The long term implications of last week’s budget

Many people have described last week’s budget as against the young and for the pensioners I think this miss's the glaring point that it was for me probably the most class based pro elite budget George Osborne has come to the house of commons with to date. The long term implications for this budget and what it could do to the economy could be wide and quite stark. I do think the grounds are being laid now for the next economic crisis around the globe and the UK will not be able to avoid this so much this time. China which has a huge shadow banking system worth an estimated 50% of GDP is very unstable and that isn’t starting to mention the USA with its huge debt overhang and the euro crisis which on the face of it seems like it has gone away although things are still not right across the single currency. We have seen austerity budget after austerity budget since 20011 from the coalition government and even on George Osborne’s own omission he has failed to eliminate the deficit this parliament which he promised to do. The reason why our loyal opposition is not making more of this you ask? Well they too are wedded to the same financial path of austerity as the Tories and the lib dems. They are all quite literally in this case all in it together. Some may think the recent "recovery" if you can call it that is cause for optimism but I’d be far more cautious personally. "The scars of 2008 remain and the UK economy is in big trouble with austerity and declining living standards here to stay. Below are five things about this year’s budget; a document which outlines a ‘recovery’ based on presumptions that, quite simply, aren’t going to happen 1. Low interest rates are setting the stage for another bubble just like the one that preceded the crisis of 2008. Yesterday Mark Carney, the governor of the Bank of England, criticised the BoE and his predecessor, Mervyn King, when he said that its almost exclusive focus on low inflation meant it had failed to also keep an eye on financial stability. In other words the BoE had no problem stoking bubbles with low interest rates if that meant it also kept a lid on inflation. Interestingly enough Carney also pointed out that “It doesn’t take a genius to see that similar risks exist today”. He noted how risks were brewing because of the current period of of ultra-low interest rates – historically without precedent – saying that this could breed “potential complacency and excessive risk-taking” in financial markets. Sound familiar? Near 0% interest rates are necessary for any growth at all in the UK at the moment but they are also creating similar conditions which led to the last financial crisis. 2. The OBR is plucking numbers from the air on projected productivity gains (again). The economy can grow for a while yet, especially if unemployment falls to 5-6%. Alongside big numbers entering work (and workfare) is however the unresolved (and often ignored) problem of falling productivity. If and when unemployment does fall as low as 5-6% productivity *will have* to increase for growth to continue. The Bank of England expects productivity (output per hour worked) to go up in the next quarter as does the Office for Budget Responsibility. Indeed the OBR is today saying that they anticipate 1.2% productivity growth in 2014 and 2.2% growth the following year. The only problem is that this’ is completely at odds with all the data since 2008 and all of the BoE’s predictions over the same period. Where do those numbers come from? My guess is that it’s a case of the OBR and the Bank of England collectively sitting on their hands and saying ‘productivity has to go up sooner or later, right?’ For more on why productivity matters for any prospective economic ‘growth’ check out the recent video we did for #NovaraTV 3. Its also making ridiculous claims on future wage growth. Sooner or later the Bank of England is going to have to increase interest rates. That will probably happen later this year and if wages are still not keeping up with inflation by then (as has been the case for the last six years), consumer demand - and growth – is likely to take a hit. If wages don’t grow this year and rates go up, even by half a percent, that has huge consequences for the economy. As I recently wrote on the LRB blog: “Late last year the bank reported that average outstanding mortgage debt remains high, at £87,000, and that any rate rise not accompanied by an increase in real wages would cause serious problems. The number of households ‘most at risk of financial distress’ would double to nearly one in six if their mortgage rates went up by 2.5 per cent and their incomes did not improve.” Wages have been in decline for six years. If it stays that way and interest rates begin to inch back towards their historical average (even that of the recent past) the government has big problems. Wage growth is now crucial and without it any increase in interest rates might prove politically difficult. Furthermore the projected increases in household consumption - around 2.5% between 2014-18 – make little sense if interest rates are going to go up even a few percent. 4. … and on exports. The OBR expects export growth of 2.6% in 2014, rising to 4.7% in 2015 and 5.0% in 2016. In 2012 exports of goods and services increased by 1.1% (with imports increasing by 3.1%), while in 2013 that figure was 0.8%. That was in the context of reasonable global growth with the US and the BRIC economies seeing more demand than they probably will after 2015. In spite of that the OBR is projecting increases in UK exports not seen in the last several decades. That is all within a context where one of the UK’s biggest exports - oil – is seeing falling output. The projected numbers on UK exports - averaging around 5% over the period 2014-18 – is utter nonsense and without precedent. Seen alongside falling North Sea output I would argue it is impossible. While industry surveys have been pointing to increased export orders for a while, Samuel Tombs, an economist at Capital Economics, claimed these have been “misleadingly upbeat . . . we would not place too much weight on them”. The OBR is making claims for the next half a decade on the back of confidence surveys and figures for very short period – it’s a bit like when your mate shows you a video of a 12 year old wonder-kid on YouTube saying they are going to be better than Cristiano Ronaldo. 5. …and yeah, on fixed investment. Business investment is still 26% lower than it was in 2008 and while there was a dramatic increase in business investment in the final quarter of 2013 – 8.5% – that was the outlier in the data, not the norm. The OBR is now confidently predicting that kind of growth in business investment not just for the next three months, or even the next year, but all the way through to 2018. Compare that to 0.7% growth in business investment in 2012 or, worse still, the 0.5% contraction in 2013. It’s a bit like saying that your best striker scored a hat-trick in the last match of the season and is therefore going to score 150 goals next year. Clutching at straws doesn’t do it justice. The UK, in spite of a massive currency devaluation in 2008, still has a major trade deficit and if there is any truth in this year’s budget it is the realisation that the UK is not going to become a net exporter any time soon. Alongside that massive trade deficit – and exports of goods fell in the three months to November last year – is a budget deficit of over £100 billion. The Treasury is now saying that that deficit will be eliminated by 2019 with a small surplus being run that year – a ‘return to normal’. This is of course complete nonsense: the UK has only run five budget surpluses since 1980 and that was with the bonanza of North Sea oil and the cash garnered from privatisation of, well, pretty much everything. It doesn’t take a genius to work out that budget surpluses - without outlandish projections of growth, investment and productivity gains – are impossible. Final point. This data states that by 2020 households will be as indebted as they were when the economy tanked it in 2007/08. Less ‘march of the makers’ more march of the mickey-takers." 5 things about this year’s budget came from the excellent Aaron Bastani Over at novara media on residence Fm every Friday afternoons. Always a top listen http://wire.novaramedia.com/2014/03/front-bubble-and-bluff-5-things-about-budget2014/

