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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Britain to Slash Public Spending in Austerity Gamble

Posted by WARREN MOSLER on October 20th, 2010

Are they actually going to do this???

Good for us if we realized the right response is to lower our taxes here and letting them export all they want to us.

But we don’t.

Britain to Slash Public Spending in Austerity Gamble

October 20 (AP) — Recession-battered Britain learns the true cost of the global financial crisis Wednesday, as the country’s government outlines the largest cuts to public spending since World War II — slashing benefits and public sector jobs with a five-year austerity plan aimed at clearing the nation’s debts.

After spending billions bailing out indebted banks, and suffering a squeeze on tax revenue and a hike in welfare bills, Treasury chief George Osborne will stake the coalition government’s reputation on fixing the country’s economic ills by the next election in 2015.

In a major address to Parliament, Osborne will announce about 80 billion pounds ($128 billion) in spending cuts, which he claims are necessary alongside tax rises to wipe out Britain’s 156-billion-pound deficit and reduce its huge debt.

It means as many as 500,000 public sector jobs are likely to be lost, while pay for almost all government workers has already been frozen for two years under an initial round of austerity measures announced in June.

Even Queen Elizabeth II has taken a share of the strain, as Osborne froze government funding for her household and staff.

The Treasury chief — seen as a possible future prime minister — has already warned government departments to prepare to cut their budgets by up to 25 percent over four years. While the eventual cuts are likely to be much less severe, they are likely to be the sharpest in about 60 years.

About 1.2 million families will lose child benefit payments beginning in 2013, and tens of thousands more Britons are likely to see their welfare checks trimmed or scrapped.

If the government decides to slash its winter fuel allowance, millions of retirees could lose out on subsidized heating. About 12 million people currently receive the payment.

20 Responses to “Britain to Slash Public Spending in Austerity Gamble”

  1. Ralph Musgrave Says:

    U.K. politicians and their economic advisors want to cut the national debt even if they shred the economy in the process. They obviously haven’t read or grasped the basics of Milton Friedman’s 1948 “Framework” paper, i.e. that governments can perfectly well let a deficit accumulate as extra monetary base instead of extra national debt.

    Reply

    WARREN MOSLER Reply:

    functionally, the national debt IS the monetary base apart from a longer maturity/duration.

    Reply

    JKH Reply:

    alternatively, the term “monetary base” should be thrown in the ash can

    it’s too evocative of false multiplier arguments

    Reply

    JKH Reply:

    and too encouraging of monetarist witch doctors

  2. Tom Hickey Says:

    From empire to Third World nation in a matter of decades. Wow.

    Reply

  3. SethM Says:

    I was left speechless after watching Osborne’s presentation to Parliament last night. Certainly the Brits are not that stupid?

    With similar plans in operation throughout Europe, the world is seeing one more source of demand evaporate. Combined with the continuing unemployment in the US and increasing industrial overcapacity in China, the future is not looking bright for the world economy.

    Reply

  4. Tom Alexander Says:

    Long the British Pound?

    Reply

  5. Andrew Wilkins Says:

    Long the British Pound?

    Maybe not yet, you might be knocked down in the stampede for the exit. QE’s 2,3 and 4 coming next old boy.

    When good old Queen E does pass on. Prince Charles will be living in a council house in Slough.

    Reply

  6. Bill Says:

    Good for the U.S. because if it shoots the Brits into a chaotic depression, knuckleheads here who are agitating for austerity will have to battle reality (as demonstrated by a clear example) that much harder in order to have their way.

    Reply

    Tom Hickey Reply:

    Then the austerians in the US will just say that the Brits didn’t cut deep enough. There is no bottom to either stupidity or disingenuousness.

    Reply

    Unforgiven Reply:

    Look, all this austerity talk uses up too much money. Just have them send their bank balances and credit cards to me. They’ll be austere in short order, I promise you.

    Austerity – It doesn’t come cheaply.

    Reply

    Greg Reply:

    The knuckleheads WANT depression! They want prices to crash so the holiest of holy “savers” can come in and buy things up. They are not interested in growth, they are interested in a redistribution of wealth to the savers. Thats why they’ve been saving. The world should go to those who saved in the past, they are now owed their due.

