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Does Osborne have a backup plan?

Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
So, his economic policy of cut if the deficit first, make Britain competitive and lean in the international environment was based on the figures that growth would return organically.

2012 was supposed to have growth of 2.8%

Instead we had 0.3%

But putting myself in osbornes shoes - what would I do now? Is he so completely fucked he has no way to change course? I can't see how he can do anything except cry himself to sleep without being humiliated not just in front of the public like he already is, but also in front of his peers and friends.

If he bears down and just waits to the next election (which is almost certain to be a Labour majority) he can claim that the economy was too damaged by previous governments for him to do anything.

It's a shame that he is happy to let the economy sink in the meantime though.

Comments

  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Why would he have a plan B when is plan A is working so beautifully. Look at how much they've fucked up the public sector. You didn't think all of their policies were actually about getting us out of recession do you?
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Plan A is having such good results - increased debt, service cuts, benefit cuts, loss of AAA rating - that clearly what we need is more of Plan A.

    Still, at least we're all in this together...
    article-2123381-126A9165000005DC-105_306x466.jpg
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    The problem isn't that he's a corrupt politician hell bent on driving the economy into the ground - maybe he is but lets assume he's not. Lets assume he had the best intentions. Neoclassical economic theory supports him in that manipulating demand-side factors or C+I+G+X-M only leads to a different output/inflation equilibrium. However focusing on supply-side factors (technological innovation, reducing borrowing costs, etc.) both inhibits inflation AND boost growth. Win-bloody-win.

    The problem is when he did his sums on the back of the envelope the figure he was given was the economy would be back to growth in 2012. So he went ahead, got his assistants / clerks to draw up the budget, and said 'This will work!'.

    It hasn't, though. And now he can't u-turn without being humiliated in front of probably the only people whose opinion matters to him. And so he will plough on with sleepless nights, knowing he has fucked up and he has no way out except to hope that Labour win at the next election.

    It's a little bit perverse.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    I think its weird that in normal life changing your mind when new information becomes available that's sensible, rational and intelligent. But in politics its humiliating.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    He'll stick to the current plan which is in effect to spend more than is coming in and to increase Government spending slowly, whilst trying to shift some resources from revenue and running costs into capital and longer term infrastructure. At the same time he's trying to convince the money markets that he's keeping spending under control - hence he's not that fussed when people talk about non-existent cuts.*

    I'm not sure what else he can do, we're running a 7-8% deficit for 0,2% growth, it's just not feasible that borrowing more and increasing that deficit is going to get more than 1 or 2% (and lucky to get that), and to get that we'll be having, longer term, to shift more and more Government spending into interest payments

    There isn't any policy which won't be painful, and anyone who tells you there is a painless way out of this is a charlatan.

    * It's pretty Keynsian (though without the bit about cutting spending in the good times), though someone described it to me as a plan that relies on the money markets reading the Guardian and not the Financial Times
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    ShyBoy wrote: »
    The problem isn't that he's a corrupt politician hell bent on driving the economy into the ground - maybe he is but lets assume he's not. Lets assume he had the best intentions. Neoclassical economic theory supports him in that manipulating demand-side factors or C+I+G+X-M only leads to a different output/inflation equilibrium. However focusing on supply-side factors (technological innovation, reducing borrowing costs, etc.) both inhibits inflation AND boost growth. Win-bloody-win.

    The problem is when he did his sums on the back of the envelope the figure he was given was the economy would be back to growth in 2012. So he went ahead, got his assistants / clerks to draw up the budget, and said 'This will work!'.

    It hasn't, though. And now he can't u-turn without being humiliated in front of probably the only people whose opinion matters to him. And so he will plough on with sleepless nights, knowing he has fucked up and he has no way out except to hope that Labour win at the next election.

    It's a little bit perverse.

    I don't think he's particually fucked up (though I wouldn't agree with every decision), but I do kind of agree with Mervyn King that whoever won in 2010 would be out of power for a whole generation. All the major parties were offering the same thing, the differences (in terms of UK GDP) were minor, a few billion here and there.

    http://www.guardian.co.uk/business/2010/apr/29/mervyn-king-warns-election-victor
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    We lost our AAA credit rating pretty much because the rating agency doesnt think we have the balls to cut fast enough.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Moody's thought the sub prime mortgage packages were AAA rated right up until the bottom fell out of the credit industry. I wouldn't wipe my arse with their "knowledge". they're inept and corrupt just like all the other bankers.

