[Austerity Fail] Spending Cuts Push UK Into Recession

Yeah it's worth keeping an eye on it if their inflation goes up. Their inflation rate is currently about 3.5% which is pretty healthy thought.

 

Would cutting taxes create more Jobs??

 

As we saw during the Clinton years when the tax rate was only a few % points higher, unemployment was not an issue and yes, in fact there were 22 million jobs created during that time.

 

For instance, I'm part of the middle class who get taxed a certain percentage. Now if I was to get taxed less overall, that would leave me with more money in my pocket to spend on restuarants or hire a contractor to build a deck in my backyard. By doing so I would stimulate the local economy and the local jobs would probably hire more staff to attend for new customers. Meanwhile the contractor who built my deck for around 8k gets to pay his taxes as well and stimulate the local economy as well.

 

Maybe to a point. But then we'd have schools that were failing, less cops and firefighters on the streets, roads crumbling and dangerous, questionable food and water supplies. You get the idea

 

I thought the registration sticker fee went directly to improve our existing infrastructure, I might be wrong. Now public schools has been down the drain for the past 20+ years and increasing govt funding has not helped. So we might have to approach the school system differently since increase funding is not the answer. What if we get rid off all the standerize testing required and let the states handle education. From the states it can be passed on to counties, I think we need erase all the bureacracy from the education system and start holding local committes accountable. I actually would allocate more funding for hiring public servants. Now since the clinton era, how big was our govt compare to today after both bush and obama held office.

 

The point being there needs to be a balance. Spending cuts matched with a robust revenue stream. We could cut the military budget alone by 25% and easily fund domestic initiatives for decades.

 

I agree we need to reduce the size of govt (cutting spending) and let the bush tax cuts expire for all american citizens regardless of income.

 

Uhhmmm. Standardized testing is already carried out by states and look what that has done to Texas. We are the second worst educated state in the country. Not to mention with a governer like Rick Perry that prioritzes education funding cuts as a first resort then we have a huge problem.

 

I get why austerity measures can harm an economy, but what happens when our deficit gets so large we can't afford to borrow any more money? then what will we do and what will the impacts be? The gov't can't keep spending this much borrowed money unless interest rates stay WAY low.

So while this seems to be a solution (deficit spending), what happens when borrowing costs are too high or no one is willing to buy T-bonds?

And I don't really see how all of this spending has really helped the economy the last 3-4 years...it's still in the crapper but now we have a much larger burden long term

Not saying major austerity measures are the solution (clearly the UK is proof that they are not), but I don't see how the current path is sustainable.

No idea what the solution is...

 

Wow... your ignorance of federal spending is nothing short of amazing. If we cut the military budget by 25% last year, we would have spent about $175 billion less than what we actually spent ($700 billion). Military spending is slated to fall both in actual dollars and as a percentage of the federal budget over the next decade, so that extra $175 billion will also decrease over the next decade. Our deficit last year was $1,300 billion, so with your 25% cut we would have been $1,125 billion.

Let's throw in the Buffett rule - $1,122 billion.

Obama's "Best Case Scenario" for taxing the rich - $1,077 billion (Obama's proposal was $450 billion over 10 years).

So we've taxed the rich and cut the military and we still have a $1,077 billion deficit.

Now what?

 

That sounds nice in theory but there are a few problems that I see with that based on my experience as a small business owner.

First off my taxes are very low and am getting back practically every dollar I've paid in taxes because our revenues the last few years have been low. Low taxes really don't make a difference without revenue.

Having that money is nice but we are not planning on making any huge spending moves because of uncertainty. I and my company are holding onto my money in case things take a nose dive. While you might choose to spend any more money you get from a tax cut not everyone will especially right after coming out of a recession.

As a small business work is picking up for us quite a bit and it looks like the recession is over, at least for us. That still doesn't mean we are going to hire anyone because we are still uncertain about how things go.

Tax cuts don't automatically translate to more business. From my own experience during the downturn government spending helped more since almost all of the work we had during the downturn had some government aspect to it.

 

Flat tax all corporations at 25%. No more allowing the mega corps to write the tax code so GE/Pepco are getting treasury refunds. I have no idea what that would do for the deficit but it's a start. Create a one time 10% repatriation tax to allow corps to bring in funds held over seas. Use that money for a bridge/road project here at home to update infrastructure.

Obviously Austerity now is not the answer but we have to find a way to cut federal spending and increase revenue in the mid term

 

Good point, but I prefer to have more money in my pocket. Don't want to continue to derail this thread any longer, but one last thing I had on my mind. What If, the $$$ for the bailouts that went to finacial institutions to get rid of the toxic assest that came about from the sub prime mortgage mess, were allocated and paid in full to every struggling family that contributed to mortgage mess. Would that alone stop the recession?

 

That can't happen. The Primary Dealers Act of 1988 states that dozens of the largest banks in the world (called primary dealers) are required by law to make a fair-market offer on every single bond sold at Treasury auctions. They literally don't have a choice. They have to buy up every single one and introduce them into the secondary market.

Why do primary dealers they agree to do this?
They can make a quick profit reselling the bonds in the secondary market (sold to individual buyers like you and me). In case nobody buys them, they earn interest on bonds as opposed letting their reserves sit idly. Not all excess reserves can get lent out no matter how much banks would like to do so.

Why do foreign countries buy U.S. debt?
Foreign central banks accumulate dollars and need to do something with them.

How did they accumulate these dollars in the first place?
Because foreign companies are willing to accept USD as payment for goods/services rendered. Currently, we send USD overseas for goods/services from China, Japan, and Germany (not RMB, Yen, or Euro). These foreign companies will then usually exchange these USD at commercial banks for local currency. These commercial banks in turn go to the central banks to exchange them for local currency as well. All the while...USDs are accumulating at the various foreign central banks.

Why are they willing to to accept USD as payment?
Because most people in the world believe the USD is worth something. Being the world's reserve currency certainly helps A LOT, but even if the USD lost such lofty status, the American economy still outputs a vast amount of goods/services every year that can be bought via the USD. For example, the Canadian or Australian dollar aren't world-level reserve currencies, but I'm sure many businesses in the world accept them as payment because there are many things that can be bought with those currencies. In contrast, most businesses would probably refuse Syrian or Tongan currencies as payment.

What about the interest rate?
As long as bonds are denominated in USD (meaning they can only be bought or paid back in USD), The Fed and Treasury have complete control over the interest rate. For example, the Bank of Japan has been selling bonds at near-zero rates for 20 years...yet they never seem to have any trouble finding any buyers for their "debt."

To sum up, the day nobody wants to buy T-bonds:
...is the day banks are unwilling to be primary dealers
...is the day banks have no more need for USD-denominated income
...is also the day foreign countries have no more need for USDs as well

which means either:
...goods/services produced by our economy can no longer be purchased in USD
...the U.S. economy has stopped producing anything of value
...the U.S. government and economy have collapsed altogether

In other words, unless the economy shrinks dramatically, or the country stops producing anything of value, what you're worrying about will never come to pass. Have faith in this country's ability to produce valuable things.

 

Do the states need standerize testing to meet certain criteria to recieve funds from the Federal Govt??

 

Nationalize the Oil Companies?