Is Government Debt "too high"?

Listen to any Tory (including those Tories that used be known as The Lib Dems) talking about the economy, and they are bound to mention the "horrendous cost of paying off our debt..."..."simply horrendous old boy, never seen anything like it since Lord Poodlebody had to sell of the country pile top pay orff his gaming debts at Boodles...". ... "historic...".

But is it "historic"?

LabourList has a interesting graph showing Debt Interest as a % of Government Spending since 1997/98. 
 

The figures are compiled from the Government's own statistics, from the Red Books for the chosen years. As you can see, debt interest on that calculation was considerably higher in 1997/8, when Labour took over from the Tories, than it is now.

So why the shock-horror? More germeine, why the cut-fast-and-quick strategy of the ToryDems? The debt burden is not "unprecedented", nothing like it. It has been higher for much longer and, more often than not, the Tories were to blame (if blame is he word).....

The cuts are being implemented "fast-and-deep",  not just to pay off the debt, but to to achieve the idealogical aims of the Conservatives: they have always wanted to privatise the NHS and other public services. If they can fool the country that the situation is more desperate than it really is (and it is bad, no doubt about it), they can make their cuts and pretend that, in the immortal words of their patron saint, Margaret Hilda Thatcher, There Is No Alternative....

Osborne's Moody Swings...

George Osborne has now had three tries, in less than a year, at addressing the problems in the economy: the June  2010 emergency budget, the autumn statement and yesterday's full annual budget statement.

Whereas the economy that Osborne took over was clearly the legacy of Alasdair Darling and Gordon Brown, the Chancellor has scorned the efforts of his predecessors and progressively put his own stamp on the economic situation: the economy of today is George Osborne's, and no-one else's.

The economy that Osborne took over was going through a slow and halting recovery with some growth in activity and a slowing of unemployment. Osborne took control with the vow to concentrate on growth. But since he has been in charge growth has stalled and unemployment has increased. Osborne also used the fear of the UK losing its "AAA" rating from the credit agencies as a prime reason for "cut fast and deep" strategy. We were in danger of losing our AAA rating, Osborne warned, and that would severely hamper any recovery by making debt more expensive to service, said George, so we had to be ruthless..

It is therefore ironic in the extreme that both the main credit agencies, Moody's and Fitch, have chosen today to issue warnings about the forecasts for growth that accompany Osborne's budget.

Moody's is clear about the problem:

"Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating," 

Yesterdays' budget was seen by commentators as being broadly neutral: in other words, there would be no noticeable stimulus to the economy and there were no identifiable measures that would provide that growth, and it came on the back of weakening economic figures and pessimistic forecasts.

Osborne told parliament on Wednesday that the UK economy would grow by 1.7% this year, and by 2.5% in 2012, predictions which are still more optimistic than the latest assessment from the OECD, which  predicted last week that the UK would expand by 1.5% during 2011, and 2.0% in 2012.

Fitch, a rival credit rating agency, has already warned that Osborne may have to impose further austerity measures if GDP growth is slower than expected, or if inflation continues to run much higher than official targets.


Standards & Poor, the third main ratings agency, made noises in May 2009 about reducing the UK's credit rating, much to George's approbation.

Wouldn't it be ironic if all of George's efforts to appease the markets were to result in the very rejection by the markets that he has been using as the excuse for his extreme cuts strategy in the first place...???

Nobel Winner says UK Austerity "Disastrous"

Joseph Stiglitz, the Nobel winning economist ..






..has hit out at the austerity hysteria affecting European economies.

Criticising the "excessive austerity" that seems fashionable in Europe, he says;

"...There’s this disastrous policy that even in the countries that don’t need to have austerity...such as the U.K., ....are going for much more excessive austerity than they need ......We are already seeing around Europe the consequences of this austerity. The clear implication is that growth will be slower...."

Pointing out the effects of austerity in Ireland and Greece he says....

"While both those nations had “no choice” but to tighten fiscal policy, measures adopted by some other countries such as the U.K. aren’t justified...... Britain, where the economy contracted in the fourth quarter, is already seeing the fallout....".

Stiglitz, who is a highly respected and influential practicing economist and comentator, contrasts the position in Europe and the USA, where austerity is less fashionable and growth seems to be more established.

He told you so

Paul Krugman, Nobel Laureate, published this prediction in the New York Times in October 2010...

Entitled British Fashion Victims, it decried the fleeting fashion for austerity that was so enthusiastically embraced by the UK government and it predicted some dire outcomes.

