Cameron and Draghi continue to push austerity

I wonder what, if anything, it would take to reverse all this self inflicted global destruction.

Clearly evidence and theory isn’t enough.
Too often change comes from some form of ‘blood in the streets’

Draghi Says No Alternative to Austerity as Economies Shrink

By John Fraher and Jeff Black

October 9 (Bloomberg) — European Central Bank President Mario Draghi said there is no alternative to austerity as Italian and Spanish officials balk at asking for bailouts that may impose more budget cuts.

“It’s without doubt that the process of fiscal consolidation has depressed output in parts of the euro area,”

Draghi told lawmakers in testimony to the European Parliament in Brussels today. “But what’s the alternative? We need to do that, we need to do that in the best possible way, as effective and as short as possible, complying with basic grounds of social justice.”

European officials are pushing debt-strapped nations across southern European for more cuts despite the risk that they will worsen recessions gripping the region. Draghi last month said that the ECB is prepared to take the unprecedented step of buying unlimited quantities of Spanish and Italian bonds if they sign up to certain conditions.

At the same time, Italian Prime Minister Mario Monti said in an interview last month that uncertainty about what those terms will look like is making him and his Spanish counterpart reluctant to apply for help.

International Monetary Fund Chief Economist Olivier Blanchard today suggested bond yields in Spain and Italy may resume rising if the countries don’t meet investor expectations and seek aid.

Cameron Says U.K. Needs to Implement Plan A Plus on Economy

October 9 (Bloomberg) — Prime Minister David Cameron said the U.K. government needs to implement an economic policy that he called “Plan A Plus,” without abandoning its deficit-reduction strategy.

Cameron was speaking after the International Monetary Fund cut its U.K. economic outlook and said the government may need to ease its fiscal squeeze if Bank of England stimulus fails to help the economy gather momentum. The Washington-based lender said today it sees the economy shrinking 0.4 percent this year before expanding 1.1 percent in 2013. It previously projected growth of 0.2 percent and 1.4 percent in those years.

“What we need is Plan A Plus” Cameron told Sky News television today from his Conservative Party’s annual conference in Birmingham, central England. He said that means pursuing deficit reduction alongside adopting fiscal measures to help businesses as well as easing planning rules to spur enterprise.

His opponents in the Labour Party have called on Cameron to reduce the speed and depth at which he is imposing government spending cuts, saying the government should alter its course to a “Plan B.”

The IMF is “not advising us to change course,” Cameron told BBC Radio 5. “What they says is we should stick to our plans unless things get dramatically worse.”

He said that while “there are signs that the economy is rebalancing,” including an increase in private-sector employment, “we need to do more and we need to do it faster.”

Healing Process

The prime minister said the IMF’s move meant it was falling into line with other forecasters, underlining the need for the government to ensure that its plans to spur growth are “firing on all cylinders.

Speaking to BBC Radio 4’s “Today” program, Cameron said the government is doing everything it can to encourage growth and a “slow and difficult healing process” is now under way.

He said there will be a new crackdown on tax evasion and “aggressive avoidance,” when asked to give details of his promise to take further action to increase taxes on the rich.

Chancellor of the Exchequer George Osborne told the party conference yesterday the U.K. economy is “taking longer” to heal than hoped. Still, he pledged to “finish the job” of reducing the deficit and signaled that deep cuts to welfare will be needed after the next general election in 2015.

Cameron Says IMF Forecast for U.K. Coming Into Line With Others

October 9 (Bloomberg) —Prime Minister David Cameron said the International Monetary Fund’s decision to cut its economic outlook for Britain meant the IMF was falling into line with other forecasters.

Cameron told BBC television from his Conservative Party’s annual conference in Birmingham, central England, that the goverment needs to ensure that its plans to spur growth are “firing on all cylinders,” rejecting calls for more borrowing to fund extra spending. He pointed to an increase in private- sector employment as a sign that the government’s policies are working.

