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The UK economy isn't growing so well, and we won't have eliminated the structural benefit as soon as they'd have liked This is largely by choice. The UK govern

The UK economy isn't growing so well, and we won't have eliminated the structural benefit as soon as they'd have liked This is largely by choice. The UK government is on the forefront of the austerity crowd. They cut spending and fire people. Is it any surprise that GDP (which is basically the sum of all spending) is on a disappointing trajectory? In a way, the UK government is doing economics a huge favor by acting as a laboratory that implements unneeded austerity. The proponents of austerity predicted an upswing of activity as a result. I would say their theory has been proven wrong by now.

peteretep 15y ago
As with all economics, anyone suggesting they know with any certainty at all how something is going to turn out is trying to separate you from your money ;-) The Economist has a pretty good article this week looking at just this: http://www.economist.com/node/21541021 http://www.economist.com/node/21541021 - I'm not sure if the full text is available to non-subscribers. Their opinion seems to be that the austerity plan was basically right, but it could now be loosened a little to encourage growth.
- nhaehnle 15y ago
  A quote from the article: Left untackled, the budget deficit, which at 11.2% of GDP in 2009-10 was larger than those of almost all other rich countries, would soon have undermined confidence in the government’s ability to service its public debt. This is the crucial flaw in the article's argument. The UK government is monetarily sovereign, and therefore always able to service its debt. That pretty much destroys the article's argument in favor of austerity. Note that, unlike economists, most bond traders seem to actually understand the importance of monetary sovereignty. This is why you now hear talks about Germany's debt possibly being downgraded, but nothing about the UK or Japan, and not any more about the US (where the only thing that was ever in question was the government's willingness to pay, not its ability).
  - peteretep 15y ago
    > This is the crucial flaw in the article's argument. The UK government is monetarily sovereign, and therefore always able to service its debt. That pretty much destroys the article's argument in favor of austerity. This is almost true technically, but not true how it matters. In order to service "unserviceable" debt, they need to cause inflation. Expected inflation gets priced in to bond yields, and inflating your way out debt ends up being not very useful if you will then need to go back to the money markets at some point in the future. But actually, your central point is also not quite true: the UK government is NOT monetarily sovereign - in theory anyway - because it's the BOE who sets the money supply in practice. And it's for this reason that they have an inflationary target. Can the government intervene? Almost certainly. Will this further fuck market confidence and drive up bond yields? Yes. Do you get to a point where no-one will buy government bonds in GBP rather than USD? Absolutely.

peteretep 15y ago

As with all economics, anyone suggesting they know with any certainty at all how something is going to turn out is trying to separate you from your money ;-) The Economist has a pretty good article this week looking at just this: http://www.economist.com/node/21541021 http://www.economist.com/node/21541021 - I'm not sure if the full text is available to non-subscribers. Their opinion seems to be that the austerity plan was basically right, but it could now be loosened a little to encourage growth.

nhaehnle 15y ago
A quote from the article: Left untackled, the budget deficit, which at 11.2% of GDP in 2009-10 was larger than those of almost all other rich countries, would soon have undermined confidence in the government’s ability to service its public debt. This is the crucial flaw in the article's argument. The UK government is monetarily sovereign, and therefore always able to service its debt. That pretty much destroys the article's argument in favor of austerity. Note that, unlike economists, most bond traders seem to actually understand the importance of monetary sovereignty. This is why you now hear talks about Germany's debt possibly being downgraded, but nothing about the UK or Japan, and not any more about the US (where the only thing that was ever in question was the government's willingness to pay, not its ability).
- peteretep 15y ago
  > This is the crucial flaw in the article's argument. The UK government is monetarily sovereign, and therefore always able to service its debt. That pretty much destroys the article's argument in favor of austerity. This is almost true technically, but not true how it matters. In order to service "unserviceable" debt, they need to cause inflation. Expected inflation gets priced in to bond yields, and inflating your way out debt ends up being not very useful if you will then need to go back to the money markets at some point in the future. But actually, your central point is also not quite true: the UK government is NOT monetarily sovereign - in theory anyway - because it's the BOE who sets the money supply in practice. And it's for this reason that they have an inflationary target. Can the government intervene? Almost certainly. Will this further fuck market confidence and drive up bond yields? Yes. Do you get to a point where no-one will buy government bonds in GBP rather than USD? Absolutely.