A world in economic crisis

More on who should be the next IMF chief

Personally, I like the idea of Christine Lagarde getting the post. She has a well rounded career and she would bring a fresh face to the role. She has the respect in Europe as well.

However, there are some countries that seem to have other ideas about who should lead the IMF. As regards to the opinions of the Goose (Wayne Swan) from Australia, he is such a bad Treasurer that his opinions should not matter in the slightest. He is one person who has absolutely no idea about what is required in the top job. Put it this way, I would value the opinion of Paul Keating (a man I detest anyway) over that of the Goose.

If the person is chosen on merits then Christine Lagarde should remain the number one contender. Amongst the other names being mentioned is the failed politician UK Gordon Brown. It is well known that he aspires to this type of role, but, he does not have the support of the present leadership in the UK. On top of that Gordon Brown messed up the economy in the UK in both of his roles.

Socialism and pushing socialism through the IMF is not going to help the world’s woes. At present the IMF has a big problem in Europe. It really does need someone with credibility in Europe to head the group. Gordon Brown does not have that credibility. Christine Lagarde has the credibility. The people being pushed from Singapore and other countries do not have that credibility. There is one other new contender from Brussels.

Some of the issues that I have with the IMF structure includes the heavy socialist emphasis. The challenges of the eurozone has meant that there has been a need to catapult some of the present ideas. Keynesian economics will not work in a time of stagflation. This is the lesson that should have been learned from the 1970s and the 1980s when the stagflation was prolonged. There is a need for a different set of responses to the crises that occur.

For too long Europe has turned to socialism (which is not quite the same as Communism) in order to offer a raft of welfare benefits to their communities. What most of these governments have forgotten is that there is a need to have people working in order to gather taxes, and there is a need for business and industry in order to have people working. Policies such as high taxes on business do not work because in the long term employers make the decision to leave the marketplace. When this happens the consequence is a drop in tax revenue as well as higher unemployment which in turn leads to higher welfare benefits.

Europe also has another problem that desparately needs attention: open borders attracts the wrong kind of immigrants. This can be seen in countries such as Spain, France, England and Germany, as well as in Norway and Denmark. These immigrants see this as an opportunity to place their wives on welfare, and they soak up all of the other welfare state benefits such as free medical, free education etc. etc. If this is not kept under control, inevitably it leads to a break-down in the whole system. At the root of this problem is taxation, or rather taxation receipts.

Under Dominique Strauss-Khan the IMF has steered a number of European countries towards putting in place austerity measures that are supposed to bring about a restructure of their economies. Those governments can only be compliant if the people are compliant and stop their protests that cause disruption, and in the instance of Greece, become extremely costly in terms of property lost, as well as lives lost due to the riots. The Greek attitude has not been conducive to the necessary reform required.  Greece is the typical example of a country where the expenditure on welfare outstrips by a long shot the taxation receipts, but the lazy Greeks do not seem to understand the implications of their own bad welfare system.

I am not against some form of welfare buffer for the most vulnerable in the community. There is a need to protect such individuals. I am not against short term unemployment benefits for those who are able-bodied. I do think that government needs to have other structures in place that will help the unemployed find work. What I am really against is the expenditure of government funds on projects such as wind farms that are inefficient and will never deliver according to government expectations. The windfarms do not increase employment, but decreases employment in some sectors.

The watermelon policies and the claims regarding AGW or climate change need to be challenged, and governments everywhere need to stop wasting money on bogus research. This also means that I am against the use of IMF funds going third world countries, where such funds would only be wasted upon dead in the water projects whilst those third world countries continue to purchase arms and kill their own people.

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A world in Turmoil, and Portugal heads for collapse

Portugal is the latest of the PIGS nations in Europe to head for collapse. Already we have seen Greece, Ireland and Spain reach the critical level, and now it seems that Portugal has finally admitted that it needs help. The implications for countries such as the UK is that the necessity to fund the rescue package will hit the pocket of every man, woman and child. However, if Portugal does not end its Socialist practices, and if Portugal does not cut the unnecessary spending, then there is no real hope.  (I will post something else on this subject when I learn more about what is happening).

