of a bad lot - the likes of Australia and Canada can take that prize."
Obviously Canada and Australia are in a sweet spot in that resource rich countries are doing well in this crisis. But it isn't as simple as that. In Canada's case they established an economic model that meant they avoided the excesses created by banks ramping up their capital using commercial market borrowing. In addition they restricted their Governments from borrowing too much.
Surprisingly we had much the same before Nu Liebor started to spend our money like water after 2001. The solution is to get back to a state where the Government stops chucking our money about to gain electoral advantage and we get back to spending what we can afford. Part of that approach is for banks to start acting with more responsibility - as they are doing now, I think.
Hopefully the Coalition will implement their carrot and big stick approach to encourage private sector growth and cut back on the size of Government spending. We can't know what they will do until the Spending Review is completed in the Autumn. But the likelihood is that it is going to be harsh medicine.
And unlike the gentleman from Hendon called John, the Euro is not the route to our salvation.
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#42. dontmakeawave wrote:
"And unlike the gentleman from Hendon called John, the Euro is not the route to our salvation."
Why do you simplify the message? Is it that you are the secret love child of bankers? British business needs all the help it can get. It deserves the same playing field as Chinese and USA business doesn't it? These two zone have large home market where they do the majority of their trade in an economic environment of a single currency. Why do you want British business to be deprive of this benefit?
The Euro is not the sole route to salvation, it is just a constituent part of the vital rebalancing our economy away from financial services and banking.
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Debt, debt, debt. Debt is bad, mmkay? Whole world is drowning in debt. What is debt, exactly? Who is lending us all this money? Why not take few minutes to educate ourselves on these fundamental issues?
The Secret of Oz
http://www.youtube.com/watch?v=D22TlYA8F2E
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Hmmm, all well and good on the face of it, showing us as one of the best of a bad lot; however, looking at government debt alone is somewhat myopic, out entire debt government private, corporate and personal is surely the over riding issue, especially if a significant proportion of that debt is likely to result in outflows from the country.
As to cuts, all expenditure should result in a benefit that outweighs the total cost.
re #36 how naivety and wishful thinking rule. Look at the resistance to pension ages being raised, they should already be much higher if we were to keep a balance between time spent in working life and retirement.
Whilst its true that many older people will be more active and healthy for their age, will this be true in relation to their anticipated lifespan?
We are already seeing the impact of increasing prevalences of long term conditions and these will only continue to rise, especially with the forecasts and the impact of increased obesity on conditions such as diabetes. People now live a lot longer with serious illnesses / conditions, welcome as this is, it results in a disproportionate additional cost.
As to developing a "knowledge economy", perhaps we should have been focusing resources on those capable of leading such an economy rather than dumbing down education for social engineering purposes, with the nobody fails mentality. Also, a knowledge economy requires the best people to be trained in areas which will provide future benefits.
Re life long learning, generally people are more capable of learning when they're younger (although they often tend to be more applied when engaging in such things later in life). Re-skilling is of course beneficial, but there's only so far it can go effectively.
A knowledge economy by its nature is unlikely to offer high employment levels, given that it relies on a limited elite with the knowledge and intellect driving the economy and the rest primarily supporting that group.
In the end to achieve that, you need to focus training resources on those most capable of using them to compete in a global market, which is probably why we've undermined our potential so badly in recent years with the socialist undermining of "elitist" educational principles.
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#45 Reaper_of_Souls,
You've been partying too long with Grim!
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foredeckdave unfortunately the truth can be "uncomfortable" and Reaper_of_Souls is spot on in all that he says. We are pre-occupied with leveling the playing field for all when from first hand experience I can say that you are trying to move the immovable object when it comes to inspiring externally a work ethic and ambition to achieve in most young people. They've simply had it too easy compared to others in other countries. A knowledge economy will create a wealthy elite which then hopefully by taxation and wealth distribution will support many others. However, not the vast numbers we have and are going to have in our population. So we need to accept a lower standard of living for all, particularly those at the very top, until the world can re-balance itself. Unfortunately this will be after most or all of our lifetimes but we have to start now. I suggest that we divert our energies and creativity to urgently tackling an over-large world and UK population and be honest that we have to take a lot more tax from the rich to help the poor in the meantime.
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43. At 11:35pm on 04 Sep 2010, John_from_Hendon wrote:
The Euro is not the sole route to salvation, it is just a constituent part of the vital rebalancing our economy away from financial services and banking.
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I do admire your tenacity in pushing a view on euro entry which is based on rational considerations. However I am afraid that you will never persuade anyone in the anti-euro camp by such means. Their views are based on a deep emotional attachment to the pound (and by extension to what they perceive as British sovereignty, which in fact we handed to the USA in 1945)- logic and reason just don't come into it.
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48. At 08:50am on 05 Sep 2010, haufdeed wrote:
'However I am afraid that you will never persuade anyone in the anti-euro camp by such means. Their views are based on a deep emotional attachment to the pound (and by extension to what they perceive as British sovereignty, which in fact we handed to the USA in 1945)- logic and reason just don't come into it.'
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What complete and utter tosh!
On the contrary, it's pure, greedy/predatory logic and reason that prevents the UK joining the Euro...for without it, the casino UK banking industry could never have got away with gambling with UK's real economy.
The GBP ensured that 'The City' was bailed out with GPB 800Billion of gov't guarantees and then with GBP 200Billion of Mervyn's benevolent QE.
Note they were bailed with GBP's...not USD's and not Euro's.
I'm sure Mervyn must always smile inside whenever he hears the words
'moral hazard' with regard to the UK's banking industry.
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This is the talk of madness! It's like a credit card junkie who finds out that they haven't completely maxed-out on all their cards proposing a shopping spree! Talk of being slightly less in debt than some other country, of going broke slightly slower than before, of being able to carry on as we were are profoundly self-deluding. So we all go bust together with other "advanced consumer economies"...how comforting! The fact also that Ed Balls (the man who persuaded Gordon to reject Euro entry on the grounds that it might hurt the City) has suddenly nailed his colours to mast of public sector "spend, spend spend" says more about the opportunistically shifting values of aspiring politicians than it does about economics.
So...we can afford more debt then. Hurrah, for surely then this can put off the moment when we truly hit the buffers good and hard by ooooh...5 - 10 years. Then what? Then it becomes an argument not about what public services have to be trimmed but whether you can offer any at all! What a wonderful legacy to our children from the "me, me, me!" generation.
Delivering a "progressive" society on the back of deficit spending is a massive, self-deluding lie that will inevitably explode in our faces. Why not cut our coat to fit the cloth that we actually have. Why not target public expenditure on the genuinely needy and vulnerable rather than spreading the welfare cushion ever wider by medicalizing and infantilizing half the adult population. For if we want a progressive society, and believe me I do, we have to work hard to pay for it. Paying for it by raising debt is simply stealing from our children and the electorate will have to learn that so much that they have come to regard as their inviolable right, is simply a luxury earned by the sacrifices of their grandparents and paid for with the life chances of their children.
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Whilst there is much talk of bringing our economy around by eradicating the deficit by cutting public spending, I still find - to my horror - example after example of how many many 'managers' in public services do not understand the very basics of delivering value for money.
Just some of the commonly re-occurring themes are:
Unproductive audit - spending lots of money, and keeping some jolly well paid auditors in jobs, to prove you haven't lost a few fathings or to audit things where there is no risk to any revenue, threat of loss, or other justification. Audit for audit's sake as opposed to audit for the business' sake.
Bad operational cultures - egotistical senior managers bullying junior staff causing them to keep their heads 'below the turrets' for fear of recrimination and, therefore, those bullied staff do not report inefficiences or problems upwards, or 'whistleblow', which results in poor management of the organisation through having nurtured 'you-can't-manage-what-you-don't-know' situations. So managers don't make timely and appropriate managerial interventions because they don't get to hear about the problems because the staff are too terrified to tell them of any problems.
Reviews / re-structuring of admin - rather than address that, in the main, admin do much what they're told to by the managers. So if the admin is costing you too much, or is being inefficient, the usual biggest culprit is that the managers don't know how to use their admin resources efficiently, or effectively, in order to deliver the necessary outcomes. Just one example of this is in a hospital I know where admin have to walk around half the site to print off in colour documents for various managers' reports so that these can be carried into various managerial meetings as colour pie-charts and the like. The managers don't stop to think of the admin time they're wasting because they don't buy their people doing the task the colour printer they clearly need to do it!
And on, and on.
Maybe we need a massive re-education programme, within public sector services, of what the basics of financial and budgetary management are about.
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The usual (Blair) idea of a knowledge economy does not work. The basic problem is that you export it far faster than you can produce it. Undoubtedly, knowledge can be, indeed has to be, the fuel and foundation of a manufacturing economy.
If you don't believe me, look at Germany, Japan, California, and it seems the longer term direction of India and China.
One area we should be throwing money at is the educational system, especially our top ten universities.
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'Partly thanks to Ed Balls, the debate over the scale and timing of spending cuts in the UK is still very much alive. Next week I'll be taking a look at the arguments in detail, as part of the BBC's special season on the spending review.
