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Osborne's austerity hasn't worked, so he proposes more austerity. watch

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    (Original post by hazzer1998)
    And thats add to the national debt meaning that we borrow forever and we will never pay it off .... Don't you understand how basic economics works ?
    I'm just wondering what part of basic economics you've misunderstood. The rate at which it costs the UK government to borrow money is very low (currently the lowest in history I believe). This means that you can invest in things like infrastructure or education, which improve a countries productivity and long term growth, without incurring very much interest.

    I'm not saying this isn't a complicated matter, but on a basic level I don't think there's very much to it.
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    (Original post by dean01234)
    I'm just wondering what part of basic economics you've misunderstood. The rate at which it costs the UK government to borrow money is very low (currently the lowest in history I believe). This means that you can invest in things like infrastructure or education, which improve a countries productivity and long term growth, without incurring very much interest.

    I'm not saying this isn't a complicated matter, but on a basic level I don't think there's very much to it.
    If you were spending £28k a year but only earned £25k, was in £58k of debt and had to pay £2k a year in interest alone, would you still borrow money to buy nicer things simply because you were offered cheap credit?
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    (Original post by illegaltobepoor)
    No its not its because of central bank manipulation leading to a inflated stock market that is on life support. Since April 2015 we have been in recession.
    How is an inflated stock market and total output related? A recession is when there is a negative growth in output for two consecutive quarters. Unrelated to stock markets, or profit.

    (Original post by illegaltobepoor)

    What has really pushed the whole western economy over the head isn't China but a more complex problem.

    Thing is the base currency of the USD is dwindling and this is preventing the Federal Reserve in the ability to print more money though quantitative easing. The same thing is causing diminishing returns on any QE that the Bank of Japan do and the European Central Bank.
    QE is still happening in these countries at the same rate and it is not done to a target interest rate in the Fed Fund rate etc. Instead, a sum of currency is decided to be used in these market every quarter.

    (Original post by illegaltobepoor)

    All this cheap money has been used over the last 15 years to buy cheap Chinese rubbish. However I am afraid the currency war is going to come to a end soon and you won't see it coming until its too late.
    If we had a weak currency ("cheap money"), which entails a low exchange rate. This would be bad for imports - making these "cheap chinese rubbish' more expensive. If you watch Mark Carney's speech to the G8 he mentions the risk of falling into a currency war in emerging markets. Something that net importers (majority of the west) would not become part of as it would decrease the balance of trade in the current account.

    (Original post by illegaltobepoor)

    Basically we are 1 min until doomsday for the central bankers. The only option they have left now is QE infinity which causes hyper inflation and world wide civil unrest due to austerity measures.
    I don't know how to respond to that.

    (Original post by illegaltobepoor)

    So what is going to happen is this. In 18 days time George Osborne is going to announce some really devastating austerity cuts. They are going to be nasty and they are going to hit the poor the hardest.

    And as for students on TSR? Well lol your never be able to pay your debts back because when the economy crashes there will be no one to save it so expect a good 10-20 years of unemployment in the UK.
    Why on earth would an economy crash so hard as to lead to 20 years on unemployment. Wage stickiness cannot hold for 20 years and natural movements and correction will solve this without government intervention. The great depression lasted only 4-5 years.

    (Original post by illegaltobepoor)

    There is a reason I am a part time student without £50,000 of debt to pay back.

    But ...... It doesn't matter how wealthy or how debt free we are ...... we are all screwed!
    lol
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    (Original post by pol pot noodles)
    If you were spending £28k a year but only earned £25k, was in £58k of debt and had to pay £2k a year in interest alone, would you still borrow money to buy nicer things simply because you were offered cheap credit?
    Yes, because that money you borrowed you invested. Pretend this 3k debt you took out, you used to invest that could give you a return. You should do that whilst interest in low.

    The government does the same, but the investment is infrastructure leading to GDP increases and higher tax receipts in the future.
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    (Original post by otester)
    We haven't actually had very much austerity at all, the cuts have been very mild.

    What's really needed is a reduction in regulation, to kick start the economy again, but the big corporates will never allow that.
    Why do big corporations want more regulation? Corporate lobbyists always lobby for less regulation.
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    (Original post by Jamie S)
    Yes, because that money you borrowed you invested. Pretend this 3k debt you took out, you used to invest that could give you a return. You should do that whilst interest in low.

