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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.

Osborne Vows More Austerity as Slump Hits U.K. Deficit Plan

Posted by WARREN MOSLER on November 30th, 2011

Says it all, sadly.

France and Germany also announce agreement to target 0 deficits for all euro members which
takes the steam out of any relief rally as they solve the solvency issue.

Not much upside for the world economy when it all thinks and acts like this:

Osborne Vows More Austerity as Slump Hits U.K. Deficit Plan

By Gonzalo Vina

Nov 30 (Bloomberg) — Chancellor of the Exchequer George Osborne said Britain faces two extra years of austerity as he sought to shore up his deficit-reduction plans, intensifying a conflict with unions that are staging a mass walkout today.

Osborne used his end-of-year economic statement to Parliament yesterday to announce 23 billion pounds ($36 billion) of additional spending cuts after the Office for Budget Responsibility slashed its forecasts for economic growth. The fiscal watchdog predicted Osborne will need to borrow an extra 112 billion pounds by 2016 and said more than 700,000 public- sector workers will lose their jobs over the next six years.

“Osborne acknowledges that the consolidation program is behind schedule and aims to make up for lost ground with an even longer period of fiscal austerity,” Michael Saunders, chief European economist at Citigroup in London, said in an interview. “The government has no alternative. If they slide, the markets will put the U.K. from Category A to Category B.”

Unions say as many as 2 million public-sector workers will join today’s 24-hour strike over plans to make them contribute more toward their pensions and retire later. Osborne is extending his spending cuts beyond 2015, when they were due to end, risking a backlash from voters in the election due in May of that year.

17 Responses to “Osborne Vows More Austerity as Slump Hits U.K. Deficit Plan”

  1. Andrew Says:

    The countries which put the deficit within an MMT perspective and fully develop their productive resources will kick some serious western ass.

    Korea, Brazil, Argentina, Russia, China? Not sure which are closest to MMT. I’d laugh my bollocks off if a Muslim state like Iran gets a party going on in serious MMT style.

    Reply

    Unforgiven Reply:

    @Andrew,

    A quick switch from the dollar to the burka would fix that. Just one would give you a HUGE wallet!

    Reply

  2. roger erickson Says:

    Citigroup – of course – says “The government has no alternative.”

    Fraud-fox speech to chickens?

    Rename the “Office for Budget Responsibility” as the “Office for Class Fraud”

    Reply

  3. John O'Connell Says:

    I don’t see any changes announced here that would take effect before 2015. Likewise, with the failure of the super-committee, where nothing changes until 2013. How can anyone know today what will be the proper policy in 2013 or 2015? Or what else the politicans will do or say in the interim?

    Reply

  4. Rodger Malcolm Mitchell Says:

    Osborne is correct. There will be more austerity.

    Austerity begets recession which begets austerity in a never-ending downward helix. The euro nations are doomed, soon to be followed by the U.S. which does not realize it is Monetarily Sovereign.

    It’s like pouring gasoline on a fire because, as everyone knows, liquids put out fires.

    Rodger Malcolm Mitchell

    Reply

  5. Tyler Says:

    Christina Romer is quite scared:

    “On the path we are currently on, the deficit is projected to hit nearly 16% of GDP by 2035, and be on its way to even higher levels. No country has ever run deficits like that for a sustained period and remained solvent.”

    Should she be upgraded from debt dove to debt hawk?

    Reply

    Unforgiven Reply:

    @Tyler,

    She shouldn’t have even been upgraded from high school.

    Maybe send her on a nice fact-finding mission to Japan. Then leave her there.

    Reply

    John O'Connell Reply:

    @Tyler,

    On the path we are currently on, daily high temperatures in Phoenix will be below zero by August of 2012. No cactus has ever survived such a trend.

    Reply

  6. PZ Says:

    EU needs fiscal authority capable of deficit spending. How do we get to that?

    It could transfer funds to member states to enable general reduction in VAT, altough changes in VAT distrupt inflation measures. VAT is the most regressive tax tough, and discourages consumption (which is why I can’t understand why countries like Ireland are so keen to rise it).

    Most likely tough is that some member states would start to brake free from the euro by issuing own currency on the side. Altough that would run directly at odds with EU demands to balance budgets. More EU legistlation seems to be coming hapering member states fiscal freedom, even though they would not face financial constrainst what so ever. :(

    Reply

  7. kkken530 Says:

    If a million and a half of those striking workers kept the bobbies busy,while a couple of thousand quietly went to Osborne’s office and strung him up to a lamp pole {doing it so it doesn’t kill him} I’d bet he’d change his tune {or string him up for real,you know the next guy in office will think differently}

    Reply

    Unforgiven Reply:

    @kkken530,

    Not the best form to call out a public official by name and prescribe bodily harm; I really can’t recommend it.

