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Davos 2014: Larry Summers attacks George Osborne’s austerity programme | Business | theguardian.com

Davos 2014: Larry Summers attacks George Osborne’s austerity programme | Business | theguardian.com.

Larry Summers and George Osborne

Larry Summers, Bank of Japan governor Haruhiko Kuroda and George Osborne. Photograph: Denis Balibouse/Reuters

George Osborne‘s handling of the economy was strongly attacked byLarry Summers as the former US Treasury secretary poured criticism on the UK’s austerity programme, its welfare cuts for poor people and its strategy for preventing a housing bubble.

Summers, a long-running critic of the coalition government, said the chancellor was wrong to blame the eurozone crisis for the weakness of business investment and that governments should be spending more on infrastructure to tackle the threat of “secular stagnation”.

“I see less need to impose cuts on people who are vulnerable in the US context than the chancellor sees in the European context”, Summers said in a session on the future of monetary policy at the World Economic Forum in Davos.

Making it clear that he believed Britain would have done better to follow the US approach in which tackling the budget deficit has been seen as less important than restoring growth, Summers said: “It’s several years since the US exceeded its peak GDP before the crisis – that still hasn’t happened in the UK.”

The chancellor put up a staunch defence of his approach, noting Britain was creating jobs, had sound economic policies and a new system for controlling the City that was the envy of the world. Osborne said businesses had been sitting on their cash while the euro was going through “a near-death experience” but predicted that investment spending was now about to start to rising.

The chancellor responded to Summers’s charge that Britain, unlike the US, had failed to raise national output above its pre-recession levels by saying that the UK had suffered a deeper slump and was more dependent on the financial sector for its growth.

“We did have a much bigger fall in GDP [than in the US], and the impact of the crisis was even harder because our banking sector was a larger share of the economy than in America.

“The great recession in the UK had an even greater effect – and we were one of the worse effected of any of the western economies.”

But Summers, the man once a front-runner to succeed Ben Bernanke at the Federal Reserve responded to Osborne’s claim that the Bank of England had tools to rein in the property market by pointedly rubbishing the initiative.

“I worry about macro-prudential complacency”, Summers said, a reference to the notion that central banks can head off problems before they arise by actions to restrain the animal spirits of lenders.

Noting that policymakers had failed to spot the stock market crash of 1987 and the sub-prime mortgage crisis, Summers said he was unclear about how macro-prudential policies would work and said tougher measures were needed to make markets safe from “ignorance and error”.

Osborne said he agreed with the need for more infrastructure spending, but added there was no “free lunch”. Governments needed to take tough decisions elsewhere in your budgets, in areas such as welfare spending.

“Without a credible fiscal policy, as many other countries learned in this crisis, you don’t have a credible monetary policy and your market rates go up.

“So while infrastructure spending is needed, you need to make hard choices as finance minister as how to pay for it.”

Summers rejected Osborne’s argument that high borrowing costs in troubled eurozone countries were the result of governments over-spending and losing the trust of financial markets.

He said high borrowing costs were due to the specific nature of the eurozone currency – the fixed exchange rate and the inability of individual countries to tailor their economic policies to their own needs.

Reform EU or Britain quits – George Osborne lays down ultimatum | Politics | The Guardian

Reform EU or Britain quits – George Osborne lays down ultimatum | Politics | The Guardian.

George Osborne in Brussels, 2010

The chancellor, George Osborne, at a EU finance ministers’ meeting, in Brussels, three years ago. Photograph: KeystoneUSA-ZUMA/Rex/

George Osborne will today deliver a stark warning to Britain’s European partners that the UK will leave the EU unless it embarks on whole-scale economic and political reform.

The chancellor’s comments come as the Tory leadership tries to regain the initiative on Europe, after 95 MPs signed a letter calling for the dismantling of the core principles of the EU.

In a speech to a conference organised by the pro-reform Open Europe thinktank and the Fresh Start group of Tory MPs, Osborne will say: “There is a simple choice for Europe: reform or decline. Our determination is clear: to deliver the reform, and then let the people decide.”

