Just a few points : 1. The USA faces West towards the Pacific Rim and China, where growth has continued virtually unabated despite the crisis in the West. Companies like Caterpillar can grow their exports into investment-rich economies. We face East towards a stagnant Europe;
2. We may well find that a recovering USA causes us real problems over the next eighteen to twenty-four months as the rising price of oil in particular, and commodities in general, hits us just as we might have been making a recovery. The USA is investing in shale gas, whilst we are buying windmills;
3. The USA is recovering despite the collapse of the housing market. If you are right, and our housing market has yet to fall, we can expect horrifying negative wealth effects, as well as the turmoil of widespread repossessions, bankruptcies, and a new round of failed banks.
4. Besides, even with Obama in the White House, America is still lightly taxed and regulated compared to the British model. They feed themselves easily and leave a huge surplus for export. And they have still to a far greater extent than here retained the free-spirit, entrepreneurial can-do spirit which has been destroyed here by sixty-five years of socialism. I do fervently wish some of these structural economists would wake up and realize the real economy on Main Street is a wholly different beast than the ephemeral and vacuous "Economy" of the public sector and the financial dis-services. No wonder so many white vans were rushing around the M 25 with ladders on the roof! No wonder imports went so high and retailers were so busy. I am thus most interested to learn how Mr Bootle proposes Britain will drag itself up by its bootstraps, next time, when far too many families are struggling to meet excessive utility bills, motoring costs, food and debt service, etc and taxes direct and indirect are now crippling. Santa Claus?....When GDP growth is driven by government spending which itself is driven by borrowing we have a major problem. GDP = C + I + G + (X - M) ...Take away debt fueled government spending and the grim facts of the depth of our problem and the Herculean task to get out of it are laid bare...What a mess !!!!The US is pumping trillions of dollars into it's economy in an effort to counter the market effects of contraction and deflation. We to a lesser extent, are doing the same. Both are in effect fighting a process essential to balance their economies. There will be huge growth in both the UK and the US. This will be in; unemployment, insolvency, bankruptcies, repossessions, homelessness, civil unrest, crime, and then just when you thought it couldn't get any worse inflation! but fear not, super rich hedge fund, pension fund and bankers will be voting to reduce the pay of super rich CEOs NOT!
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With austerity the name of the game in the Eurozone for the foreseeable future, it's hard to see how the Euro can survive long term. The Eurozone countries are signing their own death warrant as we speak. It's hard to see how countries like Spain, Ireland and Greece can ever grow again while they remain in the Euro.
Merkel's push for fiscal responsibility in Europe is understandable. The ECB's and her decision to combine the fiscal contract it implies with a monetary squeeze by not balancing the impact of the sovereign debt crisis and the decision to raise bank's capital requirement by the moderate use of QE is clearly insane.
It's just the "controlling class" finding new ways to keep the masses in their place and encourage just enough of them to go along with it.
When I was a teenager in the late 1960s how we would have scoffed if anyone had said that, over 40 years later, we would be governed by milionaire old Etonians telling us the only way forward was austerity - and there was still enough people bovinely stupid enough to swallow it
We will never get out of this mess with the current system. With the current levels of government debt across Europe, and the extortionate interest rates demanded by the markets, I have calculated that just paying the interest on the debt is draining 4.25% of total Eurozone GDP - money that goes directly to the banks. It's got worse recently, but over the last 15 years, the banks have been paid an astonishing 4.3 trillion euros in interest payments for the Eurozone alone. The UK paid 443 billion to the banks over the same period.
We've been continuously told that it has to be like this. We are told, that the ECB is legally prevented from lending money to governments. Like the Bank of England, it is supposedly forced to go via the commercial banks. As a result, the banks get unlimited amounts of ECB money at 1% which they should, in principle, lend on to the governments that so desperately need it. But as we have just seen, of the 489 billion that Mario Draghi just gave them, over 90% has been parked back with the ECB.
But this idea that central banks can't help governments is a fiction. In fact, paragraph 2 of article 123 of the Lisbon Treaty, specifically allows the ECB and other central banks (including the Bank of England) to lend to "'publicly owned credit institution". And the ECB confirmed to me that these institution can do precisely what they want with the money they get, including lending it on to governments at the 1% that they pay.
The next window for getting ECB money is on the 29th February. All governments should be taking the opportunity to cut out the middle man, and save Europe 391 billion euros a year in charges.
