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Top brass in the U.K.'s governing Conservatives give a round of interviews ahead the party's...

Top brass in the U.K.'s governing Conservatives give a round of interviews ahead the party's annual conference this week, with David Cameron telling the BBC that Britain must find another £16B of spending cuts for 2015-16. Cameron also threatens to veto the next EU budget if it's not to his liking, and says it should be split into two - one for the eurozone and one for the other countries. (Telegraph interview; George Osborne interview)
Comments (19)
  • A debt spiral in action. Coming to a country near you. Wait until this hits the US. Everyone will be so shocked. How could this happen? Etc.
    7 Oct 2012, 09:43 AM Reply Like
  • I sure am glad that America has Ben steering the economy so nothing bad can happen here. QE forever and nothing to fret about.
    Sleep well America.
    7 Oct 2012, 12:10 PM Reply Like
  • It is often the refrain of American free market fundamentalists to caution against the excessive public spending ways of social democratic EU States. By contrast, in the UK under its Conservative lead coalition government, we have the example of harsh austerity during a period of national, regional and global recession or very weak economic performance generally.

     

    I would argue that the current UK experience should caution Canada and the US against trying to solve fiscal imbalances through gutting the public sector in a weak economic environment. A contracting public sector in such circumstances merely serves to further contract the general economy, discourage private sector investment and spending and generally accelerate the general national economic contraction and all this together, besides its other negative effects, further reduces tax revenues thereby increasing the fiscal deficite further.
    7 Oct 2012, 01:59 PM Reply Like
  • bob

     

    Fiscal stimulus presumes you have the room to take on the debt. I cannot speak for GB but the US really looks to be too far over the skis. We have $16 Trillion in direct debt and obligations that look to be over $100 Trillion. We are the least ugly of all the ugly step sisters right now but investors are moving money away from the US as they know we are a bad investment. The proof is in the pudding. There are not enough buyers of our debt w/o the FR stepping in.

     

    When the debt becomes too large the servicing of the debt becomes the biggest expense. That brings on a debt spiral where the servicing of the debt takes up a lot of the budget so you have to cut spending to fund the servicing. And down you go. Layoffs and cutting pensions. Riots in the streets. I wonder when that has ever happened?

     

    Our interest rates at levels we will likely not see the rest of our lives. Servicing costs will eventually go up or we can drive inflation instead. That is always a refreshing hope and change that our poor and middle class can look forward to.
    7 Oct 2012, 02:47 PM Reply Like
  • Thomas,

     

    I hope that we both could agree that there are no options open today for the US (and for a lesser degree, Canada) that are low pain and risk free. Unbridled and ill deployed fiscal stimulus would over time have the impacts you describe and would not have short and midterm benefits commensurate with those longer term risks to which you refer. My point above was simply that the polar opposite policy (i.e. deep fiscal austerity at this time) would pose its own set of counterproductive consequences.

     

    We differ in that I believe that there is still room in North America for moderate fiscal stimulus in the near term provided this is well targeted (i.e rebuilding well selected aging roads, bridges, waist disposal facilities etc. and maintaining essential educational, public safety and health delivery services) coupled with well targeted reform of regulatory financial services monitoring and regulation and reform of inefficient and ineffective current public service programs. In other words, avoid slash and burn approaches while the general economy continues to stabilize. The significant reduction of public debt is a necessary goal but its achievement is a task to be achieved over the next 10-15 years..
    7 Oct 2012, 04:35 PM Reply Like
  • Bob

     

    We agree that options are all painful now it is only the matter of degree. I don't think you appreciate how far past the point of no pain we have went.

     

    The only out we have now is to bring down government spending at a reasonable clip while getting rid of all fraud and waste as every dollar is important. Combine that with reducing regulations and anti business policies and rhetoric so we can grow the economy as fast as possible. We need the economy firing on all cylinders. We need at least 3% growth and we cannot get that with the current anti capital anti private sector jokers. Better yet would be 5% growth. That will bring down UE and boost tax revenues. And we need full employment with full time jobs not part time jobs.