But in the meantime, anyone who agrees with Mr Balls that the government is overstating the risk posed by the deficit may be surprised to hear they got some support this week from the IMF.'
How about telling us about some dissenter's comments...or is it 'deniers'...just for a bit of balance in the new BBC.
Stuff'n'Nonsense....What a desperate attempt to make the case for Labour debt and spend policies. A blatant shill for Balls in an deceptive and economically illiterate plea against Coalition spending restraints.
When the economy gets reports of growth the BBC tells us that Labour were right...the economy can bear more debt and stimulus....if the economy takes a downturn suddenly it is the Coalition's fault due to 'savage, indiscriminate cuts'.
Let's not forget this from Balls in 2009....£2bn of cuts to the education budget....'Ed Balls is the first cabinet minister to set out how the cuts - which the Prime Minister has now publicly conceded are needed - would affect services.
Up to 3,000 senior school staff could be axed, including heads and deputies.'
And let's not forget the £2bn of cuts to the NHS in 2007 by Brown.
Let's not forget that the quaintly named 'Quantative Easing' means higher inflation which hits the poor more than the rich...so why does the BBC ignore this but damn the Coalition for VAT rises which will 'hit the poor'.
Let’s not forget the huge NHS cutbacks in 2007 when hospitals were delaying half of all operations as they battled ‘soaring deficits’ and doctors stated that the chaos was the ‘worst crisis to hit NHS’.
Let's not forget some quotes from 2007...Labours economic legacy....'a seedy dream world mired in debt and bankruptcy, facing a looming crisis of employment and employability, trying to find the money for a diplomatic and military role that it cannot afford. The consequences of Labour's debt will be ' a millstone round the economy's neck in the decade to come, a blinding headache that will hobble economic activity and consumer spending for years.' (and yet Stuff'n'Nonsense wants more debt?) Who wrote that? A Tory spin meister? No, the Guardians economics editor.
Or this from 2007... ’The economy is in pretty good shape....I feel sorry for the next Labour chancellor. Brown set out tax and spending changes for the next few years, in effect taking the job away. The new chancellor will have time to get to know the ducks in St Jame’s Park.’ David Smith Sunday Times....just goes to show how good economists really are doesn’t it Steph?
or this.... ’Economic success has been built on rocky foundations...large dollops of private and public debt, an over-reliance on the speculative activities of the city and an excess of consumption and stagnation in manufacturing that has led to a trade deficit of record proportions. (no mention of global down turn here!)
The good news for Brown is that he will be out of the treasury should these underlying problems come to the surface; the bad news is that as prime minister, he will still get the blame.' (and rightly so)
Who wrote that?...the Guardians economics editor Larry Elliott.
And all this before the credit crunch hit...who’d a thunk?
The BBC's refusal to acknowledge the cause of our economic downfall is shameful.
As well as previously suggesting the solution to public sector pension deficit was to employ more in the public sector...and pay them more so that they could be taxed more to pay for their pensions (question...where does she think the money to pay their wages would come from?.....debt) she now thinks that we can continue to borrow to a level beyond that which would lose us our AAA credit rating.
Lose our AAA rating means our interest rates would rocket on that debt...we already pay more in interest repayment than we pay for our defence budget...and the debt we have is already scheduled to rise...and yet she wants to pile on more debt.
Clearly Mark Thompson has not read any of her outstanding work....the Lefties still roam the corridors of the ideologically cleansed BBC.
Stuff'n'Nonsense continues the time honoured BBC tradition of promoting massive debt funded 'stimulus' with the USA as an example....however they seem reluctant to tell us about the rapidly deteriorating condition of the US economy and have a staunch refusal to disclose any reports that suggest Obama's trillion dollar gamble is flatlining.
Hans-Werner Sinn, head of Germany’s IFO Institute, said the US would have to purge its debt excesses the hard way.
“The bitter truth is that there is no way out of this with monetary and fiscal policy. They will just have to see their living standards go down. I see a decade of difficulties for the US,” he said.
Dr Roubini said average public debt in the rich countries would rise to 120pc of GDP by 2015 in the rich countries, leaving no scope for a further fiscal stimulus. If they push their luck, they too risk the sort of bond crises seen in Southern Europe this year.
“The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.
In the US, the fiscal boost has faded, switching to tightening over coming months The lift from the inventory cycle is finished. Capex spending by companies has held up well, but this slowed sharply in July. Housing is already in a double dip. The last support for the US economy is consumption, barely growing at 1pc.
“All we did was kick the can down the road and stole demand from the future,” he said.
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I wrote @42 "And unlike the gentleman from Hendon called John, the Euro is not the route to our salvation."
43. At 11:35pm on 04 Sep 2010, John_from_Hendon wrote "Why do you simplify the message?"
You know perfectly well I gave a reasoned analysis of why we shouldn't join the Euro Stephanie's last Blog 'People Power! @64. In summary it's because it was rushed through and established poorly. If it was so efficacious why are the five little PIIGSies in so much trouble? Because beyond a common currency there is very little monetary control and certainly no political control.
If we want to join the Euro, we will have to set in train a whole series of policies that will enable that to happen, including major structural changes, controlled Government spending and wage restraint allied to productivity improvements to enable us to compete with the likes of Germany and the other strong core EU countries. Do you think Crowbar of the RMT, Derek of Disunited and all the other Unions will allow it to happen? Not a chance!
As to China's success being due to a single currency, yes it was - you are correct! But for the wrong reason. The Yuan doesn't float but is carefully managed to keep China competitive. If it had floated like the Japanese Yen, it would have risen in value, China would have become less competitive and would not have been doing so well.
Also China is not a single currency! Ever heard of the Hong Kong Dollar(HK$)? Study the set up of the peg between the HK$ and the US$ and see what reserves HK had to maintain to keep their currency link steady. It wasn't easy.
Also if you want to gauge how much we will have to do to get into the Euro, in the 1960's the pound was worth around 11-12 Deutsch Marks. By the mid 80's it was worth around 2DM's. Unfortunately we have an economy prone to inflation and reduced competitiveness and it's not all the fault of Bankers, of whom,regardless of your imputation, I do not have any genetic or filial linkages.
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44. At 01:25am on 05 Sep 2010, zfvr wrote:
The Secret of Oz
http://www.youtube.com/watch?v=D22TlYA8F2E
Wow Great video. The most informative 2 hours I've spent on a Sunday in years. I'm making a donation.
Osborne
As the Icelandic lady said.
"Why are you pumping money into big banks? Let them fail"
You have the power to create the liquidity, get rid of Fractional Reserve Banking and eliminate the Debt. DO IT!
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34. At 3:38pm on 04 Sep 2010, foredeckdave wrote:
Thanks Dave
As others have said before me "Better informed but none the wiser"
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To every £$ of debt there is a £$ of credit on the other side of the equation. So who are on the other side of the equation? Something does not balance. Why so much repeated mention of how much we owe but not to whom?
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It's a pity so many very intelligent people cannot step outside the box and see that you cannot have an infinite 'growth' monetary system on a finite planet and it can only end in disaster. It isn't something that can be 'fixed'.
The 'only' Idea I have seen that makes any sense is to eliminate the monetary system altogether and go for a Resource based economy as proposed by the Venus project and the Zeitgeist movement.
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57. At 3:38pm on 05 Sep 2010, puzzling wrote:
To every £$ of debt there is a £$ of credit on the other side of the equation. So who are on the other side of the equation? Something does not balance. Why so much repeated mention of how much we owe but not to whom?
Have a look at the "assets" on the balance sheets of banks, in some cases £Trillions. This is the other side of Govt borrowing. Its a house of cards and the taxpayer pays the interest unnecessarily. The Govt could quite easily provide a debt free money supply but that would mean that the banks would not be able to clean up during the Bust phase of the economic cycle by snapping up cheap but real assets.
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This comment was removed because the moderators found it broke the House Rules.
Let us view the Bretton Woods institutions that include the IMF as a foreign government. Why not? Is there a significant difference?
Let us, for the sake of illustration, say The Kremlin, instead of The IMF. Why not? They are both foreign powers, both lend money and both have influence.
Now why is the BBC at taxpayer expense ramming down our throats the opinions of The Kremlin?
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#54. dontmakeawave wrote:
précis: we can't join the Euro..(followed by some 'reasons')
The Euro may be imperfect, but it is the only way we can get the gigantic economic benefit of a a substantial home market. So we had better buckle down and live in the real World and take the opportunities that present themselves rather tham wait till the 'time is right' - which of course it will never be. You should properly understnd the hugely negative impact on our economy that we will suffer in the meantime (and of course the gigantic profits the bankers will make from us) You have I think been conned by the bankers!