Tory backbencher Bernard Jenkin won the support of about 100 MPs for a letter to David Cameron calling for the British parliament to be given a veto over all EU laws.

Such a move would dismantle the rules of the European single market which were drawn up by Margaret Thatcher’s ally, Lord Cockfield, to prevent France imposing protectionist measures by denying member states a national veto.

Jenkin suffered a blow when Andrew Tyrie, the chairman of the Commons Treasury select committee, said he had been wrongly listed as a supporter. But Osborne will make clear that Cameron will push for wide-ranging reforms if he wins the general election next year with a mandate to renegotiate the terms of British membership.

Osborne will tell the conference: “The biggest economic risk facing Europe doesn’t come from those who want reform and renegotiation – it comes from a failure to reform and renegotiate.

“It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline.”

Osborne will say the EU suffers from a chronic lack of competitiveness and that the European economy has stalled over the last six years while the Indian economy has grown by a third and the Chinese economy by 50%.

He will say: “Make no mistake, our continent is falling behind. Look at innovation, where Europe’s share of world patent applications nearly halved in the last decade. Look at unemployment, where a quarter of young people looking for work can’t find it. Look at welfare.

“As Angela Merkel has pointed out, Europe accounts for just over 7% of the world’s population, 25% of its economy, and 50% of global social welfare spending. We can’t go on like this.”

Osborne is expected to say that Cameron will press for a realignment of the rules of the single market to ensure the 18 members of the eurozone cannot outvote the 10 EU members, such as Britain, which have not joined the single currency.

Tory divisions will be highlighted at today’s conference as MPs from the Fresh Start group challenge Jenkin’s letter.

Mats Persson, director of Open Europe, said the Tory party risks “becoming its own worst enemy” as the likes of Jenkin table unrealistic demands.

Persson said: “There is a huge debate in Europe about what the EU’s defining mission should be in future – the single market or the euro?

The chancellor should clearly set out that the UK cannot accept an EU dominated by euro countries preoccupied with shoring up their currency at the expense of those who cannot join for democratic reasons. If the EU becomes a political extension of the euro, it’ll be hard for the UK to remain a member.

“As our conference clearly shows, there’s growing momentum for reform across Europe. However, the Tory party risks becoming its own worst enemy when it comes to achieving a new settlement in Europe.”

David Mowat, the Tory MP for Warrington South, who will address the conference, said that the Fresh Start group was proposing a constructive set of proposals to help the prime minister in his negotiations if he won the election. “The letter is a different initiative,” he said.

The Fresh Start group, led by the No 10 policy board member Andrea Leadsom, will focus on three areas of reform at the conference.

The areas include delivering Cameron’s proposal to keep Britain apart from moves to create an “ever closer union” in the EU; completing the single market, especially with services; and delivering William Hague’s plan of bumping up the EU’s “yellow card” system to a “red card” one.

This would mean that a third of national parliaments could block EU laws if they can reach an agreement.

George Osborne warns of more cuts and austerity in ‘year of hard truths’ | Politics | theguardian.com

George Osborne warns of more cuts and austerity in ‘year of hard truths’ | Politics | theguardian.com.

George Osborne is making a speech today saying more cuts worth £2bn are needed.

George Osborne warns of more cuts to the welfare budget. Photograph: Reuters

George Osborne has warned of another £25bn of cuts after the next election, targeting housing benefit for the better-off and under-25s.

In a grim message to start the new year, the chancellor said Britain was facing a year of hard truths in 2014 as there were more cuts to make and the economy still had big underlying problems. He said he expected the bulk of the savings to come from welfare, as it would be an “odd choice” to leave this “enormous budget” untouched.

Benefits for the young and people of working age would be considered before any cuts to pensioner benefits such as free bus passes and television licences, he said.