"The British government’s plan is bold, say the pundits — and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment  ......at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.

Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative......

....... Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the “brink of bankruptcy.”

What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it."

I haven't seen the NYT blogs today, and anyway it's a bit soon for Mr Krugman to have composed a gloating reprise of his October epistle, (indeed I'm sure he's to nice a man to gloat openly), but I would not be the least surprised to find, in the next few hours, some gentle comment from the Nobel laureate to the effect of "I told you so"....

The wrong type of economic snow..

Just saw George Osborne on TV tryng to explain away the 0.5% shrinkage in the economy over the last quarter. If he had mentioned the weather one more time you would begin to believe he was Thomas Shafernacker.....

A few years ago the management of Railtrack had much derision heaped on it when it tried to explain away train delays by claiming that "the wrong type of snow" had fallen...

It's a ridiculous excuse for a rail company, but for the Chancellor to claim the economy shrank because of "the wrong type of snow.."

The mind boggles...

Inflation, Inflation, Inflation....

The figures are out, and the news is bad (according to city and political types who know). Inflation is on the rise. The Consumer Price Index (CPI) up 0.4% to 3.7%. The Retail Price Index (RPI) up slightly to 4.8%. The Bank of England has failed to meet its inflation target of 2% for over a year, and the cries from the city for an interest rate rise to damp down demand is becoming shrill.

But Richard Murphy at Tax Research UK has a slightly different take on the detail of the figures. In his analysis much of the inflation in the system is the result of rises in indirect taxes in the last year. He points out that high interest rates are designed to hold down inflation by dampening domestic demand, and so would be ineffective against tax-induced inflation.

I'm no economist, but it's an interesting idea.

Labour's Economic Legacy....

It seems that government spokesmen are unable to answer any question about their cuts without beginning..".... dreadful economic mess left by Labour, there is no alternative, it was Labour wot done it...".

It's an obvious political tactic to place the blame for the cuts, to pretend that they have no choice and that the knife must go deep and quick or the country and it's economy is doomed. That's the ToryDem case. The question is: is it true?

TBH, I have always thought that the neocons in the ToryDem coalition have been using the economic crisis as a convenient cover for their political aims. Cameron and Osborne are sons of Thatcher. They cling to her stated philosophy the "..there is no such thing as society..". They want, just likr Thatcher, to cut the public sector and to privatise wherever they can. If the economy has  been left is such a damaged condition that we can no longer afford the "luxury" of decent Education, Health and other public services, then what better excuse than that to privatise these services and demolish the organisations that provide them?

The respected think tank, the  Institute for Public Policy Research (IPPR), has issued a report which looks at the truth or otherwise of the claims that the economy demands cuts of such speed and depth, and concludes that they "..do not stack up......";

"The Coalition government has sought to blame its Labour predecessor for Britain’s current fiscal position. There have also been accusations that the deficit was, at least in part, due to excessive spending by the last Labour government even before the recession of 2008 and 2009.

This note looks at the numbers on debt, deficits and spending (relative to GDP) – over time in the UK and comparing the UK with other developed economies.

On the basis of these numbers, Labour’s ‘fiscal profligacy’ just ahead of the recession would seem to have been on a very limited scale, and charges that the Coalition is tackling ‘Labour’s debt’ and ‘Labour’s deficits’, or that Labour let spending run out of control before the recession, do not stack up".

The IPPR does not find the Labour government completely blameless, there could have been clearer foresight about the coming problems, but they produce a very convincing case that the ToryDems' claims that the public finances were in ruin when they took over, and that borrowing  was out of control, to be far from the truth.

Which means, of course, that the speed and depth of Osborme's cuts are not, as the government says "...all the fault of Labour". They are a deliberate and cynical political choice to cut public services and jobs to achieve the long term Tory goal of cutting the state. That countless public servants (many more than is necessary) will have to lose their jobs, and those dependent on the public sector, (the disabled, the elderly, the young),  will therefore lose vital services that they depend upon to give them some decent standards; all of that is nothing to the Tories (and their partners in the Lib Dems).  Magie's vision of a country where "...there is no such thing as society" will be achieved on the back of the ToryDems' political lie that There Is No Alternative.. 

The full report can be downloaded here. It makes very interesting reading, and it gives the lie to any coalition pretence TINA rules!

George's "Age of Austerity" Debunked.

This Video is just brilliant at exposing the falacy that "austerity" is the answer to our economic problems.

It takes (at least it took me) a while to load. But stick with it it's worth the effort.