    Now, making him an apprentice dustman at Boots, that’s an entirely different thing.

    Reply

  8. Luigi Says:

    in Italy the Chamber of Deputies has voted yes to change art.81 of the Constitution, to include balance budget. the Senate will vote. given that the Chamber has voted by a very large majority, goodbye deficit spending.

    in Italy there is a great movement against deficit spending. a sort of Occupy Accounting Identities.

    Reply

    WARREN MOSLER Reply:

    yes, and no plan B if/when it makes things worse

    Reply

    John O'Connell Reply:

    @Luigi,

    If Italy is not Monetarily Sovereign, and does not intend to become so by leaving the Euro, do they really have a choice? Is their debt not limited, unless they intend to default, to what their economy can support in terms of interest payments?

    It would be nice if they could do more deficits and it would cause more growth, but they have been doing that for 12 years and have now run out of “policy space” to do any more deficits, have they not?

    Reply

    beowulf Reply:

    @Luigi,
    “yes, and no plan B if/when it makes things worse”
    Warren, there’s always a Plan B and usually the best course of action is the one suggested by General Eisenhower. “Whenever I run into a problem I can’t solve, I always make it bigger”. This approach is quite compatible, as it happens, with my favorite way of putting form over substance.

    The European Commission is in the process of tightening up the rules on ECB Member State coinage powers with a Regulation that will likely pass in the next month or so. I’ll note that Euro Collector coins have always been legal tender in the Member State that issued (or I should say, sold) them and the ECB comments on the proposed Regulation suggest (inadvertently I trust) how Italy or any other Member State could solve its monetary problem by making it bigger (“OPINION OF THE EUROPEAN CENTRAL BANK of 23 August 2011 on a proposal for a Regulation on the issuance of euro coins…”).
    the terms ‘issue’ and ‘put/bring into circulation’ are not defined in the proposed regulation. This may result in questions on the legal difference between their meanings. The concept of issuance is generally understood as also covering putting into circulation of the relevant euro coins… These insertions are needed to: (a) confirm with sufficient legal certainty that the proposed regulation does not affect Member States’ competence to issue euro coins under Article 128(2) of the TFEU; and (b) acknowledge the gap in relation to general binding provisions for issuance of euro coins…
    “Euro circulation coins” means regular and commem­orative euro coins intended for circulation… “Euro collector coins” means euro coins intended for collection that are not intended to enter into circu­lation… Euro circulation coins shall be issued and put into circulation by the competent authorities of each Member State at face value. Euro collector coins may be sold at or above face value…. Member States do not have measures to prevent euro collector coins from being used as means of payments…

    http://webcache.googleusercontent.com/search?q=cache:Vw6MsMzVPvYJ:www.ecb.europa.eu/ecb/legal/pdf

    So Luigi, here’s how Italy makes the problem bigger– its true the ECB can control the volume of coinage issued or put into circulation by any Member State, but neither are those terms are defined (personally I think “volume” is a little fuzzy, but let that bide). What’s more the ECB language says collector coins are SOLD, not issued. So if Italy declares that it defines “issuance” or “put in circulation” to mean when the coin leave the central bank– then by ECB terms, THERE ARE NO LIMITS ON COINAGE SALES between the Finance Ministry and the Bank of Italy. The Ministry could sell a trillion Euro collector coin (or any series of smaller coins) to the Bank of Italy at face value. Following this asset swap of coinage for reserves, the Italian treasury account would instantly be larger than its outstanding debts.
    And here’s where the magic happens. It doesn’t matter what the ECB or the EU courts think of this chain of logic, immediately (as in, within minutes) of this asset swap, the Italian govt would offer to buy back all of its sovereign debt. If any debtor refused, Italy could declare itself discharged of its obligation by this refusal to accept repayment. Since it won’t be a default, there won’t be any CDS liability! It would take 20 years to untangle the ensuing lawsuits (in Italian courtrooms, presumably) but I don’t see how either Italy or the CDS insurers could ever be compelled to pay out.

    The obvious compromise here would be for the creditors to accept the current payment terms paid out via coin seigniorage; there’s simply too much money at stake to permit any ECB effort to annul this action ex ante. If I may make one final suggestion, put General Eisenhower on the face of the jumbo coin, that would amuse the Germans to no end (especially with an inscription like “Savior of Europe” or “Great American, Greatest German”, etc). :o)

    Reply

    PZ Reply:

    Now even if they leave the euro they still have that balanced budget amendment and still cannot deficit spend

    They are really digging their own grave

    Reply

    beowulf Reply:

    @PZ,
    Yeah, completely irrational. Germany won’t invade anyone (as the saying goes, NATO was created to keep the Russians out and the Germans down), so the PIIG states should tell Merkel to go pound sound but they won’t. Their compliant leaders may end up having to flee their countries when things really go south.

    Reply

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