    The government does the same, but the investment is infrastructure leading to GDP increases and higher tax receipts in the future.
    You're in small company I'd wager. Few people would risk their own personal finances the way they demand the government risks everyone else's. Having a debt over twice your income and spending almost a 10th of your income on interest is a ludicrous situation to be in, regardless of how cheap credit is.

    And in this case a large return isn't guaranteed, a lot of the extra borrowing is simply going to pay back interest on the existing debt and much of it is also spent on lifestyle consumption expenses that are certainly not an investment.
    Cutting back on expenditure is just as viable a way to to free up cash in a budget.
    The likes of Japan and Spain are also a warning tale of the folly of government spending cheap credit for the sake of spending cheap credit.
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    (Original post by pol pot noodles)
    You're in small company I'd wager. Few people would risk their own personal finances the way they demand the government risks everyone else's. Having a debt over twice your income and spending almost a 10th of your income on interest is a ludicrous situation to be in, regardless of how cheap credit is.

    And in this case a large return isn't guaranteed, a lot of the extra borrowing is simply going to pay back interest on the existing debt and much of it is also spent on lifestyle consumption expenses that are certainly not an investment.
    Cutting back on expenditure is just as viable a way to to free up cash in a budget.
    The likes of Japan and Spain are also a warning tale of the folly of government spending cheap credit for the sake of spending cheap credit.
    Government finances are very different to personal finances and national debt is not twice GNI.

    I agree with you that austerity is important. However, it is important to consider examples such as Greece and Italy. Both had programmes of austerity where the fiscal multiplayer was greater than one due to idle factors. This meant for every €1 reduction in government spending, there was a greater than €1 reduction in real GDP. This meant that austerity didn't work, it just caused a economy to shrink faster than the rate of austerity. Creating a cycle of depression. Granted the UK economy has less idle factors than Greece and Italy had. I am for austerity, much like you - however I am playing devil's advocate in a situation where nothing is clear cut.
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    (Original post by pol pot noodles)
    If you were spending £28k a year but only earned £25k, was in £58k of debt and had to pay £2k a year in interest alone, would you still borrow money to buy nicer things simply because you were offered cheap credit?
    Buying nice things... I don't think thats the suggestion that I was making at all, now was it?
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    (Original post by pol pot noodles)
    If you were spending £28k a year but only earned £25k, was in £58k of debt and had to pay £2k a year in interest alone, would you still borrow money to buy nicer things simply because you were offered cheap credit?
    It's more like a someone who owns a restaurant selling the dish washers to pay of debts.
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    (Original post by Jamie S)
    Government finances are very different to personal finances and national debt is not twice GNI.

    I agree with you that austerity is important. However, it is important to consider examples such as Greece and Italy. Both had programmes of austerity where the fiscal multiplayer was greater than one due to idle factors. This meant for every €1 reduction in government spending, there was a greater than €1 reduction in real GDP. This meant that austerity didn't work, it just caused a economy to shrink faster than the rate of austerity. Creating a cycle of depression. Granted the UK economy has less idle factors than Greece and Italy had. I am for austerity, much like you - however I am playing devil's advocate in a situation where nothing is clear cut.
    Why? We as a national should not just arbitrarily throw constraint out of the window and spend like drunken sailors just because.
    National debt is over twice government revenues.

