Refunds to consumers of bank fraud doing more to stimulate economy than govt. initiatives - says Commie Financial Times

[ttosca]

As I've said over and over... the problem with the economy is on the demand side, not the supply side.

Further deregulating businesses will not stimulate the economy, it will make the situation worse, as consumers will be even more insecure about their financial future.

Put real spending money in to people's hands and invest in infrastructure projects instead.

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Refunds of mis-sold payment protection insurance are doing more to boost Britain?s stuttering economy than government initiatives to stimulate growth, official and bank data show.

The UK?s five biggest banks have set aside almost £9bn to cover claims for selling their customers loan insurance that was either not needed or could not be used, in one of the most costly consumer scandals on record.

www.ft.com/cms/s/0/47b6a6a2-df0f-11e1-97ea-00144feab49a.html#axzz22lrxyjbn

'Thanks to the Tory clowns'

Hold on, is there more than one?

ttosca, Borrowing costs are not set by a ratings agency as you imply, instead they are set by real organisations investing real money in ascending price bond auctions. This means that the cost of borrowing is a real reflection of the perceived risk rather than an artificial rating. I know how particular you are about statements that other posters make being backed up with facts, so I hope you don't mind me correcting the false impression that your post gives.

There is no easy way out of this deficit crisis - all three main parties would have implemented cuts in services if they had the chance. Blaming Tory 'scum', 'clowns' or whatever insult you are currently using is so lazy and denies the economic reality.

'real organisations investing real money' - yeah, like the libor rate... Turned out that was a tissue of lies.

All three parties would NOT have done exactly the same. The Tories insisted they could eliminate the deficit by the end of this parliament. Ho ho very ho. Even they have to admit this is now impossible. We would have been far better to go for a balanced approach aimed at achieving growth and financial stability - which is what Labour was calling for. The Tories - those idiots who gave us the budget omnishambles - cut too far and too fast and have driven us into a double dip recession where we are plagued by a toxic combination of rising inflation, unemployment, under-employment (people who can only find part-time work when they need full-time) and pay cuts or freezes - which are cuts in real terms given inflation.

The difference in reality of the cuts proposed between what the Tories said versus Labour at the last election were frankly small potatoes.

In fact it's become obvious to everyone that the coalition have been unable to cut as hard or as deep as they wanted. In fact they've pretty much only managed what Labour proposed.

My point is that best case you can argue is that the Tories have pretty much done what Labour have said. Maybe a few taxes would have been different but are you seriously suggesting a Labour budget would have been without flaws? They'd have just been different flaws.

With that in mind and the wider EU debacle I reckon the same double dip would have happened, the same financial scandals etc. In other words we'd be pretty much where we are now.

I agree the coalition have so far failed to deliver and failed to inspire. But I don't think Labour would have done any different. Do you?

edam,

'real organisations investing real money' - yeah, like the libor rate... Turned out that was a tissue of lies.

What are you saying - that government bonds are not really bought and sold in bond markets? Or that their price is fixed?
If you believe the former then you are nuts and would be better off on a site discussing 9/11 conspiricy theories or something like. The latter is not really possible because of the way that the bonds are sold.

As I stated, all three parties would have made cuts and the difference between the declared policy at the last election was very small. No political party would have been able to insulate us against a world wide slump as you seem to suggest. There is no easy way out of this mess.

we are plagued by a toxic combination of rising inflation, unemployment, under-employment (people who can only find part-time work when they need full-time) and pay cuts or freezes

Inflation is currently only slightly higher than is desirable, unemployment has just fallen by 46,000 and pay freezes are inevitable under the economic circumstances. But don't let the facts get in the way of your frothing.

[[http://www.newstatesman.com/blogs/politics/2012/08/exclusive-osbornes-supporters-turn-him even the economists who originally backed Osborne have now realised we need to change course] Only ONE of the 20 who praised his plans is still willing to claim he's pursuing the right course.

here

As for Boris, there is more joy in heaven over one sinner who repenteth... or one member of the Tory party prepared to face the facts.

Edam, there was an article on ConservativeHome which comprehensively demolished the New Statesman's fantasy claims. I'll see if I can find it for you.

It always amazes me when people on here post links to something like the New Statesman (or the Daily Telegraph for that matter), as if it proves their point. The very idea that these articles represent an objective test of the truth about a situation is frankly ridiculous - all of those publications have a political agenda and a lot of what they print is merely propaganda.

edam, I admire your tenacity in sticking to the party line - you must be one of a dwindling band. I don't know why you have so much confidence in what the Labour party says it would do if it had the chance. The last Labour government caused of a lot of the mess that we are now in.

amicissima-

Sounds great. How are we going to do this? I hear lots about 'investment' but little detail on what we should invest in and where we will find the money to do it (apart from the tired old 'tax the rich b**ds' or 'prevent tax avidance', which, even if it were practical, would produce peanuts in terms of what we need).

