Both the BBC and Channel 4 have been telling us that the Tea party elected Republican Congressmen and women are behaving unreasonably for daring to say that the Administration should reduce its spending and borrow less. The Republicans are being lined up for the blame if there is a failure to agree a new debt ceiling and budget settlement.
Apparently to much of the fashionable media in the UK normal now is printing and borrowing on huge scale so the state can spend well beyond its tax revenues. They give airtime to the notion that if the Republicans insist on the Administration spending less to live closer to its means, there will be a default on US debt and then a world financial meltdown. People in the media are lining up to take the President’s view that if this happens we should all blame the Republicans. They think the President has a duty to the USA and the world to spend more, print more and borrow more.
Does it never occur to these opinion pushers that the President has plenty of money coming in from taxes to be able to pay the interest on the debt. It would be his choice to renege on the debt if the Republicans dug in and declined to raise the borrowing ceiling. The President could postpone or cancel other types of spending where he has more discretion if he has to live with less borrowing. I doubt Mr Obama is unpleasant enough or foolish enough to renege on the debt and trigger a financial collapse. It would hurt the people he is meant to be looking after if he did.
It looks as if the President’s super spin will succeed in getting the Republicans to agree to increased borrowing. US voters blame both the Republicans and the Democrats for the impasse over their future budget, but here in the UK the media largely blame the Republicans.
One of the ironies of the situation is that the US is doing more to rein in its borrowing by spending reductions than the UK is, but much of the UK media does not read the figures and just assume Mr Obama must be spending and borrowing more than a Conservative led Coalition, relative to the size of country. The other irony is that many of these same commentators like the EU and the Euro, so they are reluctant to come out and attack the austerity policies that characterise the weaker countries of the Euro area, where spending and wage cuts have been draconian compared to anything in the USA or UK. Republican or Conservative “austerity” policies are unacceptable, but much tougher Euro austerity policies are just fine.
October 14, 2013
“Republican or Conservative “austerity” policies are unacceptable, but much tougher Euro austerity policies are just fine.”
Indeed, well we have “BBC think” to set the agenda for us all. So we have endless tax borrow and waste, absurdly expensive quack energy, catastrophic global warming nonsense, dodgy (lets dig holes and fill them in again using the magic money tree) economists, uncontrolled benefit immigration, over regulation of everything and endless attacks on landlords and businesses and a state sector that spends nearly 50% of GDP yet delivers very little of any real value.
October 14, 2013
That and a state sector that pays, including pensions, about 50% than the private sector thus depriving the private productive sector of much of the talent. Only to waste these talents producing little of value so often.
Then the private sector is over taxed to pay for all these wages and it is thus rendered uncompetitive in the world. Further mugged by daft employment laws and endless regulatory inconveniences devised by the state sector and the EU.
October 14, 2013
Which daft employment laws, ones from your imagination? Feelings about employment laws being more important than reality. ‘Think’ as you say, Not once of the large number of times you have been challenged on this have you ever provided any evidence or said which employment laws are daft. The private sector is often an only contractor for the government employing peole on benefits. The audacity of this mindless ranting beggars belief.
October 14, 2013
“The audacity of this mindless ranting beggars belief”
Don’t be so hard on your self Baz.
October 14, 2013
Virtually all the employment laws that interfere in a free contract.
October 15, 2013
Is this supposed to mean anything or be ‘sensible”? Which employment laws interfere? A system of hire and fire is what you want and would be counter productive to both employer and employee. An employment system based on desperation of both parties already exists and legitimising it would be unacceptable. Get real and stop ‘thinking’ in an absurd right wing dream that you would not have to take part in.
October 17, 2013
Bazman
I don’t know why you keep ranting about employment rights, its not as if you’ve got a job.
Here’s an idea why not get a job and see what its actually like going to work
October 17, 2013
40-50 hours six days a week in the metal trade is not a real job I admit. One feels a bit like Hugh Grant working in a bookshop in Notting Hill sometimes, only with 9″ high cycle grinder. The only reason my work seems to be eclectic up to a certain period is because I was a failure as an actor, as Hugh would say. Ram it.
October 14, 2013
Reported today that coal fired power stations will provide half of Asia’s energy within the next five years. The demand for coal will increase due to the high demand from China and will be in more demand than oil by 2020. So how does the Tory led government’s energy policy stack up? How will it change the world climate? At a time when we are given another warning that we are close to black outs because perfectly good coal fired power stations are being shut and other s taxed out of the market to make wind farms look cheap. Economic madnesss? How does the UK compete int he world that Cameron keeps on about when his policies act in stark contrast? Has Osborne told China that his government does not agree with their energy policy and how it thinks China is damaging the world?
October 14, 2013
Indeed and:-
1. The world has not got warmer for 15 years.
2. Slightly hotter with more CO2 is actually on balance a positive.
Buy coal and gas & sell quack green seems to be the best plan. At least until they get the technology to work and become cost effective, which is still some time off. Perhaps longer away than is controlled fusion anyway.
October 14, 2013
Brilliant article JR. However, this also be a mirror of what is happening under a Tory led coalition. The Tories have had the pain of alleged spending cuts without making any substantial progress and Osborne has failed on every issue he told us to judge him on ie TripleA rating, balanced structural deficit, not bailing out the Eurozone countries either directly or indirectly, the EU taking an additional £1.3 billion of the UK taxpayer this year in addition to the EU contribution of about £17 billion, as Cameron claimed he has made EU budget cuts. Over 300 tax rises, pensions further taxed, half a million people drawn into paying the higher rate of tax, IHT not touched. The list of his failings are endless. The US will reach agreement with socialist Obama, who Cameron and Osborne preferred to visit than sort out the UK budget in 2011/12, but a sharp focus needs to be made by a chancellor who spends a full working week in the Treasury, not some part-time political strategist who has taken the Tory support to half its number.
October 14, 2013
dont forget the nutty anti car agenda and the open doors immigration
October 14, 2013
Indeed and the nutty electric car agenda. The rule should be get the technology working with R&D . When and if it works and is cost effective it will sell – and without political pushing, biased taxation or absurd subsidies.
October 15, 2013
Or the millions of self assessment forms which have to be returned under threat of fines because hard working middle income families are excluded from child benefit, while families from the EU can have it paid for children left in their native country. Hardly a vote winning policy.
October 14, 2013
It is a sad fact that the media over here in the UK – BBC, the other TV stations and the ‘quality’ broadsheets – are simply copying what the US media say.
They do not investigate for themselves, and they never seem to look at what is reported in the conservative ‘New Media’ in the USA as if they were produced by the devil, while happily using New Media supported by the Left. Also, they avoid looking at what FOX News report and are selectively deaf when it comes to listening to certain radio broadcasts.
So obviously we here get to hear the relentless US propaganda, according to which only one person has it right, that is President Obama, and any criticism directed at him is of course (wrong ed).
Equally obviously and sadly, most journalists over here have not the faintest idea how the US system of government works, never mind understanding the roles of the House of Representatives and Senate in regard to the US budget.
Therefore all you describe comes as no surprise to those of us who are making use of all facilities now available to us ordinary people.
I bet hardly anyone over here has even heard of C-SPAN, where one can watch hearing of House and Senate committees. And I bet even fewer have ever heard of Mark Levin, never mind even having read his books on the US Constitution.
All this indicates the importance of the role the media play in our societies, and that the now prevailing attitude in the media here and in the US of a gentle but distinct left bias urgently needs to be addressed.
So expect more ‘reports’ on how it is ‘irrational’ not to give President Obama what he wants – after all, it makes eminent economic sense to raise the debt ceiling because government has accrued so much debt already …!
October 14, 2013
If the UK’s media were just copying what the US media says then wouldn’t they be giving equal time to both sides? The fact that they’re supporting Obama indicates that the UK media has evaluated both sides and found that Obama’s side has more merits. The fact that you dislike this conclusion doesn’t make it wrong.
October 14, 2013
Just the small problem that the BBC charter demands it remains impartial Uni.
Taking a political or editorial position to one side of a debate is against the BBC charter which asks it to remain impartial.
If you ran your own newspaper or TV station e.g. Uni News or Uni TV you could say what you liked.
But the BBC is very different.
October 15, 2013
Remaining impartial doesn’t mean praising both sides, specially when one is right and the other is wrong.
October 16, 2013
Ridiculous post Uni.
Its not about “praising both sides” its about presenting both sides and allowing viewers a chance to make up their minds having been properly informed.
Even the BBC’s own management have stated that the BBC has a particular culture inside its organisation which has resulted in it adopting a particular editorial view on many political issues.
It is not for the BBC to only report from a perspective of what you claim is “right” but to inform the public of the overall arguments on both sides.
Impartiality is a requirement.
Corporate editorial political position taking is not acceptable under its charter
October 14, 2013
I watched C4 news on Thursday night to see Jon Snow launch into an attack on the Tea Party in his interview with Tom Hanks and Paul Greengrass. He accused the Tea Party of being “loonies on the edge of sanity” and “they could crash the world” and he said “that is not an exaggeration”.
