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As Blanchflower predicts £225bn in money printing to start next week, can he please tell us where this mythical austerity is?

danny blanchflower

You may remember back in September of last year we noted that ex-BoE member David Blanchflower confidently predicted that the Bank of England would print more money before November – at the time we wrote:

Ex-BoE member David Blanchflower was on Bloomberg yesterday confirming what we’ve been saying – namely that QE is coming in before November.

Which backs up what we wrote on September 2nd:

It’s hardly surprising, we had the goose egg ‘0’ print non-farm payrolls earlier in the US and more bad data in the UK. All in all official money printing is coming in September in the US and in October for the UK… if not sooner.

[emphasis ours]

He was right and so were we. So when Blanchflower appears on TV again saying that the BoE will print another £75bn, perhaps as soon as next week and will print in total an astonishing £225bn in total this year, we should all listen and prepare accordingly.

But on top of that we also remind you of last week’s Office for National Statistics GDP data which showed what we’ve be saying for all of last year – namely that the UK is back in a recession it never actually never left – we signed off that piece with the following:

And while we’re at it can we nip in the bud any argument (that no doubt Labour will wheel out) that the reason that economy is underperforming is because of the Tories’ ‘severe austerity’. Please familiarise yourself with the following articles:

Repeat after us: there has been no ‘austerity’ in the UK

The UK Government borrowed more this August than at any time in the country’s history

UK Debt reaches new record

Picking though Osbourne’s Autumn budget statement: More spending and much more debt

UK National debt explodes under the Tories – up 30% since they came to office, now stands at £1004tn

In summary the Tories have been bigger spenders and much, much bigger debtors than even the Labour party – it’s not for nothing we’ve dubbed  George Osborne the ‘Faux-stere Chancellor’.

Oh, and let’s not forgot that the BoE is the biggest money printer out of all the central banks in the world. Is it not just as reasonable to point to the high spending, high increase in debt and vast money printing as the cause of the slowdown as opposed to some mythical spending cuts that simple haven’t happened and only seem to exist in the minds of the politicians and on the lips of the MSM.

[emphasis ours]

We were trying to give our readers a heads-up for what was coming – namely that so-called ‘experts’ would appear on TV and in print in the following days trying to blame the slowdown of the UK economy on some mythical ‘austerity’ that we have proven, using nothing more complicated than the government’s own data, simply does not exist.

Well, here is a clip of exactly that. David Blanchflower, former member of the Bank of England’s interest rate setting monetary policy committee and current tenured professor in the US no less, appeared on Bloomberg this week trying to make the non-existent ‘austerity’ connection with the dire state of the UK economy, just like we warned they would – it really has to be seen to be believed:

 

You catch that? Blanchflower says the following:

“QE is absolutely certain next month, maybe next week… we’re going to see three more £75bn tranches”

“Remember the Bank of England is plan ‘b’ for Osbourne”

“The politics of the austerity has come to haunt them, lowering the role of the state. Now the data is in and that seems to have failed

“I would advise Osborne to u-turn. The first thing i would advise him is to talk up the economy… we have to have a growth plan in the UK…I call it Darling recovery followed by 5 quarters of Osborne collapse,  this is the longest lasting depression in 100 years”

[emphasis ours]

Well well, where to begin with this. Firstly we agree with Blanchflower’s assessment  that the BoE will print, print and then print some-more. But even we are shocked at the numbers being thrown about here. £225bn of money printing this year. If he is correct this would represent an almost doubling of the BoE’s already extremely bloated balance sheet.

As of right now the BoE has printed more money in relation to the size of its economy than any other central bank on the planet. No mean feat when you look at what the world’s central banks are also doing.

But a doubling of that money printing from here is almost suicidal and will put the BoE in its very own unique class of world central banker – that of printing more money than its nearest rival by at least 50%.

