Osborn fucks up as Britain loses triple A rating

(53 Posts)
edam Sat 23-Feb-13 11:28:21

Osborne and Cameron said the triple A rating was the key test of their policies so now what? Any danger of them admitting they've got it badly wrong and screwed the economy?

somebloke123 Wed 27-Feb-13 17:05:41

I really can't be bothered ploughing through all this stuff. Can't you express yourself more succinctly?

ttosca Wed 27-Feb-13 13:02:09

George Osborne hasn't just failed – this is an economic disaster

Coalition austerity has delivered depression and a lost decade. Labour has to avoid locking itself into more of the same

It would be comic if the consequences weren't so grim. There is no economic failure, it turns out, which cannot be hailed by George Osborne as a vindication of the policies that brought it about. Faced with the decision by the credit agency Moody's to scrap Britain's AAA rating, the chancellor declared it was yet another reason to stick to austerity – and the "clearest possible warning" to anyone who might think of breaking with it.

No evidence from the real world, it seems, can divert Osborne and David Cameron from their chosen course. The pronouncements of agencies such as Moody's, which gave the US investment bank Lehman Brothers a ringing endorsement just as it was about to bring down the global financial system five years ago, shouldn't be taken too seriously in themselves.

But for Osborne and the coalition, safeguarding Britain's credit rating has been a central justification for the most swingeing programme of cuts and tax increases for 90 years. Along with slashing the deficit, cutting borrowing and bringing down debt within five years, it was a central test of market confidence that Osborne and the coalition set for themselves.

And they have failed on every single one. The structural deficit and debt targets have had to be abandoned, as austerity plans have been extended to 2018. Borrowing is now forecast to be £212bn higher than planned over this parliament. Moody's downgrade report gives a clue as to why that might be: "sluggish growth" is now expected to "extend into the second half of the decade" with a consequent "high and rising debt burden".

In other words, Cameron and Osborne have failed in their central goal of cutting the deficit and debt precisely because their austerity policies – combined with a refusal to get a grip on the banks, falling real wages and the boomerang effect of the eurozone crisis – are squeezing the life out of the economy.

"Sluggish growth" is a polite way of putting it. Britain isn't just facing the possibility of a triple-dip recession, after the economy shrank in five out of 10 quarters since the summer of 2010. It's now in a fullblown depression. We're no longer talking about the risk of a Japanese-style "lost decade". The country is in the middle of one, and it stands to be worse than Japan's in the 1990s, according to the Office for Budget Responsibility's own projections.

The economy is stagnating at best, delivering the second-worst performance of the G7 economies in the past two years – after Italy. There has already been a fall in living standards unmatched since the 1920s, with the average worker losing around £4,000 in real terms over the last three years. On current forecasts, real wages will still be at their 1999 level in 2017.

Now the falling value of the pound will intensify that squeeze, with little chance of the benefits for exports in a hollowed-out industrial economy where investment is still 15% below its pre-crash peak. That failure to invest, by corporations sitting on a £777bn cash mountain, has also fed into an alarming drop in productivity.

In these conditions, a fall in unemployment to 7.8% is treated as good news. But that has depended both on a sharp increase in involuntary part-time working and the productivity slump, which threatens to entrench lower living standards in the longer term – while the much-vaunted "rebalancing" of the economy has yet to materialise.

When you add in the cuts to core public services, tax credits, housing and disability benefits that will hit the poorest hardest, this isn't just an economic disaster. It's a human one measured out in blighted lives for years to come, delivered in the service of a programme that has already failed in its own terms – while shrinking the state and cosseting the corporate sector.

The Tories and their Liberal Democrat allies naturally still blame their predecessors' profligacy. New Labour must of course share the blame – along with the entire City-bedazzled political class – for promoting a deregulated, private debt-fuelled financial system which crashed and burned across the western world. But the claim that its own spending (with a deficit of less than 3% when the crisis hit) caused the crisis itself is an absurdity.

Polls show most people in Britain realise that, and increasingly oppose the government's reckless austerity. But without the unequivocal promotion of a decisive alternative, the risk is that falling living standards and deteriorating privatised services come to be seen as the new normal.

The shape of that alternative is clear enough: a large-scale public investment programme in housing, transport, education and green technology to drive recovery and fill the gap left by the private sector, underpinned by a boost to demand and financed through publicly-owned banks at the lowest interest rates for hundreds of years.

There's no evidence that extra borrowing for growth – as opposed to increased borrowing to pay for contraction, which the bond markets have barely blinked at – would lead to a confidence crisis. And the government already owns controlling stakes in two of Britain's biggest banks that it could use right now to boost lending and finance expansion.