He told BBC Radio 4’s Today programme: “If you were going to be looking for savings in welfare, pensioner benefits is not the place that I would first turn to. I would look at housing benefit for the under-25s, when there are many people listening to this programme who can’t afford to move out of their home but if you’re on benefits you can get housing benefit under the age of 25. There are people, for example, on incomes of £60,000 or £70,000 living in council homes – I’d look at that.”

Justifying his choice to target welfare again after around £83bn of previous cuts, the chancellor said: “I think we do have to look at the welfare budget because I think it would be an odd choice as a country to say, look we’ve got a high deficit and we’re going to deal with that by just cutting the schools budget or the science budget or something like that … and to leave untouched this enormous welfare budget. That ultimately is where you can find substantial savings.”

He said he did not know when people would start to feel the effects of recovery. “There’s a hard truth, which is this country is much poorer because of the economic collapse six or seven years ago, and families feel that. What is the answer? I can’t wave a magic wand and make the country richer. The way the country gets richer and families get richer is by being a competitive country that attracts jobs and investment.”

In a speech in the Midlands on Monday morning, Osborne said there was still a long way to go before recovery as he set out a five-point plan to help the economy. “We’ve got to make more cuts – £17bn this coming year, £20bn next year, and over £25bn further across the two years after. That’s more than £60bn in total.”

Osborne built on previous warnings about the need to intensify austerity, on top of billions of pounds of existing cuts, even though the economy appears to be turning a corner. In the speech, he said the job of fixing the economy was “not even half done”. “That’s why 2014 is the year of hard truths,” he said.

The chancellor’s negative outlook forms part of his argument that people should vote Conservative to let the party “finish the job”, rather than handing control back to Labour. However, Labour said more cuts were needed after 2015 because Osborne’s “failure on growth and living standards since 2010 has led to his failure to balance the books”.

“What we need is Labour’s plan to earn our way to higher living standards for all, tackle the cost-of-living crisis and get the deficit down in a fairer way,” said Chris Leslie, shadow chief secretary to the Treasury.

It comes after David Cameron on Sunday suggested that more cuts to housing benefit were on the way and refused to rule out reducing handouts for the elderly, which include free television licences, bus passes and winter fuel allowances.

With just 16 months to go before the next election, the prime minister gave his clearest hints yet about the Conservatives’ priorities for the 2015 manifesto, including more welfare cuts and higher state pensions every year for the rest of the decade. Speaking on the BBC’s Andrew Marr Show, Cameron promised the Conservatives would keep the so-called triple lock on pensions until at least 2020 if in power – which means increasing it annually by inflation, average earnings or 2.5%, whichever is highest.

He said this decision to protect the income of pensioners above other age groups at a time of austerity was “a choice based on values, based on my values”. He denied it was a move to woo the grey vote, even though eight in 10 over-60s vote, compared with just four in 10 in the 18-24 age group.

But Cameron did not rule out cuts to universal benefits for the elderly, stressing that his previous promise to keep these handouts only extended as far as the end of this parliament in 2015. He also criticised the level of housing benefit for being “frankly far too high”. “We’ve put a cap on housing benefit, but I still think there’s more we can do to reform our benefits system,” he added.

Cameron also signalled that he wants to cut taxes for the lowest paid before taxes for the rich. He did not rule out reducing the 45p top rate of tax further to 40p, saying such decisions had to be made on the basis of whether they would raise more revenue, but suggested it was not top of his priorities. His remarks are potentially a hint that the Tories could pledge to increase the level at which workers start paying income tax above £10,000 – even though 5 million of the lowest paid earn even less than that and would see no benefit.

“I want taxes that mean the rich pay not just a fair share, as it were, in taxes, but I actually want the rich to pay more in taxes,” he said. “So you ought to set tax rates that encourage people to earn, to set up businesses, to make money, and then to pay taxes. And actually what we’re finding with the 45p rate is I think it’s going to bring in a better percentage of money than the 50p rate is. So you should always look at how you set taxes in that way.

