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Osborne Says Moody’s Warning on Debt Shows U.K. Can’t Waver on Austerity

Posted by WARREN MOSLER on February 14th, 2012

One more for the scrap book.
This stuff is now way beyond comment.

Osborne Says Moody’s Warning on Debt Shows U.K. Can’t Waver on Austerity

By Robert Hutton and Gonzalo Vina

February 14 (Bloomberg) — Chancellor of the Exchequer George Osborne fended off accusations that he’s not doing enough to boost growth and said a warning by Moody’s Investors Service that Britain may lose its Aaa credit ratingshowed he’s right to focus on reducing borrowing.

“For me it was a reality check,” Osborne told BBC Radio 4’s “Today” show this morning. “It’s yet another reminder that Britain doesn’t have an easy way out of its economic problems. Of course the weaker growth prospects of Britain and just about every other economy is a challenge. People have a choice about where to put their money. If they don’t see Britain dealing with its problems, they will take their money elsewhere.”

The driver behind the change to a “negative outlook” for Britain’s Aaa rated debt is a “weaker macroeconomic environment,” Moody’s said in a statement in London late yesterday. Shocks from the euro area’s sovereign debt crisis are also weighing on the U.K., it said.

Osborne rejected criticism from the opposition Labour Party that he’s too focused on retaining Britain’s top-grade credit rating, arguing that keeping borrowing costs low is the best way to deliver growth. Ed Balls, Labour’s Treasury spokesman, said today that Osborne’s austerity program is getting in the way of economic expansion and risks tipping the U.K. into its second recession in less than three years.

‘Waking Up’

“I fear the world is making the 1930s mistake, and the ratings agencies are partners in this,” Balls told the BBC. “Today is the first evidence that even the ratings agencies are waking up.”

U.K. 10-year gilt yields were little changed at 2.12 percent at 9:41 a.m. in London after inflationslowed to the least in 14 months in January. The pound fell 0.3 percent to $1.5724, after earlier declining to $1.5686, a two-week low.

“The U.K.’s outstanding debt places it amongst the most heavily indebted of its Aaa rated peers, alongside the United States and France, whose Aaa ratings also carry a negative outlook,” Moody’s said.

Spending cuts that helped the U.K. preserve its top credit rating last year and bolstered the pound are now weighing on the currency as investors lose confidence. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg. Gilts are lagging behind lower-rated Treasuries, after world- beating gains of almost 17 percent last year.

34 Responses to “Osborne Says Moody’s Warning on Debt Shows U.K. Can’t Waver on Austerity”

  1. macrosam Says:

    More like one for the scrap heap.

    With friends like these…

    Reply

    WARREN MOSLER Reply:

    collective learning disability

    Reply

    Unforgiven Reply:

    @WARREN MOSLER,

    Unfortunately, it seems to be interest-bearing as well.

    They’d be better off to keep an eye on the yield on the 10-year GIT, which is pegged to the output gap.

    Reply

  2. Tom Says:

    Ugh, so bad.

    Reply

  3. C. Santiago Says:

    Translation:

    Osborne Says Warning by Medieval Economic Doctors Shows He Can’t Waver on Applying More Leeches to Suck the Blood of the Patient.

    Reply

    jonf Reply:

    @C. Santiago, Does cognitive dissonance apply here? Or are these guys just stoopid?

    Reply

  4. RWJ Says:

    More like ‘surreality check’. Very depressing, actually.

    I think it also puts an end to the speculation about whether our elites really know how the system works but are lying about it, or whether they are stupid. I don’t know if they are stupid but this shows they do not understand how the system works.

    Reply

    jonf Reply:

    @RWJ, I think they are a little stoopid too.

    Reply

  5. Winslow R. Says:

    I was helping my son study world history, Lenin, Stalin, Hitler and realized I’m no expert. But….

    It is possible we could learn something from the EU.

    One thing that seems clear is there is much confusion regarding the printing press. Perhaps this confusion is not all bad. Given authoritarian regimes seem to be corrupted absolutely, do we really want to give a central authoritarian government even more power by enabling them with the tools to hire anyone and everyone?

    A per capita disbursement to the states does at least partially address this problem but is it strikes me as a non starter since no senator wants to give a governor a sufficient political base to challenge his position.

    What can we learn from Europe?

    Greece is being squeezed to cede power but has the choice to create it’s own currency peacefully. A similar move by a U.S. state would require a civil war. Perhaps the EU is currently too decentralized while the U.S. Is too centralized.