    A strong chancellor would tell the "money markets"- I.e. greedy thieving bankers looking to justify more thievery- to go kiss his ass. Sadly Gidiot is basically a Trustafarian without the nous to be a stockbroker so he won't.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
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  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    There isn't any policy which won't be painful, and anyone who tells you there is a painless way out of this is a charlatan.

    This cuts to the heart of the matter as far as I'm concerned. Does anyone else remember the lead up to the last election where belt-tightening and a stiff upper-lipped approach to deficit reduction were meeting with resounding applause? We all understood Labour had been asleep at the wheel - and that's being generous, because you could argue it was more they were wacked out on barbiturates grinning wildly as the brick wall filled their vision. We knew they borrowed with reckless abandon and had no way of funding their death rattle policies.

    But suddenly more borrowing's the answer again. It's all "Keynesian theory states that when we're crippled with debt, surprisingly, and as a complete coincidence, in line with my political ideology, the answer is to borrow a fuckload more".
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Just to put it into perspective, the conservatives would have done nothing different from Labour coming up to the financial crisis.

    I think this is something oft-forgotten. Both Labour and the Conservatives are just two sides of the same coin and argue over minute differences. Both would have brought us to where we were, and both would have handled it similarly over the past five years.

    However, as the point was raised regarding alternatives, I did read an interesting FT article the other day that pointed that countries that have committed to more austerity rather than less, have done worse as a result.

    http://www.ft.com/cms/s/0/73219452-7f49-11e2-89ed-00144feabdc0.html#axzz2MCOfprDF

    As an open question, do people realise that some structural deficit is actually a good thing? A structural surplus means you have taxed people, and taken their money, when you could have otherwise not done so. Any company, in any country, will be financed through a mixture of equity and loans. At the marginal point we are at, issuing a gilt for £1 to be paid at a yield of 2p a year over 10 years, then we pay the £1 back, is much better value for money than cutting services where the £1 will be felt hard. I would bite your hand off for that loan right now if I could get it.

    There was an interesting TED talk on one of the problems of preparing for global warming. The prospect of investing billions and billions so that in 100 years time the world might be a little bit less shit (because its already going to pot, as opposed to trying to do something to make a huge difference to people's lives today makes it a very difficult choice to make. I'm not saying its a bad call, but sometimes you have two options which both seem good and you actually have to sit down and do the sums and work out which one works best. The whole problem is that the Institute of Osbornomics has got its sums right, so how could its logical conclusion be correct? Why is there any shame in going 'ah, we are going to have to rethink'. All he has said in parliament is that 'this is just proof that the situation we are in is really serious, so it gives me greater resolve to carry on doing what I am'.

    From the FT article:
    What would that change of policy consist of? The answer is simple. First, serious attention needs to be paid to why the UK non-financial corporate sector is running what seem to be structural financial surpluses, as Andrew Smithers of London-based economic advisers Smithers & Co points out. Second, the austerity on current spending needs to be made explicitly contingent on the economy: more when the economy grows faster and less when the economy grows more slowly. Third, every effort must be made to accelerate any structural reforms that might encourage higher investment by the private sector. Fourth, the banking sector must come clean on losses and accept needed recapitalisation so that it starts lending again. Finally, the government must recognise that current rates of interest provide a once in a lifetime opportunity for higher public investment.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Moody's thought the sub prime mortgage packages were AAA rated right up until the bottom fell out of the credit industry. I wouldn't wipe my arse with their "knowledge". they're inept and corrupt just like all the other bankers.

    A strong chancellor would tell the "money markets"- I.e. greedy thieving bankers looking to justify more thievery- to go kiss his ass. Sadly Gidiot is basically a Trustafarian without the nous to be a stockbroker so he won't.

    I don't actually think the ratings agencies are terrible. They were corrupted, as things are, by money. Just like our politics, just like everything pretty much. It's just one of the problems of capitalism and we deal with that where we can by regulating, by forcing directors to be criminally liable for the wrongdoings of their companies, by making companies more transparent. Though the knee jerk reaction is to ignore what they say, akin to ignoring the oil barons if they pick up the phone. It's a corrupt cartel, yes, but its one that we need to learn to live with and learn to get along with purely because they have power and influence.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    They have "power and influence" for no reason other than that Gidiot decided to base his political credibility on their decision making.