Also note what Blanchflower had to say about that money printing:

“Remember the Bank of England is plan ‘b’ for Osbourne”

This is something regular readers will already know. Back all the way in Decmeber 2010 we wrote the following:

So how will our government and central bank deal with this looming problem in 2011? Just before Christmas we had the staggering “plan b” from that unelected mandarin, Sir Gus O’donnell. The talk in Whitehall and Government is that there is a real chance the economy ‘falters’ next year – one wonders why we pay these people upwards of £285k a year to come up with genius assessments like this.

What was staggering about the “plan b” memo was that the very first action the government, through the BoE, should undertake. Print more money. Yes you read that correctly, option number 1 in the ‘Plan b’ is to “extend quantitative easing”.

[emphasis ours]

We were trying to warn people back in 2010 that the UK government had told us that plan ‘b’, when the economy faltered, was to print more money. This week Blanchflower openly says what we knew all along.

But the most irritating part of Blanchflower’s interview was something we said was coming. Namely that the GDP fall in the UK would be blamed on austerity. Blanchflower said:

The politics of the austerity has come to haunt them, lowering the role of the state. Now the data is in and that seems to have failed”

“…I call it Darling recovery followed by 5 quarters of Osborne collapse…”

[emphasis ours]

The idea that the UK is undergoing austerity is a meme that you see absolutely everywhere and it’s said these days as if it were a fact and true. It never gets challenged by anyone, not even by the supposed smartest financial journalists in the country.

The meme is so strong that you will often hear people repeat it back to you as if it were true. Try it out, ask your friends or work colleagues if they think the policy of the current government is one of ‘austerity’ – we would be surprised if any said anything other than ‘yes’.

But the simple truth is there has been absolutely no austerity in the UK whatsoever. All you have to do is actually look at the official data to see that the meme of spending cuts by the Tories is so far removed from reality that it is almost laughable.

But before we get into the facts let’s make sure we’re all clear on the definition of ‘austerity’. From the Oxford English dictionary:

noun (plural austerities)

  • sternness or severity of manner or attitude: he was noted for his austerity and his authoritarianism
  • extreme plainness and simplicity of style or appearance: the room was decorated with a restraint bordering on austerity
  • (austerities) conditions characterized by severity, sternness, or asceticism: a simple life of prayer and personal austerity
  • difficult economic conditions created by government measures to reduce a budget deficit, especially by reducing public expenditure: a period of austerity

[emphasis ours]

Got that? When we use the word austerity in an economic sense we’re talking about reducing the budget deficit and reducing public expenditure. For us to use the word austerity to describe the UK’s economic policy both these measures need to be met in a meaningful way.

There are many data points we could question Blanchflower on and that we’ve written about extensively, but let’s stick to just a handful.

First up you notice how Blancflower says that the economy recovered under Darling and then “collapsed’ under Osborne. The narrative that is being made here is that Darling was a big spender supporting the economy and that when Osborne came in he stopped the spending and that’s why the UK is back in recession.

But when you go back and read the actual budget statements of Darling and Osbourne the real facts of the matter are that Osbourne is spending more than Darling was planning to spend if he was still at the Treasury.

Yes, you read that correctly, Osbourne is spending 1% more in 2011/12 than Darling was planning to spend in that same year if the electorate hadn’t given him the boot. It get’s worse, if you include Osborne’s capital expenditure this Chancellor is spending 2% more than Darling intended in 2011/12.

In “Repeat after us: there has been now austerity in the UK” we have all the links to the relevant documents so you can see for yourself.

In our analysis of the Autumn budget you can clearly see that in 2011/12 Osborne will spend £702bn. Just 4 short years ago in the 2008/9 budget Darling spent £566bn plus £33bn in cap-ex for a total of £599.

That means that Osborne is spending an incredible near 20% more than Darling did in ’08 – but somehow people point to Osborne as the spend-thrift? Why isn’t that notion laughed at?