As to your 'point' about China not having a single currency - rubbish. The Yuan/Renminbi is the currency of a billion consumers and suppliers - and that is what provides the cost and price stability for Chinese business and that is the power of their home market. Hong Kong is irrelevant! Chinese manufacturers sell mainly to the huge market and but from this market - this is the stable market that matters and this is precisely what the British bankers refuse to let the British manufactures gain the benefit from. They are strangling British business with the exchange costs and variable exchange rates. Manufactures need price and cost stability. I will remind you that Mrs Thatcher allowed the £/$ rate to go to 2.40 and it was this that destroyed British manufacturing. Your 'when the time is right' argument is just a juvenile mantra fed to you by bankers - the destroyers of Worlds (to misquote the Oppenheimer / Bhagavad-Gita)
We must join the Euro ASAP and fix the faults in the Euro from the inside - we surely will never be able to do so from the outside - your advice is a council of despair!
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# 57. At 3:38pm on 05 Sep 2010, puzzling wrote:
"To every £$ of debt there is a £$ of credit on the other side of the equation. So who are on the other side of the equation? Something does not balance. Why so much repeated mention of how much we owe but not to whom?"
Try the banks, try China, try sovereign wealth funds in the middle east.
We consume more real things than we produce, leading to borrowing.
The likes of China and oil producers produce more than they consume and have money to lend (often lending our own money back to us), multiplied up via fractional reserve banking.
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# 58. At 3:41pm on 05 Sep 2010, NutitanicPassenger wrote:
"It's a pity so many very intelligent people cannot step outside the box and see that you cannot have an infinite 'growth' monetary system on a finite planet and it can only end in disaster. It isn't something that can be 'fixed'."
Very true - the only way to generate more real wealth is for the world to produce more and add more real value.
However, its very likely that the monetary system will determine where the benefits of such added value are felt.
Its likely that as always, money will attract money. It could be argued that the monetary system has maintained our wealth and standard of living far past what we earn and deserve, at the expense of other parts of the planet and / or future generations.
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# 51. At 1:32pm on 05 Sep 2010, Sutara wrote:
"Maybe we need a massive re-education programme, within public sector services, of what the basics of financial and budgetary management are about."
Very true; excessively hierarchical, bureaucratic organisations often prevent operation managers doing the right common sense thing.
Unfortunately most public sector financial management is focused on protecting the status quo and position of the accountants (many of whom have never worked in a different environment).
A focus on defending and spending budgets rather than saving money wherever possible, and spending where its likely to result in long term savings is something of an alien concept.
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47. At 08:40am on 05 Sep 2010, Sage_of_Cromerarrh wrote:
"foredeckdave unfortunately the truth can be "uncomfortable" and Reaper_of_Souls is spot on in all that he says."
Thankyou, foreckdave tends to avoid uncomfortable truths on ideological grounds (it comes with the territory for socialists).
"...you are trying to move the immovable object when it comes to inspiring externally a work ethic and ambition to achieve in most young people. They've simply had it too easy compared to others in other countries."
Indeed, one of the major obstacles we need to overcome is our complacency, the feeling of entitlement and myopic comfort zone that engenders.
"A knowledge economy will create a wealthy elite which then hopefully by taxation and wealth distribution will support many others..... and be honest that we have to take a lot more tax from the rich to help the poor in the meantime."
The problem there being that by its very nature, the key elements of a knowledge economy, highly skilled people, tend to have a high degree of potential geographic mobility. The balancing act is to tax high enough to support the rest of the economy, and to ensure enough is available to employ others providing secondary "support" services (e.g. retail, hospitality, etc.), whilst not encouraging the key assets to leave. Perhaps generating more tax from the higher revenues generated by exceptional skills rather than necessarily taxing at an excessive rate.
Obviously other factors helping key wealth earners feel more comfortable; such as security and feeling valued could also help.
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44. At 01:25am on 05 Sep 2010, zfvr wrote:
"The Secret of Oz
http://www.youtube.com/watch?v=D22TlYA8F2E"
55. At 2:47pm on 05 Sep 2010, Alesha Soba wrote:
"Wow Great video. The most informative 2 hours I've spent on a Sunday in years."
Agreed - a very interesting link for anyone with a couple of hours free ...
I must admit though that I found the number of attempts to take the lives of those often prominent fellows (including several US Presidents nonetheless) who stood up to the current system of money creation through debt (well, perhaps read 'bankers') for the 'good of the people' considerably disturbing ...
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#66 Reaper_of_Souls,
"Thankyou, foreckdave tends to avoid uncomfortable truths on ideological grounds (it comes with the territory for socialists)."
I am in no way avoiding uncomfortable truths. I am merely highlighting short sighted ill-informed bigotry.
You obviously have not thought about what a knowledge economy would actually consist of and how it would be enacted and generated. Knowledge of itself has little or no value until it is both shared and then put into practice. If you follow the development of the idea from Drucker onwards you will find that the element that they all stress is that the very nature of such an economy prescribes against the creation of a knowledge elite.
Why are you so myopic to cling to he unreality of the existing market model? It has clearly failed. The system itself is broken. It is this very system that has created an elite - far beyond the power of nation states.
Now I recognise the truths of the situation we currently face and to me at least it is clear that both you and Sage_of_Cromerarrh are either unwilling or unable to lift your economic horizon - that may also be true for your socio-political horizons too.
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67. At 9:58pm on 05 Sep 2010, ScepticalMonkey wrote:
'I must admit though that I found the number of attempts to take the lives of those often prominent fellows (including several US Presidents nonetheless) who stood up to the current system of money creation through debt (well, perhaps read 'bankers') for the 'good of the people' considerably disturbing ... '
***********************************************
Lincoln and Congress passed the Legal Tender Act of 1862 and the National Banking Act of 1863 empowering the U.S. TREASURY to issue INTEREST-FREE NOTES called "Greenbacks." Lincoln was then able to print the millions of dollars he needed and it was debt and interest free.
At the end of the Civil War, Lincoln sought to make the Greenback System permanent. But when Lincoln was assassinated the U.S. then began to move towards a gold standard and contract the supply of greenbacks.
-----------------------------------------------
In June 1963, Kennedy issued an Executive Order allowing the U.S. government to issue INTEREST-FREE NOTES. Kennedy then ordered the U.S. TREASURY to print over $4 billion worth of "U.S. Notes" to replace Federal Reserve Notes and eventually end the Federal Reserve System.
Months after Kennedy's monetary plan went into effect, he was assassinated. The United States Notes he had issued were immediately taken out of circulation. Federal Reserve Notes continued to serve as the legal currency of the nation.
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11. At 4:00pm on 03 Sep 2010, jonearle wrote:
It still amazes me when I read comments, like one the other day from someone admitting they just retired (Civil Servant) with £83K lump and £26k a year pension, and that they had paid 4.25% extra, justifying that the pension is hardly something to boast about.
What people don't realise is that people like me, self employed, will need to have saved a pot in the region of £1 million to retire on that level of pension. But instead I'm going to be taxed more and more to pay his pension instead of building up my own.
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Or put it another way your self employment enabled you to pay less tax while those public servants were taxed through PAYE and you have failed to invest in an adequate pension while those public servants have sacrificed income for a better pension.
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68. At 10:38pm on 05 Sep 2010, foredeckdave wrote:
"Knowledge of itself has little or no value until it is both shared and then put into practice."
If you are considering this in the broadest scientific sense and added "within a knowledge economy" to the end of your sentence then I would tend to agree with you.
However, given the nature of the current economical/political system I would suggest that both "information" and "knowledge" have an intrinsic value and in order to extract "maximum value" this is best kept quiet ...
It doesn't mean I like the notion.
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#71 ScepticalMonkey,
"If you are considering this in the broadest scientific sense and added "within a knowledge economy" to the end of your sentence then I would tend to agree with you."
thank you, your qualification is totally in line with my intention
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Why did Thompson have to go to the BBC...was it to be told how to report or was it to be held to account for his journalists ommissions in reporting the causes of the credit crunch and why harsh economic measures are now necessary...and not merely being used as an excuse for ideologically driven reforms.
Labours economic legacy....'a seedy dream world mired in debt and bankruptcy, facing a looming crisis of employment and employability, trying to find the money for a diplomatic and military role that it cannot afford. The consequences of Labour's debt will be ' a millstone round the economy's neck in the decade to come, a blinding headache that will hobble economic activity and consumer spending for years.' (and yet Stuff'n'Nonsense wants more debt?) Who wrote that? A Tory spin meister? No, the Guardians economics editor.
Or this from 2007, pre crunch...’The economy is in pretty good shape....I feel sorry for the next Labour chancellor. Brown set out tax and spending changes for the next few years, in effect taking the job away. The new chancellor will have time to get to know the ducks in St Jame’s Park.’ David Smith Sunday Times....just goes to show how good economists really are doesn’t it Steph?
or this....’Economic success has been built on rocky foundations...large dollops of private and public debt, an over-reliance on the speculative activities of the city and an excess of consumption and stagnation in manufacturing that has led to a trade deficit of record proportions. (no mention of global down turn here!)
The good news for Brown is that he will be out of the treasury should these underlying problems come to the surface; the bad news is that as prime minister, he will still get the blame. (and rightly so)
Who wrote that?...the Guardians economics editor Larry Elliott.
And all this before the credit crunch hit...who’d a thunk?
The BBC's refusal to acknowledge the cause of our economic downfall is shameful.
