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Fiscal ruin of the Western world beckons

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    Fiscal ruin of the Western world beckons

    http://www.telegraph.co.uk/finance/c...d-beckons.html

    Fiscal ruin of the Western world beckons
    For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.

    Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

    A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.

    Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. "The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb", said the Teachers Union of Ireland.

    Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.

    "Something has to give," said Professor Colm McCarthy, the report's author. "We're borrowing €400m (£345m) a week at a penalty interest."

    No doubt Ireland has been the victim of a savagely tight monetary policy e_SEmD given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.

    As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a "penalty interest" on British Gilts, given the trajectory of UK national debt – now vaulting towards 100pc of GDP – and the scandalous refusal of this Government to map out any path back to solvency.

    "The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever," said the Fund.

    France and Italy have been less abject, but they began with higher borrowing needs. Italy's debt is expected to reach the danger level of 120pc next year, according to leaked Treasury documents. France's debt will near 90pc next year if President Nicolas Sarkozy goes ahead with his "Grand Emprunt", a fiscal blitz masquerading as investment.

    There was a case for an emergency boost last winter to cushion the blow as global industry crashed. That moment has passed. While I agree with Nomura's Richard Koo that the US, Britain, and Europe risk a deflationary slump along the lines of Japan's Lost Decade (two decades really), I am ever more wary of his calls for Keynesian spending a l'outrance.

    Such policies have crippled Japan. A string of make-work stimulus plans e_SEmD famously building bridges to nowhere in Hokkaido e_SEmD has ensured that the day of reckoning will be worse, when it comes. The IMF says Japan's gross public debt will reach 240pc of GDP by 2014 e_SEmD beyond the point of recovery for a nation with a contracting workforce. Sooner or later, Japan's bond market will blow up.

    Error One was to permit a bubble in the 1980s. Error Two was to wait a decade before opting for monetary "shock and awe" through quantitative easing.

    The US Federal Reserve has moved faster but already seems to think the job is done. "Quantitative tightening" has begun. Its balance sheet has contracted by almost $200bn (£122bn) from the peak. The M2 money supply has stagnated since January. The Fed is talking of "exit strategies".

    Is this a replay of mid-2008 when the Fed lost its nerve, bristling over criticism that it had cut rates too low (then 2pc)? Remember what happened. Fed hawks in Dallas, St Louis, and Atlanta talked of rate rises. That had consequences. Markets tightened in anticipation, and arguably triggered the collapse of Lehman Brothers, AIG, Fannie and Freddie that Autumn.

    The Fed's doctrine – New Keynesian Synthesis – has let it down time and again in this long saga, and there is scant evidence that Fed officials recognise the fact. As for the European Central Bank, it has let private loan growth contract this summer.

    The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us.

    My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.

    #2
    But how will this affect my house price?

    Comment


      #3
      zzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
      Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God? - Epicurus

      Comment


        #4
        they should be able to save a fortune by stopping the abuse of the benefits system. People who were born in the uk or who have made contributions to the system should be able to have benefit funding, they cant just keep giving money/houses/etc out to people who just apperar in the country from the rest of the world, how will they ever balance the books if they continue like this

        Comment


          #5
          articles like that are such nonsense, they say everything and nothing

          imagine how cheap newspapers would be if these journalist experts were forced to write their pieces into 20 lines and offering bibliographies for those who are interested to do further

          sometimes I read these articles like the one above and the ones in NewsWeek etc and it takes half the article before the writer actually says what they are trying to say

          all nonsense

          fact is, none of these mainstream experts have an answer

          none of them are proactive and able to figure the end and the solution, all they are ever doing is reactive commentaries, and infant could do that

          the facts are out there, but not on websites like this one

          Milan.

          Comment


            #6
            Originally posted by milanbenes View Post
            articles like that are such nonsense, they say everything and nothing

            imagine how cheap newspapers would be if these journalist experts were forced to write their pieces into 20 lines and offering bibliographies for those who are interested to do further

            sometimes I read these articles like the one above and the ones in NewsWeek etc and it takes half the article before the writer actually says what they are trying to say

            all nonsense

            fact is, none of these mainstream experts have an answer

            none of them are proactive and able to figure the end and the solution, all they are ever doing is reactive commentaries, and infant could do that

            the facts are out there, but not on websites like this one

            Milan.
            Milan,

            When are you going to spill the benes and let us know what your plan B is? Will it render all this financial forecasting and doom prognosis irrelevant anyway?

            OS

            Comment


              #7
              Indeed, the economy of Ireland and it's welfare state is directly comparable to the economy of the USA (And Britain, and Europe) ...

              FFS, America barley has a welfare state. Let's not go into how ludicrous it is to compare the economy of Ireland with the US, Britain or Ireland.
              Hang on - there is actually a place called Cheddar?? - cailin maith

              Any forum is a collection of assorted weirdos, cranks and pervs - Board Game Geek

              That will be a simply fab time to catch up for a beer. - Tay

              Have you ever seen somebody lick the chutney spoon in an Indian Restaurant and put it back ? - Cyberghoul

              Comment


                #8
                Why not post an opinion rather than forever cutting and pasting boring articles ? Are you frightened of making enemies and being called names ?

                Comment


                  #9
                  Originally posted by Cyberman View Post
                  Why not post an opinion rather than forever cutting and pasting boring articles ? Are you frightened of making enemies and being called names ?
                  Say's the bloke who's frightened to tell his neighbour off for putting his bins out early ...
                  Hang on - there is actually a place called Cheddar?? - cailin maith

                  Any forum is a collection of assorted weirdos, cranks and pervs - Board Game Geek

                  That will be a simply fab time to catch up for a beer. - Tay

                  Have you ever seen somebody lick the chutney spoon in an Indian Restaurant and put it back ? - Cyberghoul

                  Comment


                    #10
                    O/S,

                    the subject of the plan b is boring

                    having a plan b is not the be all and end all

                    anybody can have a plan b for plan b's sake

                    the question is, will the plan b be profitable and offer future revenues and growth


                    benes plan b is a fledgling company, get the second loaf of bread out of the way and I will be more satisfied/content that the model works, and that the first loaf was not simply a lucky break and one hit wonder

                    hopefully by the end of the year we will have indicators as to the direction of the second loaf of bread


                    what I want to say to all is..., if somebody on here talks big about their plan b, just ignore it, don't let it give you anxieties that you have no plan b, because, having a plan b does not mean that one will not throw an investment down the plug hole


                    I wish everybody luck with their plan b's, and everybody who does not have a plan b don't worry, a plan b has more chance of losing you money than making you money

                    secondly, if you do a plan b, get someone else to run it, don't whatever you do give up the contracting day job or even think about giving up the contracting day job until, the plan b can sustainably deliver more than the contracting returns, chances are, after your plan b has failed, contracting will still be there, but if you jacked in contracting to do your plan b then you will run the risk of losing your skillz

                    decisions decisions eh

                    Milan.

                    Comment

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