U.K. Daily – CIPS May Manufacturing Index Falls to 20-Month Low

My Q2 guestimate for the tipping point may not have been too far off

U.K. CIPS May Manufacturing Index Falls to 20-Month Low (Bloomberg)

A U.K. manufacturing index, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, declined to 52.1 in May from a downwardly revised 54.4 in April. “Domestic market weakness was the main drag on order books and output,” Rob Dobson, senior economist at Markit, said in the statement. “This was exacerbated by the additional bank holidays in late April, which fell during the early part of the latest survey period, and ongoing supply-chain disruption following the Japanese earthquake.” Producers of consumers goods and small-scale manufacturers were hit hardest last month as output and new orders fell for the first time since the middle of 2009, CIPS said.

U.K. April Mortgage Approvals Fall to Lowest in Four Months (Bloomberg)

Lenders granted 45,166 loans to buy homes, compared with a revised 47,145 the previous month, the Bank of England said. The April figure is the lowest since December. The Bank of England figures show net mortgage lending rose 739 million pounds ($1.22 billion) in April and gross lending amounted to 11.2 billion pounds. Consumer credit rose a net 504 million pounds in April. Credit-card lending increased 347 million pounds, the most since February 2010, while personal loans and overdrafts rose 157 million pounds. A measure of M4 money-supply growth that the central bank uses to assess the effectiveness of its asset purchases fell 2 percent in the three months through April on an annualized basis.

U.K. Inflation May Be Hurting Economic Growth, Sentance Says (Bloomberg)

Former Bank of England policy maker Andrew Sentance said U.K. inflation at more than twice the central bank’s 2 percent goal may be hurting economic expansion.
“The fact that inflation is high is not necessarily associated with strong growth,” he said in an interview with Sky News late yesterday, marking his final day as a member of the Monetary Policy Committee. “In some ways inflation is squeezing out the growth of the economy because it is squeezing people’s disposable incomes.”

Sentance, who will today be replaced by former Goldman Sachs Group Inc. economist Ben Broadbent, said interest rates need to start going up “gradually” now to curb consumer price growth and prevent “much sharper” rate increases in the future.

He also said the central bank’s view of inflation didn’t put enough weight on the influence of the international economy, commodity costs and the decline of the pound.

“I think we should revisit our thinking on the economy,” he said. “We went through a period where there seemed to be a very predictable relationship between growth and inflation. Now we’re in a much more complex situation.”

Sentance said it was difficult to judge how long the impact of the pound’s weakness on inflation would last, as it hadn’t been offset by the impact of the recession holding down prices and wages.

“The issue with the fall in the value of the pound is how big its effect will be and how long it will continue,” he said. “We’re an economy very open to international trade and the value of the pound affects the amount of competition on the markets, the way in which companies price in markets so I think we do have to take the value of the pound very seriously.”

U.K. Housing Transactions to Fall 5.2% This Year, CML Forecasts (Bloomberg)

U.K. housing transactions will probably fall 5.2 percent this year before rising in 2012 as the economy experiences a “weak and patchy recovery,” the Council of Mortgage Lenders said.

Transactions will fall to 840,000 this year from 886,000 in 2010, the London-based group said in a report on its website today. They will rise to 900,000 in 2012, matching the level in 2008. Gross mortgage advances will amount to 140 billion pounds this year and 150 billion pounds in 2012, which compares with
253 billion pounds in 2008.

The CML sees the Bank of England keeping its key interest rate at 0.5 percent for “most” of this year before starting a “modest” tightening cycle that will continue through 2012.

“The prospect of a gentler upward profile for interest rates significantly mitigates the adverse impact on household budgets of weak growth in incomes, and this will help borrowers keep up with their mortgage payments,” it said.

U.K. Consumer Spending Rebound Likely to Be Very Slow, FT Says (Bloomberg)

U.K. consumer spending is likely to recover more slowly than in any post-recession period since 1830, the Financial Times reported, citing its own analysis of forecasts from the Office for Budget Responsibility.

Households are forecast to spend 5.4 percent more in 2015 than they did before the 2008 financial crisis; at the equivalent stages of the 1980s and 1990s recessions, spending was 20 percent and 15 percent higher, respectively, the newspaper said.
In the 18 significant U.K. recessions that have occurred since records began in 1830, consumer spending rose 12 percent above its previous peak within seven years, the FT said, citing Bank of England figures.