As well as previously suggesting the solution to public sector pension deficit was to employ more in the public sector...and pay them more so that they could be taxed more to pay for their pensions (question...where does she think the money to pay their wages would come from?.....debt) she now thinks that we can continue to borrow to a level beyond that which would lose us our AAA credit rating.
Lose our AAA rating means our interest rates would rocket on that debt...we already pay more in interest repayment than we pay for our defence budget...and the debt we have is already scheduled to rise...and yet she wants to pile on more debt.
Clearly Mark Thompson has not read any of her outstanding work....the Lefty dinosaurs still roam the corridors of the ideologically cleansed BBC.
Stuff'n'Nonsense continues the time honoured BBC tradition of promoting massive debt funded 'stimulus' with the USA as an example....however they seem reluctant to tell us about the rapidly deteriorating condition of the US economy and have a staunch refusal to disclose any reports that suggest Obama's trillion dollar gamble is flatlining.
Hans-Werner Sinn, head of Germany’s IFO Institute, said the US would have to purge its debt excesses the hard way.
“The bitter truth is that there is no way out of this with monetary and fiscal policy. They will just have to see their living standards go down. I see a decade of difficulties for the US,” he said.
Dr Roubini said average public debt in the rich countries would rise to 120pc of GDP by 2015 in the rich countries, leaving no scope for a further fiscal stimulus. If they push their luck, they too risk the sort of bond crises seen in Southern Europe this year.
“The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.
In the US, the fiscal boost has faded, switching to tightening over coming months The lift from the inventory cycle is finished. Capex spending by companies has held up well, but this slowed sharply in July. Housing is already in a double dip. The last support for the US economy is consumption, barely growing at 1pc.
“All we did was kick the can down the road and stole demand from the future,” he said.
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#69 foredeckdave :
"If you follow the development of the idea from Drucker onwards you will find that the element that they all stress is that the very nature of such an economy prescribes against the creation of a knowledge elite."
Whilst using knowledge widely adds value, the simple fact is some people are more capable than others; in a global market only the highest level knowledge is likely to command a true premium; thus that is where there would seem to be benefit in focusing our resources; at least if we want to maintain our over inflated living standards.
Do you seriously expect us to match China's production of engineers or India's development of their IT industry?
Or perhaps you think media studies and other marginal subjects (which seem to be more use to manipulate youth unemployment statistics than to actually contribute to our future economic prospects) are the solution.
The simple fact (as exhibited by literacy and numeracy statistics rather than dumbed down exams) is that our education system has moved backwards, over the years, resulting in less capable, less willing human resources being available to contribute to the economy.
Perhaps its not entirely down to education, perhaps genetics play a part, after all the more intelligent tend to have a lower birth rate than those seen as having "social problems".
The issue is whether groups who would be naturally considered as manual workers, can adapt to be productive in more intellectually challenging roles; or whether its desirable to follow the old socialist principle and ensure sufficient manual jobs exist (productive or not) to keep such demographics occupied and engaged with the rest of society.
There are of course arguments saying that we require a decent birth rate to offset our ageing population; but current demographic trends suggest average intrinsic intelligence will reduce over time (like selective breeding in animals in reverse).
[If anyone who has ever seen the comedy Idiocracy, weak as it is it does raise some genuine points about the way society is going].
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re #74
Good post.
While I agree in general with comment about and around meejah studdides, media is part of the 'knowledge economy' as well as the creative industries.
If we are not making nuts and bolts to flog around the world, (and flogging the flogging - we are world leaders in advertising) then manufacturing ephemera for the ether-sphere - if we can get people to pay us lots of dosh for doing it - is no bad thing. Chris Tarrant, Anne Robinson and Simon Cowell have done very nicely out of it. Wonder how much UK Plc has earnt from that?
PS: Am not commenting on the true 'value' of that sort of creation, just its earning potential.
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The problem with socialism and socialist economics as a subset of this is that it requires a universal application of reason and intelligence to be consistently employed to overcome basic human survival behavior (personal greed).
Now in the intellectual elite this can be achieved, most of the time. But for the less intellectual in society they have to be forced and this is not compatible with democracy and freedom.
Modern capitalism is an imperfect evolution by natural selection of an economic model that has provided a best fit for the common welfare of all. It's not ideal but is better than any Oxbridge champagne socialist designed or quasi nationalist right wing man made system.
Anyhow this is all academic. Over population will bring down any of the current economic systems being discussed here on this blog.
We are currently living in a world which is at best over populated to the tune of 4 billion people. That's a 4 with 9 zeros after it!
Modern agriculture is a system designed to turn oil into food.
Why is oil priced currently at between two and three times it's previous trend level when we are in a period of unprecedented global recession?
The reason is we can not get enough out of the ground to supply the demand. The Saudis are making hay whilst they can and using their surplus cash to buy as many wealth producing assets as they can get there hands on ranging from racehorses to western corporations and government debt.
All this humanity (and it's still growing at the rate of about a billion every decade) is competing for employment which due to constant efficiency improvements is not expanding at the same rate as the population. Not to mention consuming ever more quickly our cheaply accessible natural resources. The result can only be calamitous if we do not recognize very soon that we collectively have to take a longer term view of the effects of our behavior and actions instead of hammering on with the failed economic equation for health, wealth, and happiness, namely that growth = everything good. Or even that exponential growth in a finite world is possible.
As Dr Albert Bartlett so simply and eloquently shows (see his video snippets on Youtube) "mankind's biggest problem is his inability to understand the exponential function."
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re #73
If you think Steffie's none too good, you should have seen and heard the predecessors. I think her appointment has resulted in an improvement in the Beeb's economic coverage.
As to impartiality, I'm in agreement generally with the observation that the three major Bloggers, Robinson. Flanders and Peston, constantly get it in the neck equally from left and right for being biased t'other way. Therefore ...
There are some institutional bias's (can't think of plural of bias, hope that's correct - oh dear, slightly brain dead at 8am on a Monday) at the Beeb and they have been made aware of them and, to be fair, have owned up and are trying to address some or all of the problems. Our dear old Beeb is, however, something akin to a supertanker and takes a lot of 'ocean' to turn.
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9. At 3:30pm on 03 Sep 2010, fleche_dor wrote:
In stead of looking at the micro economy we should look at the global economy. What this report is telling us is that the major economies are still operating way above their means. The issue is that these forecasts are not taking into account the fiscal support that has been throw into the respective economies.
The Uk's BoE will not recoup its investment from the QE venture for over several decades. That in itself is not the issue what is troubling is that it is now expected that QE will be used again and as soon as November this year.
This situation is mirrored around the world and even in the BRIC countries.
I fear that the majority have not yet bought into the austerity message and are looking to return to the days of plenty before taking the medicine not to mention waiting for the effects to take place.
Are we in for a double dip, you bet ya......
And it is not just the UK but the majority of the developed world. There will be exceptions where economies operate on at micro level but these are few and far between.
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20. At 01:22am on 04 Sep 2010, BobRocket wrote:
Good entry except the fact that the IMF bailed out Iceland in November 2008 with a loan of some $2.1 billion along with a loan from the other Nordic states of $2.5 billion.
A complete bail out no, but one that assisted in the soft landing.
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76. At 08:25am on 06 Sep 2010, Sage_of_Cromerarrh wrote:
Modern agriculture is a system designed to turn oil into food.
--------------------------------------------------------------
Don't forget - water is needed as well.
Good, interesting post though. Carry on Sageing.
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re #76
But I do wish you hadn't mentioned exponential function ...
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59. At 4:05pm on 05 Sep 2010, Alesha Soba wrote:
I totally agree, if there is a default it is the institution around the globe who will suffer first quickly followed by us the poor sods who have invested our savings and pensions with these buffoons.
What we currentley have is perhaps not a pyramid scheme, more like a Ponzi scheme.
The EU is a prime example. They ask for members to pay in and then give out. The only issue is that a number of the members can't pay in but still want the money out. The PIGS have not gone away even though it is not a hot topic. There is still a large question mark hanging over the EU and Euro, will it survive?
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81, I know maths is boring..... but it has evolved as a means to enable us to quantify, simplify, and hence solve real world problems. The exponential function sounds complicated but it's really quite simple. Dr Bartlett explains it very eloquently. Watch his videos on youtube (the whole sequence lasts for about 50 minutes), they are aimed at non-scientists and non-mathematicians.
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Thank heaven's you're blogging about this. For months now I have been pointing out to people that Britain's debt is not nearly as bad as they think. Using IMF figures I ask people to guess where Britain sits in a league table of debt among leading nations (as % of GDP). Their estimates are ALWAYS seriously pessimistic. They are always amazed Britain fares very well in that table.
Yes we do need to cut debt to address the bail-out costs. There has to be pain. But in my view the Conservative Party, backed by a media that pretty much universally decided it wanted them in power, misrepresented the level of the threat to justify excessive cuts that it would always want to make quite regardless of necessity.
Failing to invest in health and education are short-termist policies that will cost this country more in the long run. And when debt is for investment it can make very good sense. Education, for example, is probably our best asset in ensuring we can compete with nations like China and India. We cannot be cheaper, we must be smarter.