5 years into the crisis any signs of improvement ?

Some date the crisis to August 9 2007, the day it became clear that Europe’s banks were up to their necks in US housing debt. The ECB flooded markets with €95bn of liquidity. It seemed a lot of money then. We have since seen a lot lot more money pumped into the banking system to plug the huge gaps that will not go away. 5 years into one of the biggest capitalist crisis’s ever possibly eclipsing the great depression in the 30’s industrial output has still not picked up. There is no country in the world that this crisis has not affected in some shape or form, Be they strikes, demonstrations, cuts, austerity tax hikes everywhere is being affected to some extent. China is sufficiently alarmed by the flint hardness of its "soft-landing" to talk up trillions of fresh stimulus. The European Central Bank is preparing to print “whatever it takes” to save Spain and Italy. Markets are pricing in an 80pc chance of yet more printing by the US Federal Reserve in September or soon after. The world remains in barely contained slump. Industrial output is still below earlier peaks in Germany (-2), US (-3), Canada (-8) France (-9), Sweden (-10), Britain (-11), Belgium (-12), Japan (-15), Hungary (-15) Italy (-17), Spain (-22), Greece (-27), according to St Louis Fed data. By that gauge this is proving more intractable than the Great Depression. Investors were pulling money out of America’s $2.5 trillion money market industry in panic. This was the long-feared heart attack in the credit system, even if the economic malaise behind it did not become clear for another year. The original trigger for the Great Recession has since faded into insignificance. America’s house price bubble -- modest by European or Chinese standards -- has by now entirely deflated. Warren Buffett is betting on a rebound. Fannie and Freddie are making money again. Five years on it is clear that subprime was merely the first bubble to pop, a symptom not a cause. Europe had its own parallel follies. Britons were extracting almost 5pc of GDP each year in home equity by the end. Spain built 800,00 homes in 2007 for a market of 250,000. Iceland ran amok, so did Latvia and Hungary. The credit debacle was global. If there was an epicenter, it was Europe’s €35 trillion banking nexus. Stephen Cecchetti at the Bank for International Settlements concludes that debt turns “bad” at roughly 85pc of GDP for public debt, 85pc for household debt, and 90pc corporate debt. If all three break the limit together, the system loses its shock absorbers. “Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. Used imprudently and in excess, the result can be disaster,” he said. Right now it’s the working class that is being saddled with this mountain of debt and being forced to pay through what seems like endless austerity. This what we are living through now austerity is the norm now before the crisis it was a debt field credit boom which was unsustainable and many knew this but were unprepared to speak out. Marxists knew this as we understand the fundamental workings of capitalism. Karl Marx uncovered this in the 1800’s. Many modern economists turned to Marx when the financial crash happened saying ah ha Marx was right. They are no longer saying that as his analysis of capitalism was far greater than they can imagine and get their pro capitalist heads around. Their system is bankrupt and has no life left in it. It will continue but at the expense of the 99% the workers. It will drag itself with its claws to life again sucking the life out of workers for life. We must not let it bring itself back to life. As Marx correctly pointed out there is no “final crisis” in capitalism it will not collapse on its own it‘ll find a way to recover most likely at the expense of us, ordinary working people. It must be over thrown and only the working class has the power to do this. I read in the Telegraph today that even one of their writers is suggesting debt needs to be written off. We can fully support that that is one of the things we’re calling for. Make the rich pay, cancel the debt, Nationalise the banks and the commanding heights of the economy, and put controls on capital flows in and out of the nation as first steps towards changing society towards a socialist world... With extracts and references from http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9471018/Five-years-on-the-Great-Recession-is-turning-into-a-life-sentence.html

