Madmen in Authority

Kohoutek

Ellie2758 wrote: »

Bit ambiguous. You saying that GB DOES understand monetary system? Or doesnt? hmmmmm. Syntax City maaaaaaaaaaaan.

I'm saying that they both think that the government can or has 'run out of money', which is nonsense.

If it wanted to, the government could tell the Bank of England to change the number which represents the balance of the government's primary bank account (called the 'consolidated funds') to any number - add £140 billion, add £1 trillion, whatever. Money is just numbers on a spreadsheet in our system - it's not linked to gold, or a fixed amount of foreign currency.

So in other words, government spending is not limited to the amount it can raise from taxes or 'borrowing'. If the Conservatives wanted to, they could cut taxes and increase government spending tomorrow, rather than raise taxes and decrease government spending. The only limits as I said before are practical ones - inflation and currency debasement.

treliac

Kohoutek wrote: »

I'm saying that they both think that the government can or has 'run out of money', which is nonsense.

If it wanted to, the government could tell the Bank of England to change the number which represents the balance of the government's primary bank account (called the 'consolidated funds') to any number - add £140 billion, add £1 trillion, whatever. Money is just numbers on a spreadsheet in our system - it's not linked to gold, or a fixed amount of foreign currency.

So in other words, government spending is not limited to the amount it can raise from taxes or 'borrowing'. If the Conservatives wanted to, they could cut taxes and increase government spending tomorrow, rather than raise taxes and decrease government spending. The only limits as I said before are practical ones - inflation and currency debasement.

Well, I've never pretended to understand economics, but this seems marvellous. We can just keep on spending and spending from an ever decreasing spiral of income. I wish it worked like that for my household budget.

chewmylegoff

Kohoutek wrote: »

I'm saying that they both think that the government can or has 'run out of money', which is nonsense.

If it wanted to, the government could tell the Bank of England to change the number which represents the balance of the government's primary bank account (called the 'consolidated funds') to any number - add £140 billion, add £1 trillion, whatever. Money is just numbers on a spreadsheet in our system - it's not linked to gold, or a fixed amount of foreign currency.

So in other words, government spending is not limited to the amount it can raise from taxes or 'borrowing'. If the Conservatives wanted to, they could cut taxes and increase government spending tomorrow, rather than raise taxes and decrease government spending. The only limits as I said before are practical ones - inflation and currency debasement.

do you not think that inflation and currency debasement would come into play if the government draws another 0 on the end of its bank balance?

StevieJ

treliac wrote: »

Well, I've never pretended to understand economics, but this seems marvellous. We can just keep on spending and spending from an ever decreasing spiral of income. I wish it worked like that for my household budget.

It would effectively be a default of our creditors debts as they would be devalued, indirectly similar to what Greece will end up doing.

treliac

StevieJ wrote: »

It would effectively be a default of our creditors debts as they would be devalued, indirectly similar to what Greece will end up doing.

Thanks Stevie. I hope the hint of sarcasm to my post was noted.

Kohoutek

chewmylegoff wrote: »

do you not think that inflation and currency debasement would come into play if the government draws another 0 on the end of its bank balance?

Well look at the QE programme for example, when the Bank of England monetised £200 billion of government debt. When the programme started, the pound was worth $1.40. When it finished, the pound was worth $1.56 - so it actually appreciated rather than depreciating. Inflation increased - but probably that came from the fact that the price of oil doubled in that time frame, not because the Bank of England created £200 billion. If the figure was £2,000 billion, things would be different, but there's nothing to suggest that the policy was anything other than a success and necessary.

Obviously there needs to be a balance in our economy between the amount of goods and services being produced in it and the amount of money being created by banks providing credit or the government spending money. At the moment, I don't think the problem is that the amount of money is growing out of control, in fact it's closer to the opposite, given the recent M4 figures.

If there isn't much new money being lent by the banking system, then the government raising taxes and cutting spending isn't going to make things better, it's going to make things much worse.

Spiv_2

Cameron Bets on Growth From Austerity as U.S. Delays

FOR CUTS

June 22 (Bloomberg) -- World leaders from the U.K.’s David Cameron to Naoto Kan of Japan are betting they can deliver fiscal austerity without derailing economic prosperity. History suggests they may be right.



Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.
“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview.

The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses.
In a study of 44 large fiscal adjustments in 24 advanced economies since 1975, Broadbent and Daly discovered that reducing expenditures by 1 percentage point a year boosted average annual growth by 0.6 percentage point. Raising the ratio of taxes to GDP by the same margin cut growth by an average 0.9 percentage point.
The equity markets of the countries that sliced spending beat those of other advanced nations by 64 percent during a three-year period, and their bond yields fell by more than if budget adjustments had been driven by tax hikes, according to the report.

When the Group of Seven returned their budgets to near- balance in the mid-1990s, expansion averaged a “reasonable” 2.85 percent, Ian Richards, an equity strategist in London at Royal Bank of Scotland Group Plc, said in a May 27 report. Ireland in the 1980s and Sweden and Canada in the following decade corrected fiscal imbalances and their economies expanded. “The global economy can grow at a robust rate, even as global fiscal consolidation gains momentum,” Richards said.

AGAINST CUTS

The shift to parsimony has nevertheless spooked financial markets concerned that simultaneous tightening will return the world to recession.It is “utter folly” for the G-20 to be considering retrenchment with unemployment so high, Nobel laureate Paul Krugman wrote in his blog June 6. The U.S., U.K. and Japan also aren’t “facing any pressure from the markets for immediate cuts,” he said.

“The impact of concerted fiscal tightening over many economies will be to lower global growth meaningfully,” said George Magnus, senior economic adviser at UBS AG in London. “I don’t buy the idea that you shouldn’t be frightened of fiscal retrenchment.”

The UK Test Case

The U.K. may be a test case. Cameron’s government will introduce an emergency budget today containing the deepest spending cuts since at least the 1970s to tackle a deficit that reached 11 percent of GDP in the last fiscal year. Chancellor of the Exchequer George Osborne on June 20 called it a “good rule of thumb” that spending cuts account for 80 percent of the budget correction and tax increases compose the rest.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aT2ckJMedzCU&pos=6

Time will tell who's right!

LauraW10

The OBR had to be in the loop as well, because it needed to decide how Mr Osborne's policies would affect the forecasts it made last week. If the Chancellor announces big new tax increases on Tuesday, the change in the OBR's economic forecasts may not steal the biggest headlines. But they will make for interesting reading all the same.

But it also means that we will find out some of the most interesting news in the Budget, after Mr Osborne has sat down. Because only then will we see exactly what the OBR thinks the impact of his tax increase and spending cuts will be on the broader economy. Of course, the forecasts for growth and unemployment will come laden with political implications - Labour is already flagging up the fact that growth will be revised down next year and probably after that as well. Unemployment may look higher in the short-term as well.
Mr Osborne's people say it's not a fair comparison, because last week's forecasts assumed away any negative bond market reaction to cutting borrowing on Labour's slower pace. The reason is that they used current market interest rate expectations to derive those forecasts for future borrowing rates, which now obviously build in an expectation of Tory-Lib Dem cuts - not Labour ones.
There is something to this, but only Sir Alan Budd knows how important this distortion really is.
You can find many people in the markets who agree with the Conservatives' long-running asertion that Britain would have struggled to find a market for its debt if the old government had stuck to its path for deficit cuts. But you can also find people who think the fear of a run on gilts is overdone.
Whichever view you take, it is just that - a subjective view. Precisely because the road was not taken, we will never know where it would have led.
Only Sir Alan and the other members of the OBR know whether they think Mr Osborne's actions, on itheir own, will be a net positive for economic growth next year or a net negative, in the short run. My guess - and hope - is the explanation accompanying tomorrow's new forecasts will make it fairly clear.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/06/a_gamechanging_budget.html

wireframe_2

LauraW10 wrote: »

Alistair Darling

http://www.thisislondon.co.uk/standard/article-23847392-britain-needs-growth-not-tory-cuts.do

Time will tell who's right;)

Whatever happens, I think we can all agree Darling didn't have much of a plan either, and let's not forget who didn't "Make hay whilst the sun was shining".
Bankers may or may not have "caused" this crisis, but this country SHOULD have been prepared for financial problems.
Under Brown as Chancellor, we were borrowing when we should have been saving for a rainy day.
Its raining now.