Everyone should look for themselves at average debt per year (as % of GDP) during the years of Labour power vs the same for the series of Conservative governments before them. while it is very marginally higher under Labour we we are talking cigarette papers of difference, and that's when you include the extraordinary costs of the credit crunch – a far bigger financial problem that the Conservatives ever faced. The level of cuts being pursued are a political decision not a financial necessity.
Internationally the UK is in a stronger position than many of its competitors. We need cuts but if we go too far we will undermine our ability to take advantage of this.
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“True, our primary deficit - before interest payments - is up there with the worst of them: 8.8% of GDP, compared to that average figure of 7%.”
The reason for this Steff, is that not enough money is collected in taxes to cover expenditure. However, the size of private debt, which never seems to get a proper mention, restricts the ability of the government to raise sufficient amounts of tax to cover expenditure. My understanding is that 60% of private debt is tied up in the housing market. It is the fractional reserve banking system’s ability to create almost unlimited debt availability that has led to the housing market becoming so inflated, and as the same time, seriously reducing a spending power of the nation, and its ability to be taxed. Prior to the 1980s most homes were bought using loans from mutual building societies. The need for monetary reform and removal of fractional reserve banking to reduce debt levels to a more sensible level is essential.
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76. At 08:25am on 06 Sep 2010, Sage_of_Cromerarrh wrote
Similarly covered in Chris Martensons "Crash Course". A key issue conveniently ignored in the pursuit for "unsustainable" growth.
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70. At 11:12pm on 05 Sep 2010, MaxWax wrote:
Where as it may have been true may decades ago that the the public sector had poor wages but a good pension, this is now far from the truth. Public sector wages are now on a parity with that of the private sector, however they have maintained their overall benefits. These are now not sustainable and the reason is two fold; 1. the size of the public sector, it is completely out of proportion with that of our economy. 2. people in the private sector are now retiring earlier and living longer. Just a quick and simple example. The average Police Officer in the 1960's retired in his late 50's to early 60's. That has now dropped to their early 50's. They used to have a life expectancy of ten to fifteen years after retiring now it is almost thirty years. So you just have to do the maths.... retiring almost ten years earlier and living two to three times longer in retirement. So to receive their current pension they should not be contributing 4% or so it should be over 95% (figures from independent commission). In short the current burden on the public sector purse for these pensions is over £35 billion a year.
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84. At 09:19am on 06 Sep 2010, Robiati wrote:
You must live in a different world to me. This is the problem with benchmarking when not all participants are the same, apples with apples. How can you compare the UK with Germany for example. We have much less manufacturing and hence more likely to take longer to recover. We are also on a different level with food production than many on this list. Something that again will come back to bite us as food prices soar. We are also seeing the end of North sea oil which again will hit us hard. Top this with our reliance on; 1. The city 2. The public sector 3. An artificial housing market and we are more than likely to bump along on the bottom for some time. What about the others on the list well they have their own issues. I am sure we will see this list revisited over the coming months and years with winners and losers changing all the time.
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A very interesting point was raised by an economist in as much as here in the UK and across the globe debt increases were usually either one or the other. As was the case in the 60's and eighties. This appears to be the only time in living memory when we have seen an unprecedented rise in both public and private debt. This raises some interesting questions; If the state can't afford to bail out the country, which it currently can't despite idiots like Balls who think that we can keep on printing money and there is not the appetite or ability in the private sector due to personal debt to kick start the recovery and this is the same around the developed world are we now at the start of the perfect storm. Rising food prices, inflation and at best stagnating economies. Uncharted water for us economists we can,t just regurgitate someone else's thoughts or even quote history. So how will we emerge from "The Perfect Storm"?
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44. At 01:25am on 05 Sep 2010, zfvr wrote:
Debt, debt, debt. Debt is bad, mmkay? Whole world is drowning in debt. What is debt, exactly? Who is lending us all this money? Why not take few minutes to educate ourselves on these fundamental issues?
The Secret of Oz
http://www.youtube.com/watch?v=D22TlYA8F2E
----------------------------------------------------------------------
Excellent. Thank you.
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Welcome back from your holiday Stephanie, I hope you enjoyed it.
These IMF papers have attracted comment elsewhere but rather than accept the provisions and arguements they have received a fair bit of criticism which contrasts somewhat with your acceptance of them.I notice that notayesmanseconomics feels this about the unnecessary,undesirable and unlikely paper.
"Just like a first world war general they are subject to the criticism that they are fighting the last war and not the current one. Much has changed over the period of the credit crunch and the pattern of defaults and restructuring may well have changed too."
So others do not just accept the IMF analysis and also question the reasons for the paper.http://notayesmanseconomics.wordpress.com
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85. At 09:30am on 06 Sep 2010, Averagejoe wrote:
“The need for monetary reform and removal of fractional reserve banking to reduce debt levels to a more sensible level is essential."
I'd agree with your point about private debt being too high in the UK but we must remain tax-competative just as we must remain competitive on other levels.
And to argue that fractional reserve banking should be removed is a bit extreme. It's not a recent invention, it's been around for a very long time. A more measured response is to increase minimum reserve ratios which most governments have done, though the question of the right level to set is open to debate.
To allow the fractional reserve system to run away with itself by setting reserve requirements too low might be to cause unwise investment and asset price inflation. But to remove it completely is to leave hoards of capital dormant and waste investable opportunities.
Money is in itself not worth anything. It is a means of representing the value of anything and everything. Ensuring there is just the right amount of money in the system to find fair value without supplying enough to cause inflation is the right balance.
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92. At 11:26am on 06 Sep 2010, Robiati wrote:
Have a read of the articles at http://www.prosperityuk.com/prosperity/prosperity.html
and
http://www.bankofenglandact.co.uk/
Our money supply is now 97% debt backed money or loans (on which interest is due) created by commercial banks and only 3% created interest free by the Bank of england (i.e. the cash). In order to service our "loan " based money supply more and more businesses have to take out more loans in the future to service the debt (to pay the interest on it). This means the money supply must growth perpetually, and it is actually compounding, or growing exponentially, which of course constantly erodes its value and causes inflation. In effect this is the achillese heal of having a debt based monetary system. Alas the only solution is monetary reform and removal of the fractional reserve banking system. Obviously the Banks wont like it.
“Any intelligent novice, first introduced to the workings of the money system, must find the pyramiding of money on the fractional-reserve base incredible. A few of the nation’s foremost economists, led by Henry C Simons and Irvine Fisher, were of the same mind at the depth of the depression when they urgently advocated abolishing the system. The idea was simply to require 100 % reserves for all checking account deposits, so that all true money was government money. Instituting that system would have been little more than a bookkeeping entry, but after it was done all the evils of the fractional-reserve system would disappear. The idea was called the only fundamental creative idea to come out of the depression. But the idea passed into limbo. The best economic minds were in favour of it, but the commercial bankers could be counted on to resist to the bitter end the loss of their money machine, and the people and the legislators probably did not understand what it was all about. Little was heard of the idea in later decades except occasional, and rather inaudible, reminders by a few economists. This complacency would no doubt persist until still another series of disasters came to pass with the substantial aid and comfort of the fractional-reserve system.” (The Dying of Money Jens O Parsson 1974)
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62. At 8:58pm on 05 Sep 2010, John_from_Hendon wrote:
"They (bankers) are strangling British business with the exchange costs and variable exchange rates. Manufactures need price and cost stability."
Errmmm, The Euro is a floating exchange rate! The Eurozone export abroad with a floating exchange rate. Only Germany with their fantastic productivity can live with the Euro in exports.
As to the Eurozone for us, we are in it, only we price in Pounds Sterling. We export to the Eurozone, where our goods since 2008 have been more price competitive if we choose to lower prices. The main issue for us with a lower pound, obviously, is higher import costs.
"I will remind you that Mrs Thatcher allowed the £/$ rate to go to 2.40 and it was this that destroyed British manufacturing."
JFH, Economist/Historian you are not. Your diatribe is pure Rant-enomics. First off, Thatcher. The election of the Grocer's daughter was in May 1979. The exchange rate to the dollar was around 2.30 dollars to the pound. It peaked a year later at 2.44 to the pound and then, during the next few years plummeted to 1.05 dollars to the pound by 1985.
Get your facts right! It was the induced recession of 1980, by squeezing the money supply, that caused industry to hollow out not the exchange rate. The hollowing out of industry (I didn't like it) started in earnest in '81/'82, while the pound was in freefall! See the attached link if the BBC will let you:
http://www.miketodd.net/encyc/dollhist-graph2.htm
"Your 'when the time is right' argument is just a juvenile mantra fed to you by bankers"
Who are these banker? I wouldn't mind some 'juvenile mantra' I'm really hungry! As to my view that we need to prepare, what's wrong with that. We are deep in the economic doodoo, the Eurozone is likewise, it just doesn't make sense to even contemplate going in.
As to Bankers - salt of the earth - I had shares in Lloyds, HBOS, Alliance & Leicester, Bradford & Bungley, Abbey et al. Love them for confirming I invested wisely in their secure banks!! Thank god I had BP shares or.........