latest GDP figures make bleak reading for the government

The UK economy returned to modest growth in the first three months of 2011, official figures revealed today, following a shock decline at the end of last year.


Gross domestic product (GDP) - a broad measure for the total economy - grew by 0.5% in the first quarter of the year, following an unexpected drop of 0.5% in the final weather-hit quarter of 2010, the Office for National Statistics (ONS) said.


All this makes bleak reading for George OSbourne as he looks to re balance the economy. I think these figures clearly show a failiure to bring in growth for the UK. These figures include figures since VAT went up in January to 20% but dont account for teh oncoming savage spending cuts by the government. THe next quarters figures will be very interesting indeed.

In the figures we can see that construction took a big hit no doubt as a result of loosing many contracts for building schools projects and a stagnation in house building market.

All this confirms mine and many others thoughts that cutting our way out of a recession is never the way to go. George Osbourne and his tory pals have not learnt the lessons of history. Although this 0.5% shows growth it is only returning to what it was in the third quarter of last year. This is in affect a 6 month stagnation . Whatever spin these political types and media who do a good job of spinning them for them too there is no way these figures show the tories plans are working.

Labour of course have no reply on this whatever they say they would have only cut 2 billion pounds less this year and had no ideas for real growth either.

Time after time i remind people that capitalism is broken and you cannot reform the system. Only a over throw of the system to bring the heights of the economy into public ownership will fill the public purse with funds to reinvest in the services we so badly need.

Removing the economic power of the rich and redistributing wealth to the many would by my idea of making society a fairer society.

2011 with spending cuts ahead looks to be anotehr bumpy year for the British economy. With growing fears in the global market of the likes of Greece and Spain defaulting on its debts the fear of a crisis in the capitalist society is bound to spread.

Tories plans still not working

News today is telling us the British economy shrank by 0.5% in fourth quarter of 2010 instead of the 0.6% previously reported by the Office of National Statistics


Over the last three months of 2010, the total value of the goods the UK imported was £26.8bn higher than the total value of the goods it exported.

However, the UK exports more services than it imports, so the total goods and services trade gap is narrower, at almost £10.5bn.

The trade figures was released alongside the final revision of GDP for the fourth quarter of the year, which put it at -0.5%, slightly down from the previous estimate of -0.6%.


All this must look worrying news for George Osbourne and his tory friends inteh cabinet. It is even more worrying to those of us at the bottom of the scale who have no say in what happens at teh top. Decisions to cut spending now is looking increasingly foolish. No one is denying teh deficit has to be dealt with but these massive cuts on the working class which are far too disproportional in my view are simply unfair. As i've previously stated i'm against all cuts as a collection of tax evaders totalling roughly 120 billion pounds would more than cover our deficit. But will the tories do this ? i doubt it somehow, It would mean upsetting a lot of their friends in the city and we cant have that now. So the poor and the working class must suffer as usual. Figures like this just bring it home what the tories are doing to this country more harm than good that's for sure.

More figures like these will lead us back into a recession which i feel we're not too far away from now. Any minimal growth last year was carried over from before but now we're running on empty. As socialists we call on nationalising the banks and bringing them into workers ownership, public ownership. Not the semi nationalisation what happened with RBS in 2008 a total nationalisation of all the banks and demand they open their books for transparancy there is evidence that there is plenty of wealth sloshing around at the top lets see more of it used to protect our public services and stop this attack on the working class.

Coalitions plans clearly not working

So today the national office for statistics published its results of growth between October 2010 and December 2011 and reported that the UK's economy shrunk by a estimated 0.5% between those dates. a huge well done to the con-dems. your plan is successfully failing. Another quarter like that early 2011 and we will be back in recession. Fantastic work guys. Is this what they meant by change vote for change at the election last year ? must have been. MOre and more cuts and record VAT on items and rocketing inflation.

The tories have unveailed a time bomb now and i think they will struggle to get the economy going again. It seems as though they are obsessed with cuts and this shrinking of the GDP of the country will probably only encourage them to carry out more cuts more harder and deeper.

They think that cuts are the answer, well are they the answer so far ? i would strongly say not

what is their plan B if we do slip back into recession, carry on cutting ? god help us

from the bbc :
http://www.bbc.co.uk/news/