In Italy and Greece, fiscal responsibility (austerity) seems to mean punishing the middle and lower classes with cutbacks while the top-heavy governments continue to earn top dollars, receive many perks and have amazing pensions.
When a government stenographer can earn 290,000 Euro (no, I am not making this up)
http://www.corriere.it/International/english/articoli/2012/01/04/senate-stenographer.shtml
there is something seriously wrong with a system.
It is interesting that many of those in the Greek cabinet have millions stowed away in the bank. Where did they get the money?
Austerity measures would not have to be so profound if the 'pigs-at-the-trough' government officials in these indebted countries gave up some of their many financial perks and reduced their numbers. Nothing will happen in terms of debt reduction until the corruption and greed is defeated in these governments. Fat Chance.
Spain is an interesting case as it complied with all debt limits for the Euro, something Germany and France didnt. The real problem was the crash of the property / building boom. For most municipalities up to 80% of income was from the taxes for the issue of building licences and rezoning of land. Whilst they were building 800,000 new homes per year (more than the USA wih 4x the population) plus countless shopping centres there was no problems in repaying debt (municipal and national) and for huge municipal infrastructure projects (Madrid spent 6000, million€ on putting the ringroad underground). This year less than 40,000 new homes have been completed, so local taxes(rates) have increased dramatically, on top of increases in food prices, electricity etc....further curtailing spending power.
It wasnt just the jobs in actual construction but all the supply chain;, windows, doors, furniture...all of which are slowly closing or downsizing.
Under these circumstances more austerity is madness. Madrid and Barcelona are already totally dead as no-one has money to go out (except to look), Businesses are holding on hoping for better days but they are unlikely to come and many more businesses will close if only current levels of activity continue.
It is wrong to assert that the EU or Germany paid for everything, as with other countries only areas below 90 of average EU income levels recieve help from the EU (like Liverpool or the Rhur valley). It is more correct to say that all home purchasers including the many foreigners (now totally abscent) paid for all the roads, theatres, museums etc
As has been said many times - over the past 20 years (in some cases, like France, 30+) governments have been taking more and more from future tax revenues through borrowing as well as ramping up tax raising measures (consider VAT rates for example over the past 30 odd years) to meet the inexorable greed of spend..
We have now collectively reached a limit. Economies have to reset and some GDP output may well be lost.
Austerity hasn't really kicked in yet because we're still borrowing very heavily per annum (UK a particular case in point) to balance the books.
Some on here are getting confused re governments. Most if not all, and particularly Itialians have been state-spending like there's no tomorrow. The music's stopping.
There are subsidies and benefits that permeate most levels of European society (and US for that matter). That is pretty socialistic in anybody's definition. The US is no different. Look no further into mortgages if you're not sure.
Lower intrest rates do stimulate private investment. Your story is just short term and an extreme one. Spending is still increasing as you will know and there is no deflation."
No they do not. Private investment depends on businesses being confident there is demand for the goods/services which flow from that investment. The cost of funds maters little if the top line sales forecast is flat/negative.
So, if low interest rates stimulate investment, how do you explain it falling by 24% in 2009 when rates were at an historic low??
http://www.guardian.co.uk/business/2010/feb/25/business-investment-plunges
"The thirties has been a special period, because by far the largest economy in the world had a trade surplus of 19% and no budget deficit at all."
Indeed, but doesnt that sound eerily similar to today with Germany and Chinas trade position also draining demand from the world economy?
German experience is that you can supress domestic demand and export surplus production when world demand is buoyant. It certainly worked from them if you consider high corporate profits and exports coupled with supressed domestic wages a success.
It cant be applied across the eurozone as by definition trade has to balance - how can all enjoy export led growth if someone elses surplus is anothers deficit and overall demand is being cut??
We might have a single currency but every country with a big stock of public debt and a large fiscal deficit is in competition with its neighbours to issue debt at an affordable rate. It creates a European beggar-thy-neighbour problem, each nation trying to look marginally more austere than another in order to convince the markets they're a safe bet. Spaniards are learning that the Euro isn't the dream ticket they were sold.
Selective austerity - while real money is taken out of the economy at the bottom (as it were), those lucky guys at the top receive a personal service in the form of QE.
That schoolboy question of why we can't just print money and then we'll all be rich has been answered - we can print money but we still can't all be rich
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