Instead, ministers are arguing about how to sell off the 82% public stake in RBS, when even Margaret Thatcher's former chancellor Nigel Lawson wants it fully nationalised. Meanwhile the restive Tory right is pressing for still deeper cuts. Osborne is expected to announce some new infrastructure spending in next month's budget just as tax cuts for the richest and the corporate sector are about to kick in.

None of that is going to turn round the scale of the coalition's economic failure – which leaves Ed Miliband with a crucial choice. Even if growth picks up in the next couple of years, there's no prospect of a full recovery under the coalition. And after years of falling living standards, Labour's chances of re-election are clearly growing,

So far Miliband has backed a limited stimulus, slower cuts and wider, if still hazy, economic reform. Given the Cameron coalition's legacy and the cuts and tax rises it's planning well into the next parliament, the danger is that Labour locks itself into continuing austerity in a bid for credibility. As the experience of its sister parties in Europe has shown, that would be a calamity for Labour – but also for Britain.

Twitter: @SeumasMilne

m.guardian.co.uk/commentisfree/2013/feb/26/george-osborne-has-not-just-failed

ttosca Wed 27-Feb-13 12:59:05

someblock-

> When the wars ended, and as debt was paid off, public debt as a percentage of GDP went into a sustained decline. This happened pretty much automatically, as there wasn't much non-military public spending anyway.

> This isn't the case now. The public sector is massive and insatiable.

If you actually look at the chart for the 20th Century, the debt did indeed decline steeply after the wars, and then leveled off in the mid 1970s. It remained roughly the same until 2008, when the financial crisis hit.

Secondly, your statement: "The public sector is massive and insatiable." is a non-sequitor.

The chart shows debt, not public sector spending. As I pointed out, the debt skyrocketed after the financial crisis, not because of years of public sector spending.

> There are estimates of total national debt (public plus private and things like unfunded public sector pension liabilities) that approach 1000% of GDP, which puts us in 3rd place in the world behind the Republic of Ireland and Japan (just).

Which would be nonsense.

> Incidentally I would be rather more exercised about the prospect of major NHS reform if the UK was coming near the top of European league tables instead of round about number 15. But of course the NHS is the "envy of the world" isn't it so it can't possibly be changed.

It comes in number 14. You should also bear in mind that:

a) Before the Nasty Party came in to power, satisfaction with the NHS was at an all-time high.

b) Pound for pound, the NHS is better value than many private systems, like the American system.

Of course the NHS can be improved, but cutting funding is not likely to produce better outcomes.

---

It's also remarkable that some people complain about essential public services like health, education and pensions being 'unsustainable'. Rather, they're essential. If the state cannot provide health, education and pensions, then it is is failing as a state.

You might want to consider the fact that wealth inequality has reached such gross extremes that a small percentage of the population owns the vast majority of the wealth. Corporate taxes are being cut, and many corporations evade or avoid tax altogether. Tax avoidance and evasion together cost the treasury tens of billions of pounds per year - maybe even £100 billion.

The fact is, it's not that there isn't enough wealth in the world or the UK. We have never been richer. We have enough wealth to feed, cloth and educated every child in the UK. Instead we have a situation where the use of food banks has increased massively.

It's not because the UK is undeveloped that we're using foodbanks. It's not that we don't have enough food. Our economic system is just so insane that it has nearly ceased to function altogether. We are now mired in a decade of depression and unemployment.

Why not fight to ensure that everyone has access to the essentials in life, rather than making excuses for politicians and the wealthy to further enrich themselves?

somebloke123 Wed 27-Feb-13 11:31:38

It is no doubt true that debt as a percentage of GDP is more informative than its absolute value.

But that's only a small part of the story.

Rather than dating it from 1950 it may be useful to plot national debt since records began:

www.ukpublicspending.co.uk/spending_chart_1692_2013UKp_12c1li011lcn_G0t

This shows that our current debt level is not that high by historical standards.

However - look at the dates when our debt was at its highest: the first half of the nineteenth century, 1914 - 1931, 1938 - 1950.

These were periods around wars, when public spending was concentrated on the military. Up until the end of WW2 the state apart from that was small.

When the wars ended, and as debt was paid off, public debt as a percentage of GDP went into a sustained decline. This happened pretty much automatically, as there wasn't much non-military public spending anyway.

This isn't the case now. The public sector is massive and insatiable.

There are estimates of total national debt (public plus private and things like unfunded public sector pension liabilities) that approach 1000% of GDP, which puts us in 3rd place in the world behind the Republic of Ireland and Japan (just).