“But my priority if you like – the priority of this government and the Conservative party – the priority is to target tax reductions on the poorest people in our country … If I had money in the coffers I would target that money at the lowest paid.”

Labour said the prime minister’s words suggested he was still “paving the way for yet another cut to the top rate of tax, a further tax giveaway for millionaires and the top Tory donors who bankroll Cameron’s Conservative party”.

During the interview, Cameron also insisted a Conservative victory at the next election was achievable and that he would go all out for it even though the party is far behind Labour in the opinion polls and a new survey suggests a third of Tory voters have deserted the party since 2010.

“We’ve got 16 months to the next election. This year for me is a year about governing, it’s about delivering, it’s about putting in place the elements of that long-term plan. I’m content that the public will judge me and the government I run and the party I run in 2015,” he said.

Vince Cable: interest rates may have to rise to combat housing boom | Business | theguardian.com

Vince Cable: interest rates may have to rise to combat housing boom | Business | theguardian.com.

Vince Cable<br />

Vince Cable has again called for the government to rethink its help to buy scheme. Photograph: David Cheskin/PA

The business secretary, Vince Cable, has warned that interest rates may have to rise to constrain a “raging housing boom” in London and the south-east.

Speaking on BBC1’s Andrew Marr Show, he said if interest rates were not increased by the Bank of England, there was a danger that large parts of London could be inhabited only by foreigners and bankers as house prices spiralled.

He added that, on the other hand, if interest rates were increased it would have a negative impact on UK manufacturing since exchange rates would rise, making exports harder.

It is the first time Cable has spoken so openly about the possibility of interest rates rising due to the imbalance in the economic recovery.

He again called for the government to rethink its Help to Buy scheme, which he said was conceived in entirely different circumstances. He also hinted strongly he did not want to follow the Conservative path on spending cuts after the election in 2015, saying the social fabric was under strain.

Cable said: “There is a raging housing boom in London and the south-east, and not in other parts of the country. The danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered, you push up the exchange rate and that hits manufacturing. We don’t want that. On the other hand, if you do not increase interest rates – if that is the way the governor and the Bank of England go – then this boom that is taking place in housing prices gets out of control and the only people that can afford to live in large parts of London are foreigners and bankers, and we don’t want that either.”

He said the government needed to look again at the Help to Buy scheme, which involves government backing for mortgages so that buyers do not have to provide such a large deposit, saying “it was conceived in very different circumstances”.

Cable also said he noted the rating agency Standard & Poor’s hadreaffirmed the UK’s AAA rating, but had expressed concerns about imbalance in the UK economy.

He said: “We have got to have a sensible balance on public spending cuts – which is getting very severe. Some very good services are now being seriously affected.”

 

George Osborne distances himself from Boris Johnson’s IQ comments | Politics | theguardian.com

George Osborne distances himself from Boris Johnson’s IQ comments | Politics | theguardian.com.

George Osborne on The Andrew Marr show

George Osborne on The Andrew Marr show Photograph: BBC

The chancellor, George Osborne, has distanced himself from Boris Johnson‘s suggestion that some people cannot do well in life because of their low IQ, but agreed with the idea that economic equality is impossible.

Osborne is the first senior Conservative to reject the controversial remarks made last week by the London mayor, who said it was futile to try to end inequality when “16% of our species have an IQ below 85 while about 2% have an IQ above 130”.

The chancellor dismissed the language of Johnson, a fellow rival to succeed David Cameron as Tory leader, but suggested there was an element of truth to what he was saying about inequality.

Speaking on the BBC’s Andrew Marr Show, he said: “I wouldn’t have put it like that and I don’t agree with everything he said. Where I think there is increasingly common agreement about across the political spectrum is that you can’t achieve equality of outcome but you should be able to achieve equality of opportunity. You should give everyone wherever they come from the best chance and actually education is the absolute key to this.”

Ed Balls, the shadow chancellor, told the same programme that Johnson’s remarks were not uncommon in Westminster.

