A tale of three debts and deficits.

 

                In the US the markets are not appeased by the unsurprising decision of the an Administration  that it will after all be able to pay the interest. They knew the President was just playing dangerous politics.  The markets are now looking at the plan to curb the deficit, and are not overly impressed. As US growth falters, so the deficit looms larger. The US remains on the watch list for a downgrade.

                In Italy and Spain markets are once again becoming sceptical. Can Italy easily roll over its large stock of debt as it comes due? Can Spain bring its revenue and spending closer together to cut the amount of extra debt it needs?

                  These two are back in the glaring spotlight of bond market criticism. The EU bail out pot is big enough for Greece and Cyprus, but it would be very stretched by even a partial rescue for these two large countries. The Euro debt crisis rumbles on. The Euro needs a sovereign to run its economy, pay the bills  and put proper discipline into the public accounts.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

35 Comments

  1. Mike Stallard
    Posted August 3, 2011 at 7:48 am | Permalink

    China (and Brasil and India) are based on a huge proletariat who work for very little money and under (poor-ed) like conditions. Thanks to Adam Smith, the West has been “outsourcing” work to these (low wage-ed) societies for some time, making the (business-ed) owners very, very rich.

    As Ulysses S Grant observed, (low wagesetc) hurts the ordinary worker because it drives him out of business. As Marx noticed: the people who control the means of production control the future.

    So what has happened, despite Evan Davis being very clever on TV, is that capital is being sucked out of the West and poured wholesale into the East. This debt crisis, therefore, is a symptom, not an interesting event for the BBC to regard as a political tiff.

    PS – super go on Newsnight last night – well done!

  2. Amanda
    Posted August 3, 2011 at 8:00 am | Permalink

    Europe seems to be a complete mess with Cyprus the next up for a bailout, Spanish and Italian debt costs rising, politicians back tracking on the latest ‘saviour’ package, and German profits falling. Meanwhile the US deal has not been well received in the markets, who have got Obhama’s measure, and China is not having a good time. Why is it that I have to read US papers and trawl blogs to find out what is going on? Why is British media so useless, and the BBC particularly?

    It is obvious that the much vaunted ‘global economy’ has serious structural problems; one of which is socialist welfare systems in Western countries who watch jobs go to the developing world. Another is the ridiculous carbon/renewable issue sucking the life out of industry; A third is the power-crazed EU who will do anything to keep their show on the road, even if it is the destruction of 27 countries and millions of lives. And, finally, I may add, the growth of Islamic fundamentalism and other backward dictatorships across Asia and Africa, who have no interest in fuelling national growth and development, but only in maintaining their own power base.

    Is it true the EU want us to pay welfare to newly arrived immigrants now? And if so, why is this not headline news?? Who is asking urgent questions in parliament? Is Cameron going to cave in again? What would this do to Ian Duncan-Smith’s reforms, and how much longer will we all be asked to work???

    • Derek Vaughan
      Posted August 3, 2011 at 8:43 pm | Permalink

      Amanda,
      what a great post.
      John could you provide any clarification on the benefits question?

    • uanime5
      Posted August 3, 2011 at 11:48 pm | Permalink

      “It is obvious that the much vaunted ‘global economy’ has serious structural problems; one of which is socialist welfare systems in Western countries who watch jobs go to the developing world.”

      I don’t see how welfare systems cause jobs go to the developing world. Jobs go to the developing world because companies can pay their employees a pittance, and don’t have to compensate them it they get injured or die.

      “Is it true the EU want us to pay welfare to newly arrived immigrants now?”

      We already pay them welfare because they’re prohibited from working until a decision is reached regarding whether they can stay in this country.