His guests just laughed and looked away.
The clip is on YouTube
google: “Tom Hanks live in the studio”
scroll in to about 5:06
It’s almost as bad as the time he threatened Mark Regev with a Turkish naval intervention over the Gaza Freedom Flotilla interception. He then meekly announced at the end of the program that the Turkish Consul had telephoned the station to deny any such intention.
google: “Mark Regev interviewed about Gaza Freedom Flotilla by Jon Snow”
scroll into 4:39.
On the edge of sanity indeed!
This is not journalism, it’s agitprop.
October 14, 2013
Ever noticed how many times Channel 4 News come out with the line, ‘We asked X, Y, or Z for an interview, but none were available’ – and then they wonder why!
But if they didn’t air this stuff, we’d never know how nuts they are, and couldn’t make the distinction between good journalism, and gutter journalism.
Tad
October 14, 2013
The word ‘debt’ has become a dirty word: there is far too much of it about with everybody now apparently entitled to what they want when they want, which is of course ridiculous. Will soon be a ‘human right’. Anybody looking at a graph of American debt over time can not possibly argue against the need to do something to stop its vertiginous rise and that’s all the Republicans are trying to do. Long term debt which is what we are talking about despite the rollovers because it never comes down should not be used to finance current expenditure. Borrowing in general as little as you can rather than as much would be a step in the right direction. My degree was in Chemistry and ‘chemical’ too is fast becoming a dirty word.
October 14, 2013
Nothing wrong with borrowing if you are doing something with the money that produces a better return than the interest being charged.
The problem with governments is they usually just tip it down the drain on HS2, quack energy subsidies, augmenting the feckless, pointless damaging wars, propaganda, buying votes, huge state sector pensions and huge salaries for people doing nothing of value.
October 14, 2013
lifelogic–Your “better return than interest” is not all that is necessary. Such a minimal return on its own does not (strange concept this I agree) actually repay the loan. A loan that gets repaid is one thing–it’s the permanent and especially the increasing loans that are the worry. And lest anybody try to persuade you different there is only one thing that repays loans and that’s cash.
October 14, 2013
I mean a better return than the interest, after taking into account all the cost and risks.
It is a cost, benefit & risk analysis, just like most gambling and indeed much of life in general. Judgement and a few simple sums.
October 15, 2013
lifelogic–That alone does not repay the loan
October 16, 2013
Leslie Singleton ,
Indeed that is the trap ; that the loan never self liquidates .
That when circumstances change the return on the asset purchased with the loan reduces but the debt does not .
All the financialisation and derivative products in the world merely obfuscate this .
The intention is clearly to expand credit in every area so the man in the street is enslaved in debt peonage .
With the supply of essentials like housing deliberately restricted and refusal to move the burden of taxation from employment onto monopolies like surface land rights the next generation are sunk .
“Let them eat credit” is a function of the powerful taking too big a slice of the pie , not welfare expenditure .
October 14, 2013
Leslie,
You’re spot on about the word “debt”. There are several people on economics blogosphere suggesting the phrase “national debt” be changed to “national savings”. Most recently Isabella Kaminska in the FT. See:
http://ftalphaville.ft.com/2013/10/11/1664302/why-the-level-of-government-debt-may-not-matter/?Authorised=false
Economic illiterates think that because the phrase “national debt” includes the word “debt” that therefor national debts are comparable to debt in the normal sense of the word. That of course is nonsense.
However, there’s an old saying: “control the language and you control what people think”. And when it comes to controling the thoughts of simpletons, we’d be marginally better off using the phrase “national savings” than “national debt”.
Reply So why do some countries go bust? Why isn’t Argentina one of the richest countries in the world, given it large past “savings”?
October 14, 2013
The argument is to persuade those simpletons that by losing economic power they are better off, but Leslie touches upon the importance of the deficit problem and with lack of control becomes worse and worse.
An economic safety net gives confidence whether personal or national. Reduction of a need for complete interdependence is the name of the game. The right cards cannot be played without many ponies in place.
We need a heavily balanced British concern at the side of an EU interdependent concern to maintain a heavily weighted British hand and create a dependence on the UK. Without a stronger economy we cannot play our game.
October 14, 2013
Comment on Reply–Who owns the debt is of course relevant–Is it not the case that for instance Japan’s high debt is of little consequence because it is owned internally?
October 14, 2013
Quite offensive language there; are you annoyed that you haven’t been able to win the argument that governments should be allowed to print as much money as they want? Or as in the comment from your soulmate uanime5 below, they “can simply print as much money as they need to cover their debts”. Don’t you just like the use of that word “simply”? Do you have a government which has become addicted to over-spending? Why not let it “simply” print some more money, as much as it thinks it needs?
October 15, 2013
In April 1991, Argentina adopted a rigid peg of the peso to the dollar and guaranteed convertibility under this arrangement. That is, the central bank stood by to convert pesos into dollars at the hard peg.
The choice was nonsensical from the outset and totally unsuited to the nation’s trade and production structure. In the same way that most of the EMU countries do not share anything like the characteristics that would suggest an optimal currency area, Argentina never looked like a member of an optimal US-dollar area.
For a start the type of external shocks its economy faced were different to those that the US had to deal with. The US predominantly traded with countries whose own currencies fluctuated in line with the US dollar. Given its relative closedness and a large non-traded goods sector, the US economy could thus benefit from nominal exchange rate swings and use them to balance the relative price of tradables and non-tradables.
Argentina was a very open economy with a small non-tradables domestic sector. So it took the brunt of terms of trade swings that made domestic policy management very difficult. (HT: Modern Money Mechanics)
October 14, 2013
The Republican’s have failed to make the case for their position.
The American people naturally do not like taxes and see big Federal Government as a drag on the nation, not an aid too it.
It is easier therefore, to borrow than tax or, reduce one’s expenditure. The people of any nation, as it is their money and not the states, should be the ones to decide how much they should be taxed and on what it should be spent on, with borrowing kept to a minimum.
The American people, in fact all people, should be aware that the debt of a nation is in fact their debt. They should approach Government spending as if it were their own, which in a way it is. If they are not prepared to meet the repayments on a loan, then don’t take the loan. If you want to spend monies on various taxpayer projects, then this should be funded by the tax payer. If not, then the private sector should be invited in and should be able to charge what it likes for those services it provides.
What this dispute highlights to me, is the inadequacy of Government and it departments’. He has come to see taxpayers monies as their own, and as of right. They neither know, or care as to where it comes from, or take into account the needs of the individual or community and, their respective abilities to meet the states demands.
What we have here, is a Government not willing to tax its people, because they are reluctant to pay for things upfront. So they borrow. But part of the Legislative system responsible, is demanding that the Government and its people behave responsibly.
This is the case that they should be making, but from what I see, they are not.
October 14, 2013
Given that the US economy has largely been recovering because of increased government spending don’t expect the people to support anything that’s likely to cause another recession.
Letting the private sector charge what it likes for services never ends well as you either get expensive services or no services.
Government borrowing isn’t like household borrowing as the US and UK government can simply print as much money as they need to cover their debts, something a household can’t do.
Finally given how anti-tax Republicans are, especially when it comes to taxing the wealthy, no one would listen to them if they called for more taxes rather than more borrowing.
October 14, 2013
It would recover even better with less government spending the energy at half UK prices rather helps too. Please note that high priest of the green religion – Ed Davey!
October 15, 2013
Energy is expensive in the UK because there’s little competition between the big 6, which is why the rest of the EU isn’t having this problem.
October 16, 2013
Care to explain why other EU nations have energy prices that are even more expensive than ours Uni?
October 16, 2013
Uanime5
Energy is CHEAPER in the UK than any European country except Finland.
Still you are consistently wrong
October 14, 2013
“… the US and UK government can simply print as much money as they need to cover their debts … ”
Indeed they can, and that is a recipe for total irresponsibility unless it kept under the strictest control.
How would you behave if you could simply print as much money as you needed to cover your debts?
October 14, 2013
uanime5: “Given that the US economy has largely been recovering because of increased government spending … ”
At last a rather dim light glimmers in one tiny corner of leftist consciousness.
Now, all you have to do to achieve clarity is to realise that the US economy has not been recovering, but rather ever larger financial sticking plasters have been applied at ever greater cost with ever diminishing returns.
Once upon a time a $ of government stimulus might have returned $1.5 of ‘economic growth’, however now each $ stimulated returns about $0.90 worth, it’s a loss making proposition.
October 15, 2013
The US’ economy has been recovering because of the government stimulus because during a recession the private sector won’t stimulate the economy.
Also how are you calculating how much growth each dollar results in?
Reply I seem to remember Greece ran a larger government deficit than the US but that did not seem to work. The UK deficit was the same proportion of our GPD as the US which you never concede.
October 16, 2013
uanime5: “The US’ economy has been recovering …”
No!
The US economy hasn’t been recovering. I don’t intend to do your homework for you, but here are a couple of pointers.