    It might be more palatable for many if MMT were to promote a more decentralized JG.

    Reply

    WARREN MOSLER Reply:

    my $8/hr federally funded transition job for anyone willing and able to work
    is designed to facilitate the move from unemployment (and remember, the unemployed are best considered in the public sector)
    to private sector employment, thus reducing the size of the public sector, which is exactly what happened with the Jefes program in Argentina.

    Reply

    Winslow r. Reply:

    @WARREN MOSLER,
    “(and remember, the unemployed are best considered in the public sector)”

    Right but the states run unemployment with occasional funding help from the federal government.

    From reading history, many centers of power make for a healthy society. Caution is required to keep power from becoming too centralized.

    From reading history it becomes apparent why people like the idea of stateless currencies like gold. The Jefes program failed in Argentina in terms it no longer exists. My interpretation is the failure had a lot to do with its disruption of established power structures and the creation of a new centralized one.

    I realize simplicity is an important feature of MMT but when it comes to policy prescriptions they seem to run into the buzz saw of established power for the ‘wrong’ reason. Universal work needs to be distributed/ funded by something else than a central authority.

    Until there is a good theory on the proper balance of power and how to create and maintain it, Jefes is doomed to fail.

    An $8/hr federally funded job scares a lot of people. A JG worked out pretty well for a short time here in America in the 30′s but that sucess hardly balances the failures in Europe and Russia.

    Reply

    WARREN MOSLER Reply:

    Jefes didn’t fail, it was cut back by someone who took the budget to do something else after it had performed far better than anyone had expected.

    And where do you get the idea that anyone is scared by an $8/hr federal job?
    If anything, the larger response seems to be that no one will take it.

    Gary Reply:

    @Winslow r.,

    what failures in Europe and Russia? Are you equating JG with War Communism? or are you suggesting that JG would cause the rise of another Hitler?

    Winslow R. Reply:

    @Warren

    “Jefes didn’t fail, it was cut back by someone who took the budget to do something else after it had performed far better than anyone had expected.”

    Exactly my point.

    “And where do you get the idea that anyone is scared by an $8/hr federal job?
    If anything, the larger response seems to be that no one will take it.”

    Not what I hear. I hear more concern about giving more power to the federal government through the enfranchisement of the unemployed. Even though it heads in the right direction by providing financial independence it rubs quite a few people the wrong way as that independence comes from a central government.

    Jefes provided an opening for women into the workforce, and many didn’t like that transition. So Jefes was different from Italy/Germany where unemployment was ‘solved’ by having women return home to have babies while men were employed to produce armaments.

    @ Gary “Are you equating JG with War Communism?”

    More fascism or potentially any authoritarian (father style) regime that has control of the printing press. I’d just like a better analysis of the proper balance between centralized and decentralized power.

    In general does a balanced centralized system have to be run by women?

    In general are men are only capable of running a decentralized system?

    I’d argue our financial sector is too centralized and that led to its collapse. Yes that centralization also allowed for its bailout, but was that really optimal?

    WARREN MOSLER Reply:

    let’s just say our senses of logic differ

    Gary Reply:

    @Winslow r.,

    just remember that both Russian revolution and Hitler’s rise was caused by too much suffering and unemployment.
    So worrying about giving too much power to the government to take care of those issues – may lead you to what you fear the most: brutal authoritarian regime.

    The way I see it: it does not matter if power is centralized or not – it matters what it does. The most decentralized democracy can be quickly reversed if it makes most people miserable. The same with the centralized government.

    Also – the financial system failed because it was not regulated enough, and not because it was too centralized.

    Winslow R. Reply:

    @ Warren “let’s just say our senses of logic differ”

    Especially with regards to the financial sector.

    @ Gary “Also – the financial system failed because it was not regulated enough, and not because it was too centralized.”

    When Elizabeth Warren, Brooksley Born are on one side and Summers, Geither are on the other side the divide looks a bit more inherently sexist.

    The financial sector is regulated exactly how it wants to be regulated, does that not define a ‘central power’?

    To decentralize the financial sector requires a restructure, a shift in power, not more regulation. When it comes to the financial sector, Warren and I have especially different ‘senses of logic’.

    Gary Reply:

    @Winslow r.,

    Regarding sexism – I am not certain much would change if Summers or Geithner were women.

    You are right that financial sector has too much power, and it might be quite centralized – I don’t have much insight into that. Still, it is really far from being as centralized as Soviet rule was, or as Hitler’s rule was.
    The central government in the US are still the elected politicians in Washington, no matter how much they are influenced by the financial donors. Although money rules both through campaign finance and public opinion manipulations – the public interest can still get through – even if that requires major protests.