    • DSV
      Posted August 4, 2011 at 7:24 pm | Permalink

      Amanda.
      Looks like your making a start, forget the BBC and the British media, almost without exception they are now the product of a cankerous rot of liberal socialism. You will find that to even find a balanced view you do have to spend time trawling the blogs, (the Canadian/US/Australian ones are the most prevalent) to find out whats happening. If I may make a bold a suggestion if you haven’t already found it, try the list of Canadian Blogging Tories, where you’ll find lots of what the word conservative used to mean here and still means there.
      As to uanime5 reply,
      I’d say that was a fairly typical one that you expect in the UK today. Those that can’t see that social welfare payments can ONLY be made by collecting taxes, and that taxes are really only paid by people that produce has become fairly typical of the lack of extended logic resulting from the shout down policies of a liberal socialist education. For instance quite how anyone employed in any type of public paid service can have their deductions counted as tax income is beyond logic.
      To make it clear, to pay taxes can only increases the cost of production, which must be passed on in the price of the product, to remain profitable and competitive. It is therefore incumbent on producers to find cheaper ways of producing, moving to low cost countries is one of the few solutions left after most producers have exhausted all other means.
      Whilst the pittance complained off by the likes of uanime5 maybe nothing to shout about in this country, in the relevant country it can well be a kings ransom, and gratefully accepted by the recipients, unlike the entitlement generations usual response in this country.
      As to compensation for injury and death, that is a fact of life, they will happen to everyone, life and its survival are about making the necessary judgements to avoid them until the latest possible moment and no one is exempt from that.
      As to the new immigrants payments, its not that it could or might happen its that anyone is even considering it. Anyone that does should almost certainly be considered for mental health evaluation. But then that does sum up most of the European intelligentsia/ruling elites right now and that includes our own set of clowns.

    • Conrad Jones (Cheam)
      Posted August 6, 2011 at 2:21 am | Permalink

      Some of these so called “Backward Dictatorships” have been financed by our Government. That means – we have financed these backward dictatorships. Has anybody seen a Party Manifesto stating that we will finance dictatorships who will suppress their own people? I haven’t – but that’s what our Government has done for the last 30 or 40 years.

      As for the BBC – the word propaganda springs to mind – something else we’re now forced to pay for. I no longer watch the BBC News as it is about as objective as a Communist Meeting. Why should we be forced to pay for this distortion of the truth?

      Killing people in Libya – another thing we are all FORCED to pay for. What the hell kind of democracy is this? Does anybody care that we are spending £3 million pounds a day to kill people who’s relatives will some day come over to Britain and Bomb US? I do not wish anybody in Libya any harm – including Colonel Gaddafi.

      The Maastricht Treaty was actually written by Bankers! No wonder Europe is at the brink of collapse. Out Politicians must be idiots. But it’s not their fault – it’s our fault – we voted for them.

      I would like to add that Chris Grayling’s campaign to save Epsom Hospital is something that IS worth paying for. Well done Mr Grayling. An MP that is actually fighting for something worthwhile.

  3. Denis Cooper
    Posted August 3, 2011 at 8:24 am | Permalink

    There isn’t really much of an EU bail-out “pot”, if you mean the European Financial Stability Facility or EFSF.

    Most of the money is not being contributed by the participating eurozone states out their national government funds, but is being borrowed from private investors and also some non-EU governments.

    So far there have been three EFSF bond issues to borrow a total of €13 billion:

    http://www.efsf.europa.eu/investor_relations/issues/index.htm

    and €9.5 billion has been disbursed – €3.6 billion to Ireland and €5.9 billion to Portugal:

    http://www.efsf.europa.eu/about/operations/index.htm

    Thanks to the “credit enhancement mechanism”, which is clearly illegal under the EU treaties, the EFSF bonds are AAA rated and have been issued with low interest rates.

  4. lindsay McDougall
    Posted August 3, 2011 at 8:38 am | Permalink

    No, the Euro needs to get rid of countries that are incapable of the necessary discipline. The process will be speeded up when Germany loses its imperial ambitions. I am sure that the German electorate will send a message to Angela Merkel.

  5. alan jutson
    Posted August 3, 2011 at 9:37 am | Permalink

    I wonder how much more money governments will throw at the problem before the penny drops.

    We have to live within our means.

  6. Brian Tomkinson
    Posted August 3, 2011 at 10:09 am | Permalink

    How long before this country’s deficit and consequential inexorable debt are back in the glaring spotlight?

    • APL
      Posted August 3, 2011 at 7:58 pm | Permalink

      Brian Tomkinson: ” .. back in the glaring spotlight?”

      Yep, and our ‘new government’ is increasing borrowing and spending while the economy deteriorates.