1. Government set borrowing rates are at an all time low – have been for a long time and the FED would like to keep them low for a long time in the future.
2. Government borrowing is at an all time high, as witnessed by the continual blowing through the debt ‘ceiling’.
3. employment rate in the US isn’t characteristic of a recovery, it is stagnant at best or on a downward trend.
These are indicative of extreme financial stress.
Same in the UK.
uanime5: “private sector won’t stimulate the economy. ”
‘Can’t’ is the word you are groping for.
October 14, 2013
uanime5: “as the US and UK government can simply print as much money as they need .. ”
What do you think is the outcome of such printing?
As the government prints more money at the same time as the economy is shrinking, the act of printing devalues all the currency currently in circulation. The outcome – government destroys it’s own currency, and the private sector economic engine that sustains government spending.
October 15, 2013
Care to explain why the private sector in the USA has been growing despite the huge amount of money being printed.
October 16, 2013
No mystery: as in the UK the huge amount of money being printed is above all used to maintain public spending, which directly or indirectly supports the private sector. But that is not something which can continue forever.
October 16, 2013
uanime5: “Care to explain why the private sector in the USA has been growing . ”
No because outside of the financial sector it isn’t. But within the financial sector, where all that money the government has been squirting around has been going – they’re doing OK.
That isn’t growth, that’s life support.
October 14, 2013
The US economy has been recovering slowly, due to various reasons. eg cheap fuel (shale gas).
A properly organized private sector that is both competitive and monitored works very well thank you. That is why it is more popular than say Communism. As for ‘no services’, that is nonsense. If people have a need, then there will always be people who will meet that demand and charge a fee for it. If someone can do the same thing for less, people by that service instead. With Government, you get what you are given. You have no choice.
Yes, they can print money. But that money too has value on the open market. Print too much and no one will have confidence in your ability to pay. Then you go bust. eg Argentina. Also, when you borrow, you do not always borrow in your own currency. You may have say, Euro’s but your lender may request that you repay them in Dollars, Gold or oil. So long as you can meet the debt no problem.
It is the American people that have an issue when it comes to taxation. My point on taxation and spending, which you ignore, is that the politicians of all hues simply cannot be trusted. If the people were to take this decision away from them, may be we would get that which we all want for a price we want to pay.
I possibly cannot believe that you could not see the above as reasonable.
October 14, 2013
Just watching George Osborne from Beijing and our growing relationship with China , talking about business and energy and the US ‘s debts, but then juxtaposed alongside the commemoration for the Welsh miners in Senghenydd is a sad reminder of how important energy is whether it is the mechanisms of digging or the toxicity of nuclear fuel.
The worlds pursuit for money is a never ending cycle and a long way from the basic principle of need . Even Mr Micawber’s outlook on life will not suffice without action by some. The trouble with agreement to work in one particular way is when one falls , so do many others, therefore I applaud Osborne’s interview on the BBC where he said that we would tackle our debts and deficit our way and not the US’s.
October 14, 2013
Well done to Owen Paterson.
In an interview with the Independent, Owen Paterson said they (the anti GM crowd) could be condemning millions of people in the developing world to a premature death.
Where do the Cameron type of wet “modernisers” stand on this issue? We know where they stand on expensive quack energy and pensioner who cannot afford to keep warm through the winter. Are they, as usually, for irrational appeals to emotion or for the brain and the real science this time?
GM rice opponents wicked, says minister Owen Paterson
Reply Mr Paterson speaks for Mr Cameron the government!
October 14, 2013
Reply to reply,
Not according to the BBC – they report : “A Department for Environment, Food and Rural Affairs spokeswoman said it was Mr Paterson’s strong personal view.”
Reply Mr Paterson speaks for the government! Why do you think the BBC is right?
October 14, 2013
Is this not a case where the BBC need to be brought to book?
Tad
October 14, 2013
Reply to reply,
Don’t be so tetchy; I don’t believe much the BBC put out but I thought you might be interested to know the slant they are putting on this. They are also trying, whenever possible, to ridicule him over his comments regarding the badger cull.
October 14, 2013
To reply: Good then put him in charge of Energy too and lets get some sense there as well.
October 14, 2013
In an interview with the Independent, Owen Paterson said they (the anti GM crowd) could be condemning millions of people in the developing world to a premature death.
It is a simple, undeniable FACT that the use of agricultural land to grow crops to feed livestock is an incredibly inefficient use of resources.
Are you prepared to become vegetarian to avoid condemning millions of people in the developing world to a premature death. No? Thought not.
October 14, 2013
Well certainly & bio fuels do that too. I am not a vegetarian but I can certainly see much merit in the logic. Growing crops to feed to cows, pigs, goats and sheep for meat and milk is very inefficient.
I do tend to eat far less meat now using it rather more as a flavouring than the meal itself. With more home baked bread, pulses, rice, vegetables, nuts & fruits.
October 14, 2013
It is a shame you, Mr. Redwood, don’t get the opportunity to make this point more widely.
We borrow to pay for our public services, our children pay the money back. It’s not right.
It’s not as if one is borrowing to pay for necessary infrastructure. We’re borrowing to pay wages and pensions.
October 14, 2013
Mike,
We’re back to the ‘Jam for everybody tomorrow’ syndrome. Those who promise the most get elected, despite not telling us how they intend to pay for it. Those who tell it like it is, and have policies to live within one’s means, get left out in the cold and unelected. When it all goes ‘BANG’, the borrow, spend, and waste boys aren’t around to pick up the pieces.
The UK has massive amounts of both government and personal debt, and it’s worrying. God help us if we get another load of the aforementioned politicians. We just can’t go on like this.
Tad
October 14, 2013
Indeed we’re borrowing to pay wages and pensions for people who, so often, deliver virtually nothing of much value.
October 14, 2013
It’s the economics of the lunatic asylum, but the left-wing media will do anything and stoop to any level to condemn the right. Living beyond one’s means has been at the heart of the financial problems of the EU too, but despite all the dire warnings from the rest of us, they still go on with their, borrow, spend, and waste agenda.
I can understand why the left want to proceed that way, because they’re off the planet, but how about those in the Tory party who are all-too-easy to go along with it?
Tad Davison
Cambridge
October 14, 2013
Actually over-borrowing by the state only caused problems in a few eurozone countries, mainly because they couldn’t devalue to inflate the debt away (unlike the UK). Most of the other financial problems were caused by the banks taking on too much bad debt and needing a huge bailout.
October 14, 2013
No, their immediate problem was that they had surrendered the right to print money for the government to spend paying its bills.
October 14, 2013
Good grief what drivel.
October 14, 2013
“Living beyond one’s means has been at the heart of the financial problems ..” Indeed, it was banks speculating and lending beyond their means that caused the problems in the first place.
October 17, 2013
Dear credible
Remind me who was it that lowered base lending rates? Who was it that agitated for RBS to buy AMRO despite it falling foul of monopoly law, who took all the pension money?
Please give an example of what “lending beyond their means” looks like.
October 14, 2013
What people fail to realise, but will eventually, is that the Republicans are not there to ‘rubber stamp’ Obamas pet projects and policies. If things go wrong it is HIS fault and no-one else’s as he should ensure he has a fair crack before putting the US at risk.
Most people will realise this soon as they prepare to rid themselves of this useless man who was elected for all the wrong reasons.
October 14, 2013
All the Republicans are doing is throwing a tantrum because they kept losing when it came to Obama and Obamacare. The sooner they are made to act like adults the better.
October 14, 2013
Anything that controls Obama’s waste is most welcome we need someone for Cameron’s too.
October 14, 2013
Obamacare is his pet project, not the Republicans, as with most of the crying Obama is doing to get his own way. The spoilt and indulgent child Obama knew all this before he put his pet projects on the front page, and I repeat simply, the Republicans job is not to just rubber stamp any and everything Obama thinks should be done.
Obama needs to grow up and realise he doesn’t get his own way automatically.
October 15, 2013
Given that the Republicans lost on Obamacare every time it went through Congress they should accept that it is what people want and stop trying to cancel it.
October 14, 2013
Yes amazing.
We now see debt as some sort of badge of honour, with the “look at me, I spent more than my income”, aren’t I clever sort of attitude.
I wonder why and how we have developed this to such a huge degree.
When did the mismanagement of money and finances all start on such a grand scale
Was it :
When wages/earnings stopped being paid to workers in cash ?
When overdrafts were allowed as the norm.
When credit cards started to be introduced as the norm.
When HP agreements became the norm.
When loans were easy to get.
When mortgages were granted on a self certification basis, or on multiple earnings
When no deposit mortgages were introduced.
When electronic transfer of money was alowed.
When you could gamble on the futures market.
The growing effect of TV advertising
The growing effect of junk mail
Purchasing on the internet.
Purchasing through catalogues
When Banks rushed to loan to anyone.
Gambling on line
Perhaps if we went back to basics, and could only pay in cash for anything we needed, we may learn the true value of money and how to mange it better.
Simple question.
Does the alternative economy have a debt problem ?