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#77 "As to impartiality, I'm in agreement generally with the observation that the three major Bloggers, Robinson. Flanders and Peston, constantly get it in the neck equally from left and right for being biased t'other way. Therefore ..."
I only wish that was true.
Flanders is fairly impartial but I know a number of people consider her anti-Euro (or possibly anti-EU) - that is not how I read her blogs but there is a fairly consistent rumble of discontent.
Peston - too banker orientated. There are lots of other business stories around but we keep ending up with banking. But in terms of politics he seems agnostic which is somewhat different to impartial.
Robinson - words fails me. I think you will find the complaints about anti-Tory bias running at 5 times the level of anti-Lab bias about little Nicky. Not bad for an ex Oxford University Conservative Party member
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#74 Reaper_of_Souls,
You really should re-read your posts before you post them.
You clearly demonstrate that you have little understanding of Socialist philosophy. The basis of socialist thought has never been that all people are equal. Socialists have always argued for the principle that it is OPPORTUNITY that should be equal.
As for scientists and engineers, British universities are now producing greater numbers of them than ever were produced via the Classic model of education enshrined in the culture of the old public and grammer schools.
Your statement regarding genetics is contradicted within your post. If genetics played an important part in the development of a modern economy then please tell me how China and India can produce so many of them when they come from a peasant stock?
If you really want to study the reasons why more students prefer other study streams then you have to examen far wider cultural and economic factors. You may like to start with the British cultural distain of scientists and enginers. Then add the lack of opportunity in the UK that is a direct result of the adoption of globalisation (the mirror arguments also hold true for China and India).
If you wish to follow the arguments presented by the happily departed JadedJean then you are free to do so but I for one will neither thank you for it or participate.
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#95 Justin150,
"Robinson - words fails me. I think you will find the complaints about anti-Tory bias running at 5 times the level of anti-Lab bias about little Nicky. Not bad for an ex Oxford University Conservative Party member"
So he DID actually learn something at uni!
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83. At 09:11am on 06 Sep 2010, Sage_of_Cromerarrh wrote:
81, I know maths is boring..... but it has evolved as a means to enable us to quantify, simplify, and hence solve real world problems. The exponential function sounds complicated but it's really quite simple. Dr Bartlett explains it very eloquently. Watch his videos on youtube (the whole sequence lasts for about 50 minutes), they are aimed at non-scientists and non-mathematicians.
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Maths - boring? Even if it's taught well? Used in the right way? A tool for doing stuff?
Unfortunately, the opposite of all those can apply as well.
Let's keep quiet about exponential ... especially exponential growth ...
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#98 Up2snuff,
Nah! let's start a discussion on Exponential Smoothing :)
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Poor communications skills. That's what caused false worries about debts. Labour MPs allowed the media hype of some impending collapse to become current: it was never true. Why they couldn't explain the truth is because few of them has any understanding of national finances. Nor had most Labour Ministers.
There's no need for the drastic cuts. Nor the damaging hike in VAT next January the coalition's promising.
Continued economic growth continued produce most of the extra tax revenues we need without the need for drastic cuts. That's evident from the IMF's report.
But the coalition's deliberate policy is to cut benefits, cut education, cut our armed forces, push up train fares and slash social care and HM prisons. Not only will those cuts set our nation back, they will increase unemployment and spook businesses and consumers.
A grim few years await us. Until some future election (next May perhaps?) serves as a warning that ministerial perks and pay are under threat. That 'signal' could lead to a change of both Chancellor and policy.
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87. At 10:31am on 06 Sep 2010, Chris London wrote:
70. At 11:12pm on 05 Sep 2010, MaxWax wrote:
Where as it may have been true may decades ago that the the public sector had poor wages but a good pension, this is now far from the truth......
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I agree, this is probably true today and those in the public sector will have to get used to paying more for their pensions.
But I was commenting on jonearle's posting referring to a civil servant retiring NOW with a pension of £26K. For this to be true, he would have retired (for example) from a job paying a £52K (not a typical civil service salary) held for 40 years. My point is that during much of those 40 years he was paid less than a similar private sector job in return for a guaranteed pension. The comparable private sector job would have been a professional role for that salary and would have also had a good pension. (The example may have referred to someone earning £75K serving for 30 years but the same principle applies)
Many self employed people make such comments when for years they have paid about 10% of their income as tax (creative accountancy) compared with those on PAYE paying 40% tax. The wiser among them invested this extra incomein their pensions or property, but many just spent their extra income and now moan about public sector pensions.
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44. At 01:25am on 05 Sep 2010, zfvr wrote:
Debt, debt, debt. Debt is bad, mmkay? Whole world is drowning in debt. What is debt, exactly? Who is lending us all this money? Why not take few minutes to educate ourselves on these fundamental issues?
The Secret of Oz
http://www.youtube.com/watch?v=D22TlYA8F2E
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Who's behind it? It's great so far - watched half of it.
I believe direct intervention in commercial banks is the only economic solution. It hasn't happened so far in this crisis I think because the politicians are too attached to the status quo; the leaders don't have the non-mainstream economic advisers or resources to steer them in their intellectual need, and they are too conservative and cowardly in their democratised approach to attach themselves to the heterodox economists.
I would even go so far as to say that in some countries there is a political effort to maintain the status quo by distorting public elections. I am surprised that in several European countries recently a number of non-existant right wing parties suddenly splintered from the main parties to skew the number of contestants in elections, shifting the balance of parties to vote from to the right. This in conjunction with IMF-type propaganda about public debt to GDP levels crippling "socialist" countries, as though it wasnt the the private sector GDP component that wasn't the real problem.
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It's even better than the IMF say...
http://bilbo.economicoutlook.net/blog/?p=11389
There is no need whatsoever to 'borrow' in a fiat sovereign currency system, simply create the money and give a Job Guarantee to the un/deremployed at minimum wages, putting a floor under demand and unleashing business to service those unmet/financed needs. The price risk is minimal given the large labour/capital output gap.
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Stephanie - an idea for a future article. Remember Gordon Brown's "Golden Rule"? Something about borrowing only to "invest" over the economic cycle. It sounded sensible at the time, so what went wrong? At exactly what point did the rule get broken, who's fault was it, and will the Golden Rule ever make a comeback?
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#65 Reaper_of_Souls wrote:
"Unfortunately most public sector financial management is focused on protecting the status quo and position of the accountants (many of whom have never worked in a different environment)."
Actually, even those who have worked in different environments can easily get sucked into the public sector ways. And you are perhaps a tad over polite, the efforts of many public service managers are focussed on their own butts, their own ego's, their mates and pals who they believe will see them all right when the shoe is on the other foot, and their 'professional' vanities. (e.g. too many NHS units want to be 'centres of excellence' i.e. of academic repute, rather than efficient and effective deliverers of services to patients.)
When such false focal points are removed from the equations - as can sometimes happen under the leadership of the occasional better calibre senior manager - those same public servants can often actually deliver outcome, and customer, focussed efforts which utilise money and other resources efficiently and effectively.
The trouble is negative incentives and poor organisational cultures.
Or to put it crudely, why should I bother? I'm still going to get my big fat public-purse wage cheque, paid sick pay and pension? If I did the job properly I'd only rattle my colleagues' / bosses' cages and get it in the neck from them for showing them up.
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# 96. At 1:31pm on 06 Sep 2010, foredeckdave wrote:
"#74 Reaper_of_Souls,
If you wish to follow the arguments presented by the happily departed JadedJean then you are free to do so but I for one will neither thank you for it or participate."
Hardly; JadedJean's arguments always drifted towards an anti-semitic rant.
My point is that higher birth rates amongst those of lower intelligence, will by most scientific principles lead to a reduction in average intelligence.
As to China and India producing more engineers, etc. how many of these are world leaders and how many of these are capable and available cheaply?
Do you seriously think that they don't focus resources on those with the most potential (or maybe also the best contacts)?
[China in particular has a history of science and engineering, especially if you look back into antiquity].
We can't compete with them in the bulk market; we can only really try to produce the best to be the true experts and lead the way.
Why do we have an issue with science and engineering, the very fields that made Britain great?
Well they do tend to be relatively challenging degree courses;but there'll also be a fair bit of snobbery from both directions, making things not being considered as upper class and designing things and thinking not being considered as proper hands on doing things from a working class perspective.
We may produce greater numbers (although not proportionately in global terms), but do we produce the same outstanding quantity.
Numbers aren't the solution, they're just a statistic, especially if there is not the demand for the graduate skill level domestically (look at comments by employers about the limited relevant skills of graduates) and globally equivalent and better skills are available for less.
There's little going back from a global economy, we're dependent on trade; but we have to look to find a position within that global economy that offers us an economic future, being the best at a few things would seem to be one of the few ways to offset the cost of the standard of living we seem to believe we deserve.
(As to socialism offering everyone the same opportunity, strange, its always exhibited itself as a handicapping system, focusing more resources on the less capable and penalising those with talent, vilifying them as "elitist"; resulting in pulling the whole to a dumbed down average. Resulting in rewarding mediocrity and discouraging excellence; the results of which are evident in our economic decline.