     

    We have very limited if any time as we only have realized capital flow because of Europe's problems. As China is slowing we may see another hit in the growth rate.

     

    If past is prologue the US will fail to get it right. And it basically because a lot of people are like you in thinking there is enough time and more debt that can be absorbed. There is not enough time and we are way in over our heads right now. Countries continuously fail to appreciate when they have went too far.
    7 Oct 2012, 06:21 PM Reply Like
  • bob,

     

    I used to hold you in high esteem as a respectable commentator. But in this post you seemed to make broad, general, and unsubstantiated statements without adequate backing with facts.

     

    Take for example the US situation. Our GDP is now growing at 1.3% at an annual rate per the latest quarter, and our sovereign debt had been growing at more than 7% for the past 4 years.

     

    One cannot become rich by growing debt. How long could we continue?

     

    You disappointed me and I feel sorry for you.
    7 Oct 2012, 06:36 PM Reply Like
  • Tomas and T Knight,

     

    The broader issue of whether the US Federal Government has hit a fiscal wall which negates any room for the sort of modest, short term, and highly focused further stimulus along the lines I describe is obviously highly contentious and one about which we are unlikely to narrow our differences through further discussion at present.

     

    On the other hand, on the narrower issue of whether deep fiscal austerity would, as a practical matter, work well at present to narrow the US fiscal deficit, I believe the UK experience over the past couple of years concretely illustrates my case as set out in my first comment above.
    7 Oct 2012, 10:55 PM Reply Like
  • Bob

     

    You don't get it and your paradigm is false as well as your case study. And your rationale is old and tired.

     

    You don't appreciate that once the bond market turns against you the choice is no longer yours as a country to decide on austerity or expansion. And you never want to be in the position which a number of Euro countries are in now. They are not deciding any longer the numbers are deciding for them. Every country in that position has fantasized about their autonomy and fumbled around while the debt mounted and they rationalized their next steps which never came.

     

    There were plenty of people in those countries like you who believed they had time and room to expand their debt, hide it and hope it all worked out. Why do you believe your thinking is so much the more clever and different than their thinking?

     

    Fiscal stimulus in the US has for the most part failed for a variety of reasons and this has only given us less room to do more later. And I gotta tell you that infrastructure spending does not drive much employment. It is heavy capital so the multiplier is muted. The only reason the government likes it is because they own the damn roads and can execute it easily but that is not a smart investment. The only hope the US has is to grow the private sector as fast as possible.

     

    Our unique lever is to drive inflation but that is devastating also to the the lower and middle classes.
    8 Oct 2012, 01:16 AM Reply Like
  • By the way Bob the onus is on you to explain how you have measured the US balance sheet and understand why it can take on more debt. Numbers are great so let's hear them.
    8 Oct 2012, 01:22 AM Reply Like
  • bob,
    No problem with infrastructure spending, via something like revenue bonds that provide the fees or taxes to pay for the infrastructure spending. So at least if you are going to support infrastructure spending then also suggest how the fees or dedicated taxes are to be levied to pay for the spending. More general unfunded debt is no solution to anything, short or longer term.

     

    With regard to cutting public spending or austerity ... if not now then when?? The major issues are well know : reform the tax code, reform healthcare, rationalize regulation, sensible & economic military budgets, national energy policy, effective financial sector regulation, etc. The problem is that politicians of both parties refuse to deal with the major issues and have refused to do so for many decades. There are simply too many vested interests paying off politicians & regulators for personal advantage to be able to expect that rational change will happen for the overall benefit of the country and the citizens as a whole. Thus it appears that the only "effective change agent" is a massive crisis such as a Great Depression, that will enable the type of serious systemic changes that need to happen. At that point perhaps politicians and regulators will actually "have the balls" to overcome the various vested interests and actually make the type of policy changes that have to happen.
    8 Oct 2012, 02:56 AM Reply Like
  • untrusting investor,