  7. Damien
    Posted August 3, 2011 at 11:09 am | Permalink

    While everyone was focussed on the US brinkmanship the markets there have been looking at the awful US earnings manufacturing and consumer confidence figures. With corporate America reporting disappointing results investors have fled US equities. Over $1 trillion wiped off share values in seven days in the S&P and $2 trillion from world indices. A trillion here and a trillion there and pretty soon we’re talking big money!.

    The Spanish situation is exacerbated with a lame duck government until the elections in November. The markets will have moved against Spain long before then. Some were surprised that Zapatero cancelled his summer holiday while others of us were surprised he even booked one!. Spain is too big to fail and too big to bail!

    In uncertain times with high market volatility governments need to articulate a credible plan ,implement it with calm resolve and back it up with transparency and openness on its progress. Francis Maude has been particularly effective on his delivery in respect of the latter.

    Of topic: I thought you put the UK /EU compromise argument extremely well on Newsnight

  8. Conrad Jones (Cheam)
    Posted August 3, 2011 at 12:14 pm | Permalink

    The EURO needs to be abolished and Sovereign Nations re-established. A Country’s Freedom is based upon it’s ability to adjust and control it’s own currency.

    It was interesting to hear how Barack Obama was reported on the BBC yesterday.

    It was reported that to get America to spend within it’s means, it was necessary to increase it’s debt level. This is like increasing the Credit Card Limit for a compulsive Gambler.

  9. wab
    Posted August 3, 2011 at 1:16 pm | Permalink

    “They knew the President was just playing dangerous politics.”

    John Redwood, the comedian. Next we will find out that he is writing a history of WWII where he blames the Poles for the war.

    Really, this statement about Obama is a ridiculous interpretation of events. Wall Street would have tanked completely *ahead* of time if anyone seriously thought this statement was true.

    And if Redwood will insist on reading everything into one day on Wall Street (not a very smart thing to do), then at least he could mention that the real problem is that the American political system is broken, which means that America is not a good bet in the medium term.

    The extremist wing of the Republican Party is holding the federal government as hostage (and they want to kill it off). Unfortunately Obama and the rest of the political establishment gave into these hostage takers. And if there is anything that is obvious, once you give into hostage takers, they will continue to hold the nation ransom again and again.

    • Conrad Jones (Cheam)
      Posted August 3, 2011 at 8:19 pm | Permalink

      @wab

      I think Mr Redwood is right – they were playing dangerous Politics. Perhaps some back room deal has been been made in this Economic game of “Chicken”. Who knows? Perhaps the Conservative Right were just alerting the Public as to the United States Debt Level.

      ” then at least he could mention that the real problem is that the American political system is broken”

      If you mean that it’s undemocrartic – then I couldn’t agree with you more. My personal view is that the American Political Party system is merely a “Punch and Judy” show which has avoided the real issues concerning the Economy and the Federal Reserve System.

      In a true Democratic Country, how many people would vote to Bail Out Banks at the Expense of the Greater Economy? More Americans are reportedly losing their Jobs, Homes and Medical Insurance despite the Federal Reserve virtually doubling the Money Supply in the United States.

      It has not been popular – until recently; to even suggest Auditing that privately owned and mysterious Institution the “FED” until Ron Paul gained significant ground in convincing people that there might be something wrong with this system. Why are Banks granted the License to print money through Credit Creation when Loans are signed through Fractional Reserve Banking. A practice which was seen as dishonest ever since Gold Smiths looked after people’s gold for them and issue Gold Receipts.

      Although there are uses for Keynsian Economic Policies in time of strife, to repeatedly make Economic Decisions by the Public Sector clearly does not work. Bailing out Banks repeatedly does not work as “Moral Hazard” becomes endemic amongst the Big Banks while those smaller Banks are left out to die.

      The situation in the United States is getting worse because nothing has been done to tackle the underlying reasons why the Banking System is so unstable.

      It has notably got worse since President Nixon took the World off the Gold Standard. By the way – have you seen the price of Gold recently? In 1971 it was $35 an ounce.

      • Conrad Jones (Cheam)
        Posted August 5, 2011 at 1:20 pm | Permalink

        Correction – average price of gold in 1971: $40.62

        • Conrad Jones (Cheam)
          Posted August 5, 2011 at 1:23 pm | Permalink

          Price of gold as or 13:21 5-Aug-2011: $1,660.35
          4087% (four thousand and eigthy seven percent) increase from 1971.