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105. At 01:08am on 07 Sep 2010, Sutara wrote:
"Actually, even those who have worked in different environments can easily get sucked into the public sector way."
Very much so, the pressure to comply with the way things are done and not rock the boat is considerable.
Of course we could then look at the psychology that drives many to seek public sector roles;
if its for security, that means people will tend to think defensively, meaning its about justifying past actions rather than seeking opportunities;
this in itself encourages inertia, which is likely to result in those who want to move things forward becoming disillusioned.
..meaning the defensive, status quo mentality becomes more and more dominant.
Many public sector organisations are seen as a job for life, recruiting people from school or straight from university. There is little cross fertilisation from the private sector with the introverted, self perpetuating way that barriers discourage those with expertise from bringing it into the public sector; either due to the bureaucratic culture and hierarchical structures that strangle innovation or due to career paths, practices and language.
Of course this is further backed up by the idiocy of paying people more just because they've been employed for longer (irrespective of performance).
(Its amazing how things get seen as an academic exercise missing obvious real world factors and yet are accepted because the numbers in the "bubble" add up).
The problem is that many public sector institutions are empires unto themselves and not fit for purpose.
If you were to look at the services we need and how we could best deliver them, its extremely unlikely that we'd end up with the current structure and the disconnects and communication issues within and between them.
However, when it comes to change, its always done within and by the existing institutions who will of course look to defend their own interests.
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What the current Government is doing is definitely the right thing, I would take what the IMF says with a pinch of salt to be honest. It is our duty now to pay of the deficit as quickly as possible so that we do not pass on this burden to future generations. At this time the best thing we can do is to pay down the deficit to make sure our currency remains stable and so if some other Economic crisis happens in the future we will be in a better position to weather anything that the Global Economy throws at us.
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#2 >>This at least feeds us some slack to begin restructuring our economy into value added activity and reforming the banks so that the taxpayer is not guaranteeing the losses on the races at Newmarket.
It's not Newmarket, you have to worry about. It the casino where they are betting their underwear, having already tossed in their shirt !!
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#8 >>and please remember that even Tony Blair said that Mr. Brown was very astute economically
Tony Blair also said there were WMDs in Iraq !! Hooray for Truthful Tony !!
>>This tax would target all foreign exchange transactions, and these transactions number not in the millions but in the trillions.
This should be fun since these transactions are highly dependent on the various parties thinking that they are getting a good deal by making them in UK !! A Tobin Tax will make them think otherwise and they will make the same transactions elsewhere, far out of the reaches of such a rapacious tax !!
Britain has to trade externally in order to survive, the reverse is *NOT* true !! Others can stop trading with Britain without crashing their economies !! Perhaps, this is why HSBC moved back to HK, to escape such onerous views !! In the globalised economy, such highwaymen policies will not work !!
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#11 >>What people don't realise is that people like me, self employed, will need to have saved a pot in the region of £1 million to retire on that level of pension.
It's not so much what you save as where you save it !! If you save it locally, it will be looted along with all other savings to pay for the profligate !! If you saved it abroad, you have a better chance of keeping most of it !!
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#24 >>Some may argue that the BBC has a special position in our country. Come up with a non-circular argument against my first sentence and I might agree with you that an 'unbiased view' is achievable.
How do you achieve an unbiased view when you have to keep looking over your shoulder at the people who control the right to the TV license fees ?? Wasn't there something about "hand" and "feeding" ??
Perhaps after the Director of BBC gets the shiny knees of his trousers off No. 10's carpet, we might here something interesting !!
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#28 >>What is needed is an international measure of this debt management efficiency rating based on the economic profile of the various countries taking into account e.g.:-
base intererest rate comparisons
currency adjustments on borrowings
net tax base revenues - v- debt ratio
government spending on e.g. defence, health, benefits, education etc
One point that you've missed and which is very important is the polulation's spending to savings ratio !! Japan's spendings to savings ratio is very low (i.e. they save like crazy) whereas Brits spend like there's no tomorrow !!
This will affact the national debt almost like no other !! I think John_from_Hendon has bang this drum for long enough now that I need not do the same !!
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#31 >>The other key aspect that will keep us out of difficulties is that we have (although cuts will damage staffing of tax collection)a well functioning tax system.
Which rock have you been hiding under ?? - http://www.bbc.co.uk/news/uk-11186397
1 in every 5 is either over or under taxed !! Well functioning tax system ?? Hello ??
Or are you saying that this BBC article is lying ??
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#36 >>That particular elephant will turn out to be a mouse as more health-conscious older folk live longer and more productive lives than their parents could have hoped for. Technology will continue to depreciate the value of manual labour, and successful countries will be 'knowledge economies'.
"As more health-conscious older people live longer and more productive lives", they will, and already are, blocking the progression of the younger ones in the job ladder, culminating in massive unemployment amongst the young !! This will mean a very disparate society which will end in tears !!
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http://www.debtdeflation.com/blogs/2010/08/29/what-bernanke-doesn%E2%80%99t-understand-about-deflation/
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#39 GDP, as it is calculated now, is a fictitious measure !! If two farmers continuously buy the same cow back and forth at ever increasing prices, at current calculations, the GDP will rise expontentially without there being another cow or even calf involved !! (And let's not get into farmers inseminating their cows. We leave that to the porno blogs.)
If the farmers can produce more cows or calves, then there is a *real* increase in wealth !!
If you are paid with public money, then you are in the public sector, regardless of what your organisation is called !!
And if your neighbour cannot export his products or increase the value of other people's assets, then he is a net drain on public money !!
The days of the free ride are over. It's now produce or starve !!
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#49 >>The GBP ensured that 'The City' was bailed out with GPB 800Billion of gov't guarantees and then with GBP 200Billion of Mervyn's benevolent QE.
Hello ?? It was not "The City" that was bailed out !! It was just a few greedy, irresponsible banks !! Much of the rest of "The City" was still in reasonably fine fettle !! And Merv the Nerve's benevolence was directed at the NuLabour government, *NOT* at "The City" !!
Support Scottish devolution and give us back the bail-out money for those Scottish banks !!
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#51 Sutara - It's not quite as easy as that. I've been there, seen it, done it. And most of the management are extremely resistant to *ANY* change !! That's what makes my job such "fun" !! Moving the immovable is a hilarity I can do without !!
It would take two generations or a major catastrophe to "re-educate" the lot of them !! I think a major catastrophe is a more realistic expectation, considering the current economic climate !!
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#61 >>Now why is the BBC at taxpayer expense ramming down our throats the opinions of The Kremlin?
Because they wear better and more expensive suits at the IMF ?? Maybe it's their after shave ??
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#68 >>If you follow the development of the idea from Drucker onwards you will find that the element that they all stress is that the very nature of such an economy prescribes against the creation of a knowledge elite.
Doesn't the fact that you are quoting Druker suggest that *HE* is among the "knowledge elite" !! Else, why not quote from the man on the Clapham omnibus (as the saying goes) !!
If he is good, then he is differentiated from the common herd; therefore an "elite" !! If he is no good, why bother quoting him at all ??
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#106 Reaper_of_Souls,
Your post is both incorrect and illogical
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#94 >>As to Bankers - salt of the earth - I had shares in Lloyds, HBOS, Alliance & Leicester, Bradford & Bungley, Abbey et al. Love them for confirming I invested wisely in their secure banks!! Thank god I had BP shares or.........
My God !! You can really pick em, can't you !! :-)
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#95 >>Not bad for an ex Oxford University Conservative Party member
To quote an old saying - A converted Moor eats pork 5 times a day !!
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113. At 07:57am on 07 Sep 2010, ishkandar wrote:
#28 >>What is needed is an international measure of this debt management efficiency rating based on the economic profile of the various countries taking into account e.g.:-
base intererest rate comparisons
currency adjustments on borrowings
net tax base revenues - v- debt ratio
government spending on e.g. defence, health, benefits, education etc
One point that you've missed and which is very important is the polulation's spending to savings ratio !! Japan's spendings to savings ratio is very low (i.e. they save like crazy) whereas Brits spend like there's no tomorrow !!
This will affact the national debt almost like no other !! I think John_from_Hendon has bang this drum for long enough now that I need not do the same !!
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Oh, forgive me ... With respect ... I have not missed anything ... I've just pointed out some examples of what needs looking at in respect of trying to make sense of international comparisons and then inferring that based on a particular data set ... the UK is not in a relatively bad position.
There is no recognised method of analysis for making these kind statements in order to promote a certain politicised view or opinion on what is best for the UK in terms of e.g. 'cuts'.
But you raise an very valid point/example ... Japan can and has handled its high debts better than Britain and has learned how to live with them and in my view has a greater degree of general internal efficiency, govt competency and tax efficiency than e.g. the UK even though its national debt levels have been and still are, 'horrendous'.
Saying that the UK can sustain a certain level of debt because another country has a similar % level of debt is, I think, 'nonsense' ... Does Japan have the % equivalent of 8 million inactive in its workforce?
The Japanese labour force's skills and foreign language abilities are probably higher than those in the UK ... so it is miles in front of the Uk whatever its debt level.
