Economics: Avoiding the Crash, As nation states struggle to slash spending Options

[Andrew]

The British have just announced that they would be quickly cutting their spending by 6.2 B pounds. From the BBC - Chancellor George Osborne has outlined plans to cut £6.2bn of what he calls "wasteful spending" to start to reduce the budget deficit. The question will be what will happen in Canada and the USA?
The British government, a Conservative Liberal coalition, said the cuts were designed to send a "shockwave" through government departments and discourage waste but he said they would protect "as far as is possible" key front line services and protect those on the "lowest incomes. More from the BB if you follow the link below:

http://news.bbc.co.uk/2/hi/uk_news/politics/8699522.stm

Putting this seemingly large cut in perspective the current annual budget deficit of the UK is 156 billion pounds – so we’re talking on the order of a 3.9% reduction. Now will they carry through as words are free and of course the government is now going to have to deliver on the cuts. The election of more conservative, read fiscally responsible, is part of a larger trend toward being more fiscally prudent and is being imposed upon the politicians by market forces, along with a growing bloc of correctly concerned citizenry. Consequentially, wayward Western governments are going to have to take a lesson from South American countries that slashed spending to get their treasury in order. For here in the US and Canada we will at least pay lip service to the idea of reducing spending. Unfortunately, the size of the existent government commitments is so massive that should the politicians follow through with cuts of the scale actually required to put their respective fiscal houses in order – cuts that would go a whole lot deeper than 2 to 5 or in the UK's case 3.9% -- the whole thing would come unglued, both economically and socially.

Half measures are worse still as to try and achieve those savings in an economic climate as uncertain as this would be akin to handing a drowning man a twenty-pound weight, further reducing tax revenues and requiring even deeper cuts. Most readers can quickly see how quickly this can become circular. The IMF required that countries such as Brazil to slash the civil service and government spending. Riots broke out through out South America as the people tried to resist the painful medicine http://ns1.dachary.org/nadir/initiativ/agp...e/imf/index.htm Even now the sustainability of the current Latin American growth trend is questioned by the IMF as http://www.imf.org/external/pubs/ft/survey...07/CAR0430A.htm

What will happen in Canada and the US? Still remains an open question but maybe a hint lies in the German reaction to the Greek crisis.

[Andrew]

In Greece people are drawing on the only real money and that is Gold. Quoting form the article, "Gold coins were parachuted in during World War II to fund local resistance to the Germans and now, with a population mired deep in another -- if very different -- crisis, British gold sovereigns once again are the foreign currency of choice in Greece. "http://www.theaustralian.com.au/business/news/greeks-queue-to-buy-gold-sovereigns-for-financial-security-in-turbulent-times/story-e6frg90o-1225870965146

The outlook becomes a little less rosy.

[Andrew]

This evening I have only a few comments to add about what some say is the impending crash. President Obama is under massive pressure to show decisive leadership and his rhetoric sounds like President Hoover in he 1930s. http://modern-us-history.suite101.com/arti...reat_depression

His more famous successor went on to :

"All safe deposit boxes in banks or financial institutions have been sealed...and may only be opened in the presence of an agent of the IRS." - President F.D. Roosevelt, 1933

As Mark Twain said... "history never repeats itself, but it rhymes.

Only history will judge Mr Obama but I will venture that hey will be written up much the same , two hapless presidents.

[Andrew]

Reading the British papers, they do provide e fresh perspective on where the world's economy is really heading. In Ambrose Evans-Pritchard article in the Telegraph warning of the path being set by the current Premier Manmohan Singh of ignoring advice from respected economists. Recently such a panel of Indian government advisers called for immediate interest rate rises to prevent double-digit inflation spinning out of control. Is this a sign of what will happen in Great Britain, the United States and perhaps Canada. It did in the late seventies and early eighties.

In India a powerhouse of the new BRIC nations with 1.4B people their economist are calling for a"Further tightening is required. Inflation is more than twice the comfort zone," the Economic Advisory Council said. Food prices are sneaking up everywhere... especially her in Ottawa, dear reader

The question is if we let the Bank of Canada raise interest rate too quickly we'll just about destroy what is left of our strategic industrial base. Time to follow in Jon Budden & JP Morgan's lead and begin buying precious metals.

You can find the link here: http://www.telegraph.co.uk/finance/globalb...food-soars.html

[Andrew]

Reading the British papers, they do provide e fresh perspective on where the world's economy is really heading. In Ambrose Evans-Pritchard article in the Telegraph warning of the path being set by the current Premier Manmohan Singh of ignoring advice from respected economists. Recently such a panel of Indian government advisers called for immediate interest rate rises to prevent double-digit inflation spinning out of control. Is this a sign of what will happen in Great Britain, the United States and perhaps Canada. It did in the late seventies and early eighties.

In India a powerhouse of the new BRIC nations with 1.4B people their economist are calling for a"Further tightening is required. Inflation is more than twice the comfort zone," the Economic Advisory Council said. Food prices are sneaking up everywhere... especially her in Ottawa, dear reader

The question is if we let the Bank of Canada raise interest rate too quickly we'll just about destroy what is left of our strategic industrial base. Time to follow in Jon Budden & JP Morgan's lead and begin buying precious metals.

You can find the link here: http://www.telegraph.co.uk/finance/globalb...food-soars.html

[Andrew]

Let's get back to President Obama with the American food stamp program rapidly growing, and according to Bloomberg News (August 5) well over 40M Americans. The link is here: http://www.boston.com/news/nation/washingt...rd_408m_in_may/

But mid term elections are looming in the USA and the Democrats are anticipating being all but wiped out by the Republicans.But wait, the Illinois senator and former neighbourhood organizer has a plan. Just what to do for Main Street. Mr Obama has taken care of his rich friends very well at Goldman Sachs by not canceling the Bush tax cuts and leaning towards their renewal. Why not order Fannie Mae and Freddie Mac to forgive a whole bunch of non performing mortages? Reuters reports on this at http://blogs.reuters.com/james-pethokoukis...ise-from-obama/

Sure looks like the lights at the end of the tunnel are those of an oncoming train.

This post has been edited by Andy: Aug 7 2010, 08:57 PM