However, the collapse of Portugal is small potatoes compared to some of the other crises in the world. Earlier this year, Christchurch suffered its second devasting earthquake in a matter of months. The first one in September left lots of damage, but there were no deaths or injuries. The epicentre was close to a town near Rolleston. It happened in the middle of the night, so that no one was around when a few buildings collapsed. Probably the worst damaged building at the time was the Anglican Cathedral. At least when we had a tour that included Christchurch, we saw the fencing around the cathedral indicating that there was a danger of collapse and people getting injured. However, when the shallow quake at Lyttleton harbour struck, it led to a devastating loss of life, widespread destruction and an economic disaster for New Zealand, as well as the insurance industry. The final death toll was more than 160 persons killed, with hundreds injured, including those who had limbs amputated. Several families have been left without a mother or a father.

Unfortunately, the earthquake in New Zealand has been overshadowed by the devastating magnitude 9.0 quake and tsunami in Japan. Thousands have lost their lives and thousands have been left homeless, with many small towns being almost wiped out by a tsunami that was around 32 ft or approximate 12-14 metres in height.  It is this quake that will have financial aftershocks for Japan well into the future.

The problem in Japan is not so much the devastation to property and the wiping out of thousands of people, but the nuclear accident at Fukushima that followed the quake and tsunami. As a short background, the nuclear reactors at the Daiichi and Danii plants shut down as expected when the quake hit. The generators started so that the reactors could continue to operate and cool down. There was no damage at this point to the housing of the reactors. However, the tsunami was much larger than anticipated and the 14 ft wave took out the generators that were providing the emergency power to the Daiichi plant. The battery operated generators kicked in, but these only had 8 hours of life.  It was after these died that the real problems began at the Daiichi plant.  There was an explosion at the nr 1 reactor. The outer concrete housing partially collapsed, but the inner steel housing survived. The explosion was explained as being the result of a build up of hydrogen. This was followed by an explosion in the 2nd reactor, and then another in the 3rd reactor.  In one case, the one I believe was due to human error, the rods were exposed to air for 140 minutes, which has led to a partial meltdown of the core.  It is in this reactor, where it is believed that the containment unit was damaged.  The Japanese are struggling to bring everything under control again. This accident is on a par with the accident at Three Mile Island.

The most devastating part about this kind of accident is that radiation is released into the atmosphere. This is what has happened at the Daiichi plant. At first the releases were small, and the over-reaction from the anti-nuclear lobby has been a joke, but the levels of radiation from the later explosions have been cause for concern in Japan, as well as in countries that have been importing Japanese food products. In Tokyo the levels of radiation are high enough to be considered dangerous to babies, and several farms outside of Fukushima have had traces of radiation discovered on their produce, meaning that they cannot sell their product on the open market.

As the exports stop for foodstuffs, Japan will suffer some economic consequences, but hopefully this will be short-lived.  It is too soon to tell how this will hurt the Japanese economy. At the same time, thousands of foreigners have fled from Tokyo and Japan out of fear of the impact of the radiation. Again, there will be some economic consequences to Japan because of this flight of foreign workers. This is all on top of the losses sustained because of the earthquake and Tsunami.

At the same time, the Middle East has broken out in a fever of revolution. It started in Tunisia, then Egypt caught the bug, followed by Morrocco, Syria, Bahrain and then Libya. Whilst I have concerns about some of these countries because there is a very real possibility of them falling into the hands of Muslim Brotherhood, there is one country that is a stand out, mainly because of the brutal manner in which its leader, Moammer Gadhaffi has attempted to put down the revolt.  As a result of the humanitarian crisis, the UN responded with sanctions against the regime in Libya, followed by Resolution 1973 which led to the bombing of Gadhafi’s military bases. That action saved Benghazi from a promised massive slaughter.

This turmoil in the Middle East might be just a hiccup, but it has consequences in the form of oil price rises. This is the 1970s redux.

U.K. moves towards working for the dole

Posted in unemployment, United Kingdom, welfare state by Aussie on November 8, 2010

BBC News – Ministers defend plan to force jobless to do work

Rowan Williams, the somewhat discredited Archbishop of Canterbury thinks that working for the dole is a bad idea. Like a good little Marxist, Rowan Williams believes that working for the dole is harmful.

However, personally, I disagree with the comments attributed to Rowan Williams, that requiring people to work for the dole would contribute to “a downward spiral of uncertainty or even despair”.  To the contrary, working for the dole helps people to achieve a sense of self-worth, rather than leading to feelings of despair. The self-worth comes from having the dignity of being able to work.