    • Stuart Fairney
      Posted August 3, 2011 at 8:30 pm | Permalink

      “The extremist wing of the Republican Party is holding the federal government as hostage”

      i.e. they thought a $14 Trillion debt is probably enough and wanted to cut spending. Yes, live within your means, extreme, really extreme.

      And er, the Tea Party lobby hardly held sway as debt is again increasing.

  10. cuffleyburgers
    Posted August 3, 2011 at 1:24 pm | Permalink

    The US has been a splendid example of how democracy is suppsoed to work and how a parliament can hold the executive to account.

    Regrettably the danger of that occurring on this side of the herring pond seems fairly remote until tory mps actually start to grow some.

    You, Carswell, Hannan you are all the same – grumbling away but nobody is actually giving the useless Cameron the hard time he deserves for his repeated EU betrayals and his love affair with the idiot talking head Clegg

    • uanime5
      Posted August 3, 2011 at 11:54 pm | Permalink

      In the UK Parliament is less likely to hold the executive to account because one of the Houses doesn’t need to worry about being re-elected. Also Prime Ministers can and do fill this House with supporters by making a large number of their supporters into Lords (Cameron added over 100).

      Here’s hoping the Lib Dems reform the House of Lords to actually make it accountable to the electorate.

  11. NickW
    Posted August 3, 2011 at 1:39 pm | Permalink

    The logical solution is to split the Eurozone into two with a large devaluation for the Southern half. ( But which half will France go into?)

    Surcharge the politicians responsible for forcing the people to participate in an unworkable scheme, and bankrupt them if they do not have the money to pay.

    Let the politicians have a taste of the financial ruin that their stupidity and vanity have forced on millions of European citizens. There has to be a punishment for politicians who trample over democracy and ruin people’s lives, (and their usually is, and the longer the period of denial, the worse are the repercussions likely to be for those responsible.)

    Resigning in disgrace might turn out to have been the best option.

  12. Javelin
    Posted August 3, 2011 at 2:31 pm | Permalink

    Absolutely agree. The Germans must defer sovereignty to stop the debt problem causing a collapse in confidence in the Euro and a collapse in the fortunes of Europe. The Germans knew the risks and went ahead. They were told that this would happen so must accept responsibility. In return for yielding sovereignty they must demand more control over southern Europe. The Germans must improve tax collection and Labour laws so they can have confidence in the Club Med economies. In return the Club Med economies must yield substantial powers over to the EU. I would only imagine these powers being used when an economy was running a deficit.

  13. Jer
    Posted August 3, 2011 at 3:18 pm | Permalink

    I can’t see any technical reason why the Greeks and others can’t default and yet stay in the euro.

    So if they can deflate somewhat as well as default, then that’s the euro sorted.

    The UK and US can solve their debt problems by printing money and effectively paying the Chinese off in beads and mirrors.

    Simple this economics lark. Dealing with the riots and possible wars could be harder of course.

  14. Posted August 3, 2011 at 5:57 pm | Permalink

    Ah the EU creating Enosis where Eoka failed

    EuOKA eh

  15. Stuart Fairney
    Posted August 3, 2011 at 8:38 pm | Permalink

    If you have never paid any attention to any post I’ve ever made (and who could blame you?), pay attention to this one.

    Greece is less than 2% of the EU and can be bailed out, more or less. Ditto Ireland, ditto Portugal and indeed Cyprus. Spain and Italy make up about 25% and simply can’t be bailed out by national governments. The money would need to be about 10-12 times as much as Greece needed (£9B x 12, do the maths, it’s just not there).

    So, the EU could accept the Euro project has failed, and whilst we are waiting for hell to freeze over, we should consider the only other option on the table, assuming they don’t want Spain and Italy defaulting. The ECB will print.

    I repeat, the ECB will print.

    Sure it will be disguised as Euro TARP or something to ‘recapitalise’ the banks or be a supposed ‘stimulus’ package to ‘get Europe back to work’ or something but they will (electronically) print. And then watch inflation rise and the Euro crash. Greek and Spanish holidays might start to look cheap again. As it was for Mugabe….

