The problem with Osborne’s statement is that austerity will not deal with our debt problem. These measures will only further force the country further in to debt. Significant cuts in government spending and higher taxes to bring the budget into balance have contributed to slower growth, in turn increasing the budget deficit driving higher government borrowing requirements and overall debt levels. So how is getting in to more debt dealing with our debt problems? Also, it is an affront to democracy that a private business such as Moody’s can affect a nation’s ability to borrow it’s own money. In fact a country shouldn’t have to borrow its own money (this is a ludicrous situation), it should issue it debt free. The only solution that will bring about a significant change is monetary reform. Go to http://www.positivemoney.org.uk to find out how we got in to this awful situation and how we can get out.
AAA downgrade threat
Yesterday ratings agency Moody’s put the UK on a negative outlook, the biggest threat yet to the UK’s AAA credit rating.
This has resulted in renewed criticism of the Chancellor’s austerity measures, but George Osborne refused to backtrack, stating that Britain “can’t waiver in dealing with our debts”.
But is this way of “dealing” actually working? There is a distinct lack of confidence in the economic future of the UK economy, and as the country waits with great anticipation for the results of the current austerity measures, the situation becomes increasingly worrying.
What do you think – are austerity measures working?
Comments
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Gary Brooks
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Mohamed
“Our estimations are based on the etivuloon of output and the exchange rate, but ignore many other factors that determine the welfare costs of a currency collapse.”The argument made in the paper about currency collapse and output is that: Currency collapses, defined as large nominal depreciations or devaluations, are associated with permanent output losses on the order of 6% of GDP on average. we argue that the fact that these losses tend to materialise before a drop in the value of the currency indicates that it is not the large depreciation as such that is costly but the factors leading to the currency collapse. Taken on its own, the drop in the exchange rate actually has a positive effect on output.So currency collapses are associated with a permanent loss of GDP of around 6% (in the language of 1066 And All That a bad thing’), but the losses tend to be prior to the collapse, which taken alone actually has a positive effect on output (that is what you and Stacy have taken to be a good thing’).They quantify the positive effect as over 4%, so compared to a permanent output losses on the order of 6% of GDP, the BIS paper would still suggest that having a currency collapse is a bad thing’ overall. I’d say once your economy has hit the wall (a bad thing), finding the reverse gear (such as currency devaluation) might be a necessary (in the absence of debt destruction) if you want to resume progress going forward in the near future (a good thing), not just keeping a foot on the accelerator (compounding the bad thing). The BIS argument based on historical statistical data, and reflected in three recent currency collapses: currency collapses in the absence of other events, ie ceteris paribus, induce a positive adjustment in the level of output. In particular, these estimates indicate that such output gains exceed 4% and fully materialise within five years after the shock contractionary transmission mechanisms such as balance sheeteffects, which arise when firms’ debts are denominated in dollars and revenues are denominated in local currency, are outweighed by expansionary expenditure-switching effects – ie domestically produced goods become cheaper in relative terms than foreign produced goods. As a result, following a devaluation output ends up expanding looking at three particular episodes: Mexico in 1994–95, Korea in 1980 and Korea in 1997. The domestic currency depreciated by 89% in the case of Mexico, and by 25% and 51% in the case of Korea in 1980 and 1998, respectively. The etivuloon of output around these three currency collapses matches the average pattern surprisingly well output losses materialised prior to the currency collapse, and the episodes were associated with permanent output losses relative to trend in the medium run. The ‘welfare costs’ of a currency collapse (taken alone) are material to considering whether such a collapse is ‘a good thing’ in the circumstances, but the welfare costs’ are not equal for all. For most wage earners and savers it leads to a substantial decline in their standard of living (along with associated import inflation), but for large numbers of unemployed, an increase in output may lead to employment that actually improves their standard of living.