    Reply

  7. Sione Says:

    Gee whiz Tom and Ralph, no doubt you two would support the notion that the UK government should pass a law to give everyone one hundred thousand pounds in cash. That would be plenty of stimulus so people would spend up large and the economy would recover.

    As if!

    You may not have noticed but it is the profligate spending, currency inflation and commensurate erection of a mountain of unrepayable government debt that collapsed the economy in the first place. The economy is shredded already! It is unsustainable to continue to go on as western governments have been. We have nationalised socialist money in the UK and ALSO in the USA. We have fractional reserve banking (that’s where banks lend money they don’t have, akin to you or I writing unbacked bad cheques) and central banking (where unbacked fiat money is conjured up out of thin air to “monetise” government debt and “bail out” insolvent banks).

    It is now absolutely impossible for the citizens of the UK (or the USA or even most of Europe) to ever pay off the debts created by the various governments. Your great great grandchildren’s lives will be squandered in the attempt to keep paying the principle and interest, assuming that there isn’t soverign debt default and economic calamity first. Actually that last possibility is likely to manifest itself sometime in the next 8 years. Good luck with retiring, UK and US baby boomers! You’ll get to taste the joys of rationing and triage soon enough.

    Continuing to print yet more unbacked fiat money (known as “quantative easing” or more honestly referred to as currency inflation), continuing to steal from the productive to pay to the non-productive and funding yet more pointless make-work activities, continuing to rack up endless debt, continuing to exterminate the pool of real capital, continuing to encourage consumption at the direct expense of investment and resource, continuing to collapse the value of the currency (hence impoverishing those on fixed incomes), continuing to create malinvestment and misallocation of capital will not work out. You can’t keep posoining the economy with the same malfeasance as has been going on for years and rationally expect recovery to miraculously happen. That expectation is as lunatic as giving a cocain addict increasing amounts of the drug in order to “cure” him of his withdrawal symptoms. In the end he’ll feel nothing, that’s true, but that’s because he’ll be dead. Cured!

    The Brits need to slash taxes, pare back the welfare/warfare state by more than 90%, slash spending to the bone (and beyond). They’ll also need to default on the greater part of the debt. In the end they’ll be forced to do it anyway so they may as well make a real start right away. The sooner they grasp the nettle, the faster their problems will be addressed and resolved.

    Lord Keynes, a promoter of centralised authoritarian economic systems and father of what these days passes for conventional economics, once famously stated that “in the long run we are all dead.” That was his excuse for governments not to balance budgets and to endlessly debase their currencies. He seemed to think that the day of reckoning could be evaded indefinately (or at least until after he wasn’t around to worry). Western economies are built upon his economics “ideas”. Well, he’s dead, but the rest of us are not. We live on and his unthinkable crisis is here to stay. In the short, medium and long run it must be addressed.

    Final point. If you really want to understand how and why the economy tanked you need to understand what Von Mises the economist wrote on the topic (check out the Von Mises Institute and look up the “Austrian Business Cycle” Theory). Then you’ll know how it was people such as Peter Schiff were able to predict the crash and the recession/depression with such accuracy and, more importantly, you’ll know what lies in your immediate economic future.

    Enjoy!

    Sione

    Reply

    WARREN MOSLER Reply:

    Start with the 7 deadly innocent frauds’ on this website and then go on to the other ‘mandatory readings’ thanks

    Reply

    Greg Reply:

    @Sione

    “You may not have noticed but it is the profligate spending, currency inflation and commensurate erection of a mountain of unrepayable government debt that collapsed the economy in the first place”

    No, it was the PRIVATE debt that was the issue. Ask your guru Mr Schiff what metrics he looked at to make his predictions.

    ———————————————-

    ” We have nationalised socialist money in the UK and ALSO in the USA”

    Really? When were the banks nationalized, I missed that one.
    —————————————————-

    ” We have fractional reserve banking (that’s where banks lend money they don’t have, akin to you or I writing unbacked bad cheques) and central banking (where unbacked fiat money is conjured up out of thin air to “monetise” government debt and “bail out” insolvent banks)”

    Money has always been created out of thin air. Its an IDEA after all, it doesnt grow on trees or in mine shafts.

    ———————————————

    “It is now absolutely impossible for the citizens of the UK (or the USA or even most of Europe) to ever pay off the debts created by the various governments ”

    The debt is OWED TOO the citizens you numbskull, not from.