“That idea that greed is good and the poor are poor because they are stupid is pretty outdated set of views and there’s rather too much of those attitudes around in politics,” he said.

Johnson’s highly provocative comments were made during a speech in memory of Margaret Thatcher last week, in which he appeared to mock the 16% “of our species” with an IQ below 85 as he called for more to be done to help the 2% of the population who have an IQ above 130.

“Whatever you may think of the value of IQ tests it is surely relevant to a conversation about equality that as many as 16% of our species have an IQ below 85 while about 2% …” he said as he departed from the text of his speech to ask whether anyone in his City audience had a low IQ. To muted laughter he asked: “Over 16% anyone? Put up your hands.” He then resumed his speech to talk about the 2% who have an IQ above 130.

Johnson then told the Centre for Policy Studies thinktank, which helped lay the basis for Thatcherism in the 1970s: “The harder you shake the pack the easier it will be for some cornflakes to get to the top.”

Johnson moved to associate himself with what were seen as the excesses of 1980s Thatcherism as he said: “I stress – I don’t believe that economic equality is possible; indeed some measure of inequality is essential for the spirit of envy and keeping up with the Joneses that is, like greed, a valuable spur to economic activity.”

The deputy Prime Minister Nick Clegg said that Johnson’s comment revealed an “unpleasant, careless elitism”.

 

Talking Real Money: World Monetary Reform

Talking Real Money: World Monetary Reform.

Talking Real Money: World Monetary Reform

Published in Market Update  Precious Metals  on 14 November 2013

By Michael O’Brien

Today’s AM fix was USD 1,283.25, EUR 955.23 and GBP 801.53 per ounce.
Yesterday’s AM fix was USD 1,276.00, EUR 951.25 and GBP 798.75 per ounce.

Gold rose $4.40 or 0.35% yesterday, closing at $1,273.30/oz. Silver slipped $0.19 or 0.92% closing at $20.56. Platinum fell $5.55 or 0.4% to $1,424.20/oz, while palladium fell $9.50 or 1.3% to $727.97/oz.

Gold inched up again after Federal Reserve Chairman nominee Janet Yellen said the U.S. economy and labor market must improve before QE is reduced. This lifted confidence as silver prices recovered from their lowest levels since August. “The focus for the bullion market may shift to the upcoming testimony by Yellen,” James Steel, an analyst at HSBC, commented. “Chinese gold demand remains brisk. However, gold is likely to remain on the defensive in the near term”, wrote Steel.

The latest long term gold trend research from Nick Laird at ShareLynx indicates that the price of gold may rise in the near future. In the chart below, Nick references those periods from the past when it was prudent  to buy and to sell. He also indicates that this particular period, November 2013, may be a prudent time to to buy. This chart reaffirms GoldCore’s long term outlook for the price of gold.


Long Term Gold Trend (www.sharelynx.com)

“Sometimes it’s not enough to know what things mean, sometimes you have to know what things don’t mean.” Bob Dylan

The Bank of England says the UK recovery has taken hold and Chancellor George Osborne is reported as saying “the report was proof the government’s economic plan was working.” The governor of the Bank of England, Mark Carney, said the bank will not ‘consider’ raising interest rates until the jobless figure falls below 7%.

However, The Bank of England threw a get-out-of-jail card on the table and said that there was a two-in-five chance of the unemployment rate reaching the 7% threshold by the end of 2014. And then added that the corresponding figures for the end of 2015 and 2016 are around three in five and two in three respectively. What exactly does the Bank of England mean or what does this not mean?

The financial crisis of 2007-2008 has sparked the most intense interest in international monetary reform since Richard Nixon closed the gold window at the New York Fed and devalued the U.S. dollar in 1971. Nixon’s action was widely seen at the time as presaging the end of the dollar-based world trade and financial system. On the face of it, this probably wasn’t an unreasonable expectation at the time. Within fewer than ten years, however, it was proven to be far off the mark. The dollar fell alright, but by the middle 1980s had recovered strongly.