It will be very hard - perhaps politically impossible - to tackle this problem.

It seems to me we are heading for financial disaster. Under which party's watch is neither here nor there.

Our pension liabilities and generous health and welfare provision are totally unsustainable. No party will admit this as they will never win an election if they do. So they break election promises and tell lies.

Incidentally I would be rather more exercised about the prospect of major NHS reform if the UK was coming near the top of European league tables instead of round about number 15. But of course the NHS is the "envy of the world" isn't it so it can't possibly be changed.

www.healthpowerhouse.com/images/stories/press_release_general.pdf

NicholasTeakozy Tue 26-Feb-13 20:36:40

Public spending is rising because of Gidiot.

The changes to welfare benefits will end up costing more. But that's good, because most of it will come from local authorities, and profit multinationals.

The NHS is being quietly privatised without a vote in Parliament. These unelected entitled rich fuckwits have just destroyed 70 years of hard won rights. I rightly hold them in contempt, they are utterly corrupt.

ttosca Tue 26-Feb-13 20:22:07

> The debt is a problem but the bigger problem is the deficit. If we first tame the deficit then we can tackle the debt.

The debt is large but not a crisis, and it was not caused by 'three decades of public spending'. It was caused by the financial crisis of 2008.

> Interestingly you didn't show this graph from your beloved site:

> http://www.ukpublicspending.co.uk/downchart_ukgs.php?chart=G0-total&year=1900_2011&units=b&state=UK

Nothing's interesting about it whatsoever. That's public net debt total, not as percentage of GDP. That figure is not relevant because what is important is the size of our economy and hence our theoretical ability to pay back our debts.

Using the example which you yourself quoted from me a few posts up, a man who owes £1000 and is a multi-millionaire with a mansion is in much better shape than a homeless man without any income or any home and who owes £500. The reason being, as should be obvious, that the homeless man currently has no job and no assets and no chance whatsoever to pay back even a penny of the £500 he owes. On the other hand, the multi-millionaire can easily write a cheque or do a bank transfer and immediately pay off his debts without any trouble.

> But then Ttosca you are one of those champagne socialists who believe we don't have any debt problem in the first place and if there is a debt problem then it's the fault of the rich anyway.

You're one of those people who wants to exploit the financial crisis - caused by the rich - to scale back years of hard-won rights and the welfare state. You pretend you're concerned about the economy but really you'll just do or say whatever it takes to cut spending.

niceguy2 Tue 26-Feb-13 19:45:31

No as usual you are putting words in my mouth.

The debt is a problem but the bigger problem is the deficit. If we first tame the deficit then we can tackle the debt.

Interestingly you didn't show this graph from your beloved site:

http://www.ukpublicspending.co.uk/downchart_ukgs.php?chart=G0-total&year=1900_2011&units=b&state=UK

But then Ttosca you are one of those champagne socialists who believe we don't have any debt problem in the first place and if there is a debt problem then it's the fault of the rich anyway.

ttosca Tue 26-Feb-13 17:22:28

'nice'guy-

> Because what are we actually worried about right now? There's still no shortage of people who are willing to lend to us. The real worry is of course the interest rate we must borrow at. And unless we can tame our deficit and sort out our economy, we will be perceived as a higher risk than the likes of Germany/US etc and so our interest rates will reflect that.

Just give it up. Seriously. Just stop. You're embarrassing yourself. First you claim that the problem is with the accumulated debt over three decades, and then when it is pointed out that we haven't accumulated debt, you backtrack and say the real worry is borrowing costs.

Borrowing costs are based on a number of things, one of which is debt as a percentage of GDP. Whilst it is true that the debt has increased substantially since the 2008 financial crisis, it is not true, as per your previous statement, that the borrowing costs are rising as the result of three decades of accumulated debt.

Secondly, as for 'tam[ing] our deficit and sort out our economy', the precisely point is that we are not doing so. The austerity measures are harming the economy; the AAA rating is lost (increasing borrowing costs), the debt has risen since the Nasty Party came in to power, and growth is amongst the worst in the G20.

You still haven't grasped the very basic concept that 'sorting out the economy' doesn't simply equate to cutting government spending. Cutting spending during a recession can increase the deficit, thereby also increasing the total accumulated debt, thereby increasing borrowing costs.

Do you really not understand this or are you just being dishonest? I suspect you really don't care about the shape of the economy and are simply using the debt/deficit as a way to promote your ideological small-state agenda.

If that's the case, instead of lying to the forum, and maybe even yourself, why don't just come clean and say that you you want a much smaller state in principle. At least people like 'flatpack' are honest about their agenda. You seem to try to rationalise your agenda as 'sorting out the economy' and just come out with incoherent nonsense.