The scheme which is about to be unveiled is designed to catch the cheats – those on long term unemployment that prefer to receive benefits rather than working full time. It is also designed to encourage some unemployed into the habit of a work day. It is being designed to help those who really do want to work, to have something on their resume.

Dealing with unemployment is a very thorny problem at the best of times. There are many who give up their search for work because there does not appear to be anything available for their particular skill sets. Most countries have schemes to help the unemployed find work. However, there are some drawbacks to those schemes, especially in the way that some people are excluded from receiving that help. (I know this from personal experience).

Whilst I disagree with the Archbishop of Canterbury, I can actually relate to the difficulties associated with being unemployed, especially during a period of high unemployment caused by Stagflation. My personal experience occurred in 1976 when I was a new graduate, landing in a situation where firms were not employing Commerce graduates. At the time the top five accounting firms were taking in very few graduates… the jobs were not there. My own experience was that it was very difficult having to deal with the Commonwealth Employment Service (the name in 1976) especially when their officers persisted in sending people to job interviews when the people did not meet the necessary criteria. My experience on that score was humiliating, but the CES officer was to blame because he lacked the ability to match up the clients to each other. Getting temporary work in a factory was far less humiliating than going for an interview where I was clearly not the right person for the job!! In this respect I think that the Archbishop of Canterbury has no real idea about what causes humiliation for job seekers.

The welfare state, whether it is in the U.K., Australia or elsewhere needs to be curbed. There are simply too many people dependent upon the state. This dependency causes a drain upon the public purse. If people are cheating the system by finding ways to stay unemployed, and even working on the side whilst claiming benefits, then they deserve to be flushed out of the system. 

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Will this be the change that we really can believe in?

Posted in United Kingdom by Aussie on May 12, 2010

Embracing change: Cameron forges historic coalition – Times Online

Socialism remains the failed experiment and the moribund condition of financial position of the U.K. remains the conclusive evidence that Socialism cannot hope to change society in a positive way.

For those of us from afar who remember the Margaret Thatcher government, we know that the U.K. can meet a crisis head on and turn it around. What we also know is that turning around the crisis causes a lot of pain. Margaret Thatcher was able to bring the U.K. out of the period of stagflation by being hard-headed and little bit bloody-minded. She fought against Argentina over the Falkland Islands and had a temporary win. At this point in time, there is another war brewing over the Falkland Islands, and now we know that what is at stake is an oil reserve. Argentina wants the profits from the oil discovery.

Last week the U.K. went to the polls, and after what was a tense time, the result ended up in a hung parliament with the British Labour Party losing more than 90 seats, the Liberal-Democrats losing 5 seats, and assorted smaller parties either gaining seats or remaining the same, whilst the Conservative Party, known as the Tories, won more then 90 seats, but did not win enough seats to avoid the hung parliament and to govern in their own right. This in turn led the Liberal-Democrats under Nick Clegg to negotiate with both the Conservatives and the Labour Party regarding forming a Coalition or at least allow the party with the largest number of seats to form a minority government. Since the declaration of the polls it has been a very tense time as the negotiations proceeded. At long last there has been a resolution and the U.K. has a new Prime Minister – David Cameron. The U.K. also has its first coalition since the end of the second world war – The Conservative-Liberal-Democrats have managed to make a deal to form what they hope will be a stable government.

CHALLENGES AHEAD

The new coalition government in the UK faces many challenges in the near future. They must work together to turn around the budget deficit and yet at the same time they both need to work to protect the most vulnerable in British society – the elderly and the disabled.

In the future there will be a referendum on the vexing issue of the voting system. One of the platforms of the Liberal-Democrats is the move towards proportional representation. Another platform is a four year fixed-term parliament term, which would end the idea of going to the polls early (having seen how this works in Australia – there are several Australian states that have fixed terms, I have misgivings on the issue, especially when the government turns out to be corrupt). 

Another area where both groups will work together relates to reforms within the school system. The U.K. school system has been moribund for a very long period of time. It needs a good overhaul but I doubt that this will be achieved during the life of this particular coalition.