Most families I guess still try to operate within their budget, so why can’t Governments.
Its very simple really, you always budget for less than your KNOWN INCOME.
Yes its back to that 80% figure again, with 20% as the margin of safety.
October 14, 2013
Perhaps a simple solution
No Government borrowing by law. unless the people are given a referendum to approve it.
After all it is us and our children and grandchildren, who have to pay it back.
Why should someone have the right to borrow in my name, without my prior authority to do so.
If I run my own accounts to a budget, why should my budget be screwed up because the Government wish to raise my taxes, and reduce my income or spending power.
October 14, 2013
I agree with the principle, unfortunately they can always say ‘we need to build some roads to make our economy more competitive’.
What I’d like to see is a politician who says ‘stuff the global economy, we are going to be self sufficient in food and energy’ – so we don’t need to endlessly compete with countries who have not had politicians so stupid they allowed bankers to inflate the cost of everything by allowing unlimited debt growth.
October 14, 2013
If only they did build some decent roads and runways.
October 15, 2013
I drove down and back up the A3 to Portsmouth the other day, from Guildford. I found myself thinking ‘what a nice road this is. Not too busy – nice, smooth carriageway – impressive new tunnel at Hindhead, only one roundabout, other roads entering and leaving with nice, long slip roads.
Seemed like a pretty decent road to me.
Unfortunately, where I live in Berkshire, notwithstanding the state of the roads, they are constantly clogged with traffic as there are too many people crammed in.
But, of course, we all LOVE THAT as anytime anyone suggests building more housing everyone says ‘No! We want that field (that we are not allowed in) left as it is!’ The mass stupidity of people – you couldn’t make it up.
October 15, 2013
Alan. You forgot easy bankrupcy, introduced by Lord Mandelson. Also, the ways by which debtors can add more debt. I am currently having to totally refurbish a property let to young British men who had jobs 4 years ago. I have a pile of letters from debt recovery firms and government agencys seeking answers but no forwarding address. Sometimes they are to the same person with different name. They sublet and left me about £15k worse off over the period. I was told that over the 4 years they visited Australia, India and Thailand. Yet amongst the letter there are offers from banks for the latest credit card.
October 15, 2013
stred
Correct, I was going to mention the ease of going bankrupt and a number of other points as well, but the list seemed to get longer and longer, the more I continued typing.
The, “I want it now” attitude also worth mentioning.
Did you see the Tv programme “On Benefits and proud” on Channel 5 last night.
Just about sums up how some are playing the system to their advantage.
Suppose you cannot blame them.
Its the actual system that is wrong.
One person was even proud of boasting to the camera that they are buying stolen (shoplifted) goods with taxpayer funded Benefits money.
They did not understand the complete nonesense of such, in so far as the State was in effect subsidising and funding theft.
October 14, 2013
Perhaps when your Government has made a quarter of the progress that has been made by the US in fixing the economy you will have a platform from which to tell them how to run their country.
October 14, 2013
The US economy has shown some promising growth, helped by new energy sources – but the federal government’s deficit has exploded beyond all reason, spending about $700,000,000,000 more than it takes in – not quite as bad as Obama’s disastrous trillion-dollar deficits earlier on, but still terrible (and still above the EU’s claimed limit of 3% of GDP). While the ‘unemployed’ count is down, the ‘labor participation rate’ is at its lowest since 1978 – where is this “progress”? http://www.marketwatch.com/story/what-the-unemployment-rate-isnt-telling-you-2013-10-10 (Sorry for the link, JR, but Bernanke’s comment and the figures seem worth it.)
Meanwhile, PPACA (“Obamacare”) has spent two thirds of a billion dollars on a website which doesn’t work properly, converted a growing number of full time positions into part time ones and cost millions of people their existing health insurance policies. Of course, that reduces official “unemployment” – but also reduces people’s incomes and career prospects! So yes, a few lessons from John could indeed be useful to them.
October 14, 2013
Now why would they believe that?
Ah yes, because politicians like you John keep telling them that the debt is only 1.2 trillion and ignoring the pensions that you owe.
How can you complain when you won’t put the pensions debts on the books? No wonder people are deluded as to the state of economies.
Reply I have set out the full debt on many occasions and have never denied there are pensions – and health – obligations for the future.
October 14, 2013
I agree, the broadcast media treatment of this topic is pretty abysmal but that’s nothing new. Incidentally, the print media aren’t much better at presenting the facts. They all want to sensationalise – the good guys against the bad – lazy, uninformative journalism.
Perhaps you could explain why if “the US is doing more to rein in its borrowing by spending reductions than the UK is” the US needs a new higher debt ceiling. Is it that they have not reined in their spending enough and they are still running a budget deficit which is higher than they planned? In this country, of course, the Chancellor abandoned his plan to eliminate the structural deficit by 2015 when he took office but maintained the myth of austerity with the collusion of the opposition.
Reply The Republican case is that even after the bigger reductions in deficit than here the US is still borrowing too much.
October 14, 2013
The US needs a higher debt ceiling because in 2009 they financed a huge stimulus by borrowing extra. Despite all the cuts they’re still borrowing more than in 2008.
October 14, 2013
Control of the megaphone and the airwaves works wonders for the spinners of lines of argument however true, false or economical with the truth they may be. I read that the US annual budget deficit was $169 bn in 2007, the year before President Obama was elected; it was $1,100 bn in 2012. The US national debt was c$9,000 bn when Obama took office in early 2008; now it is at the debt limit of $16,700 bn. We should be thankful that at least some people in Congress thinks this inexorable rise should be brought to a halt.
October 14, 2013
Obama introduce a huge government stimulus to help kick start the economy, which is why the US economy recovered at a much faster rate than the UK economy. Also Obama has been cutting the stimulus for some time so it’s clear that the Republicans’ objections aren’t due to the level of borrowing.
October 14, 2013
My information is that Mr Bernanke has kept the QE taps open.
October 14, 2013
Sorry JR but it is exactly right wing, ultra conservative, Tea Party Republicans that are causing this self inflicted crisis. These people, similar to your own, would consider the Daily Mail to be a pinko liberal sellout.
A sovereign fiat currency economy, like the US, renders a self imposed debt ceiling a masochistic nonsense. A government using such a system never runs out of its own currency, and it does not have to issue debt for every dollar it creates and releases into the economy, it does this voluntarily, it is not an operational requirement of the system.
Anyway Obama, his Treasury and his FED Bank, have tricks they can pull to keep the Republicans behind the eight ball. He can stop paying any Congressional bills. He can stop paying interest on any Treasuries held by the Fed ($2 trillion), or even cancel them. He can sell federal property buy options to the FED, as long as he can make it look like the FED is not giving credit to the Treasury. There are other tricks that avoid any repayment of debt principal, like issuing Consols that are Treasury debt with no repayment date, etc etc.
If I were the governors of the fifty states, I would look for a way to secede from the federal Union, go back to 1860 and start again with an improved Constitution. Come to think of it, England could secede from the federal UK, just like Scotland wants. We could apply for membership of the EU and convert the Houses of Parliament into the worlds most expensive block of flats. 😉 .
October 14, 2013
The problem of this policy Acorn, arises when markets who are asked to lend you more money realise you prefer to print funny money to escape your existing debts.
October 14, 2013
The only real money is what you call funny money, and only the government’s treasury is allowed to issue it. It is not convertible into anything, it is fiat money. Commercial banks issue credit, not money as you understand it. When a bank makes a loan, it creates a deposit in someones account (not the other way around). That credit is convertible into government money (notes and coins), and the BoE has to make sure those notes are available for you to pull out of an ATM. It also has to create a “reserve” in the commercial bank’s account at the BoE as you will transfer the money to someone else, possibly at another bank, eventually. The BoE has to transfer that “reserve” to the other bank when you do.
Like wise, the government always pays twice. When it pays your pension into your commercial bank current account, it also pays a similar amount into your banks “reserve” account at the BoE. for the same reasons as above.
Nobody can lend to the government unless it has government money, not commercial bank credit. The only place you can get government money is from the government. You can’t pay your taxes or “lend” the government money, unless the government has spent enough of its money buying your services in the first place. The government can’t drain spending power, its own money, from the economy, by taxes, to control inflation, unless it added spending power to the economy previously.
October 15, 2013
Thank you for an interesting post Acorn.
The basic problem remains that if a Government creates money out of thin air, by printing it or by electronic wizardry, and the amount they create is far greater than any increase in true value of the economy during that period, then they are debasing the currency and its value will fall in relationship to other nations.
There may be internal inflation as well.
Perhaps the effects of this has been masked by many nations recently adopting this course of action at the same time.
I saw some merit in Governments increasing money supply by using QE but only up to a sum which is approximately equivalent to the money lost when the Banks realised the values on their balance sheets was no longer correct.
I feel Western Governments and the USA have become addicted to the pleasure and ease of QE as it has political advantages for them as elections approach.
October 14, 2013
“A government using such a system never runs out of its own currency”
Yes, and nowadays there is less worry about running out of paper or ink.