When the arse of Theory meets the Guard Dog of Reality....

One little commented effect of the CSR is that it will be local councils, not the Torydem Government, that will have to implement many of the service and financial cuts implied in George Osborne's savage budgets.

Barnett Council was supposed to be the vanguard council for the Tory approach to this... Based on the "Easyjet" approach the "Easycouncil" confidently predicted "Easycuts".

But, as in many cases when the arse of theory meets the guard dog of reality, reality bites back, leaving the theory and the theorist badly frayed and bitten...

Click on Barnet, the barking dog for details...

It's no surprise that Barnet Council has admitted that it is actually costing more to arrange the "easycuts" than they can save....

I have to say, "I could have told you so....". Anyone with any experience of cutting budgets, whether in the private or public sector, would know that it easy to plan and promise savings, but it's much more difficult to deliver...

Growth..good for the coalition...?

Tonight's economic headlines report a higher-than-expected 0.8% rise in UK GDP in the 3rd Quarter. Up pops George Osborne on all the bulletins claiming credit: we done it and what's more we saved the UK from being Greece MK2.

Is that fair, or even true?

The coalition was elected in May and had its first budget in late June, so any effect on the economy will not yet have taken effect. That being the case, and insofar as economic outcomes are determined by politics, any economic growth this year has to be an outcome of policies enacted and implemented by the last Labour government.

The effects of the coalitions June budget and last week's CSR will only be felt in the 4Q 2010 or even early 2011, and the measurements of any success/failure will not become clear 'till much later than that.

Tax Research UK has a good (if frightening) analysis....

Stormy Weather....

Left Foot Forward had this assessment of Cameron's speech within minutes of its completion. Devastating. Maybe the Tories should be glad that, in the words of a Tory minister quoted in the Guardian, it'll be forgotten in a week....

Anyway, to substance: a criticism from many economists of the speed and depth of the Tory cuts has been that they risk a "double dip" recession, i.e., having been coaxed out of a short recession by an expansion of the money supply, the economy reacts to the sudden austerity by sinking back into negative growth. Recession returns.

The magazine Public Finance reveals figures released today by the National Institute for Economic and Social Research show that growth has slowed dramatically.

"Latest economic figures have shown a marked decline growth in the third quarter of 2010, with the onset of government austerity measures cited as a factor in slowing the economic recovery.


"Data released this afternoon by the National Institute for Economic and Social Research showed that growth for the three months up to September stood at 0.5% – less than half of the unexpectedly high figure of 1.2% for quarter two." 

Under Doctors Brown and Darling, the ailing economy struggles to a frail recovery...but now the there's a new team of doctors. They're cocky and confident, but much less experience, and their Patent Coalition Medicine seems to be choking the patient. Pulse down, circulation sluggish, a double dip beckons the patient...having rallied briefly, it's eyes flutter....

Now more data about a faltering housing market from the Halifax via Left Foot Forward (again). Of course constantly rising house prices is not necessarilly a "good thing". But as a harbinger of the dreaded double dip they are part of a growing body of evidence that those who think that too much austerity is dangerous could be right. And Georgey Boy could be wrong....

The real cuts are still to come by the way....

Irony of ironies...

Vanity of vanities, all is vanity:  these are the reported words of the 15th Century Dominican Friar, Savanorloa, as he urged his followers to hurl the riches of Florence on his Bonfires of the Vanities. Savanorola was thhe head of a millenial religious movement which set out to destroy all of the "corrupt" beauty of the Italian Renaissance.

All through the Eighties I was convinced that Margaret Thatcher was our very own Savanorola, determined to destroy all the great achievements of 20th century Britain: the NHS, poverty relief, state education, social services, public services, the BBC and all of the great unifying institutions that support greater equality and democracy. It seemed that Thatcher viewed tax-funded health carec and universal education in the same light as the dark friar viewed beautiful art, fancy clothes, mirrors and other accoutrements of a decent life.

Thatcher ultimately failed, not for want of trying. Although she "sold off the family silver" and privatised many industries, the NHS, the BBC and universal benefits and, more importantly, the British sense of fairness and the understanding that the state must provide where the private sector will not, survived her malevolence.

The Labour government from 1997 to 2010 reversed many of the failures of Thatcher: poverty (which had tripled under Thatcher) was halved, schools and hospitals were repaired and new buildings built, public sector wages were raised to acceptable levels.

Now we have the coalition of Tories and Lib Dems (particularly the Orange Bookers), who want to resume Thatcher's work and are determined to succeed where she failed. There can be no other explanation for the depth and speed of the LibCon cuts.

