Posted by: CS | March 19, 2012

British Budget Baloney

Britain’s finance minister is due to present a budget. Much of the chatter this non-event evokes concerns the need for fiscal responsibility, curbing deficits, thinking even about paying down debt.

But this is twaddle.

Western economies are mired in debt because Keynesians avow the absurd belief that deficit spending during a depression, as now prevails throughout most of Europe, will restore full employment in open economies with a minimum wage of five, ten, or twenty times the basic wage paid throughout most of the third World.

This is fuddle duddle and bunkum, but it means that debt is not, according to the official line, the problem, it is the solution.

But the more Britain and other Western nations stimulate, the more cash will flow offshore for the purchase of very cheap foreign-made stuff, and the more the trade deficit will balloon. Unemployment will hardly be touched except through unsustainable expansion in the public sector and the retail distribution of mainly imported goods including the foreign made components that make up most of the added value of domestically built cars, computers and other high-tech products.

In fact, unless we are to assume that governments are run by dolts and morons (a possibility that cannot be entirely excluded), driving up the trade deficit must be the objective, as it is the inevitable result, of US and European policies of fiscal stimulus.

At some point, as trade deficits explode, the Renminbi:dollar peg will fail and the mighty dollar and the already sinking Euro will plunge in value relative to the currencies of Third World nations with trade surpluses. At that point, all the wonderfully cheap stuff and all the wonderfully cheap offshore services provided by four billion third-worlders employed, heretofor, at a small percentage of Western wages will suddenly become unaffordable expensive in the West.

The sooner this happens the better it will be for the tens of millions of unemployed Americans and Europeans. In the meantime, take a look at corporate profits: they’re at all time highs, reflecting the low cost of offshore labor and the depression of wages in the West due to high unemployment and mass third-world immigration.

So, yes, the budget to be introduced by Britain’s Chancellor, George Osborne, will fail totally to address the problem of budget and trade deficits, but a Chancellor’s gotta appear to be doing something.

Meantime, folks should get used to the fact that to compete with the Third World, Third World wages are necessary and therefore inevitable.

And what that means is that if you’re not one of the one percent, your standard of living will soon be a whole lot lower.

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Responses

  1. Re your quote – “to compete with the Third World, Third World wages are necessary”. Surely not Canspeccy! In Canada we can compete in export markets with the third world, at the things that we do well, where the requirement is for a highly educated and skilled work force and capital intensity. Indeed in Canada we have the extra advantage of huge natural resources to exploit. May I suggest that you are too pessimistic? As for the UK – Well, while I do think pessimism may be the order of the day it has nothing to do with 3rd world wages, and everything to do with incompetent bankers and corrupted elites who have burdened the country for years to come with unmanageable levels of debt.

  2. As for banks, they seem to be one of Britain's few competitive industries, generating about 8% of GDP. True banks may make rash loans at times but only with the connivance of government. For example, in Canada we have a bigger property bubble than the US had at the point of implosion, with average prices now twice those in the US and affordability in some cities, notably Vancouver, close to the lowest in the World. But the banks are quite safe because the Government of Canada allows them to unload the risk, almost $600 billion on the taxpayer, via the Canada Mortgage and Housing Corporation, a Government-sponsored enterprise which has guaranteed everything, including the liar loans, and ninja loans and monster minimal down payment loans.

  3. As for banks, they seem to be one of Britain's few competitive industries, generating about 8% of GDP.True banks have made rash loans in the housing market, but only with the connivance of governments. For example, in Canada we have a bigger property bubble than the US had at the point of implosion, with average prices now twice those in the US and affordability in some cities, notably Vancouver, close to the lowest in the World.But Canada's banks are acting entirely prudently because the Government of Canada allows them to unload the risk of mortgage default, almost $600 billion of it, onto the taxpayer via the Canada Mortgage and Housing Corporation, a Government-sponsored enterprise which guarantees everything, including liar loans, ninja loans and monster minimal down payment loans.In the US it was the same, with Federal Government intervening during the expansionary phase of the property bubble to prevent states from outlawing predatory lending practices.

  4. I read in the Telegraph some weeks ago that the UK's debt to GDP ratio is around 500% as compared to around 300% for coutries like the USA, Germany and Canada. The difference between the UK and these other countries (c. 200% of GDP) is almost entirely made up by bank debt. My own view is that though individual bankers may make huge sums personally,the City overall imposes a burden on the UK taxpayer who seem to have to pick up their losses. Nothing new in this – you may recall 20 years ago when the UK Insurance market (Lloyds) went burst, that the poor taxpayer had to step in again.

  5. What you say about the size of the UK financial sector's foreign debts is correct. However, those debts are almost exactly matched by UK foreign assets. The net foreign debt is quite small.I'm not able to judge the risks that Britain's banking sector faces or what chance there is of losses devolving upon the taxpayer. However, this blog post, puts things in perspective and suggests that there's no need for panic.


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