MiniTheMinx Tue 26-Feb-13 16:24:30

In the UK we had a few banks which needed bailing out but thankfully our government was big enough

No not thankfully.

If I was in the "business" of creating mickey mouse money not backed up by anything like deposits/savings or gold, lent you niceguy a wad of numbers on a screen then I quite rightly would be responsible for my own mess when you failed to cough up the debt in hard cash.

Banks make money out of creating debt......simple as. Did you also know that banks can deleverage? this is what has been happening and this is why they are not lending to business. Not because they don't have the money. So if they can wipe out mickey mouse money they can wipe out debt like the flick of a switch.

As for Gidiot we should march him off the premises.

97% of ALL money is debt and what is also worth noting is that the top 1% own 81% of all wealth globally.

So wipe out savings and pensions, I think not. Rather than socialising all banking risks it may have been cheaper to take back control of money supply, issue our own money and underwrite savings and pensions up to a modest value for individuals.

As it stands Gidiot's rich chums own you, everything you think you have and the ground you stand on.

PelvicFloorTrauma Tue 26-Feb-13 16:20:26

The rational given by the ratings agency is enlightening. Moody's was not questioning the need for an immediate and sustained deficit reduction, it was, in fact, expressing concern that debt reduction is slower than expected. The credit rating agencies have previously clearly said that abandoning our deficit reduction plan would definitely lead to a downgrade of our credit rating.

NicholasTeakozy Tue 26-Feb-13 16:17:01

The problem for the Icelandic government was the fact their banks failed and the government wasn't big enough to take on their bank's debts.

In the UK we had a few banks which needed bailing out but thankfully our government was big enough.

Sorry old bean, I'm going to have to break out the ROFLCOPTER. gringringrin

Like a true Neoliberal you neglect to mention the reason the Icelandic banks failed: Iceland let them fail, just as we should have. Yes, we'd have faced short term financial pain, instead of long term austerity like we now are.

You want facts? Here's a doozy: when New Labour got in in 1997 the deficit (debt to income ratio) was 42.7%. In 2007, just before the crash it was at 35.2%. In 2010 when the ConDems took over a growing economy it was 45%. In under three years Gidiot has increased that to 73.8%.

I'd love to see any facts you have to back up your spurious and specious claims but like most on the right, you're probably not able to.

niceguy2 Tue 26-Feb-13 15:57:27

Public net debt as percentage of GDP

No mate, I do think it is yourself which misses the point. Debt as a percentage of GDP may have been higher in the past but it's rather irrelevant now.

As I explained in another thread, you try going to the bank and telling them that ten years ago you earned £10k a year and had debts of £25k. And now you earn £50k and based on history you don't have a debt problem so that £20k loan you want shouldn't be a problem. As a percentage of your income it's way lower right?

And I'm sure your bank manager will simply tell you that what happened in the past is no longer relevant to their lending criteria now. And it's the rules they have NOW which we have to meet in order to borrow the money we need to keep the government running.

Because what are we actually worried about right now? There's still no shortage of people who are willing to lend to us. The real worry is of course the interest rate we must borrow at. And unless we can tame our deficit and sort out our economy, we will be perceived as a higher risk than the likes of Germany/US etc and so our interest rates will reflect that.

wordfactory Tue 26-Feb-13 14:39:03

George is a fule who set himself up for this one.
He cast himself as the protector of the triple A, in much the same way Gordon cast himself as the banisher of boom and bust.

So lads, how's it all working out for ya?

The reality is that we would definitely have lost the triple A with Balls' plans. And there was a chance we might not under Osborne's. Hey ho.

It's not a mad disaster. The FSE rallied last night no?

What it does show is how pathetic both sides are. The right having banged on about how preciousit was, now claiming it doesn't matter. And the left, having previously dismissed its importance, now claiming it the central plank of our economy.

How can any of this shower expect us to take them seriously?

ttosca Tue 26-Feb-13 13:48:23

> The debt problem WE have is the debt borrowed by successive governments over the last three decades.

Nope.

Public net debt as percentage of GDP:

www.ukpublicspending.co.uk/spending_chart_1950_2011UKp_12c1li011mcn_G0t

I don't know why you keep lying when the data is right there in front of you. It just makes you look stupid.

Over the last three decades - from 1980 to 2008 - public net debt remained roughly constant.

There is a sharp increase from 2008, caused by the financial crisis. The debt is still at a historical lowpoint.