The Japanese political/economic psyche is very different to our own ... where their politicians try and do as much for as many Japanese people as possible without 'writing off' huge swathes of their society based on class, politics, religion, income status, employment status, political beliefs, which schools someone went to etc and their own 'national interest' test (is superior to our own non existent version)is in doing the right thing for the majority of their population before they worry about debt levels... and that is why it is an amazing country with amazing people.
I wish that the same/similar attitudes prevailed here.
If a country like Britain does not understand or even have a proper and well communicated 'national interest' test ... how can the government plan or give any leadership to the country. In Japan I don't think the national interst test is spellled out ... they just do it.
In Britain ... our politician's talk about the 'national interest' but I would expect that few if any politicians could explain what e.g. the British national economic and social interest(s) is or are or could talk on this for much longer than 15 seconds without 'waffling'.
The point being is that the Japanese internal efficiency structure/rating of running their internal economy and ability to deal with debt/defict is better than our own UK situation none the least because e.g. the Japanese 'national interest test' is ingrained in their pshyche just as it is in e.g. Germany and other leading industrial countries.
Debt and deficit management by a government is primarily a 'responsbility issue' ... gone of the days of just running up debts thinking/assuming that the IMF as last resort can rescue and keep rolling over debts while the taxpayer pays for the mess.
The other issue that is generaly 'over-looked' regarding the need to tcakle debts and deficits is that the taxpayer also includes the private business sector and any government that does not tackle its debts/deficit is sending a very strong message to its business sector that at some future date ... they are are going to get clobbered with higher and higher taxes ... that I think is another major factor why the UK economy is not 'recovering' ... the taboo issue ... the UK businesses can see their hard labour/future investment getting walloped with higher and higher taxes if there is no effort made to cut the national debts and deficits. This has also been a factor in Japan also ... but gets 'lost' in the general media reviews as it amounts to ... 'UNCERTAINTY'.
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#96 >>If genetics played an important part in the development of a modern economy then please tell me how China and India can produce so many of them when they come from a peasant stock
After 6,000 years of history, both China and India have developed their elite !! They can be called emperors, maharajas, provincial governors, scholars or commissars; they are still the elite !!
Furthermore, China, with 1.3 billion people have a far better chance, statistically, of getting 10 good men than Britain with 65 million (i.e. 1/20th) !! India, with 1.1 billion people, has similarly better statistical chances !! And this is purely statistics, not genetics !!
As for the "knowledge elite", the Brain-drain of the 60s and 70s took a lot of them abroad, never to return. Another brain-drain now will be disasterous !!
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#103 >>There is no need whatsoever to 'borrow' in a fiat sovereign currency system, simply create the money and give a Job Guarantee to the un/deremployed at minimum wages, putting a floor under demand and unleashing business to service those unmet/financed needs. The price risk is minimal given the large labour/capital output gap.
Good ol' Uncle Joe did that 50+ years ago in the Soviet paradise !! Anyone who disagreed got sent to holiday resorts in Siberia !! Perhaps, we could use the Outer Hebrides !!
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#107 >>However, when it comes to change, its always done within and by the existing institutions who will of course look to defend their own interests.
And then there are the revolutions....
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#125 The thing about the Japanese is that they save as a matter of reflex, without need for thought. They are also intensely loyal and will buy their government's debts. That's why JGBs (Japanese Government Bonds) are still selling well despite their national debt level being far, far higher than Britain's !!
Meanwhile, back in Old Blighty, the Bank of England has to resort to QuEasing to flog more Gilts/bonds since the heavily-indebted population just haven't the cash to pay for them !!
The Japanese have also learnt, the hard way, about fictitious property prices during the Great Tokyo Property Crash of the late 80s !! It was an extremely painful lesson that they'll not forget in a hurry !! The Brits have yet to learn this lesson !! However, some Brits, out in Dubai, are learning this the hard way, too !! Ouch !!
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#126 ishkandar,
Time for a nap mate! The intial reference was to the growing number of scientists and engineers in both China and India. Now by merely following your own statistical model, the majority of them did not come from any long standing elite but from peasant stock. However, like you, I do not wish to engage in any genetics arguments.
As for the 60s/70s 'brain drain' it made good headlines but was far from being the truth. In fact during the years of empire, the British had a fine record of exporting the 'brightest and best' - many to never return.
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Much of this is complete and utter nonsense. There are SO many consequential variables that such forward accounting/planning/provisonary outlooks, are basically not worth the paper they are written upon.
Such nonsense basically is just an attempt to show that there is some measure of control and stability, which is completely false, especially as the banking system is yet again spiralling out of control at an increased rate.
Further intrusions into the world economy, which are NOT minor.
Theres the added costs of the Icelandic volcano erruption, the costs to BP and losses to businesses/economy etc in USA, floods in China and Pakistan, theres the fire damage to Russia, especially food supply, costs of which will create greater burdon and also divert money away from growth of goods etc into paying for higher food prices and rebuilding costs, higher food prices around the world are already diverting money from economic growth prospects and higher prices over coming months will increase fragility. Then theres further extention and raising of USA borrowings due to poorer than NEEDED economic conditions/realitys.
There are many many issues which undermine so much, especially the fragility of world economy, each negative event directly or indirectly chips away at the already fragile state of nations/world economys, ultimately, we just do not know the extent costs of future unforseen disaster events, natures, or man made
Another instance, FACT, is that much UK banking debt repayment is actually going to default. At what level, we just do not know, and will not know for another couple of months in UK.
The UK banking situation is cleverly played out with expected/prospected default of banking debt already built in. UK banks are due to re-pay £265 billion, even with vast increases of profits in their investment/gambling arms, they just have NOT attained suffient money to pay off these debts, much of which was due to be raised by issueing bonds etc. The fact remains that UK banks already have a default provision of £140billion. The markets will ultimately negatively/positively react upon how much or little of this provision is required, which we ultimately will NOT know for upto another 2 months.
Hence, so much of what is said/stated about national or world economy is just guesswork and the figures are meaningless until they are substantiated by facts, of which are very thin on the ground.
Reality: the above Stephanie Flanders, mention of default on debt, mainly relates to national debt, it totally excludes banking debt payment default.
The reality of UK banks defaulting on debt, even though pre-arranged provision has been made, will actually reflect upon total UK taxpayer liability. Hence, if banks use the maximimum default provision, then UK taxpayers will actually be liable for extended term liabilitys at greater cost, because in ANY debt repayment default there are ALWAYS added costs.
The more of the default provision that UK banks can pay down, the better, if the markets are NOT impressed, then I can foresee another downward run on shares, especially banks, but also others, which so much is endemically interconnected.
A further serious point.
UK government is putting forward its budget plans in October, if UK banks do not meet adequate debt repayment in November/December then this means they will need to raise even more money over the next couple of years to meet the default amount, ON TOP of NEXT due debt repayments.
This will of course be done in an economic environment of SEVERE economic contraction, not just in UK, but all around Europe and Japan/Asia etc in which profits and abilitys to raise even more money will be further curtailed and extend/increase serious and dangerous financial issues.
In effect and reality, the actual timing of this UK governments budget plans is terrible, as so much is heavily reliant upon events which come to the fore just a month or so after the budget, hence the budget may resultingly be completely off target with actual reality events/conditions and there be a need for further revision and more negative cuts in 2011.
There are various considerations to be made, not all of which have been included in the above report or the IMFs statement/report.
The plain truth of fact is, is that in relative terms, presently we are about to reach the high point, the build up and starting point to an economic/social/financial rollercoaster ride. The coming UK budget plans and also UK banks debt repayments will ultimately decide the extent of the coming economic ride, as will unforseen/uncontrolable world events and ultimately how scary and dangerous this economic ride factually pans out.
The end outcome, is unforseen, unknown, hence I personally take such positive reports with a pinch of salt, I am also in many ways pre-prepared for worsening scenarios, of which I do not take chances with, hence my family and I, will not be forced to endure serious negative impact, I have basically prepared my economic/financial/sustainable existance lifeboat, and will NOT be a victim of ANY negative financial flood.
I saw this recession coming long before it arrived and took action to insulate myself and family, I also insulate myself from further economic/social negativity/disruption which is an unquantifiable reality over coming years.
Like an African or other farmer who sets aside wheat etc to get through the winter, I have taken similar action to ensure and maximise that my family and I can get through a very harsh economic/financial/social winter.
Have you???
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Thanks for your assessment of the IMF data. Its good to hear that the UK is currently better placed than some debtwise.
I'm sure that government economic policies will also be targeting an improvement in the UK's trading position. I suspect other advanced economies listed (US, Japan, Netherlands and France) are better positioned than the UK in this respect through having a stronger, more dynamic industrial base.
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Are these the same predictions by the same experts that said that Britain would not even enter recession let alone face a financial crisis? What Steph fails to take into account is the long term decline of manufacturing industry in this country, which countries like the USA do not suffer from. Today's trade deficit figures also highlight our plight. Much of the country's economy is still being sustained by excessive personal debt. Another factor ignored by these cloud-cuckoo land predictions.
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