Are cuts necessary after the bankers' depression? Of course they are. But the scale of George Osborne's cuts are driven as much by ideology as economic necessity. He and Nick Clegg want to "reduce the size of the state", meaning they want to privatise much that the government now delivers and share the rest with voluntary and not-for-profit organisations. As far as it is defined, this is the basis of David Cameron's "big society".

But the irony of ironies is that the cutting of budgets at UK, regional and local authority level will result in the opposite of the "big society". Voluntury organisations and other local groups are the first victims of the cuts that have already been enacted. Any cursory review of local authority budgets will reveal that many arms length organisations are having their funds cut and their operations curtailed as local authorities and health boards tighten their belts and withdraw funding and concentrate instead on the delivery of "core services".

The LibCon cuts are ideological, designed to reduce the state and decimate public services and the public sector. But this means that,  even by its own standards, the extreme cutting of services by the coalition will fail, because cutting deeply and speedily now will starve the "big society" of the services of the very groups that Cameron and Osborne tell us will take up the slack as the state withdraws.  

Placing the blame....

Baroness Warsi has this blog blaming the upcoming cuts on "Labour wastefulness". There's a negative advert which sells the product....



An there's a blog which puts the accusations in print. What there is not is any mention of the banking failures or the global economic global crisis which resulted. There's no mention of the measures that Gordon Brown and Alistair Darling took to save the banks, without which the effects on the UK and even world economy might have been absolutely catastrophic. There's no mention of the Quantative Easing that has softened the effects on industry, employment and growth. Apparently these events, which have dominated the news for the last two years and which were the stuff of politics and the 2010 election, never actually happened. Or if they did, Baroness warsi didn't see them. According to her, what happened was...

From wasting £12 billion on an NHS computer system that didn’t work to kitting out regional fire offices with £6,000 luxury coffee-making machines, Labour showed complete contempt for taxpayers’ money up and down this country.

It seems that Warsi thinks, in a economy of £trilllions and over 13 years, the cuts that George Osborne is so keen to implement were caused by some IT projects and the purchase of coffe machines!



There is also no mention of the fact that Labour had plans to address the crisis, with cuts/tax increases of £73 billions over 5 years.These would have been painful enough, but the ConDem coaltion plans £114 billions of cuts/tax increases and they are to be introduced more quickly. Nor is there any mention that the extra £40 billions is a straight ideological choice by the ConDems to reduce the size of the state to a level that Margaret Thatcher could only dream of.

Let's not hide from the fact that Labour was in government at the time of the banking failure and that any actions they took are open to criticism. Maybe they could have done some things differently. After all no government can get everything right, and the 2008 crisis was unprecedented in scope and potential for economic damage.

And badly managed IT projects are a fact of life, unfortunately.

The traditional method of gauging the truth of any political pronouncement is to judge whether the person is a "fool or a knave". If Baroness Warsi really believes that ..

The cuts to come are Labour’s cuts.

..and that the global economic and banking crisis never happened, then she is a fool.

If, on the other hand, she is perfectly aware of the global context of the crisis and the real reasons for the coming cuts, and she continues to insist that they are all Labour's fault, then she is a knave.

Vince scratches his head.....

Vince Cable at the Department for Business must be a puzzled man this morning. Manufacturing is booming (relatively), but it is not yet delivering the export-led recovery that the Treasury is relying on to get us out of trouble.

I posted this on June 24th, questioning the ConDem Government's reliance on a predicted export boom to drag us out of the recession. It includes a link to a Newsnight piece by Paul Mason showing Treasury models predicting an export boom. Of course, if there is not an incease in exports, then the economy will not improve as much as predicted and a "double dip" recession, or a very slow recovery becomes inevitable, with dire results for Treasury income and the recovery plan, not to mention jobs and incomes.

There's a fascinating piece in today's Guardian by Phillip Inman, puzzling over why the relative success of manufacturing during the recession has not resulted in increased exports.

"Last month, manufacturers were especially gloomy about export orders. The purchasing managers index (PMI), an important monthly snapshot of manufacturing activity, collapsed to an 11-month low of 50.8. Manufacturers found buyers at home for their goods, but attempts to sell abroad failed to gain traction"

George Osborne based his confidence on an export led recovery on the performance of Canada in recovering from a recession in the '90s. The Canadians concentrated on boosting exports and their economy grew quickly.