Remember that definition above – spending has to be reduced to qualify as ‘austerity’. But spending has increased not decreased.

Or how about the fact that Darling planned in ’08 of running a £23bn deficit by 2012/13 – This Chancellor, you know the ‘austere’ one, has got £120bn penned in to be borrowed that year. That’s over 400% more than Darling.

Imagine if you could sit in front of some Tory faithfuls back in 2008 and tell them that their party would win the next election and in their 2012/13 budget would run a £120bn deficit that year – absolutely nobody in the room would believe you – in fact it would be such a high number that they probably wouldn’t even think that Labour would seriously run such a deficit.

But here we are and the Tories are running such massive deficits, 400% more than Darling in 2008 and yet that isn’t the amazing thing – the almost fantastical thing is that every MSM outlet and pundit in the country will point to this and claim, with a straight face, that this Chancellor is being “austere” – and nobody in the public will even challenge this ridiculous premise.

Sure the Tories will say that the deficit has fallen under them – but it started from such a high level that the drop is meaningless. And when its compared to deficits over the past couple of decades there are still enormous.

It’s like a person weighing 10 stone in 2008 and reaching 17 stone by 2011. If that person said he only plans to gain1.85 stone in 2012 (which is less than the 2.3 stone gain in 2010) whilst telling everyone how great he’s being because he’s gaining 20% less weight than in 2010 we’d all think that the 20% reduction is meaningless – he’s still adding 1.85 stone in one year and is still one of the highest annual gains in the past 50 years – we would write off the 20% reduction as meaningless.

We certainly wouldn’t for one second think that person was on a serious diet. We definitely wouldn’t be impressed by the fact that he’s gaining weight only at a very slightly less rate.

No, we would only be impressed (and say that he’s on a ‘diet’) if that person started losing weight. The same goes for the UK deficit. The Tories will try and say that they’ve reduced the deficit from about £155bn in 2009 to £120bn today, but that’s not a meaningful reduction and is still 400% higher than the deficit run in 2008. The deficit should be approaching zero by now if the Tories were actually being austere.

So, back to the definition of austerity – reduced deficits? How can anyone look at running the third largest deficit in the country’s history and up 400% in 4 years as being a meaningful reduction?

Now check out the planned spending of Osborne – it goes up each and every year that he is in office – so again, where are these ‘cuts’?

And by the time of the next election in 2014 he will be spending £736bn – that is nearly double what Labour were spending just 10 years ago. Or to put it another way nominal GDP in that time-frame will have gone up around 20% while government spending will be 100% higher.

Again, to be austere spending must be reduced. The simple fact that spending is still increasing. 

There are many more comparisons, just goto the above links to take a look – all point to a Tory chancellor being just as ‘big-spendery’ as Darling, if not more so.

But probably the best metric to look at to see if there really has been austerity in the UK is the debt. Which is the entire point of reducing the deficit in the first place, so the national debt can be reduced by running surpluses – something far more important than deficits but rarely focussed on in the MSM.

This is something we go into detail here. We all saw that the UK national debt (the stuff they count at least – the real number is nearly 3 times higher) hit £1tn for the first time in the country’s history last week. But that wasn’t the real story. The real story was the speed at which the Tories have added to the debt.

The Tories have increased the national debt of the UK by a third (30%) in just 20 months – an astonishing speed. Especially when you compare this to the previous 20 months when Labour were in power when they increased the debt by ‘just’ 13% in the same amount of time.

This is one of the fastest rates of increase in the national debt ever. How is it that increasing the debt a record speeds has somehow been twisted into meaning austerity?

Also, isn’t Osborne doing exactly what Blanchflower says will fix the economy – eg borrow today, increase the debt, increase spending and plough that money into the economy?

Isn’t Osborne expanding the debt faster than the Labour party? No, somehow we are to believe that Osborne, despite all the numbers to the contrary, is this mythical spend-thrift and austere-chancellor. We still think the moniker of ‘Faux-stere Chancellor’ is the best way of describing him.