Taxing the rich and preventing tax avoidance are perfectly reasonable and practical. The problem is that there isn't the political will to do so. That's not surprising, given that 50% of Tory funding comes from the City of London corporation.

Conservative estimates of the amount of money recoverable from going after tax avoiders and evaders (either by closing loopholes or prosecuting evaders) is in the low tens of billions. This is a huge amount, given some of the disastrous and harmful ConDem policies put in to place in the name of saving tens or hundreds of millions.

The only person I can see consistently pushing for actual projects: a new airport, 'Crossrail 2, more [Thames] river crossings, a massive house building programme' - is Boris Johnson and, as far as I am aware, he is not a member of the Labour Party. (Yes, his ideas are London-centric, probably because he's the Mayor of London.)

This is not true at all. The unions have been calling for investment for quite some time now. Here is a list of leading Capitalist economist calling for a change from 'Plan B'

No, really, George Osborne - here's your plan B

More economists join the revolt against austerity.

"There is no plan B," declared George Osborne in October 2010, as he slashed public spending to reduce the deficit. He promised that the plan would create "a platform for economic stability".

But as time has worn on, and the UK has plunged into a double-dip recession, more and more experts are urging the Chancellor think again. (This week's New Statesman cover story has nine of 20 who signed a letter in support of Osborne rethinking their positions.)

Now, the Guardian has repeated an exercise done by the New Statesman in October last year and asked leading economists what their Plan B would look like. (They asked seven, including Robert Skidelsky. We asked nine, including Robert Skidelsky).

www.newstatesman.com/blogs/economics/2012/08/no-really-george-osborne-heres-your-plan-b

Ah. I didn't see edam's article.

The NS article I posted is not the same, although it is makes a similar point.

ElBurro-

ttosca, Borrowing costs are not set by a ratings agency as you imply, instead they are set by real organisations investing real money in ascending price bond auctions. This means that the cost of borrowing is a real reflection of the perceived risk rather than an artificial rating. I know how particular you are about statements that other posters make being backed up with facts, so I hope you don't mind me correcting the false impression that your post gives.

OK. Point taken, if true, and thank you.

There is no easy way out of this deficit crisis - all three main parties would have implemented cuts in services if they had the chance. Blaming Tory 'scum', 'clowns' or whatever insult you are currently using is so lazy and denies the economic reality.

The economic reality is that public spending is neither the cause of the crisis nor the cause of the deficit.

What is happening is that the Tories see the crisis and recession, which has caused a large deficit due to a loss of tax receipts, as a way of shrinking down the size of the state and enacting more neo-liberal policies of privitisation and cuts in public spending.

In fact, there is no conceivable way you can balance the budget 'structural deficit' by simply cutting spending. The UK would end up like Zimbabwe. The only way to 'fix' the budget is to

a) Bring back growth by stimulating the economy
b) Bring back demand by putting money in to people who will spend it and not hoard it
c) Regulate the economy and financial sector!

ttosca,

I think that most people, apart from a few of the right wing nutters on here and elsewhere, would favour a Keynsenist approach if it were possible. The major problem that we have with this approach is that the last government (Brown) ran up a structural defecit during an economic boom - when if it had followed Keynes it should have been running a small surplus (like Labour did in the late nineties).

If we start to borrow more to stimulate the economy the cost of borrowing will rise. As I pointed out, the borrowing cost is set using real money and therefore is a 'real' measure - it is quite different to the likes of me and you spouting off on message boards about what should happen. The borrowing cost represents confidence in our ability to pay money back at some point in the future - really confidence in the government's ability to manage the economy competantly.

I think that we agree that the deficit must be tackled because it is unsustainable. We have discussed ways in which we could reduce the deficit without affecting growth. So far we have had the following suggestions;

• Take more money from the banks via taxation but most realise that this would affect growth
• Stop paying PFI liabilities - too ridiculous to consider
• clamp down on tax evasion - small potatoes and some effort being made already
• raise taxes - already done (e.g. VAT) but has a negative effect on growth

Do we have any others?

ElBurroSinNombre

• Cut taxation for all businesses (boosting international competitiveness), turn Britian into a tax haven and encourage as many overseas companies to open factories and offices here as possible.

Shock horror judgey at the notion of cutting taxes for companies. Tax them til the pips squeek I tell you. Capitalist barstewards!

Love Ttosca's bizarre claim that public spending hasn't caused the deficit.

Deficit is what you get when your public spending is higher than your tax take. It is, by definition, caused by public spending! Labour spent more than they took in taxes every single year from 2001 onwards. The financial crisis didn't hit the books until 2007! By 2005 Labour were spending £25Bn a year more than they were taking in taxes!