But taken too far in the end nobody will want that currency, whether in electronic form or as a 100 trillion dollar banknote:
http://en.wikipedia.org/wiki/File:Zimbabwe_$100_trillion_2009_Obverse.jpg
October 14, 2013
Supply and Demand Denis. If the government creates to much money and spends it into an economy that has no capacity left to deliver more goods and services, then the price of what is available increases and you get inflation. Positive feedback sets in quickly and the purchasing power of your currency drops rapidly requiring more money to be created; hyperinflation. Foreigners stop trading with you because getting stuck with truck loads of your currency is a loser. Germany would end up literally giving BMW M5s away to your government’s bandits.
October 14, 2013
Why not move the new English Parliament to Washington (Tyne and Wear)? Then you could accommodate it in one of the many concrete 1960s municipal buildings of the New-Town, save a shed-load of money and forget about it.
October 14, 2013
A fiat currency can never run out of its own currency?. Is that right?. Is that why the US, along with the UK, is printing its own currency to buy its own debt?. What happens when no one will ever buy our gilt issues? What then? We have seen that western governments are totally incapable of reducing thier current deficits, and in the wake of rising obligations as well, there just isn’t enough buyers of government debt out there. QE is like a dragon eating its own tail, and it does signal the end of the current system, not THE end, but certainly the start of it, and not in altogether obvious ways. Price distortions for example, such as property bubbles, wine , cars, gold, etc, will cause plummeting tax receipts and reduced confidence, its like a war footing and can only lead to one thing. Increased government borrowing.
October 14, 2013
Rather paradoxically, what could happen when nobody outside the UK state apparatus would buy gilts any more is that profligate politicians could have their dream come true; the Chancellor of the day would simply arrange for the Bank of England to create as much new money as the government felt inclined to spend, partly to bribe the voters of course, and that new money could be passed from the Bank to the Treasury by one route or another.
If we were still in the EU and Article 123 TFEU was still in force then the transfer would still have to be indirect, because that says:
“Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”
So as one of the “central banks of the Member States”, the Bank of England would not be permitted to extend “overdraft facilities or any other type of credit facility” to the UK government, one of the “central governments”, and nor would it be permitted to “purchase directly” any “debt instruments” from the UK government; therefore it would still be necessary to proceed indirectly, as now.
October 14, 2013
What is the eight ball? For that matter, why is the left field the home of eccentrics and does one step up to the plate because one is hungry?
October 14, 2013
I actually find it exhilarating to live in a country where it is not accepted that the state should do everything and where there is a debate national debt and a large minority of people who are concerned about national indebtedness. This is not the case in the UK where two main parties think the solution to our problems is more state spending and that even the tiny cuts made 1.6% in real terms (cf. the US were there have been real cutbacks at federal and state level.)
The electorate seems to like the return to the 1970’s that Mr. Miliband offers.
The idea that a 5% profit in a capital intensive business like energy is excessive seems to have buoyed support for the Labour Party, as does to child-like view that bankers can pay for every new spending plan i.e. apprenticeships (which the Trade Unions opposed throughout the 1970’s – man’s wage for a man’s job etc.)
October 14, 2013
I cannot see how the Tea Party Republicans are causing this crisis. The problem is the USA is $Trillions in debt to the rest of the world, mainly to China and Japan. Both countries have already expressed their dismay in the low value of the Dollar for it devalues their holdings. They have already made alternative arrangements to deal in local currencies with various suppliers and buyers for they are trying to avoid any further commitments to the US$. Should Obama start printing by the Trillion these creditors will have no choice but offload their T Bonds. That would cause the yields to soar and just about wreck the USA economy. For the sake of the American people and the RotW I hope the Fed does not go down this route. The problem with QE is the extreme difficulty in stopping it, once set in motion. It drives up Bond prices and drills down on interest rates. Switch off the engine and the reverse happens. Very quickly. And financial armageddon starts.
October 14, 2013
The Fed has already gone down that route, see the chart here:
http://blogs.spectator.co.uk/coffeehouse/2013/10/niall-ferguson-paul-krugman-gets-it-wrong-again-and-again-and-again-why-does-anyone-still-listen-to-him/
But the Fed creating new money and using it to buy up US government bonds has had the opposite effect to the one you envisage; just as the Bank of England has used newly created money to rig the gilts market and keep yields down, so the Fed rigging the market in US government bonds has had the same effect of pushing down yields.
So far.
October 15, 2013
You’ve confused me, there. I thought I had made it clear enough that QE drives down interest rates and that shutting off QE raises them. Check out the bond prices – they have past their peak and are now on the way down. Just in case you did not know, falling Bond prices inversely effects their yields and when the Bond yield rises then Bank interest rates will surely follow along with mortgages, et al.
October 15, 2013
Well, you said:
“Should Obama start printing by the Trillion these creditors will have no choice but offload their T Bonds. That would cause the yields to soar and just about wreck the USA economy. For the sake of the American people and the RotW I hope the Fed does not go down this route.”
But the Fed has already been creating huge sums of new money – from that chart, about $3.7 trillion since the autumn of 2008 – and using it to buy up assets, including but not only US government bonds.
October 14, 2013
It’s getting to be time consuming replying on this site. Anyway, the US economy is big, 20 – 25% of world GDP. The US Dollar is considered the world reserve currency, why?
Say you have a US economy, that has spent decades importing more (goods, services, capital) than it exported; that is, has a large continuing, current account negative balance; paid for by the government amassing $16 trillion of debt from years of accumulated yearly budget deficits.
There will be a bus load of countries that have been selling you stuff, (that their own citizens had to forgo) and all they got for their efforts was a train load of US Dollars in a Central Bank. (That’s how you make a reserve currency.) With a bit of pressing that central bank will offer you some interest on your dollars with another bit of paper the Treasury will sell you, otherwise you will have to turn your financial asset into a REAL asset, like buying the Empire State building.
In reality, the man that issues the US Dollars doesn’t give a toss about your train load of his Dollars. He has got that 60 inch plasma TV and you have got a pile of his fiat currency called Dollars in return. Who got the better part of the deal you reckon.
Be thankful they were not Zimbabwe Dollars. And, in reality, nobody cares how big your debt is as long as you keep paying the interest on them bits of paper. And, as you issue the currency, you ain’t going to run out of computer keystrokes to create more of that currency.
There are markets in government debt and government currencies, and they do give an indication of parities, but, if they could do any real damage to sovereign economies controlled by the real interest rate setters, the Central Banks, do you think they would be allowed to exist at all?
October 14, 2013
“They give airtime to the notion that if the Republicans insist on the Administration spending less to live closer to its means, there will be a default on US debt and then a world financial meltdown.”
When we see a halt to drone attacks, the closure of some 900 military bases in some 130 countries worldwide, the withdrawal of American forces from active combat zones, the disbandment of the (words left out ed) DHS of nearly a quarter of a million, (other e.gs. ed) instead of window-dressing such as the halting of cancer-treatments and closure of national parks and museums, we cannot rightly deduce we are observing anything other than political posturing on a grand scale. The politicos in Washington are not being idle however; they are making best use of their time by partying.
As to the MSM, not being a professional politician needing to monitor its lies, distortions and omissions, I have long since ceased to watch or listen; apart from anything else, it is excruciatingly boring, and as a consequence I have more time to discover what is really happening through alternative media sources.
October 14, 2013
Debt of one sort or another has repercussions ; if it can be avoided , so much the better . I was brought up by parents who , if they wanted something , saved to get it ; I have always followed this principle . I was at a restaurant in Oxford on Friday evening that was absolutely “jam-packed” full , my academic friend and I paid our bill in cash much to the amazement of our waiter . When questioned why ? he replied that everyone else that evening had used their credit card . If personal debt were added to national debt and the totals revealed , I wonder how many would suck their teeth and say ” enough is enough” . Obama is wrong in his policy of pushing the US debt ceiling into the trillions ; the “Tea Party” have made a very plausible case and should be applauded for doing so .
October 14, 2013
This is true.
I wonder how much I’d actually have if I’d been forced to pay for it up front. Not very much if I’m honest.
How many of us can say that our belongings are commensurate with our output ? Have I really done enough work – to the appropriate skill level – in my lifetime to cover the manufacture of even one microwave oven ?
October 15, 2013
Bert
Bought up the same way by my parents.
If you want it, save for it.
If you need more money, work harder or smarter.
October 19, 2013
Bert Young: “Debt of one sort or another has repercussions ”
Exactly, not least you pay over the odds for the item you wish to purchase.
Then you pay again later in opportunity cost because your available expenditure is less than it would have been now that you are paying the repayments and interest.
Debt has it’s place, but we have been encouraged to use it in preference to the more sensible savings.
October 14, 2013
This article seems very naive.
Every Thursday, the US Treasury rolls over more than $100bn of US bonds. At any time, those bond-holders could decide not to roll their debt over, but instead to ask for their money back. If they did that, the US would be unable to repay them. Who knows what the consequences would be, but they definitely wouldn’t be good.