But at the time Canada's biggest export market, the USA, was in the middle of a boom, and capable of absorbing its neighbours manufacturing exports. As we speak, the European economy languishes and the US economy trembles on the brink of a double dip. UK manufacturing can be as healthy as it wants, but if our main markets are not growing, it is difficult to see where an export boom is coming from.

No wonder Vince scratches his head....

Do we really really really trust George?

It's remarkable how things change in politics. Two months ago George Osborne was a surly, spoiled-little-rich-boy dabbler in economics, a lightweight, needing the gravitas of Vince Cable (rememeber him?) to shore him up and convince the markets that the coalition had some "bottom". Today Georgey Boy is the Chancellor of The Exchequer, with the fate of the UK economy in his grasp. Vince, meanwhile, has been despatched to the department for counting paper clips and plastic rulers, the true domain of Lib Dems in a Tory government.

But what of George's plans for our economy? Labour's cuts were too little and too late for him, so he doubled and trebled them and brought them forward by a year. But wait. A report by the National Audit Office reveals that even Labour's planned cuts of £35 billion are not being achieved. The mechanisms do not exist within Whitehall and departments are struggling to make the cuts in the volume and time allowed. Now children, if these cuts are difficult to achieve, what are the chances that we are we going to get the Conservatives' £99 billions of cuts made even more quickly?

Not likely, is the honest reply. But when George Osborne was asked in the Commons last week what fallback plans he had in the event of failure to implement the cuts he said he had none..."confidence in the UK economy", was the bold George's plan B. In the past Mr Osborne has used the credit agencies as a frightener to whip opposition to his plans into line: "if the cuts are not draconian the agencies will downgrade our rating, and then where will we be?" I wonder what the credit agencies think of the situation where there is no plan B but, according to the NAO, plan A is unlikley to work.

A few days ago, despite savage and early cuts, the ratings agencies downgraded the Irish economy .......

Could it be , even with George Osborne's savage plans, plans which were conceived to placate these same  ratings agencies, that the UK be next in line?

No Reputable Economic Theory Justifies This Bleeding...

The New York Times, no leftie rag, has this condemnation of George Osborne's budget. Scathing is hardly the word...

After praising the Tory government;

"We’ve found a lot to like in the first two months of Britain’s new coalition government"

and praising David Cameron for his planned review of alleged torture by British agaents and on his reaction to the Bloody Sunday Inquiry, it gets a bit more blunt about Boy George's budget....

First it addresses the Tory lie that our economy is as bad as Greece's...

"Britain isn’t Greece. Recovery would eventually have wiped out much of that red ink"

And the size and speed of Osborne's cuts...

"The ...... cuts Labour had planned would have done the rest, leaving a respectable full employment deficit of only 1.6 percent of gross domestic product by 2015"

It gets very blunt....

"No reputable economic theory justifies this bleeding"

And it reaches a conclusion many of us reached the day after the budget was revealed...

"The coalition budget reflects Conservative Party ideology"

Too bloody true it does...

The New York Times and the vast majority of reputable economists are agreed on this analysis of the budget, and Sir Alan Budd has effectivel admitted it's truth by chucking in his job at the OBR.

You can understand Tories sticking obstinately to their Thatcherite religion, but you have to ask: what on Earth are the LibDems doing suporting this openly ideological and damaging budget?

Whatever happened to their claim to be  a party of the left? Or even the centre...? By tying themselves to the Conservatives openly Thatcherite economic philosophy they are ditching their liberal credentials and damaging their future electoral prospects....... what wonderful and mysterious benefits are they getting in return for this Faustian bargain?

I don't know, but I hope, for their sake and the country's sake, that it's worth the pain...

Spending Challenge or Intellectually Challenged?

The Other Taxpayers Alliance has brilliant piece on the coalition's Spending Challenge website.....

When this site was announced it was predictable that all the neanderthals, hotheads, racists and other nutters would be out in force with their pent-up anger long-nursed grievances.

I wonder what this "money saving" exercise has cost us in set up and running costs....

Nipped in the Budd.....

Sir Alan Budd, hand-picked chair of George Osborne's "independent" Tory quango, the Office for Budget Responsibility (OBR), has quit just two months after the election and a month after delivering its budget forecasts.

Rumours fly of bust ups and splits with Treasury ministers, or that Budd was miffed that David Cameron used leaks of his departments forecasts to counter newspaper allegations of predictions of huge job losses. Whatever the cause, the fact is that George Osborne's tame economist has chucked his hand in before his office is even properly established and its independence guaranteed. It's a disaster for the Tories, the coalition  and the Chancellor.