So here’s the real rub, despite the spending going up and the debt going up even faster somehow people like Blanchflower have gotten away with saying there is austerity in the UK when the exact opposite is happening.

And this is the trouble that we have with so many ‘top economists’ today – they seem to fit their economics to match their political leanings, rather than look at the empirical data and use their scientific, independent understanding of economics to reach real conclusions.

Imagine this scenario – Labour won the last election and Darling was still Chancellor. Darling then proposed the exact same budget, the exact same spending and the exact same debt hiking as Osborne.

You can’t help but get the impression that if that had happened, Blanchflower et-al would be right-now ‘praising’ Darling for daring to keep spending so high and for running up the debt so quickly to ‘keep the economy afloat’ – even though Darling would in reality be enacting the exact same policy as Osborne.

In fact under that senerio can you imagine how much the Tories would be laying in to Labour right now for ‘unsustainable deficit spending’. But no, the Tories are in and we are all told that they are ‘austere’ and not one person dares question this meme – it’s now accepted as gospel facts be damned.

If the UK can’t even work out whether the government is spending like drunken sailors or slashing spending (two completely opposite things) then ending this economic mess in the UK is a very long and very painful way off.

The simple fact of the matter is that there has been absolutely no difference between Darling and Osborne on economic policy in the UK. The only difference is on rhetoric and spin. The massive debt fueled spending started by Labour is being continued by the Tories – the economic policy of these supposedly philosophically diametrically opposed parties is in fact exactly the same. It’s just a shame that people like Blanchflower can’t see past their partisan spectacles and instead view the actual situation with their impartial, rational, logical economic glasses.

Finally it’s also worth noting Blanchflower’s response to a question about what he would say to Osborne to fix the economy. His first response:

“The first thing i would tell him [Osborne] is to start talking up the UK economy”

Yup you did just read that. Here is a guy who’s been studying Economics since 1973 and being paid to be an economist in some form since 1984 and his best advice is to ‘talk up the economy’? That’s it? That’s all the UK needs? We just need to say how great we are and it’s fixed? Seriously?

Here is a guy that has had over 3 years looking at the finical crisis unravel and his job for over 30 years has been in economics, presumably so he can help ‘fix stuff’ when they go wrong. It would be fair to assume that in the past 3 years he’s given some serious thought to the question of fixing the UK economy. And yet his very first response to that question is “talk up the UK economy”?

That’s just not really a serious answer. It’s the kind you’d expect from someone with very little grasp of proper economics – in fact it is the exact same answer the Ester Rantzen gave on Question Time when she was asked how to fix the UK economy. But a least she admitted that “i’m no economist, but…”.

It’s hardly great economic company to be in from a supposed “top-economist” who used to set interest rates at the BoE. And if he is being serious it just shows a very deeply flawed understanding of the problems facing the UK. To try and boil down all the problems of the UK to essentially one of just ‘confidence’ seems to be simplistic in the extreme.

After all how would someone saying something is good, when it isn’t help? Wouldn’t that just compound the problem by trying to people to ignore what is really happening?

However, there is one thing that we are absolutely in agreement with Blanchflower on. The UK isn’t facing a ‘double-dip- recession. We are, as well as most of the Western world in the “longest lasting depression in 100 years”.

Sadly it is going to last a lot longer unless we start talking the truth about what is really happening with government spending instead of presenting a meme that has in fact no truth in reality.

 

 

 

 

 

 

 

 

Link to this article: : http://www.goldmadesimplenews.com/gold/as-blanchflower-predicts-225bn-in-money-printing-to-start-next-week-can-he-please-tell-us-where-this-mythical-austerity-is-6093/

Posted by on Feb 1 2012. Filed under Analysis, Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

1 Comment for “As Blanchflower predicts £225bn in money printing to start next week, can he please tell us where this mythical austerity is?”

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