Of the other differences between the two parties, I hope that they will be able to put their differences aside in order to contribute to having a stable government that will work towards dismantling the worst of the welfare state. I doubt that there will be an end to PC in the U.K. because PC attitudes are simply too entrenched. On the other hand, I do hope that both parties will seek to tone it down a few notches, especially in bringing to an end creeping sharia – does Nick Clegg have the stomach to end that creeping sharia? I do not know.

I hope that I will be found to be correct that this change will lead to some very positive results. It would not have been possible for a Labour-Liberal-Democrat to be formed. For starters the members of the British Labour Party have become either too corrupt or they tended to be ego-maniacs in their belief that only they can rule in Great Britain, even as they had continued to do great harm to the U.K. economy with their welfare state policies.

My hope is that what will be restored is the work ethic, rather than a welfare state mentality. This will be hard to achieve because the welfare-state mentality is so deeply entrenched. Yet, there are plenty of areas where a new government can begin to make cuts e.g. not allowing the entitlement attitude of some members of the community to continue unabated. As hard as it might be, I see no reason for some benefits to be means tested, and in fact even with something like housing, I see no reason why there should not be some form of means-testing, or at least changes that will mean an end to a certain sector will not be able to collect benefits whilst having 4 wives and lots of children.

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Future Shock – what US citizens can expect when the health system fails

Posted in unemployment, United Kingdom, welfare state by Aussie on March 27, 2010

Hospital wards to shut in secret NHS cuts – Telegraph

It is no secret that the NHS in Great Britain is in a very disastrous if not perilous conditions. With an increase in the number of immigrants who are sucking at the government teat, and with an ever increasing aging population, the NHS is showing the strain and is beginning to collapse. According to the Telegraph, the Brown Government has secret plans to close hospitals and to shed thousands of jobs across the United Kingdom. Well, how’s that British Socialism working out Mr. Brown?

According to the Telegraph, the secret plan is to cut the health budget by at least $20billion and this will be achieved by closing hospitals, sacking staff and scrapping those hip replacements. It would seem that if such a plan was implemented that it is the elderly who will bear the brunt of these cuts. The Telegraph reported:

“In Wednesday’s Budget, Alistair Darling, the Chancellor, repeated that the £20 billion would come through “efficiency savings” and not key services.

Documents produced by several of the SHAs show how the cuts are, in fact, expected to fall on hospital services.

In the South East Coast region, which covers Surrey, Kent and Sussex, up to £1.6 billion must be saved.

A document marked “restricted” and circulated among SHA board members suggests 10,000 of the region’s 100,000 NHS workers may lose their jobs. “The new financial environment demands that the trend in workforce growth must be reversed,” it said, adding bosses must reduce employee numbers by 10 per cent “or further”.

The document said staffing in the acute sector, covering hospitals, “can be expected to decline faster and further” than elsewhere.

Job losses will be “starting in the coming year”, it states. Mr Brown has repeatedly promised Labour will not start making significant cuts to public spending until 2011. A spokesman for the South East Coast SHA said the document was a discussion paper and not a final plan.”

When one sees a story like this regarding the NHS, one has to wonder how this could happen in the first place. Is it a matter of mismanagement? Is it because people are constantly running to their GP for the slightest thing? Is it caused by new technology? Or maybe it is because of the high level of immigrants within a certain immigrant population that eschews having productive employment so that they will be able to help bring down the economy of the U.K. in order to force a revolution from within, and then introduce sharia law.

If the government in the U.K. requires what looks like really harsh measures then the country is screwed. The present government is not able to cope with the demands that are being placed upon the welfare system. Of course, one possible solution to the problem would be to enforce stricter immigration laws. The U.K. can do without immigrants that have no intention to work because they want to suck off the government welfare teat. It is time that the U.K. government actually began to turn off the welfare benefits to the immigrant population. This is an action that needs to be taken against all immigration populations rather than singling out a class of immigrants.

There is no real excuse for allowing the budget deficit to get so far out of hand. It is because of PC attitudes that the British government has failed to act in order to weed out the welfare cheats, or those who manage to live off welfare without ever having contributed to the U.K. economy. It is as if the exponential growth in the U.K. immigration has been hand-in-hand with the growth in demand upon school and health services. Perhaps a case could be made for people being asked to pay more towards health and education in Great Britain, yet I can imagine the stink that would be created by those same welfare moochers.