    Italy, I once read on the BBC, has in recent history been very fiscally disciplined. Until recently they always had an operating surplus and their budget deficits have been down to interest payments on their debt, which should serve as a warning.
    Government economic stimulus also needs to be short and sharp. There'd be very little point in a large scale government infrastructure project as a means of shocking the economy back into life since we live in a country where it takes the government 20 years to build a railway line. I'd be in favour for easing austerity for increased spending on education, which delivers more bang for your buck as a long-term investment in a knowledge-based economy, but overall I think austerity is the best path for us to follow.
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    (Original post by dean01234)
    Buying nice things... I don't think thats the suggestion that I was making at all, now was it?
    Pretty much. Infrastructure improvements= buying nicer things. Those nicer things may help you get a promotion through increasing your productivity, or they may not. Infrastructure is not a guaranteed safe investment, just ask Japan and Spain.
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    (Original post by ChaoticButterfly)
    It's more like a someone who owns a restaurant selling the dish washers to pay of debts.
    It's maybe arguably vaguely like your analogy, but since all I did was scale down the government's finances to a smaller size, I'd say my analogy is more accurate, since it's what's actually happening.
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    (Original post by pol pot noodles)
    It's maybe arguably vaguely like your analogy, but since all I did was scale down the government's finances to a smaller size, I'd say my analogy is more accurate, since it's what's actually happening.
    I think a government's finances is quite a bit different to that of a household. Like it's possible to stop spending on something and increase the government debt. If the cuts cut something that has a fiscal multiplier of more than one you increase debt for example. There are all kinds of factors governments need to consider families do not.
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    (Original post by ChaoticButterfly)
    I think a government's finances is quite a bit different to that of a household. Like it's possible to stop spending on something and increase the government debt. If the cuts cut something that has a fiscal multiplier of more than one you increase debt for example. There are all kinds of factors governments need to consider families do not.
    Fiscal multipliers are the relationship between government spending and GDP. As the government is able to tax around a third of GDP, it stands to reason that a policy would have to have a fiscal multiplier of 3 to be an instant benefit to government spending of such that you describe. Infrastructure spending as an example has a multiplier of around 1.5. There are no cuts that would instantaneously result in such a drop off of economic activity as to actually reduce government revenues even more than the amount that was cut.
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    (Original post by hazzer1998)
    And thats add to the national debt meaning that we borrow forever and we will never pay it off .... Don't you understand how basic economics works ?
    I do.

    When you invest in infrastructure it has a pay off in later years that is one of the main ways to grow an economy in the short and medium term by the works and the long term by the benefits.


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    (Original post by pol pot noodles)
    Fiscal multipliers are the relationship between government spending and GDP. As the government is able to tax around a third of GDP, it stands to reason that a policy would have to have a fiscal multiplier of 3 to be an instant benefit to government spending of such that you describe. Infrastructure spending as an example has a multiplier of around 1.5. There are no cuts that would instantaneously result in such a drop off of economic activity as to actually reduce government revenues even more than the amount that was cut.
    So infrastructure benefits the economy by more than the amount that you spend on it, interesting considering you were trying to tell me that it doesn't provide benefits.
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    (Original post by dean01234)
    So infrastructure benefits the economy by more than the amount that you spend on it, interesting considering you were trying to tell me that it doesn't provide benefits.
    I didn't say that in the slightest. I said it's not a guaranteed money maker for the treasury.
    GDP ≠ Government revenues. I clearly explained that in the post you decided to cherry pick the quote from.
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    (Original post by pol pot noodles)
    I didn't say that in the slightest. I said it's not a guaranteed money maker for the treasury.
    GDP ≠ Government revenues. I clearly explained that in the post you decided to cherry pick the quote from.
    You actually didn't explain that. You said that investment in infrastructure does not always improve productivity (I agree), then however you said that on average every £1 spent on infrastructure brings a £1.50 benefit. I'm just confused as to which you actually mean.

    Also GDP is an important factor in government revenue. Why discount its relevance?
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    (Original post by dean01234)
    You actually didn't explain that. You said that investment in infrastructure does not always improve productivity (I agree), then however you said that on average every £1 spent on infrastructure brings a £1.50 benefit. I'm just confused as to which you actually mean.

    Also GDP is an important factor in government revenue. Why discount its relevance?
    I said infrastructure projects improve GDP, but that doesn't always translate into increased government revenue. GDP is indeed an important factor, but not the only factor. Spending £100 million on a bridge may take twenty years for any increased GDP to actual yield a profit for the treasury if it does at all, which is obviously not helpful if we're talking about cutting the deficit now.
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    (Original post by pol pot noodles)
    I said infrastructure projects improve GDP, but that doesn't always translate into increased government revenue. GDP is indeed an important factor, but not the only factor. Spending £100 million on a bridge may take twenty years for any increased GDP to actual yield a profit for the treasury if it does at all, which is obviously not helpful if we're talking about cutting the deficit now.
    True enough but the argument was if the deficit had already been cleared I would want large borrowing for infrastructure spending for growth.

    Also it does provide short and medium term growth.

    Short from the jobs

    Medium from the company profits who built it and of course most growth comes gradually not at a distant point.

    Long is simply when the benefit of the infrastructure has already paid the cost and you just rake the money in.




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