    —————————————————–

    “Your great great grandchildren’s lives will be squandered in the attempt to keep paying the principle and interest”

    You mean ENRICHED by RECEIVING the principle and interest.

    ————————————————

    “Good luck with retiring, UK and US baby boomers! You’ll get to taste the joys of rationing and triage soon enough.”

    Hey, its the Austerians who are clamoring for raising the retirement ages. Maybe we can let them raise it to 100 and you’ll be right we’ll never be able to retire!!

    ——————————————————

    , “continuing to steal from the productive to pay to the non-productive and funding yet more pointless make-work activities”

    Yes those “productive” bankers and their first cousin bond traders, sitting around inventing new balance sheet tricks, what would we do without them?

    What pointless make work activities are being funded?? You must be talking about those Koch Brother and Dick Armey funded bus drivers taking people to Tea Party rallies?!

    ——————————————————

    “continuing to collapse the value of the currency (hence impoverishing those on fixed incomes)”

    Ohhhh, so now your concerned about those unproductive non workers! Why do you push to make them retire later and later? Get your story straight.

    ————————————————————-

    “The Brits need to slash taxes, pare back the welfare/warfare state by more than 90%, slash spending to the bone (and beyond). They’ll also need to default on the greater part of the debt. In the end they’ll be forced to do it anyway so they may as well make a real start right away. The sooner they grasp the nettle, the faster their problems will be addressed and resolved”

    Its not a default when its voluntary you idiot. Its only a default when you cant not when you WONT! Your suggesting renege.

    ————————————————–
    .” Western economies are built upon his (Keynes) economics “ideas”. Well, he’s dead, but the rest of us are not. We live on and his unthinkable crisis is here to stay. In the short, medium and long run it must be addressed”

    Very poor historian you are. We are in the grips of monetarist Chicago school thinking not Keynes and yes THEY have brought on this crisis by emphasizing asset values (like stocks and homes) as means to prosperity rather than jobs with income.

    ———————————————–

    “Final point. If you really want to understand how and why the economy tanked you need to understand what Von Mises the economist wrote on the topic (check out the Von Mises Institute and look up the “Austrian Business Cycle” Theory). ”

    If this is where you get YOUR thinking all messed up……. I’ll pass. Why dont you stick around and learn something useful here. Not something that borders on fundamentalist religious thinking.

    See Ya

    Then you’ll know how it was people such as Peter Schiff were able to predict the crash and the recession/depression with such accuracy and, more importantly, you’ll know what lies in your immediate economic future.

    Enjoy!

    Reply

  8. Sione Says:

    Gee whiz Tom and Ralph, no doubt you two would support the notion that the UK government should pass a law to give everyone one hundred thousand pounds in cash. That would be plenty of stimulus so people would spend up large and the economy would recover.

    As if!

    You may not have noticed but it is the profligate spending, currency inflation and commensurate erection of a mountain of unrepayable government debt that collapsed the economy in the first place. The economy is shredded already! It is unsustainable to continue to go on as western governments have been. We have nationalised socialist money in the UK and ALSO in the USA. We have fractional reserve banking (that’s where banks lend money they don’t have, akin to you or I writing unbacked bad cheques) and central banking (where unbacked fiat money is conjured up out of thin air to “monetise” government debt and “bail out” insolvent banks).

    It is now absolutely impossible for the citizens of the UK (or the USA or even most of Europe) to ever pay off the debts created by the various governments. Your great great grandchildren’s lives will be squandered in the attempt to keep paying the principle and interest, assuming that there isn’t soverign debt default and economic calamity first. Actually that last possibility is likely to manifest itself sometime in the next 8 years. Good luck with retiring, UK and US baby boomers! You’ll get to taste the joys of rationing and triage soon enough.

    Continuing to print yet more unbacked fiat money (known as “quantative easing” or more honestly referred to as currency inflation), continuing to steal from the productive to pay to the non-productive and funding yet more pointless make-work activities, continuing to rack up endless debt, continuing to exterminate the pool of real capital, continuing to encourage consumption at the direct expense of investment and resource, continuing to collapse the value of the currency (hence impoverishing those on fixed incomes), continuing to create malinvestment and misallocation of capital & resources, none of it will work out and generate wealth- none of it at all.