The unchecked growth in the welfare state in the United Kingdom is definitely cause for concern. If the U.K. goes ahead with such deep cuts then the growth in umemployment could push the U.K. economy over the edge. As it is the U.K. will spemd a long time getting over the spendthrift policies of both Tony Blair and Gordon Brown.

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Great Britain – On the Brink?

Posted in unemployment, United Kingdom, welfare state by Aussie on March 10, 2010

100,000 council jobs could go as funding from central Government is slashed – Telegraph

One of the inevitable consequences of the expansion of government is that eventually, the point is reached where there is not enough money to pay employees because of funding cutbacks. The Australian experience under the Hawke-Keating government was a severe cutback in public service jobs during the 1980s. (I will write about that experience later.) Therefore it is no surprise to learn that the British system of councils is now contemplating having to cut thousands of council jobs as funding dries up.

It has been estimated that as many as 100,000 jobs could be cut from the councils over the next three years as Government spending cuts start to bite.

Tony Travers, and expert from the LSE said that the actual estimate from the councils of a 25,000 jobs cut was on the cautious side. He stated:

“Nothing like this has happened for a generation. For myself I’d be amazed if it was that low. I think it’ll be much higher. It could be as high as 100,000.”

The Telegraph reports the grim findings for council workers in this way:

A number of councils indicated that they will cut jobs more than 1,000 posts, as funding from central Government is cut back.

Eight authorities – Kirklees, Leeds, City of Bradford, Sheffield, Stoke-on-Trent, Nottinghamshire, Lincolnshire and Surrey – said 1,000 or more posts might be lost within five years.

Birmingham City Council, which did not respond to the survey, is planning savings of £69m in the next financial year, which could mean the loss of up to 2,000 jobs.

Shropshire Council has also said it is planning to cut more than 1,000 posts over the coming years.

There are fears that key local services such as libraries, nurseries, arts and leisure services are now at serious risk. Seven in 10 councils predicted they will have to cut spending by up to 20 per cent over the next three to five years

However, Mr Denham, the local government Secretary  argues that this will not be the case, and that the front line services will not be cut if efficiencies are to be found elsewhere. Read the rest here.

Exactly how these councils will obtain those effeciencies could be very open to debate. As I stated it is in fact inevitable that when Government becomes bloated there is a point where those bloated jobs have to be shed. John Denham does not seem to have the experience with regard to finding these other things that can be cut. In times of austerity it is true that the government has to seek areas that can be cut. Personally, I think a good place to start is welfare spending, especially in relation to the provision of housing for welfare recipients. By this I do not mean that there should be no housing available. Rather, I mean that eligibility for welfare housing could be tightened. Another area that could be tightened is that of immigration. If they cannot or will not find a job, do not give them welfare, send them back to their own country and let their own governments provide for them. The immigrant British population places a great strain on welfare spending, and it is helping to cause the present crisis.

However, it is my own experience in Australia that I also want to highlight, since I was working for one of the departments in the Australian Public Service that was subjected to a massive shedding of jobs during the 1980s. The particular department was Administrative Services. It served as an umbrella to a variety of groups such as Removals (for military families), Comcar (the provision of motor vehicles for politicians and top public servants), Australian Archives, AGAL etc. The department itself led the way when it came to the introduction of accrual accountin in the Public Service. However, there were a lot of jobs that could be performed better by the private sector. The Department itself was somewhat bloated at the time due to the provision of all of these services for military families, as well as for government politicians. The push started not long after I joined the department, or rather after two departments were merged together. The whole time that I worked in the department there was uncertainty because of the constant rounds of redundancies being offered. A very seamy side to these offers was the way in which people were treated, being given the cold shoulder etc. in an effort to force them out. By the time I left the APS the department had shed thousands of jobs… although to be fair some jobs were shed because the units were sold off to private enterprise. Some of these old units continue to thrive in the private sector more than 10 years later. The actual department disappeared after the 1996 elction of the Howard Government and of course many more people lost their jobs as a result of the change as some areas were merged into other departments. What Australia did get was a slimmer and less bloated government for a time – and then it started to expand again……

This kind of experience does in fact impact upon services that are offered to the public. It is inevitable that there is some kind of impact because there are simply no longer the number of employees available to serve the interests of the public. If you look at the kind of jobs that could be under threat in the U.K, then I would say that there is room for the private sector to take over the service e.g. nurseries, as well as arts and leisure.