So why don’t bond-holders ask for their money back? Simple – confidence. The only reason the US is able to continue to service its debt and issue additional bonds is because investors have confidence in the US economy.
Now, it is true that if the US was prevented from issuing additional bonds it could service its existing debt temporarily from tax revenues. But what would the consequences of that be? The US would have to reduce or stop federal benefits like Medicare/MedicAid and social security, and furlough or lay off large numbers of federal employees.
Would the American people think that was a good idea? Undoubtedly not. Americans would demand that their pensions are paid in preference to the interests of foreign investors. In the medium term you have to consider the possibility that those actions could lead to civil unrest.
Would bond-holders see the situation as sustainable? Undoubtedly not. They would worry that the US government might cave to pressure from voters to pay benefits instead of servicing the bonds. Confidence would be gone – and confidence is the fuel of the global economy.
Now, you also didn’t mention in the article why this is happening in the first place. You say that the suggestion is the Republicans are “behaving unreasonably for daring to say that the Administration should reduce its spending and borrow less”.
That’s not what this crisis is about. The Republicans have been saying that for years – and have forced Obama to reduce the US deficit. What’s different this time is that the Republicans are tying the continued credit of the US to de-funding or repeal of the Affordable Care Act – a healthcare law.
How would you respond if the Lib Dems were preventing the UK government passing a budget, and threatening to prevent the UK government servicing its debt, without some political concessions – perhaps a huge investment in wind power, or a commitment not to hold a referendum on the EU?
I think you would rightly regard it as irresponsible extortion.
Reply The Republicans are against an additional spending item at a time when the US state is borrowing heavily anyway. The Lib Dems have failed to implement the reduced number of MPs as promised, so they are seeking to use their minority leverage.
October 14, 2013
“Every Thursday, the US Treasury rolls over more than $100bn of US bonds. At any time, those bond-holders could decide not to roll their debt over, but instead to ask for their money back. If they did that, the US would be unable to repay them. Who knows what the consequences would be, but they definitely wouldn’t be good.”
Surely if those bond-holders asked for their money back on Thursday they would get it; if necessary the Treasury would find the money to pay them by selling new bonds to the Federal Reserve, and as that would just transfer the debt from those bond-holders to the Federal Reserve that would not breach the total debt ceiling.
But the question would be how many trillions of new dollars the Federal Reserve could create for that purpose before a) inflation kicked in, and b) investors started to lose confidence in the currency.
October 15, 2013
> The Republicans are against an additional spending item at a time when the US state is borrowing heavily anyway.
True. They fought an election on the spending item in question very recently. They lost.
> The Lib Dems have failed to implement the reduced number of MPs as promised, so they are seeking to use their minority leverage.
And I’m sure you don’t regard that as honourable behaviour. So my point stands.
October 14, 2013
There is a proven statistical correlation worldwide between government ownership of broadcasting and state authoritarianism, corruption and economic failure.
Britain is the slowest growing nation in the English speaking world, this language being a significant economic advantage. There are a couple of Caribean islands doing worse but they are hardly nations and because of their size statistics don’t work for them.
Which supports the theory that much of our trouble is that we have the (worst authoritarian ed) broadcaster in the developed or English speaking worlds.
October 14, 2013
@Neil Craig
“There is a proven statistical correlation worldwide between government ownership of broadcasting and state authoritarianism, corruption and economic failure.”
The LibLabCon have neither the courage nor conviction to deal with the BBC problem, so it will will down to us citizens to pull the plug on this monster by refusing to pay for it.
It is possible to avoid paying the BBC tax legally
(If you do not have a tv and do not watch live programmes.ed)
October 15, 2013
Mr Redwood,
Since you will not allow my legal TV Licence avoidance advice, may I refer you to the DVLA website:
So contrary to what you imply in your response, mere ownership of a TV does not require a license.
Will you now concede this fact?
October 15, 2013
TVLA not DVLA
October 14, 2013
“Apparently to much of the fashionable media in the UK normal now is printing and borrowing on huge scale so the state can spend well beyond its tax revenues.”
I think you’ll know what I’m going to say, but I’ll still say it anyway.
1. After his single brief outburst in January 2009 about
“Printing money is the last resort of desperate governments”
reported here for example:
http://news.bbc.co.uk/1/hi/uk_politics/7817623.stm
Osborne fell silent while the Labour government had £198 billion printed up for it to indirectly borrow from the Bank of England through the QE “money-go-round” which was repeatedly discussed here at the time, which it then used to fund its budget deficit instead of having to make drastic cuts in its spending during the year leading up to the general election.
As often explained in detail, as just one example on June 24th 2009 in a comment at the bottom of this thread:
http://johnredwoodsdiary.com/2009/06/23/prices-and-money/
And note my last sentence there, you can’t say that you weren’t warned:
“And on that basis, I’d say that Gordon Brown still has a fighting chance of winning the next election.”
2. As 2009 worn on and every week this process of the Treasury indirectly borrowing new money from the Bank of England continued, putting it another way with the Bank rigging the gilts market so the Treasury could continue to borrow the money it needed to pay the government’s bills, for example as reported in that comment on June 24th 2009:
“For the record, last week the Bank of England created another £6.5 billion and used it to buy up existing gilts, while the Treasury borrowed £6.8 billion by issuing new gilts.”
the question arose why Osborne was remaining silent, and the only answer could be that he expected that if he became Chancellor he might want to do some more of the same – as indeed he has, to the tune of another £175 billion.
Therefore between them both Darling and Osborne have contributed to the perception that it is normal for the Bank of England to create vast sums of new money, £375 billion so far, and it is normal for the government to borrow similarly vast sums to pay for its over-spending; although it is staggering that after four and a half years since it started so many people still haven’t understood that the second is only possible because of the first, the primary aim of “quantitative easing” in the UK having always been to make sure that the government doesn’t run out of money to pay its bills in the way that the Greek government ran out of money to pay its bills.
3. Moreover because there is cross-party agreement over this policy, no backbench MP has yet stood up and demanded that it should be properly debated, and that decisions on the creation of new money should be made by MPs not by the Chancellor, and therefore the next time Osborne wants some more “quantitative easing” he should lay a draft of his letter to the Governor before the House and propose a motion for its approval, not send the letter and then just inform MPs after the fact.
October 14, 2013
You may know that, after the Russian Revolution and during the 1920s, the Communist Party used inflation and financial policy as a political weapon against the middle class – or such members of it as had not managed to get out of the country. The left wing position today is similar. Finances are manipulated in such a way as to penalise the prudent.
October 14, 2013
JR suggests that “much of the fashionable media in the UK” thinks the purpose of “printing and borrowing on huge scale” is “so the state can spend well beyond its tax revenues”.
That is a man of straw argument: the idea that the PURPOSE of a deficit is to enable spending to exceed tax is clearly nonsense. The ACTUAL PUROSE is to impart stimulus: not a bad idea in a recession.
And I’m not suggesting the “fashionable media” has much of a clue. I regard it as being as clueless as everyone else. But I’m happy to defend the “fashionable media” on the above specific point.
October 14, 2013
It’s not been a matter of imparting stimulus, just avoiding drastic cuts in public spending which would have exacerbated the downturn.
October 15, 2013
@ Ralph Musgrave. Yes the first tranch of QE, all £200 billion was to provide a stimulus for the economy and not, at all, under any circumstances, to allow the government machine to effectively pay its own bills, and keep the show on the road pre election. I mean, negligible IR, inflation, and devaluation is a superb knee jerk stimulus, coming off the back of a credit boom, I mean what could possibly go wrong?.
October 14, 2013
America has terrible problems, and the least of all is the debt ceiling farce. There are 50 million Americans on food stamps. This in what is billed as the richest country in the world, is outrageous. 50 million Americans cannot afford to feed themselves. The country is broken. And the UK is well down the same path.
But the media dare not report this. There is a power elite who are hollowing out these countries with debt and all that remains is a burnt out husk. And then they also control the mainstream message and suppress it. The situation is probably irretrievable.
October 14, 2013
And at the root of this debt culture is the property Ponzi.
October 14, 2013
Question: Who said,
“We used to think you could spend your way out of recession and increase employment by boosting government spending… I tell you that option no longer exists. And so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”
Answer: Former Labour Prime Minister, James Callaghan.
Interesting, is it not?
Tad Davison
Cambridge
October 14, 2013
I despair with the way the West is moving. Effectively, we are moving Eastwards when the East is moving towards the West. Capitalism is being replaced by Socialism in the West whereas the East is now committed to Capitalism. Capitalism was the driving force behind the massive growth in the West. Socialism debilitated growth in the East.
What has happened to us? Why are our Governments, the BBC, et al, hell bent on turning us into full blown Socialist regimes when the recent action by those Eastern countries strong in Socialist policies have turned away from that idea? Why does the West want to grow its Governments and its Public Sectors to such an extent that that it bankrupts the nation? It makes absolutely no sense to do this, neither economically nor morally. In both cases it is wrong. Wrong for the country and totally wrong for its citizens. The most glaring examples to compare these two systems are in North and South Korea. And I don’t think there can be many Brits nor Americans who would wish to join the Northern regime so why are the Government leaders pursuing this tact?
