Monday, July 3, 2017

Bill Mitchell — Something is rotten in the state of … Britain

When I was trawling through the British fiscal statements in 2010 and 2011, hidden in all the detail (an obscure Annexe) was a very explicit statement that told me that the British government was inflicting austerity on the economy and relying largely on the growth of non-government indebtedness to offset the fiscal drag and restore the growth cycle. In the same documents but more visible (in the main fiscal statement), the Government was claiming that the non-government debt position that had deteriorated sharply in the lead up to the crisis was unsustainable as a growth strategy. The mainstream press didn’t pick up on the contradiction. Now, the same press seems alarmed with the latest data from the British Office of National Statistics that shows that the Government’s strategy has been working like a charm – the non-government saving ratio has plunged, household debt escalated sharply, non-mortgage debt has accelerated and to top of the impending disaster – real household disposable income growth has been negative for three successive quarters (the first time since the mid-1970s). None of these trends are surprising. I predicted them 6 or 7 years ago. I have been watching the results steadily unfold. But for the mainstream commentators it is all a big headline – ‘look at what we have discovered’ ….
Bill Mitchell – billy blog
Something is rotten in the state of … Britain
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

10 comments:

Matt Franko said...

Has the number of households been increasing?

Total income can be up if households are increasing...

also here: "“The saving ratio continued to fall and in Quarter 1 (Jan to Mar) 2017 was 1.7%, a fall from 3.3% in Quarter 4 (Oct to Dec) 2016. This was the lowest since records began in Quarter 1 1963.”

this is a good thing...

Also here: "We are witnessing a repeat of the pre-GFC conditions."

Only in a very limited way.... rates are still at zero, they have gazillion of QE still going on... so the cohort that relies on govt interest on savings for income is still way down (and is probably the reason why per household income is a bit down as that cohort cant get any interest income as usual... ie if rates were back up to 4-5% you wouldnt see this small decrease in household income...)

An other thing is where are we getting the data to claim "austerity!" ?

How do we know the govt is not withdrawing more than years previous?

Does the UK statistics office even monitor that?

Probably not... so you cant claim "austerity!" without that data... for all we know govt spending (via cash basis accounting) in UK is way up...



Matt Franko said...

Here this is why you are seeing this going on that Bill points out:

https://www.theguardian.com/business/2016/aug/04/bank-of-england-cuts-uk-interest-rates

Cut rates from 0.5% down to 0.25% and increased QE by 60B lbs in Aug 2016... "Brexit", etc...

so you see this small hit to income data per capita...

US is starting to turn this back the other way but just getting started ... UK will follow eventually and things will get a bit better...

Matt Franko said...

Here: "extending the existing quantitative easing (QE) programme to £435bn in total;"

so they have 435B if they didnt have that and rates were back to 5% that would be an additional 20B+ interest income so over 19m households thats over 1k per household and we are not having this conversation...

so you cant cant say 'conditions are the same as pre GFC..."

The risk free rate is important... as is cash basis withdrawals from the treasury account...

Jeff65 said...

Matt, are you short Treasuries?

Dog with a bone, etc.

Matt Franko said...

FD: Yes...

Matt Franko said...

Non govt sector can increase stock of debt if govt sector increases leading flow...

Iow non govt has to show an increase in income in order to increase debt...

My hunch is if you could get access to the data, you would see an increase (tho tepid) in cash basis Treasury withdrawals both in the U.K. and in the EZ.. but not coming from interest income... social services etc...

Matt Franko said...

US, UK, EZ continue to show positive GDP growth ... so it has to be something other than austerity...

Neil Wilson said...

"so they have 435B if they didnt have that and rates were back to 5% that would be an additional 20B+ interest income so over 19m households thats over 1k per household and we are not having this conversation..."

That 'interest income' is currently being spent by the government elsewhere. That's why they asked for it back from the Bank of England.

You're missing the 'increased interest income causes reduction in other government spending due to idiocy amongst politicians' effect.

And that marketable transferable government welfare payments are a democratic aberration that should be eliminated. Democratic accountability requires we know who is getting paid by government.

Matt Franko said...

Neil you have to look at Cash Basis Treasury withdrawals... at least over here we have a lot on what is termed "automatic appropriation" which includes this UST interest and Medicare/Medicaid/ our Social security ...

So if they want to appropriate 600b on Defense and there is 20T of USD savings in govt securities and Fed policy puts risk free rate back at 5% from previous 0, and they eliminated the QE, that will result in an automatic increase in withdrawals up to 1T per year... and then they would still put 600B into defense or more...

Leading USD flow is currently around 4.4T annual so that would be close to a 25% increase ... would result in imo better outcomes than current as USD savers would finally get back to projected/planned returns on savings they have been denied for like the last 8 years...

Matt Franko said...

Neil do you know if in UK they also use a Modified Accrual in the national budgeting process like we do over here?