Whilst the news is grim because of the inevitable reduction in employees that comes from a tightening of the budget, there should be room in the future for those same services to be provided by the private sector, rather than by government. However, in the current economic climate there does not seem to be the funding available for the private sector to take over those functions.

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Britain’s deficit third worst in the world, table – Telegraph

Posted in United Kingdom by Aussie on February 20, 2010

Britain’s deficit third worst in the world, table – Telegraph

The table says it all:

Deficit as a % of GDP
Iceland 15.7
Greece 12.7
Britain 12.6
Ireland 12.2
United States 11.2
Spain 9.6
France 8.2
Japan 7.4
Portugal 6.7
Canada 4.8
Australia 4
Germany 3.2

* Figures from OCED forecast in November 2009.

Great Britain is in real trouble. Its spending is out of control. The problem is that the Socialist Govt in Great Britain is wedded to the notion of “fairness” with regard to “redistribution of income”. What these people do not realize is that this “fairness”, especially when it is tied to PC attitudes is the cause of this deficit disaster.

Unless a British Govt is willing to confront the issue of immigration which is not based upon the skill sets of the immigrants, it will not be able to contain costs associated with Welfare spending. These costs include the failing NHS scheme, as well as housing and other welfare benefits given to immigrants after only a period of 12 months in the country. The Social Security type people need to be more vigilant because they seem to be unaware of the harm that is done to the economy because of welfare cheats.

Some people seem to think that this present problem is due to low real wages. This is the usual argument of Socialists who have no clue about what makes an economy tick. The same goes for those who want to “blame the banks” instead of the Government. The structural debt has nothing to do with the excesses of any banks but it has to do with the excesses of government.  Take for example some of the more recent scandals involving government members relating to allowances. A good case could be made for reducing such allowances and also for ensuring that all claims made by members of the Parliament are properly scrutinized. A good start would be to remove any allowances and privileges given to ex-members of the Parliament, including to ex-Prime Ministers. By now they should be getting enough money of their own, they do not need to continue to feed off the public purse. Any member of parliament who wants to travel overseas should be asked to reduce their travel expenses. If they go over the allowed yearly amount for travel, then they should pay for the out of pocket extra expenses. They should also seek to use the least expense mode of transport necessary for the trip. (yes I know, first class travel is GREAT). The reduction could take the form of reducing the number of extra staff if it is necessary to travel first class. Instead of flying they might like to choose the train (but not in winter).

Also, the government should stop wasting money on useless Green projects that are not providing any return on investment. What good is wind turbines when they are made in China? What use are they if they freeze up during a snow storm?

In another area, the Govt should be looking at its education objectives. The provision of free education for families who are in poverty is laudable, however, what about those families who could afford to pay something towards the education of their children? There must be ways of cutting education expenses in the future. Allowing families greater school choices might bring about a better outcome. Not all children are suited to staying on for extra years at school and it would be better to send them out to be apprentices (which should include some schooling anyway), then keeping them within the classroom and being disruptive.

This present situation though, is not truly surprising once it is recognized that we have in fact hit a new period of stagflation and that the measures required to get out of the stagflation will indeed cause pain, but they are needed to tackle a situation that has been allowed to get out of hand, because of the burgeoning Welfare State.

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Bank of England retains low interest rates

Posted in United Kingdom by Aussie on February 18, 2010

Bank of England suspends quantitative easing scheme and holds rates at 0.5% | Mail Online

The Bank of England has chosen to retain interest rates at 0.5% which is really very, very low. At the same time the bank has halted its $200billion programme of injecting money into the economy, predicting a gradual recovery.

What could go wrong? At this point in time there is a real possibility that there will be a double dip recession. The “recovery” seems to be quite weak, which is not a good sign anyway. However, based upon government interventions in the past, the question to be asked is whether this action of pumping money into the economy was justified in the first place.  The problem, as I see it, is that the real situation being faced is similar to that which was faced in the 1970s when the world suffered from stagflation.

If this is a period of stagflation, rather than just a recession, then it could be argued that the steps being taken are in fact wrong, and as a result there is a real risk of the economy in the UK and elsewhere that a “stimulus” has been applied being moribund for a longer period of time. 