October 14, 2013
@Terry
Have you heard about Agenda 21?
October 16, 2013
If you mean UN Agenda 21 the roadmap for Century 21 then, yes. But unlike our EU dictates it is not legally binding. Therefore, there is no reason for our politicians to abide by it unless they are seduced to megalomania again.
October 15, 2013
Socialism is most popular in countries where a larger percentage of the population earn a low wage, while a wealthy elite have most of the money. One of the results of capitalism is that it creates societies where most of the population gets a low wage, while a small elite becomes exceedingly wealthy. So it’s no surprise that capitalist countries become more socialist over time. No amount of blaming the BBC will change this.
October 16, 2013
Uni
Care to explain why many countries are moving and have moved from socialism to capitalism, as according to your bizarre logic it should only be one way traffic.
October 14, 2013
Both the BBC and Channel 4 have been telling us that the Tea party elected Republican Congressmen and women are behaving unreasonably for daring to say that the Administration should reduce its spending and borrow less. The Republicans are being lined up for the blame if there is a failure to agree a new debt ceiling and budget settlement.
Well this huge stimulus did result in high levels of growth and only the Republicans are opposing it. So if there’s a failed to reach an agreement the Republicans will be to blame for this.
Also the Republicans aren’t just complaining about spending; they’re also complaining about Obamacare, which will provide affordable healthcare to the poor.
Apparently to much of the fashionable media in the UK normal now is printing and borrowing on huge scale so the state can spend well beyond its tax revenues.
Given that every time the US has had a tax surplus they had a recession shortly afterwards it seems that the private sector can’t cope with more money going into the state than coming out of the state.
They give airtime to the notion that if the Republicans insist on the Administration spending less to live closer to its means, there will be a default on US debt and then a world financial meltdown. People in the media are lining up to take the President’s view that if this happens we should all blame the Republicans.
No idea what point you’re trying to make here John. If the public are supporting the President’s position then in a democracy the Republicans should respect the will of the people, rather than threaten a financial crisis if they don’t get their own way.
Does it never occur to these opinion pushers that the President has plenty of money coming in from taxes to be able to pay the interest on the debt. It would be his choice to renege on the debt if the Republicans dug in and declined to raise the borrowing ceiling.
Obama also has to pay for other more important things such as the police, teachers, fire fighters, social workers, the army, etc.
The President could postpone or cancel other types of spending where he has more discretion if he has to live with less borrowing.
Are you referring to providing healthcare to the poor because that’s what the Republicans are demanding.
I doubt Mr Obama is unpleasant enough or foolish enough to renege on the debt and trigger a financial collapse. It would hurt the people he is meant to be looking after if he did.
I doubt all the state employees who won’t get paid or the poor who won’t get their benefits will agree with you on this John. Reneging and the debt will harm them far less.
US voters blame both the Republicans and the Democrats for the impasse over their future budget, but here in the UK the media largely blame the Republicans.
Well the UK does have a much better news network than the US.
One of the ironies of the situation is that the US is doing more to rein in its borrowing by spending reductions than the UK is, but much of the UK media does not read the figures and just assume Mr Obama must be spending and borrowing more than a Conservative led Coalition, relative to the size of country.
No matter how many times you repeat this lie it will never become true. Obama introduced a massive stimulus and still hasn’t reduced it to pre-2008 levels so overall he’s increased borrowing since he took office.
By contrast the Conservatives cut spending and seriously damaged the economy for 3 years. It’s only because Osborne has finally realised that he needs to increase state spending that the economy has started to recover.
Republican or Conservative “austerity” policies are unacceptable, but much tougher Euro austerity policies are just fine.
Euro austerity policies were required to prevent countries with massive debts going bankrupt because these countries can’t devalue. By contrast the UK and US can devalue so their harsh austerity policies are unacceptable.
October 14, 2013
“in a democracy the Republicans should respect the will of the people”
Well that phrase of yours is at the heart of the problem Uni.
The house of Reps was also elected by the people and they have a majority of…….. Republicans.
October 15, 2013
The people also gave the senate to the democrats and elected a democrat president who was promising free healthcare.
October 16, 2013
I think we all know that Uni.
The problem is that there is a constitution and there are votes allowed in each chamber.
The President cannot always achieve what he wants, because of the outcome of the votes cast.
As you are a great supporter of the EU and also of PR I would have thought you supported this type of complex system.
October 17, 2013
uanime5: “in a democracy the Republicans should respect the will of the people”
I’m starting to feel sorry for you, but you are wrong again.
The USA is not a democracy. It is a Constitutional Republic.
The President, Congress and the Senate should respect the constitution, else they are all three acting lawlessly.
October 14, 2013
What “harsh austerity policies” do we have in the UK?
The truth is that public spending continues to increase in nominal terms, as JR has repeatedly highlighted, and is only declining slightly in real terms.
Some people have been hurt more than others, but overall there has been very little in the way of “austerity policies”, let alone ones which are “harsh”.
October 15, 2013
The harsh policies involve using Atos to classify the disables as fit to work so that they can be paid less in benefits (38% of all appeals are successful), the bedroom tax (even when there’s nowhere for people to move to), workfare (forcing the unemployed to work for free so you can fire your paid employees), and 3 year long benefit sanctions.
October 16, 2013
So 62% of appeals to the independent body are not successful Uni.
That means out of every 100 people who claim they are so disabled there is no work they can do and are told after a medical assessment that they are capable of doing some forms of work and disagree with that assessment to such a level that they appeal, 62% are found still to be people who could earn a living.
I think you are struggling to make a decent argument here.
October 14, 2013
Speaking of “madness”, today I received a letter and leaflet from SSE about their energy price rise. Their letter suggests that one way to reduce my energy bill is to pay by Direct Debit – something I have always avoided because of the track record of energy companies overestimating my usage; they rarely underestimate it. I turn over to the back of letter where it identifies the new tariffs. It also adds “Due to new regulations affecting all energy companies, we are no longer allowed to offer a discount for prompt payment”!!!
What regulation is this? Who devised and imposed it? And why? And what is the principled difference between a larger prompt payment discount via DD and a smaller discount earned by a customer who settles their account within the few days that qualify when paid in to the bank? Does this new regulation apply to all prompt payment discounts or just to energy bills? This smells like more bureaucratic nonsense dressed up in mumbo jumbo. If there is such a regulation it should be rescinded forthwith.
October 15, 2013
oldtimer
Differet ploy being undertaken by BT, they now charge extra for paper bills.
Do not charge me any more, I changed supplier, and saved money on cheaper deal as well.
October 14, 2013
A tangential point: its time to merge Channel 4 with the BBC – eg with BBC3 which is a hopeless channel. there can then be one advertising channel on the BBC, a useful precedent. Next step is to move the BBC to a subscription model. Having 2 state owned broadcasters pumping out leftist propaganda at the public expense is unacceptable.
It is indeed extraordinary the bias in the media on this issue. Leftists in the UK & their media outlets do not consider how justified opposition to Obama is given how he wastes taxpayers money in the US to buy votes, eg with green bungs and the auto bailout.
October 15, 2013
So you basically want to censor any news channel that doesn’t tell you what you want to hear.
October 14, 2013
I am not keen on Obama, who has been a disappointing president and if I were an American I wouldn’t be keen on Obamacare, which the Republicans so desperately want to negate. However, the new medical insurance arrangements were passed as a result of an Act of Congress. If the Republicans want to revoke Obamacare they should muster the requisite votes to repeal the Act in Congress. They know they cannot.
Obama and everybody else knows that if he concedes anything substantive on this issue and in this manner he and every subsequent president will be a dead duck in terms of having the power to govern. This is an even bigger issue than the deficit and living beyond their means.
October 14, 2013
It is my understanding that the US constitution means that interest and capital due on US Treasury bonds has to be paid first.
If President Obama decides to jerrymander the payments that are due towards the end of October in interest payments and maturing bonds, then US Treasury can refuse and this would start a battle on a new front and it could end up in the longer term with the president being impeached. I don’t think anybody would thank him for a technical US default.
What must be remembered is that voters voted in the Republican Congressmen to represent their interests and the left wing MSM chooses to ignore this. What the President has on his side and he can be reckless is that he will not be up for reelection, whereas the Congressmen will be.
From what I can see with what has been closed to date in the shutdown, this shows that politics is very much in the forefront of all that is happening.
The problem with all Western Governments is that it is a near open loop system, with feedback only applied in the UK every 5 years. However badly the politicians act in their perceived interests of the populace they still walk off with their salaries and pensions. Personally, I would make part of their remuneration and pensions deferred bonuses, like bank employees are these days, so if it was seen after they left office that much damage had done (like the last UK Government with their reckless spending) to the overall wealth of the nation then these could be clawed back, so we have a closed loop feedback system. Set up correctly this would increase a nation’s financial stability.