     

    In response to your question "... if not now when?" I suggest that timing and pace of fiscal repair is a complex and vital question. For example, in 2009 when revenues collapsed in the face of the national and global economic meltdown and credit crunch, an attempt to make corresponding cuts in public expenditure to balance the budget would simply have made matters worse both for the general economy and even on the fiscal front. Conversely, in the years around 2003-5 with major wartime expenditures and the recovery from the dot com crash under way, the time was ripe for reconsideration of the whole range of public expenditures for civilian and military purposes, the foreign and domestic policies that drove those expenditures and the health of the financial system upon which this all rested - that opportunity was wasted.

     

    Arguably we are in circumstances that fall between the two examples in describe - but the economic foundations are precarious in light of the damage incurred over the past decades. Answering your question therefore, the time is right for retrenchment in military spending and for reform (including cuts in expenditure in many cases) of several programs in the civil area that are inefficient, ineffective or unwarranted. The time, however, is also ripe for redirecting expenditure as I have tried o outline in earlier comments. In other words, there is an intrinsic need for these services and, in the early stages of the current recovery, for the maintenance of a sufficient level of public expenditure to sustain the economy while the private sector has not fully re-engaged to play its proper part (i.e. contracting public expenditures too rapidly and deeply would at present simply leave a void and discourage private sector recovery).
    8 Oct 2012, 11:20 AM Reply Like
  • Hilarious comment. A lot of trees and no woods.

     

    Most of the points you make don't make any difference at this point. No pun intended.

     

    Show us the math.
    8 Oct 2012, 12:35 PM Reply Like
  • Someone over at another SA article '3 Scariest Charts' worked out the math to show that US defense spending is actually something like 65% of tax revenues! Moments ago the challenger candidate just advocated accelerated additional defense spending in Virginia to the order of $2T more in the next decade.

     

    Talk about insanity...Man...
    8 Oct 2012, 01:07 PM Reply Like
  • T N,

     

    I completely agree with the thrust of your most recent comment. When the US expends more than do collectively the 23 other military powers (gauged in terms of expenditure) and when 19 or so of these other powers are US allies, we need to ask whether the current level of US military expenditure (let alone the 2 dollar trillion more over a decade to which you refer) is needed. Would not a scaling back over the next decade (based upon a careful ongoing review of real national security needs and how these might best be served in a changing world) not only generate significant fiscal savings but also create a more relevant, efficient and effective national defense?
    8 Oct 2012, 03:42 PM Reply Like
  • Thomas, you have it right. We are dealing with several new generations of folks that want their free stuff regardless of the likely outcome. And they will vote for the government that will give it to them.

     

    If a doctor told them that they had a terminal condition if they did not take the shock treatment needed to save them, they would go for the treatment.
    Instead the typical American would choose to go home and have fun. Party today and pay later.
    The core values of the Socialist theology (AKA Collective Salvation) says that we either all survive or we all parish together. So figure out where that will leave you. Individualism is not allowed. Re-training camps have always taken care of these misfits in former governments.
    7 Oct 2012, 03:14 PM Reply Like
  • " £16B of spending cuts"

     

    How quaint!
    7 Oct 2012, 09:15 PM Reply Like
  • What is Britain's contribution to the EU ? These guys are smart, they want all the benefits of trade with the EU but want the Germans to pick up the tab of bailing out Spain, Greece, Portugal. Wow they have veto power !! Let Spain fail, it will take down many banks (casinos) in the EU and the City of London.
    7 Oct 2012, 11:56 PM Reply Like
  • Give the Brits credit they look before the leap for the most part. They kept their British Pound and stayed away from the Euro as being the Kumbaya currency for Europe.

     

    Countries should have listened to the Brits reservations. And the Swiss also kept their Franc. Those were warning signs that something was flawed.
    8 Oct 2012, 01:19 AM Reply Like
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