In this particular case the Keynesian type prescription simply does not work because there is high inflation plus high unemployment., and it would certainly seem to be the case since the CPI in the UK jumped to 2.9%. Keeping interest rates low is not really going to help. The mortgage defaulting will continue, especially if the mortgagees have not been putting money into the payment of their loans during a period when the interest rates have been low.

One reason that the economy in the UK has continued to be slow to bounce back could be a result of carbon credit trading. During last year a large steel plant was closed because of the advantage associated with the carbon offset licenses rather than the profitability of the company.

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Bad News for Britain’s economy

Posted in United Kingdom, welfare state by Aussie on February 17, 2010

JP Morgans has issued a warning to Great Britain about the state of their economy, stating that it is as bad as the 1970s when it was necessary for Britain to apply for a loan from the IMF.

The bank warns that Government debts, when compared to the total size of the economy, are higher than during the 1970s crisis.

It adds that there could be a “marked fall” in the value of the pound as international investors re-assess the health of the British economy.

The Telegraph reports that:

In 1976, Britain was forced to turn to the International Monetary Fund (IMF) for a £2.3 billion bailout. In return for the funds, the IMF insisted on reforms to the British economy including public spending cuts. The period was regarded as one of the most humiliating in the history of the British economy.

In a research note entitled “UK Fiscal Policy: some lessons from the 1976 crisis”, JP Morgan said: “On many metrics, the UK’s fiscal position is currently worse than observed around the IMF loan in 1976…The size of the current budget deficit suggests that the UK is leaning heavily on the credibility it has built up since the mid-1970s.”

The bank’s “central forecast” is that Britain will “muddle through” the crisis. However, JP Morgan added: “The possibility that markets could take a more severe view of the fiscal position is clear, and the 1976 experience demonstrated that the situation can change quickly and unpredictably.

“Officials fretted over the possibility of a marked fall in the currency well before the crisis. Looking back at 1976, one can argue that as the crisis broke, the underlying situation had actually begun to improve (growth had begun to recover and current account deficits had begun to fall).”

Even though Gordon Brown has been warned about the dangers of the high level of government borrowing, he insists that this has been necessary during the recession to stop unemployment rising. However, is that really the case? The issue here is that the Brown Government has plunged the UK into a high budget deficit without considering the necessary tax receipts to cover the borrowing. As I see it, the growth in the welfare state, with an increasing entitlement expectation by those receiving welfare is placing pressure on the budget deficit.

What dangers like ahead for the Euro?

Posted in European Union, Greece, United Kingdom, welfare state by Aussie on February 17, 2010

The fallout from the Greek financial collapse continues to explode. There is no doubt that countries that make up the name STUPID are in trouble too.  At this point in time other countries within the European Union are wondering why they should bail out Greece, and what are the long term implications for the European Union.

Amongst the countries that are sceptical regarding the efficacy of bailing out Greece, is France:

Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide ‘sticking plasters’ to cover the deep- seated flaws in the eurozone bloc.

This particular warning comes as the Euro has lost value against the dollar, and the danger signs for a double dip inflation begins to emerge.

Strategist Albert Edward has gone as far as stating that any help given to Greece will be like band-aids, and that ultimately this crisis will lead to the break-up of the European Union.

The warning from the French bank is also echoed by Mats Persson, Director of the Open Europe think-tank, which campaigns for reforms in Brussels. He commented that the Greek crisis has made it clear that the Eurozone was a flawed project from the beginning.  He stated:

Even if Greece receives a one-off bailout it would not solve the real problem, which is the huge differences in competitiveness between the eurozone’s richest and poorest members.

Countries that are highly uncompetitive are normally able to slash interest rates and devalue their currencies to prop up their economies.

But this is not possible within the euro, given its one-size-fits-all economic governance.

What is implied here is that weak eurozone members such as Ireland and Spain will have to suffer years of painful deflation and tumbling living standards, as well as draconian budget cuts in order to adjust to the rigors of being in the Eurozone.

Another critic of the Eurozone is Harvard professor Martin Feldstein who has stated that the euro is in trouble because member governments have no incentive to keep their public debt under control. (read that as debt due to the growth of the welfare state). He states:

There’s too much incentive for countries to run up big deficits as there’s no feedback until a crisis,’ he said.

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