Osborne's plan to spend his way out of trouble

Graham_Devon

tomterm8 wrote: »

The irony is that (a) the Conservative government hasn't made any cuts as such and (b) the Conservative government still looks like it is going to cause a massive recession.

It's one of those imponderables.

I blame the greeks.:rotfl:

Indeed! I just think it's far to easy, and somewhat lazy to suggest that we are heading into recession due to the "cuts" the tories have implemented.

We were going back into recession either way, as the recovery was very much artificial based on lots of stimulus. Theres only so far and so much good that could do, but even while still in the last recession, many of us were saying that sticking plasters will only mean falling back into recession later on.

Cuts are very little to do with it. Pretty much the whole of europe is slipping back.

The longer we continue to try to artificially pump things up, the longer and harder the real recovery will be.

I often here about the public sector cuts, but in reality its more recruitment freezes. This was hapenning in 2007/8 too, under labour. I'm not sure we have had a marked increase in the number of employees actually ejected from the public sector and made redundant by force....and certainly not enough to cause a recession.

tomterm8

I'm a believer in Fishers debt deflation theory of great depressions, myself. It seems to me a level of private sector debt that is well over 300% is unsustainable. I think fundamentally, it is irrelevant what the government does to tackle government debt... because government debt was not the culprit of the disaster.

A deflating private sector debt was the culprit.

I think the government stimulus packages counteracted the effect of the deflation in private sector debt to an extent, but now they are over, the party is about to begin.

HAMISH_MCTAVISH

Graham_Devon wrote: »

We were going back into recession either way, as the recovery was very much artificial based on lots of stimulus.

There is no such thing as an "artificial" recovery.

Stimulus spending is no different to any other spending. And spending stimulates growth, which eventually becomes self sustaining.

If growth falters or weakens, it's because the spending was insufficient to create a self-sustaining state, or was ended too soon.

Hence why the Tory cuts are responsible for another recession, if there is one.

Of course, if we do double dip, it will be far shallower and shorter a recession than the last one, thanks to all the stimulus spending and economic rebuilding that has happened between then and now.

I often here about the public sector cuts, but in reality its more recruitment freezes.

A point you argued vociferously against for a very long time.

As I recall you claimed it didn't matter whether the jobs were lost via natural attrition or redundancy, the end result was still a smaller state and less jobs.

I'm not sure we have had a marked increase in the number of employees actually ejected from the public sector and made redundant by force....and certainly not enough to cause a recession.

So why have you changed your mind?

After arguing the opposite for a very long time?

crash123

HAMISH_MCTAVISH wrote: »

Of course, if we do double dip, it will be far shallower and shorter a recession than the last one, thanks to all the stimulus spending and economic rebuilding that has happened between then and now.

Double dip is obvious unless the Tories get the cheque book out and then it will be kicked down the road again, storing more problems for later.
More debt is not a solution.

tomterm8

HAMISH_MCTAVISH wrote: »

There is no such thing as an "artificial" recovery.
....

Of course, if we do double dip, it will be far shallower and shorter a recession than the last one, thanks to all the stimulus spending and economic rebuilding that has happened between then and now.

It will be interesting to see which of us is right, but my gut feeling is the next recession will be considerably worse than the last one, because the political capital needed to do the actions necessary to reflate the economy has been spent.

That is, unless we can do something about the amount of private sector debt that still exists.

HAMISH_MCTAVISH

tomterm8 wrote: »

It will be interesting to see which of us is right,

It will indeed.

but my gut feeling is the next recession will be considerably worse than the last one, because the political capital needed to do the actions necessary to reflate the economy has been spent.

Obviously, I disagree.

2 years ago Bill Gross of Pimco, the ultimate "bond vigilante" was claiming Gilts rested on a bed of nitroglycerine.

2 months ago he was begging Osborne to change course, find a plan B, spend more, etc.

And UK 10 year yields now join German debt as amongst the lowest in the world.

The only thing stopping more stimulus spending is Osborne's idealogical objections, and even that is weakening. Mark my words, he'll end up changing course if he has to. But not fast enough to avoid needlessly delaying the recovery.:(

That is, unless we can do something about the amount of private sector debt that still exists.

This talk of private sector debt dragging on the economy is largely a red herring. Debt service costs are at near record lows, even considering the larger amounts of debt.

This is now primarily a crisis of confidence, beyond everything else, and the solution is primarily political. The Tories made a serious miscalculation in talking down the economy for the last 2 years, which they're now desperately trying to remedy with all the media focus on growth.

As I said though, probably too little too late.

But it will be interesting to watch.

tomterm8

HAMISH_MCTAVISH wrote: »

And UK 10 year yields now join German debt as amongst the lowest in the world.

Yeah, which is very much part of what is worrying me.

That is a really, really bad sign. Just IMHO. It speaks of either of two things... both of which are dreadful.

Look, it is not natural for an economy with 5% inflation to be able to borrow money over the next 30 years at 3%. Not if things are going well.

There are only two scenario's where that makes any sort of objective sense.

HAMISH_MCTAVISH wrote: »

This talk of private sector debt dragging on the economy is largely a red herring. Debt service costs are at near record lows, even considering the larger amounts of debt.

This is primarily a crisis of confidence.

No, I think your post ignores what is actually happening, which is that people are scared, and have been since 2008, and they look at the level of the debt that they already have, and they are unwilling to take on any more.

Ever since the crises in 2008, people have been unwilling or unable to take on debt, even though the government has (through the bank of England) been providing it at below the inflation rate.

tomterm8

Maybe my point in the post wasn't clear? What I was saying is that right now, everyone who is lending money to the UK government is actually paying the UK for the privilege, and yet people are willing to do that for five, ten, thirty years out.

HAMISH_MCTAVISH

tomterm8 wrote: »

Look, it is not natural for an economy with 5% inflation to be able to borrow money over the next 30 years at 3%. Not if things are going well.

On the other hand, it's entirely natural for UK Gilts to be seen as a safe-haven in Europe compared to what the alternatives are.

I mean, !!!!!!, even the Germans couldn't get away their last auction whereas ours remain oversubscribed.

But putting aside for the moment the fact inflation is almost certainly heading back down towards 2% next year, the real attraction for UK debt at the moment (by comparison to the Euro) is the markets seem confident they'll at least see the return of their money, and are less worried about a return on their money.

We should be borrowing to the max to use the cheapest money in a century for all the infrastructure needs of the next century, and fixing our economy in the process.

Not faffing about and wasting this once-in-a-lifetime opportunity to use cheap money and gain a competitive advantage.

No, I think your post ignores what is actually happening, which is that people are scared, and have been since 2008, and they look at the level of the debt that they already have, and they are unwilling to take on any more.

No, that's exactly my point.

Irrational fear has been stoked by the politicians in a foolish attempt at expectation management for political gain.

It's backfiring badly. Thus the new positive focus in the media.

Ever since the crises in 2008, people have been unwilling or unable to take on debt, even though the government has (through the bank of England) been providing it at below the inflation rate.

Unable, not unwilling.

And the bigger problem is that the cheap funds, or indeed any funds at all, have simply not filtered through into the hands of consumers and businesses.

The banks have absorbed it and used it to prop up their balance sheets instead.

Government would have to be immensely bold to fix this, and they're just being the opposite.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Hence why the Tory cuts are responsible for another recession, if there is one.

Again. What cuts?