> Blame someone else and don't let facts spoil your point.

lol. You've been pretty much wrong about everything on this forum for the past year or so. Apparently you've learned nothing, either.

niceguy2 Tue 26-Feb-13 09:49:18

You are getting confused mate.

The problem for the Icelandic government was the fact their banks failed and the government wasn't big enough to take on their bank's debts.

In the UK we had a few banks which needed bailing out but thankfully our government was big enough.

The debt problem WE have is the debt borrowed by successive governments over the last three decades. This debt is by definition public. You can't privatise this. And just what fraud are you talking about? The banks & institutions did not force our governments to borrow this money.

Yes Iceland's economy is growing nicely now but don't forget that they had an almighty crash which was painful to see and since their economy is small, a large growth rate is easier to achieve than with an advanced economy such as ours.

In short you are comparing apples to oranges. Typical lefty response. Blame someone else and don't let facts spoil your point.

NicholasTeakozy Tue 26-Feb-13 08:53:38

Gidiot admitting the deficit not all that.

Iceland has an economy that is growing at approx. 7%pa. They are jailing the fraudulent banksters whilst we shower ours with made up money.

Iceland have privatised the debt. Why should we, the people, pay the debts caused by a tiny minority? Why shouldn't they, the bankers and financiers, be forced to pay for their fraud? Oh wait, they donate to the Tories! <facepalm>

niceguy2 Tue 26-Feb-13 08:31:00

create a new pound, free of debt and interest free.

Ah yes...the magic wand solution. Problem with this is:

1) We would renege on our debts. How would you feel if you lent someone money in good faith and they turned around and decided not to pay you back? Our word would mean nothing. Our international creditors and by extension governments would go nuts. Remember how pissed off we were when Iceland said they couldn't/wouldn't repay Icesave account holders? And Iceland are just some tiny financially insignificant country. Not one of the biggest financial hubs in the world.

2) The monies repaid don't go to some fat banker counting his/her piles of money. They go into our pensions, investments etc. All of which would go down the toilets if we just walked away from our debts. So the people you'd be really hurting are the workers who are relying on pensions/savings.

3) Given our deficit is around £150billion per annum (give or take). Our debt repayments are £48 billion per annum, that still leaves us with £100 billion we need to borrow to make ends meet. And who the hell is going to lend us that if we've just walked away from our previous debts?

The result of your magic wand solution is destruction of savings/pensions and a £100 billion per year black hole which could only be plugged by slashing public services to the likes you've never seen.

You can keep your 'solution' thanks.

adeucalione Tue 26-Feb-13 06:59:01

Moody's full statement then we don't have to rely on selected excerpts, of which I am as guilty as anyone.

ttosca Mon 25-Feb-13 22:39:10

> You can argue that Osborne's austerity bloodletting isn't the cause of lack of growing debt,

Sorry, lack of growth and growing debt.

ttosca Mon 25-Feb-13 22:37:32

> You can certainly make an argument that austerity isn't working, but you can't really say that Moody's said that it isn't working, because they didn't.

What they actually said was that in light a lack of growth and growing debt (see the full statement), the chose to downgrade from AAA to AA1.

You can argue that Osborne's austerity bloodletting isn't the cause of lack of growing debt, but then you'd be stupid.

edam Mon 25-Feb-13 21:52:53

Nicholas's Huffpost article links to footage of a select committee - doesn't say which one or when but it's clearly Osborne appearing in front of a select committee in Portcullis House.

KarlosKKrinkelbeim Mon 25-Feb-13 20:16:30

The market consensus on this development would appear to be "meh".
the main consequence seems to be that George Osborne looks a bit silly. I do not, personally, plan to lose any sleep over this. Nor is it likely to make me vote Labour at the next election.

adeucalione Mon 25-Feb-13 18:15:48

The Huffington Post article you link to is quite interesting Nicholas, and I take your point that the total debt has increased. But I think you might be wrong about the deficit being 30% higher, and I can't find anything about GO admitting that he exaggerated the deficit?

NicholasTeakozy Mon 25-Feb-13 16:01:29

A Conservative writer blowing the Tory deficit myth apart.

From what I can find from whichever political viewpoint the deficit is slightly lower than when the ConDems got in, but the debt has increased from £840Bn to £1.3Tn.

ivykaty44 Mon 25-Feb-13 12:10:40

The real question out of this is if you think Osbourne is bad, do you honestly think Balls would do better?

No sadly I think he would do worse

we need something between the two, both are extreme ends of the spectrum and we want and need a more middle ground some growth and some spend, with some tightening of belts and cutting back on spending.

What we have is to much one way and if they lose in two years - we will be faced with too much the other way - which is scary

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