In retrospect it is clear why the dollar sceptics were wrong. To begin with, the U.S. economy was still the world’s largest and the U.S. was still the leader of the “free world,” that is to say the world outside the communist bloc. The NATO countries of Western Europe were wholly dependent on the U.S. for security as well as for markets.

The same applied to Japan, South Korea and Taiwan, while the signatories of the secret UK/USA intelligence agreement (the U.S., UK, Canada, Australia and New Zealand) represented the Anglo core of the old British Empire, a group with no interest in seeing the dollar replaced. Communist Russia and China were in no position to register an opinion, much less offer an alternative. By default, the dollar soldiered on, thanks to the geopolitical realities of the time.

But what about today’s realities? Continue this fascinating story in our November edition of Insight – Talking real money: World Monetary Reform.

Click here to download your own copy of Talking real money: World Monetary Reform

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Osborne hails UK nuclear deal with China as ‘new dawn’ – FT.com

Osborne hails UK nuclear deal with China as ‘new dawn’ – FT.com. (source)

George Osborne on Thursday hailed a new dawn for Britain’s civil nuclear programme as he announced a deal between Chinese investors and EDF Energy to build the first nuclear power station in the UK in a generation.

The Chinese General Nuclear Power Group and the French energy company are expected to sign a letter of intent as the two sides finally agree a deal for a planned new plant at Hinkley Point in Somerset.

The main commercial details of the agreement will be announced on Monday by Ed Davey, energy secretary.

Speaking at Taishan nuclear power station in southern China, Mr Osborne said: “Today is another demonstration of the next big step in the relationship between Britain and China – the world’s oldest civil nuclear power and the world’s fastest growing civil nuclear power.”

The chancellor said it was an “important potential part of the government’s plan for developing the next generation of nuclear power in Britain”.

The first reactor to be built in Britain since Sizewell B began operating in 1995, ministers hope the deal will unlock the construction of several new nuclear power stations across the UK.

British officials have been travelling the world trying to entice investment in new nuclear, relying on French and Japanese technology and Chinese funding to fuel the renaissance of the British industry.

But Mr Osborne’s determination to announce the deal on his trip to China has infuriated Mr Davey, who has done much of the legwork. He travelled to China last month to meet officials ahead of the chancellor’s visit.

“Football fans might say he is the John Terry of government,” remarked one Liberal Democrat on Thursday, a reference to when the Chelsea captain changed into full kit to lift the Champions League trophy – despite having not played in the match. “He [Mr Osborne] was as close to the real negotiations and the work as Pluto is to the earth.”

Mr Osborne sees the nuclear programme as a positive investment story for the UK and spoke of his commitment to building reactors in his recent Conservative party conference speech.

“Should we, the country that built the first civil nuclear power station, say: ‘We are never going to build any more – leave it to others?’ Not on my watch,” said the chancellor.

Under the terms of the deal to be announced on Monday, the government will offer EDF a guaranteed price for the electricity it generates at Hinkley. That “strike price” is expected to be almost twice the present market price of electricity.

The UK government is also offering a financing “guarantee” to attract the private sector into building nuclear reactors.

Ministers are adamant that neither element of the deal is a form of subsidy for civil nuclear power, but the coalition could be in an uneasy position when the deal comes up against EU public subsidy rules in the coming months.

The coalition agreement between the Lib Dems and Conservatives states clearly there will be no government subsidy for new nuclear.

Additional reporting by Guy Chazan

 

 

The Battle for Water by Brahma Chellaney – Project Syndicate

The Battle for Water by Brahma Chellaney – Project Syndicate.

 

Anti-fracking protesters halt Sussex shale gas operation | Environment | guardian.co.uk

Anti-fracking protesters halt Sussex shale gas operation | Environment | guardian.co.uk.

 

Help to Buy scheme could create new housing bubble, Osborne warned | Money | guardian.co.uk

Help to Buy scheme could create new housing bubble, Osborne warned | Money | guardian.co.uk.

 

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