Copy of Austerity

Eurozone In Reality... The United Kingdom, Greece A Tale of Two Countries The effects of austerity United Kingdom So What Can We Learn From This? Austerity in the U.S. Key point: Austerity policies implemented during economic downturns are detrimental and will lead to further economic hardship. Surely some of the detrimental effects on its economies can be attributed other factors: The enormity of its previous spending binge The inflexibility of the euro Government corruption If you're interested: Follow me: http://seekingalpha.com/author/george-liu Spending got us in this mess, cutting will get us out Aid-for-austerity Austerity: lowering spending via a reduction in the amount of benefits and public services provided. Get heavily indebted countries in financial order Change future expectations about taxes and government spending; increase investor confidence Economic expansion Does it work? Greece Societal Ramifications In the first four months of 2012, the suicide rate for the poor and elderly in Greece increased 33% Y/Y Greeks are now raiding forests for wood to heat homes Usage of anti-depressant drugs has skyrocketed 25% in Athens and 18% across all of Greece. November 7 austerity measures were met with nationwide protests by hundreds of thousands of Greeks Shut down public transportation, schools, banks, and local government offices. The U.K is in the European Union but uses its own currency: the pound Huge advantage in ability to conduct monetary policy and print currency U.K. economy was slowly recovering from the 2008-2009 financial crisis The government under Gordon Brown’s Labour party introduced fiscal stimulus in coordination with monetary stimulus from the Bank of England. Annual GDP was growing at about 2.5 per cent. Before Austerity Then this guy happened... George Osborne, the Chancellor of the Exchequer George Osborne Huge advocate of fiscal austerity Implements austerity policy with deep cuts Cuts of ~30% to some government departments Promised his austerity policies would: Put the U.K back in fiscal order Generate healthy economic growth Has stubbornly continued austerity measures to this day Economic result U.K entered its longest double-dip recession recession in 50 years 2010 GDP growth: +1.5% 2011 GDP growth: +0.7% 2012 GDP growth (OBR estimate): -0.2% Previous growth estimate: +0.8% Fiscal result 2009 OBR estimate of 2013 budget deficit: 3.5% of GDP Current estimate: 6.1% Osborne: Debt-to-GDP ratio will peak at 70% Current Debt-to-GDP ratio: 75% OBR projected 2015-2016 Debt-to-GDP ratio: ~80% UK is expected to lose its "AAA" credit rating from at least one credit rating agency Extending austerity measures until at least 2018 because the government missed its self-imposed debt-cutting goals IMF: Austerity isn't working IMF analysis: Cutting the deficit too aggressively could increase the debt-to-GDP ratio Austerity has caused far more economic damage expected Expected that cutting a euro from the budget would cost around 50 cents in lost growth, the actual cost was ~1.50 euros Christine Lagarde: severe austerity does not work Cut deficit spending Cut our enormous national debt We're going to default Look at what over-spending did to Greece We do not have a debt problem We do not have a spending problem We do not have a fiscal crisis Deficit hawks have been predicting a debt crisis for years Downgrade of the U.S. debt= "meltdown." Reality: Record-low mortgage rates, lower borrowing costs, lower Treasury yields, Negative cost of borrowing for 20 years It is impossible for us to default Full control of currency and monetary policy We do have an economic problem 3