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What is the matter with them?

I have just recovered from the Budget this week, as it was even worse than I had anticipated. I keep writing in my blogs that extreme austerity packages are going to damage the economy but George Osborne is just not listening. What’s the point of me writing all this if he is not taking a blind bit of notice.

I saw quoted today that Albert Edwards a strategist at Societe Generale, said: “The clowns pulling the levers of fiscal and monetary policy will take us back into recession. He thinks that both economic and market recovery will “collapse like a pack of cards” as governments remove their financial stimuli.

I’m already putting money under the mattress and trying to sell our cat on ebay, but the economy is going to get worse. I did, however, note that David Cameron on his way to the G20 conference in Canada, has said that the government expect growth to continue as a result of a loose monetary policy.

It is true that the Governor of the Bank of England has applauded the austerity package, but will an overtight fiscal policy be offset sufficiently by a loose monetary policy. Plus, the Bank does not have much to play with. It cannot reduce interest rates below half a per cent, and the only alternative would be more quantitative easing, which isn’t likely to happen.

There are problems with sovereign debt and the question marks over which countries might default on their loans. Greece is a prime example of this with Greek bond prices falling this week as buyers sought higher yields. However, the UK is not Greece and we have not seen any dilution in the demand for UK debt.

In conclusion, it is true that the markets welcomed the Budget. The pound appreciated against the euro which is supposed to be a good sign, but will make our exports more expensive. Anyway, it won’t matter, because none of the countries that are introducing fiscal austerity programmes will be able to afford our exports anyway. I’m off to the pub.

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Posted in Balance of Trade, Exchange Rates, Fiscal stimulus, government borrowing, government spending, Interest rates, Public Finances

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