    I can't help but think that a better title for this thread would be "Does Gidiot have a plan?" He sure as hell doesn't have a clue.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Well normally investment and pension funds can only invest in anything above a certain rating. This varies depending to the fund. So some funds you get a higher yield (because greater choice of stocks) but in exchange take more risk.

    The different between Aa1 and Aaa is fairly academic since every fund in the world will accept both happily. Though, until last week the UK was the only remaining institution to have never been downgraded from Aaa. It's more of a symbolic thing.

    But ratings do matter, the further they fall, the harder you will be able to find buyers for your delicious ultra cheap debt (gilts) and you will have to raise the rate. But at 1.9% for 10 years I think we are getting a pretty good rate atm.

    Even if they are corrupt (which they likely are), remember that the banks intentionally fucked around with them to get the bad debt regraded.

    Mr. Jones Pension Fund wants to buy some US sub prime mortgage securities. Nice 10% yield rate, wow! Gonna have a nice retirement. But risk profile is C and we really need it to be a B.

    No problem, says Mr banker. I will take these sub prime securities, mix them in a bundle with regular mortgage securities and a few other loans, the yield falls to 8% but I've bumped the rating up to a B for you. You were going to buy some of that other stuff anyway at a 6% yield, so sod that and get this super nice yield. The best bit is the banks were selling it not just to pension funds but were buying them off each other. They literally knew they were selling shit but didn't care because the bonuses were way too good.

    So loads of people buy this shit, and the 'C' rated subprime element of it collapses. The ratings agencies were probably complicit, but it was a deliberate manipulation of the way the debt was presented to ensure that the buyer could buy it and meet their legal obligations.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    I agree that broadly speaking the two main parties are different shades of shit.

    I think the discussion around standardly running a small structural deficit is rather moot at the moment. Still, as a principle I agree that taxing and not spending all of it - therefore effectively running a small structural surplus - is not ideal, but the alternative is worse: servicing a debt means you tax and don?t spend as well; you pay interest on that debt.

    And I've said before that people simply don?t grasp the scale of debt we've accrued. There's all this wah-wahing about bringing the deficit down, but we haven?t started to tackle the actual debt yet. And that shit's astronomical.

    ETA: I'm with Arctic on the Moody's front. Who the hell can take them seriously any more?
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    If Gidiot actually was bringing the deficit down then perhaps people wouldn't be quite so angry at what he's doing.

    But sadly he's not. He's bullying and victimising the poorest people in society whilst giving mega tax breaks to his fellow Trustafarians. He's robbing from the poor to pay for the rich. He's spending more money than ever, he's just spending it on his cronies instead of the people who need it.

    There's no money but we can afford a multi-billion pound restructure of the entire NHS? Ah yes, but Gidiot's mates in private equity will be able to rip the NHS off if we do that, so away we go and do it. No matter that it means expenditure will go up.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Last I heard the OBR has our deficit predicted to be smaller in 12/13 than in 11/12. Is this not the case anymore?
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Last I heard the OBR thought we'd be out of recession two years ago. They're Gidiot's stooges and just as dumb as him.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    I haven't seen the OBR most recent projections on the deficit - but it was their 'fair and balanced' appraisal that figured growth would be 2.6% instead of the actual 0.3% it was.

    The thing is, none of us particularly love politicians of any party - but I want to believe that most of them chose the career in the public limelight because they thought they could make this country better (even if there views of how to do so are warped). Certainly, the Osbornes and the Camerons of politics would not struggle in a career in the private sector, and I can't believe that the only motivation is posterity.

    I just wish they displayed a bit of humility when the best laid plans aren't going right. Sort it out. Discuss where we're at, do we need to make adjustments, re-align the goalposts. Don't simply say 'We are staying the course, and we'll get there when we get there'.

    To give some indication of the markets faith in Mr Osborne... http://www.xe.com/currencycharts/?from=GBP&to=USD&view=2Y

    Though I am sure he will simply say "This is just further evidence of the difficult situation we find ourselves in ... due to the legacy left by the previous Labour government ... we have to make the difficult decisions to make sure Britain can pay down her debts and earn her way in the world".

    There comes a point where the captain has to take responsibility for the sinking ship.
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