October 15, 2013
Robert Reich suggests that Obama can settle exisiting debt and so avoid default by relying upon the 14th Amendment, Section 4 of the US Constitution that he quotes as saying the “validity of the public debt of the United States, authorized by law … shall not be questioned” . He notes “Arguably, what the Constitution requires trumps any law governing the debt-ceiling”.
October 15, 2013
You seems to have ignored that the voters voted for a democrat senate and president because they want both to represent their interests.
In the US senators are elected every 6 years (1 third elected every 2 years) and representatives every 2 years. So feedback is applied far more often than in the UK.
October 16, 2013
So Uni as you say, the Reps are more regularly voted in by the people and can be said to reflect current public opinion more closely.
October 14, 2013
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Increasing America’s debt weakens us domestically and internationally. Leadership means that, ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
Senator Barack H. Obama, March 2006
A man before his time.
October 14, 2013
“It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.”
That was before they had started to depend on the Federal Reserve to create new money to finance the reckless fiscal policies.
October 14, 2013
@JimS
George Osborne, prior becoming Chancellor and then printing £175,000,000,000.
A desperate man.
October 14, 2013
Douglas Carswell reminds us in his blog today:
“On many of the big macro issues of the day – press regulation, energy or monetary policy, Britain’s EU membership, the Lobbying Bill – the Tory party leadership has simply got it wrong.”
“Ideas about how to regulate the press or lobbying are based on a series of assumptions about what the state can regulate …”
“Energy policy … is built on the idea of renewable targets. So an administration committed to helping with the cost of living can do little to prevent energy bills rising.”
“Monetary policy remains rooted in the notion that we can grow prosperous by spending money we do not have … ”
“On Europe, we offer an In/Out referendum – great. Yet we do so from the position that our EU membership is there to be defended …”
On all of these issues, the Conservative party is simply lagging behind UKIP. (Please correct me if I am wrong.)
October 14, 2013
matthu,
Disappointingly, our host and Douglas Carswell, insist on staying in the Conservative party and thereby supporting Cameron and his wrong policies.
October 14, 2013
@matthu
They’re not lagging behind ukip, they’re opposing ukip.
p.s. I changed the party’s label because the modern Tories are not conservative, and to describe them as such would be to promulgate a fallacy.
October 14, 2013
The republicans (as well as some of the Tea Party) are not really against big government spending.
They are against the wrong sort of government spending and will happily spend loads of money on their pet projects.
Just look at the size growth in the size of the debt during the Bush (W) presidency.
October 14, 2013
There is a shockingly one-sided video on the BBC News website today “What is the US debt ceiling?”
The commentary states:
“Like anyone who’s short of cash it [the U.S. Federal Government] borrows money to make up the shortfall”
The video commentary then goes on to ask why they don’t just go and increase the debt ceiling and answers its own question by saying that Republicans are using the vote [to increase the debt ceiling] as a way of protesting against President Obama’s healthcare plans.
At no time is it considered that government should reign in spending. It also caricatures the Republicans as wreckers rather than putting their point of view.
This is a disgusting, and sadly typical example of BBC bias.
October 15, 2013
Give that the Republicans are using negotiations on the debt ceiling to try and cancel Obamacare it’s clear that their main object isn’t increasing the national debt, so there’s no reason to consider whether there’s any need to reduce the national debt.
October 14, 2013
Once again (for the trillionth time) Mr Redwood gives a completely dishonest appraisal of American politics.
The “clean” CR that the Senate passed was exactly the budget that the Republicans in the House wanted. If Mr Redwood doesn’t understand that then he should not be commenting at all on the situation.
What the Republicans have asked for in exchange for doing their job has nothing to do with this. They wanted to gut Obamacare. This has nothing to do with the budget argument and everything to do with self-engendered hysteria against what was originally a Republican idea for bringing health insurance to millions of Americans.
Put it this way. If some Tory backwoodsmen decided to not allow the UK budget to be passed (because they happened to have decisive votes) unless hunting foxes was allowed again, Mr Redwood might like to go on TV and explain to everyone that this was all a disagreement about the budget. Needless to say he would be laughed out of town. Unfortunately Fox News in the US manages to keep a third of the population continually confused by allowing Mr Redwood’s equivalents in the US spouting equally nonsensical stuff, without then breaking up laughing at the stupidity of the argument.
What do the Republicans want now, given that they seem finally to have given up their insane campaign to get rid of Obamacare (except for the craziest of the crazy):
(1) They want to make congressional staffers pay more for their health care than they currently do, because, umm, evidently they think it’s a good stunt.
(2) They want to allow corporations not to pay for health insurance that includes contraception.
(3) They want to remove a medical device tax (which is partly how Obamacare is funded, because you know, Democrats pay for things, it’s only Republicans who do not). This would add to the budget deficit. [What, Mr Redwood does not know this, what a surprise.]
Yes, it has nothing to do with the budget (except to make the deficit worse).
And finally:
(4) They want to play this same extortion game over and over again ad infinitum, as Mr Ryan was happy to admit to today.
And Mr Redwood’s idea about the Treasury picking and choosing which debts to pay is about the dimmest of them all. Read Krugman about this if you want to get a coherent analysis. For one thing, even if it could easily be done, it would be yet another example, as in 2008, of the financial services industries getting favoured at the expense of ordinary people. But evidently that would be a good thing, according to Mr Redwood.
“It looks as if the President’s super spin will succeed in getting the Republicans to agree to increased borrowing. US voters blame both the Republicans and the Democrats for the impasse over their future budget, but here in the UK the media largely blame the Republicans.”
Another nonsense statement from Mr Redwood. US voters blame the Republicans more than the Democrats, and that is because it is the fault of the Republicans. Look at any opinion poll. Ted Cruz conducted his own poll (yeah, you can imagine how crooked that was) and even that one found against the Republicans.
“They think the President has a duty to the USA and the world to spend more, print more and borrow more.”
Complete and utter gibberish. In fact the only fiscally responsible people in the US are the Democrats. The Republicans last time they ran the show paid for two wars and a large new Medicare benefit on the credit card. Where was Mr Redwood and all the other right-wingers with their crocodile tears then, eh?
Republicans in the US are plenty ok about spending, as long as it is on old and white people, or on the military. And they don’t think that the rich should pay any taxes. Of course they are happy to slash spending that benefits the (disadvantaged? ed).
Reply An excellent partisan invective that clearly does not understand the Republican viewpoint.
October 15, 2013
With respect JR, you are a long way behind the curve as they say. My peers in the US tell me that it is difficult to comprehend the self destruct mechanism the GOP has embarked upon. The ultra conservative Tea Party element, is literally splitting the GOP in two. (GOP = Grand Old Party = Republican Party).
There is an element in the UK Conservative Party that is seeking to emulate the GOP Tea Party (The Tea Party Movement in the UK). The Poor Law Amendment Act of 1834 and a return to the Victorian Workhouses maybe that elements vision of the future Conservative Party, but it is not mine. Lately, you are sounding like part of the problem, not part of the solution. And that is sad for me at least.
Reply I can assure you we do not have Conservatives seeking a return to the Poor Laws!
October 15, 2013
Wab
“Democrats pay for things, it’s only Republicans who do not”
That about as stupid a statement that I’ve ever seen on here
October 16, 2013
The Republican Party should fight a battle that it can and must win. The current estimate for the US Federal deficit in 2013 is $973 billion. So allow an increase in total Federal debt of $900 billion in October this year, an increase of $600 billion in October 2014, an increase of $300 billion in October 2015 and zero in October 2016. That way, the annual Federal deficit would be eliminated in 3 years.
October 19, 2013
living-within-your-means-and-avoiding-too-much-borrowing?
Yes that does seem like common sense and I certainly try to do that on a personal and business level.
However its important to understand the opposing argument. If it’s right we need to recognise that common sense may not be the best guide. If it’s wrong we need to understand why too so we can correct the theory. As a scientist, I do believe we need a better economic theory and I’m not convinced that either Keynesianism or Monetarism have it quite right. A correct theory must always be politically neutral IMO.
October 19, 2013
These are some aspects to the theory:
Spending your own currency ( your IOUs) that only you create, and spending a currency someone else creates (someone else’s IOUs) is entirely different. Consider the question of borrowing. You can borrow someone else’s IOUs issuing your own promise to pay them back. But borrowing your own IOUs? That means replacing an old IOU with a newer one. There really isn’t any point doing that so the idea of governments borrowing their own currency is a somewhat of a nonsense.
So why do they issue and sell bonds? There is no real need to do this to raise money but they do set a floor on interest rates and so do serve a valid purpose.
Can governments ever default on debt? Not if they have a sovereign currency. Thankfully the UK still has total control of the £. We do have the Conservative Party to thank for that, incidentally. So government cheques will never bounce. That is not to say that cheques can be issued without consequence. Inflation is a danger of course.
Can the public sector and private sector both be in surplus? Not with the terms of trade as they are. Even if overseas trade balanced, a deficit in one would be necessary for there to be a surplus in the other.