Of course such "independence" was not exactly guaranteed under Sir Alan. For younger readers who may not have heard of him, it is worth reminding them that Budd was a senior economic adviser to the Heath government in the early 1970s, helping to push through Anthony Barber's stock market and housing boom which was to culminate in a stock market crash and inflation rates of 27%.

Budd was also an advisor to the Thatcher government and one an advocate of Geoffrey Howe's disasterous 1980 budget, which doubled VAT (in breach of an election promise) and, in raising interest rates, led to a significant over-valuation of sterling on the markets.

British manufacturing and their export markets were rendered insolvent over night and unemployment trebled to 3.3 million. Budd admitted the hugely negative effects, but seemed to think they were a price worth paying for reducing the power of ordinary workers and the trade union movement.

Over the years, Budd's influence on economic policy has been disastrous, but he's a Tory to his bootlaces and he was Osborne's chosen man. So why would he quit now, before the spending review and before his forecasts have a chance to be proven correct (or not!)?

Could it be that Sir Alan has seen the light, that he realises that the coalition's economic strategy of cutting deep and fast is the wrong way to go, and he does not want to be tarred with its failure?

In any case, it's a fiasco, and an embarrassment for the coalition and for George Osborne in particular, and it bodes ill for economic policy if one of its mainstays has insufficient confidence and commitment to hang around for more than a few weeks.... 

Is this really the time to be cutting spending...?

A very pessimistic piece of analysis from the Telegraph financial section on the US economy. It's feels just like 1932, says the report, quoting Former US Secreatry for Labour,Robert Reich...

"The economy is still in the gravitational pull of the Great Recession. All the booster rockets for getting us beyond it are failing."

All the indicators in the USA are going in the wrong direction: unemployment rises while the workforce shrinks, earnings are down, consumption is down, revenues are down and production is down.

The USA is seen as the engine of world trade. Its enormous economic power drives the global financial and economic systems. If the US is in trouble, we're all in trouble.

And it's worse than that...

"Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output".

Meanwhile, back in the good old UK, our government continues to shrink the economy far faster and deeper than necessary or sensible.  Yesterday Michael Gove announced that 750 school building contracts in England were to be cancelled at the cost of thousands of jobs, and billions of lost investment (not to mention the hopes of pupils and teachers). Meanwhile Danny Alexander sneaked out more cuts in already existing programmes.

Internal spending and consumption is shrinking and the government is making the contraction even greater. Meanwhile, with the USA and Europe contracting, the main markets for our exports are also shrinking.  Where exactly does the UK government expect growth to come from?

To hark back to 1932: the depression was made worse and longer by the very conservative policies that now prevail in Europe and the UK: cut spending, contract the economy, reduce activity. Recovery began with the USA spending on internal projects, good old Keynseian economics. As the US economy recovered, other countries could export to the USA, and slowly grow back to normality.

How stupid is our own government not to have learned that lesson? Why can they not see the logic of their policy is that there will be donward spiral, a race to the bottom, as governments cut and economies shrink, 'til there is nothing left to cut and nowhere else to go?  Unless all governments can agree on a growth and investment startegy, the recession continues and a double dip looks more and more likely.

Gordon Brown, above all others, recognised this and he knew the policies needed to reverse the recesssion. A great pity he's not in charge now...

Can they be serious? Should we be afraid?

The Sunday Telegraph is reporting that ministers have been ordered to find 40% cuts in their departmental budgets. The £113 billion cuts they already say they want (25% cuts across departments) is already too much for many economists, who say that it will slow down the recovery and maybe even put it into reverse.But now they appear to want even more cuts....

A 25% cut in any single department is savage in itself, and will be achieved only at the expense of great pain. It is unikley that only "inefficiencies" will be cut. Cuts of 25% will mean real cuts to services. In which case, it is hard to think of any public service that can stand a 40% cut without completely destroying its effectiveness.

So are the Tories and Lib Dems serious? Can they really be contemplating 40% cuts to Transport, Education, Local Government and other vital services? Is it a veiled threat to ministers to make them take the 25% figure more seriously? Or a bluff to make the eventual cuts seem almost benign? Could it be that the Tories are really determined to destroy the Welfare State?

Cuts of this size will decimate the public sector, and severely limit its ability to meet the needs of the population. Already libraries and local village halls are under threat as councils make small efficiency savings to meet the current budgets. If cuts of 25 % go through there will be mayhem. If 40% cuts are demanded, it will stretch the bounds of anything that has so far been considered possible.