Jesus wept. With this level of denial it's no wonder you cling to communism as a solution. And what's so lovely is you cite Zimbabwe as a reason not to cut spending, when Zimbabwe's problems have been caused by Marxist ignorance of fiscal probity.

flatpack We can go further than that. Labour were fire hosing far more than you say around - just think of all that juicy PFI debt swilling around the system (Reckoned on being around £130 billion) - most of it accrued under the watchful eye of Gordon Brown. The figures you quote are only what is declared by the government - there is plenty of off-balance sheet activity augmenting that.

Anyone who thinks that communism is a recipe for anything other than repression, stagnation and the gulags is a fool.

Same argument I've seen here many times.

Interesting BBC interview yesterday to Lib.Dem politician. Something like:
" Our deficit has grown since April - due to no growth and you still think we should stick to austerity?"

Answer was a muffled - what else can we do?

Infrastructure, house building is suggested as a way of renewing employment and boosting economy. British Car industry is doing well.

Surely some investment in construction or manufacturing is needed - either state boosted or banks lending?

No growth surely answers those posters who insist we must cut back and not inject some cash to boost some industrious areas of the economy. Contrary to their belief - the books are not balancing that way!

I don't think anyone is arguing that we don't need investment. The problem is where do we make cuts to get the funds available and what do we invest in.

Whilst it's easy to say 'let's build houses!', the reality is that even if the government magic'ed a pot of money tomorrow, builders will need to find land to buy, planning permission must be sought. And without doubt objections will be made and local protests mounted. The likely result is that it will be 18 months maybe even 2 years before a brick is laid.

That's not to say we shouldn't invest in the right things. But just that we need to be realistic that investments are long term bets, not something which will kick start our economy tomorrow.

And the reality is that we need the cash from somewhere. So we either make cuts or borrow more. And we all know the latter isn't a great idea anymore.

rosajam What's the difference between subsidising industry and cutting its taxes?

Also, the 'austerity' program has hardly started. We are still borrowing colossal amounts of cash each month and taxes on business and individuals in work have hardly altered. The cuts that have happened so far were little more than pruning some leaves off a tree when, in reality, a chainsaw needs to be taken to the branches.

A house building program would be a very sensible idea but reform of the planning system would be more welcome allowing house builders to pick up land for private dwellings at a cost far below its current inflated prices. As I've said before, the most expensive bit of house construction isn't the bricks and mortar; it is the permit to build on that land in the first place. I'm going off on a tangent here, but it is this mechanism which is the driver behind the rampant house price inflation we've seen and which is partly responsible for holding back the economy.

Finally, governments tend to have an awful track record of picking winners. Look back at some of the nationalised industries that we've had. Barely a success amongst them. (Please no one mention railway and utility privatisation, these were botched and I could write whole essays on what the government did wrong when it sold them off!).

niceguy2

I don't think anyone is arguing that we don't need investment.

I am. Government 'investment' - isn't. Government spending (on new rail lines, for example) can a tool to allow businesses to develop but it is not, by itself, a solution to a depression.

The solution to a depression is, in this case, about 15-20 years of low growth and high debt repayment. A generation of misery, to pay for three generations of tax-and-spend politicians (mostly, but not all, Labour).

The problem is where do we make cuts to get the funds available and what do we invest in.

That's a second problem, of course. Taking out loans to build stuff doesn't create anything except debt.

Hilarious lack of basic understanding of economics from flatpack.

Anyway, from today's Torygraph:

Kate Barker: Osborne's austerity could be 'self-defeating?

The Government?s austerity programme risks becoming ?self-defeating?, the Chancellor has been warned by Kate Barker, the most senior economist yet to intervene in the debate over growth.

Ms Barker, a former Bank of England rate-setter who is spoken of as a potential Governor, said George Osborne had left himself no ?room for manoeuvre? to combat the recession by insisting that he can not budge from his debt and deficit reduction targets.

?There is a risk that the fiscal mandate, rather than a useful discipline, will become a straitjacket,? she added.

In an explosive report for the think-tank CentreForum, Ms Barker also called for changes to the Bank?s inflation target, raised questions about the effectiveness of more quantitative easing (QE), and said the Treasury?s reforms to financial regulation were ?flawed? and would overburden the Bank.

Mr Osborne is already under pressure from economists and business leaders to relax his spending cuts and tax rises to boost growth. Yesterday, Adam Posen, an outgoing member of the Bank?s rate-setting Monetary Policy Committee (MPC), joined the Chancellor?s critics by calling on him to use Britain?s record low borrowing costs to increase targeted spending.

?As long as interest rates are as low as they are in the UK, it doesn?t make any sense to sit on the money,? he said.

Cont'd...

www.telegraph.co.uk/finance/economics/9493022/Kate-Barker-Osbornes-austerity-could-be-self-defeating.html

It depends flatpack. Government's can make sensible investments which can benefit us in the future. So for example a high speed rail link would be great for creating jobs in the short term and provide long term benefits in terms of making trade easier.

But the issue is can we trust the government to pick the right things to invest in because politician's are usually influenced by short term electoral gains than long term economic gains.