    • zorro
      Posted August 4, 2011 at 7:22 pm | Permalink

      Absolutely, as I have also mentioned before the print button is their only solution no matter what they say and will happen. I’m betting on it…..It is the only chance they have of gaining time to get the total economic control over the EURO area. That is their political aim.

      zorro

  16. Alcuin
    Posted August 3, 2011 at 9:42 pm | Permalink

    If this is to be believed, the UK is in nowhere near as rosy as our Glorious Coalition is painting it. I would be interested in John’s view of it, because it scares the hell out of me.

    • Epigenes
      Posted August 4, 2011 at 6:25 am | Permalink

      Alcuin, very interesting post. Well worth reading.

  17. Posted August 3, 2011 at 10:38 pm | Permalink

    “The Euro needs a sovereign …”

    You mean like a Bernanke type figure to crank up the printing press?

    How much would you wager that by 2020 a major western banknote has a picture of a central banker on it?

    • Conrad Jones (Cheam)
      Posted August 4, 2011 at 7:06 pm | Permalink

      I don’t think Central Banks are that stupid. It would bring to everyones attention just how powerful they are, especially in the United States as the FED is privately owned by J P Morgan and Goldman Sachs, amongst others.

      It would be easier in the UK as the Bank of England is Nationalised – so a picture of Mervyn King would be accepted as a Civil Servant. Wonder if the Queen would mind?

  18. uanime5
    Posted August 3, 2011 at 11:57 pm | Permalink

    I wonder if the EU will issue legislation to force Spain and Italy to reform to make it less likely they will default.

  19. lifelogic
    Posted August 4, 2011 at 7:42 am | Permalink

    The BBC’s Saint Obama has the wrong policies for them to actually work – just as I always expected despite the BBC’s tributes or perhaps rather because of them. The BBC is invariably wrong on issues such as this and the usual list – Global Warming & energy production, equality, regulation, education, health, the size of the state, the EU, trains and transport and so very much else.

  20. cosmic
    Posted August 4, 2011 at 2:51 pm | Permalink

    “The Euro needs a sovereign to run its economy, pay the bills and put proper discipline into the public accounts.”

    That’s one view, and it seems to be the idea that’s being worked towards, or stumbled towards, but there’s a lot to go wrong and if it does the result will be complete chaos.

    Another view is that the sounder plan is its orderly abandonment.

    I think those steering the EU are in the position where they’ve raised the stakes beyond what they can afford and they are doubling their bets each time. Folding their hand is admitting they’ve lost and they think they might just win.

    Reply: O fcourse. My advice to Euroland is always prefaced by the advice that it would be better to break it up now than inflict more economic pain. However, their Plan A is greater union, without a Plan B as yet.

  21. Andrew
    Posted August 5, 2011 at 1:36 am | Permalink

    I have become more and more convinced that the “euro crisis” is not primarily a crisis about the euro at all, but a banking crisis. For the past three hours I have been scouring the net to find support for this notion and have found a great deal. The clearest exposition of this is to be found here:

    http://www.eurointelligence.com/index.php?id=581&tx_ttnews%5Btt_news%5D=3002&tx_ttnews%5BbackPid%5D=901&cHash=c374cd2038

    In this article, published in Eurointelligence on 11th January, Phillippe Legrain shows how politicians have supported the banks with vast amounts o ftaxpayers money, to the point where they will drag their countries into recession, if not bankruptcy. The Greeks are bankrupt, both financially and morally and the sooner they are cast adrift, the better. The german taxpayer understands this, which is why the “voluntary ” haircut proposed by Angela Merkel will have to become compulsory. If bondholders will not accept equity for their loans, then they should be forced to do so, rather than make the taxpayer responsible. It should be noted that we are no different in principle from the eurocountries – we have merely allowed our currency to depreciate by 35% plus and let inflation rip. We should be asking why the bank loans to commerce and industry amount to only 5% of the total, despite Redwood’s cri de coeur that they should do more. Who are they lending to? Landlords primarily, so its property again. If, as Legrain says, many european banks are in reality insolvent, they should be allowed to fail.

    • Conrad Jones (Cheam)
      Posted August 6, 2011 at 2:28 am | Permalink

      Andrew,

      I was interested in your link but it appears as “no news_id given”.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page