    Monica Smith Reply:

    @Winslow r., Power, to be felt, has to hurt. Therefor, whether power is concentrated or dispersed over states doesn’t much matter. Better that it only be assembled when needed to counter a specific force.

    Winslow R. Reply:

    @Monica,

    Agree that the creation of power tends to hurt. Disagree that it doesn’t matter how that power is distributed.

    The collection of power is usually always from dispersed sources. That power, once collected, can be concentrated into a few hands or dispersed into many hands.

    A democracy tends to hurt less than a dictatorship.

  6. roger erickson Says:

    “For me it was a reality check,”

    Is this a scene from Monty Python? Or the Keystone Cops? British policymakers & economists have written adequate lessons on this very topic for over 90 years!

    What is going on? Where are the British economists???

    Reply

    Neil Wilson Reply:

    @roger erickson,

    I think the good ones have all died and the remaining ones are essentially second rate mathematicians who prefer to stay hidden away from the world – or have taken the corporate shilling.

    Reply

  7. roger erickson Says:

    Placing economic policy staff today is like screening for jury members that haven’t read a newspaper (or article, or textbook) from the last 90 years.

    It really is inexplicable.

    Reply

  8. Ralph Musgrave Says:

    Why can’t Osborne give the credit rating agencies a brown envelope full of £50 notes in exchange for a better rating? That’s what private sector firms do.

    Reply

    Neil Wilson Reply:

    @Ralph Musgrave,

    He doesn’t think he has any £50 notes left :)

    And worse still neither does the Shadow Treasury team. :(

    Reply

    Unforgiven Reply:

    @Neil Wilson,

    I think we need to recycle the “Dennis Moore” sketch, with Osborne racing about the countryside on the Expansionary Austerity Unicorn, clumsily goring the productive wherever he goes.

    He steals from GDP,
    To give to “The Debt”,
    Stupid get….

    Reply

    Pierce Inverarity Reply:

    @Ralph Musgrave, …he probably thinks he’d need to tax the populace to get the envelope worth of £50 notes, too…

    Reply

    Tristan Lanfrey Reply:

    @Pierce Inverarity,

    http://www.bloomberg.com/news/2012-02-16/osborne-said-to-look-outside-bank-of-england-for-king-successor.html

    He seems, however, to know very well how to please his friends.

    Reply

  9. JBH Says:

    I am very scared of the $8 no-work federal job explosion idea.. Very scared..

    Reply

    Winslow R. Reply:

    @JBH, Why?

    Reply

    WARREN MOSLER Reply:

    why?
    what bad can possibly come of it?

    Reply

  10. Rodger Malcolm Mitchell Says:

    Funniest sentence in the above article: “Spending cuts that helped the U.K. preserve its top credit rating last year and bolstered the pound are now weighing on the currency as investors lose confidence.”

    Rodger Malcolm Mitchell

    Reply

  11. Monica Smith Says:

    It used to be the lawyers that were recommended for instant removal. Now it looks like accountants are the more likely culprits for bollixing things up. Their obsession with counting is not helpful.

    Reply

  12. Winslow R. Says:

    I wonder why Romer was unable to stand up to Obama/Summers.

    Via Mark Thoma…..

    Shaping risk preferences across time
    http://www.voxeu.org/index.php?q=node/7641

    “What is the importance of these results?
    The findings suggest, first, that a part of the observed gender difference in behaviour under uncertainty found in previous studies might actually reflect social learning rather than inherent gender traits. Of course this is not to say that inherent gender traits do not exist. Rather it suggests that they can be modified across time by the environment in which a woman is placed. Second, the findings are also relevant to the policy debate on the impact of single-sex classes within coeducational schools or colleges on individuals’ behaviour. Whether or not this outcome carries over into other subject areas apart from economics and business remains a topic for future research.
    Where to next?
    Our experiment does not allow us to tease out why these behavioural changes were observed for young women in all-female groups. Conjectures as to the reasons for the changes might include the following. Women, even those endowed with an intrinsic propensity to make riskier choices, may be discouraged from doing so because they are inhibited by culturally driven norms and beliefs about the appropriate mode of female behaviour – avoiding risk. But once they are placed in an all-female environment, this inhibition is reduced. No longer reminded of their own gender identity and society’s norms, they may find it easier to make riskier choices than do women who are placed in a coeducational class. We hope future research will investigate these hypotheses further.”

    Reply

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