    You can’t keep poisoning the economy with the same malfeasance as has been going on for years and rationally expect recovery to miraculously occur. That expectation is as lunatic as giving a cocain addict increasing amounts of the drug in order to “cure” him of his withdrawal symptoms. In the end he’ll feel no withdrawal pains, that’s true, but that’ll be because he’ll be dead.

    The Brits sure need to slash taxes, pare back the welfare/warfare state by more than 90%, slash spending to the bone (and beyond). They’ll also need to default on the greater part of the govt debt. In the end they’ll be forced to do all this anyway, so they may as well make a real start right away. The sooner they grasp the nettle, the faster their problems will be addressed and resolved.

    Lord Keynes, a promoter of centralised authoritarian economic systems and father of what these days passes for conventional economics, once famously stated that “in the long run we are all dead.” That was his excuse for governments not to balance budgets and to endlessly debase currencies. He seemed to think that the day of reckoning could be evaded indefinately (or at least until after he wasn’t around to worry). Western economies are built upon his economics “ideas”. Well, he’s well dead now but the rest of us are not. We live on and his unthinkable crisis is here to stay. In the short, medium and long run it must be addressed at every level.

    Final point. If you really want to understand how and why the economy tanked, as well as how to repair it, then you need to understand what Von Mises the economist wrote on the topic (check out the Von Mises Institute and look up the “Austrian Business Cycle” Theory). Then you’ll know how it was people such as Peter Schiff were able to accurately predict the crash and the recession/depression with such accuracy over a decade ago and, more importantly, you’ll know what lies in your immediate economic future.

    Enjoy!

    Sione

    Reply

    Jim Baird Reply:

    Sione –

    Click on the link in the header for “Mandatory Readings”. Once you get through them, come back with any questions you might have. Until then, I’m afraid you don’t know enough about what you’re talking about to have a productive discussion.

    Reply

    beowulf Reply:

    That expectation is as lunatic as giving a cocain (sic) addict increasing amounts of the drug in order to “cure” him of his withdrawal symptoms.

    Now that’s a new take on the old “federal budget is just like a family/business/state budget” fallacy.

    I think it was John Kenneth Galbraith who pointed out that the greatest contribution that the Austrian economists made to their native country was leaving. :o)

    Reply

  9. Ralph Musgrave Says:

    Sione, Sometimes I read articles/essays which contain one or two mistakes. I often respond to them. Other articles and essays contain about one mistake per sentence. I normally ignore those. Yours falls in the latter category. However, I’ll make an exception and answer a couple of points.

    First I am well aware of what fractional reserve banking is, plus I am well aware of the distinctions between commercial banks and central banks. Also having read hundreds of Tom Hickey’s comments over the last two years, I’d guess he knows far more about banking than you do.

    As regards fractional reserve and matters Austrian, there is actually a lecture at the LSE in London on 28th October by a leading Austrian economist who opposes fractional reserve, which I’m going to. See http://www2.lse.ac.uk/publicEvents/events/2010/20101028t1830vSZT.aspx

    I’ve been through his book (750 pages) and agree with the basic idea, but disagree with various details. As you can see, I’m a total ignoramous about fractional reserve and matters Austrian.

    You then claim that “Continuing to print yet more unbacked fiat money (known as “quantative easing”. I am well aware of the fact that QE is often CALLED “printing money”. However it is very debatable as to whether the label is appropriate, because where QE involves government bonds (and that is all that it has consisted of in the UK) all that happens is that one bit of government issued paper is swapped for another. There is no increase in the total amount of money (on a very broad definition of the word money).

    In contrast, there is straightforward or genuine money printing or money creation, which is what Milton Friedman advocated in the paper I referred to above. I am sure you know more about all this than Freidman, so if you’d like to go through his paper and tell us all where he was wrong, I am sure we will all be grateful.

    Reply

  10. Calgacus Says:

    Sione: Couldn’t remember whether I’d read the Friedman paper Ralph mentions or not, so looked it up, here it is: A Monetary and Fiscal Framework for Economic Stability ,

    A Monetary and Fiscal Framework for Economic Stability: A Friedmanian Approach to Restoring Growth is a related paper by Wray.

    Reply

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