Tag Archives: Great Britain

Bull-market highs but still much to fear!

The Dow Industrial and S&P 500 hit new bull-market high yesterday. Clearly, the sovereign debt crisis in Europe is over and there is nothing worry about. Or is there?

Standard & Poor’s Ratings Services on Wednesday cut its long-term rating on Ireland to A-minus from A and lowered its short-term rating to A-2 from A-1. The agency said the ratings remain on CreditWatch with negative implications, where they were placed on Nov. 23. The move comes in the wake of S&P’s revised assessment of risks tied to the Irish banking industry. “Were the labor market to deteriorate further, a rise in the level of delinquencies in the domestic banks’ mortgage books could result in higher new capital requirements than we presently assume,” said S&P analyst Frank Gill. The emergence of a European framework for restructuring sovereign debt could trigger a reconsideration of Ireland’s creditworthiness, he said. The resolution of Ireland’s CreditWatch listing will likely leave the government’s ratings in an investment-grade category, Gill said. The CreditWatch placement is expected to be resolved by April, the agency said.

The recent modest improvement in the world economy has bought these “at-risk” countries some time to fix their books, but little progress has been made. Furthermore, those countries that have been applying austerity measures have not seen the economic gains others have. For example:

The UK economy shrank by a shock 0.5% in the last quarter of 2010 as Britain’s recovery from recession faltered.

Most of the unexpected contraction was caused by the wintry weather that gripped Britain last month, the Office for National Statistics said. Without it, GDP would probably have been flat – suggesting that the UK economy had already run out of steam before the snow hit.

Economists said the first estimate of GDP for the last quarter was much worse than expected, and meant that Britain could now suffer a double-dip recession. With inflation hitting 3.7% last month, there are also growing fears the UK is heading for an unpleasant dose of “stagflation”.

The eagerly awaited GDP figures put the government’s austerity programme under fresh scrutiny, with Labour again arguing that cuts are being made too deeply, and too rapidly.

Now, economists and politicians are arguing the merits and demerits of austerity. They still have not realized they are damned if they do and damned if they don’t. If they continue to run big deficits, interest rates will rise and the country will be forced to default, send the country into economic and political chaos. If they impose austerity measure, it will certainly hurt the economy, but the country will survive.

Austerity is a painful, but necessary medicine. Politicians would rather take the placebo.

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British government suspends new spending. Waiting for the United States to copy them…

Treasury Suspends $12.6 Billion in Spending Projects, Axes Other Programs

U.K. Chief Secretary to the Treasury Danny Alexander suspended 12 projects costing 8.5 billion pounds ($12.6 billion) announced by the previous government and cut completely other programs totaling 2 billion pounds.

Most of the money affects one contract, to supply search- and-rescue helicopters to the defense ministry and the Department for Transport. The 7 billion-pound project, which will now be reviewed, is with the Soteria group made up of CHC Helicopter Corp., Thales SA, Royal Bank of Scotland Group Plc, and Sikorsky, a subsidiary of United Technologies Corp. Deliveries under the planned 25-year deal were scheduled to start in 2012.

I applaud the new coalition of Conservatives and Liberal Democrats for making necessary cuts. I also applaud the British people for kicking out the Labour party and blaming these cuts on that prior free-spending administration.

Alexander said that out of 34 billion pounds in spending commitments made by Gordon Brown’s Labour government between Jan. 1 and the May 6 election, “we’ve had to cancel 2 billion pounds and put 9 billion into the spending review.”

Prime Minister David Cameron accused Brown of using his final months in office to target spending at electoral districts Labour looked as if it might lose.

A YouGov Plc poll this week found that 48 percent of respondents blamed Brown’s administration for current spending cuts, with 17 percent blaming Cameron’s coalition government of Conservatives and Liberal Democrats.

The U.K. finally appears to be on the right track, though they still have a very long way to go. Unfortunately, we have seen no such sense of fiscal discipline here in the United States. Congress and the President continue to push for more spending, not less. Most recently, a $50-90 billion jobs bill.

In 2006 and 2008, Americans voted for “change” after Republicans proved themselves to be incompetent on issues such as Hurricane Katrina, the war on terrorism, immigration, and spending. Now, the Democrats had their chance and have proven themselves to be just as incompetent, if not more so. The two parties have proven one thing over the last four years: our government is incompetent regardless who controls it. As a result, the American people are demanding smaller, more effective government. Of course, the people always want more effective government, but now people realize that government can only be more effective if it reduces its size and focuses on a few key jobs.

God willing, the United States will copy the United Kingdom by kicking out the current administration. And hopefully, the new administration will copy the U.K.’s David Cameron and Danny Alexander (and Chris Christie in New Jersey) by cutting government spending and beginning to restore fiscal discipline to a country that has not had any in well over a decade.