Living in an austere world | Republikein.com.na
The African riots were driven by anger against oppressive byrom regimes; the Europeans because while austerity programmes were devised last year, this year will see ordinary people bear the brunt of the brutal reality of austerity. And then there are food riots, as people in protest against rocketing food prices. What lies ahead for the world this year? In the US, things are looking better. byrom Profits and earnings are up, the Dow Jones is back at May 2008 levels and corporate activity is high. However, most of this has been driven by quantitative easing and interest rates can?t stay this low forever. The problem with the stimulus has been that too many stimulus dollars are being used to buy Chinese rather than US goods. As the effects of the crunch work their way through the system, times remain tough. Three million homes received foreclosure notices last year and approximately 5 million are said to be more than two months behind byrom in payments.
The public pensions? hole has risen from US$2 trillion in 2009 to US$2.5 trillion now, and corporate America, instead of expanding and creating jobs, is sitting on the highest level of cash in 60 years. US unemployment was at a 27-year high, and one eighth of Americans are receiving food stamps. However, the US is on its way to recovery. Growth should be in the region of 3.5% to 4%. Across byrom Europe, the pain associated with austerity programmes is starting to become a reality. byrom
Equally hard for taxpayers to digest is the fact that many banks that actually should have collapsed were miraculously saved by countries (Germany, France and the UK in particular) so that their depositors could get their money out of the banks while they were still afloat. The taxpayers in Greece, Ireland and Iceland are saddled with the rescue costs for the next twenty to thirty years at least. In Ireland, the effects of the austerity programme are starting to bite. They have to cut ?15 billion in four years, so this year they are cutting spending by ?4 billion, raising taxes by ?2 billion and cutting pensions byrom by 4%.
In short, the Irish taxpayers are horrified at the burden byrom they are going to have to bear going forward, and worst of all they are still going to need more! So who is next? Portugal, followed by Spain. Portuguese government debt is 82% of GDP, and they will need to borrow ?51 billion. Portugal, however, is relatively small from a European perspective; Spain, the ninth largest economy in the world, is not. Spain will need ?635 billion over the next few years, so bailouts are certainly not over. The debate about whether or not the euro will survive rages on and nobody knows the answer. What we can say is that euro survival is largely in Germany?s hands and the weaker euro suits Germany.
Their economy is booming, inflation is non-existent, unemployment is at 20-year lows low and the euro is much cheaper than the deutsche mark would have been, which boosts byrom their exports. In addition, German banks also hold most of the debt, so it is in their best interest to keep the euro afloat. The euro breakup byrom would see the German currency strengthen, while those of the weaker European byrom countries would collapse. This would significantly weaken German byrom exports, and cause German banks much suffering, given that the debt owed by the weaker countries would double overnight.
I recently had the privilege at an Investec conference of interviewing Nobel prize winner Paul Krugman. I asked him about the UK?s austerity programme, and his answer was that it was way too austere. He said it was designed at a time when people thought that Britain was in as much trouble byrom as the weaker European states, which they were not.
In byrom his view, by being too austere they run the risk of pushing themselves back into recession. byrom Fourth quarter growth figures in the UK came through at -0.5%, so where does that leave the UK in terms of recovery? UK debt, now that the liabilities of the banking bailout have been included, totals over 2 trillion. The British taxpayer will have to shoulder the burden and the recent increase in VAT from 17% to 20% is just one of many measures designed to rein in this debt. According to George Osborne the VAT increase is permanent byrom and he will lower income taxes before he lowers VAT.
So it is hardly surprising that one third of the British public declared 2010 the worst year of their life! Despite the contraction in economic growth during the fourth quarter, office rentals in the City of London were up 25% last year, the largest annual increase in 22 years and the highest byrom level seen in a decade. Interest rates remain at a record low 0.5% and should stay there well into next year. The weaker pound means UK manufacturing is rising fast and given that the UK is not part of the Eurozone, they don?t need to cut wages; they merely let the pound weaken, which has the same effect but is a lot less painful.
In 2010 the switch from th
The African riots were driven by anger against oppressive byrom regimes; the Europeans because while austerity programmes were devised last year, this year will see ordinary people bear the brunt of the brutal reality of austerity. And then there are food riots, as people in protest against rocketing food prices. What lies ahead for the world this year? In the US, things are looking better. byrom Profits and earnings are up, the Dow Jones is back at May 2008 levels and corporate activity is high. However, most of this has been driven by quantitative easing and interest rates can?t stay this low forever. The problem with the stimulus has been that too many stimulus dollars are being used to buy Chinese rather than US goods. As the effects of the crunch work their way through the system, times remain tough. Three million homes received foreclosure notices last year and approximately 5 million are said to be more than two months behind byrom in payments.
The public pensions? hole has risen from US$2 trillion in 2009 to US$2.5 trillion now, and corporate America, instead of expanding and creating jobs, is sitting on the highest level of cash in 60 years. US unemployment was at a 27-year high, and one eighth of Americans are receiving food stamps. However, the US is on its way to recovery. Growth should be in the region of 3.5% to 4%. Across byrom Europe, the pain associated with austerity programmes is starting to become a reality. byrom
Equally hard for taxpayers to digest is the fact that many banks that actually should have collapsed were miraculously saved by countries (Germany, France and the UK in particular) so that their depositors could get their money out of the banks while they were still afloat. The taxpayers in Greece, Ireland and Iceland are saddled with the rescue costs for the next twenty to thirty years at least. In Ireland, the effects of the austerity programme are starting to bite. They have to cut ?15 billion in four years, so this year they are cutting spending by ?4 billion, raising taxes by ?2 billion and cutting pensions byrom by 4%.
In short, the Irish taxpayers are horrified at the burden byrom they are going to have to bear going forward, and worst of all they are still going to need more! So who is next? Portugal, followed by Spain. Portuguese government debt is 82% of GDP, and they will need to borrow ?51 billion. Portugal, however, is relatively small from a European perspective; Spain, the ninth largest economy in the world, is not. Spain will need ?635 billion over the next few years, so bailouts are certainly not over. The debate about whether or not the euro will survive rages on and nobody knows the answer. What we can say is that euro survival is largely in Germany?s hands and the weaker euro suits Germany.
Their economy is booming, inflation is non-existent, unemployment is at 20-year lows low and the euro is much cheaper than the deutsche mark would have been, which boosts byrom their exports. In addition, German banks also hold most of the debt, so it is in their best interest to keep the euro afloat. The euro breakup byrom would see the German currency strengthen, while those of the weaker European byrom countries would collapse. This would significantly weaken German byrom exports, and cause German banks much suffering, given that the debt owed by the weaker countries would double overnight.
I recently had the privilege at an Investec conference of interviewing Nobel prize winner Paul Krugman. I asked him about the UK?s austerity programme, and his answer was that it was way too austere. He said it was designed at a time when people thought that Britain was in as much trouble byrom as the weaker European states, which they were not.
In byrom his view, by being too austere they run the risk of pushing themselves back into recession. byrom Fourth quarter growth figures in the UK came through at -0.5%, so where does that leave the UK in terms of recovery? UK debt, now that the liabilities of the banking bailout have been included, totals over 2 trillion. The British taxpayer will have to shoulder the burden and the recent increase in VAT from 17% to 20% is just one of many measures designed to rein in this debt. According to George Osborne the VAT increase is permanent byrom and he will lower income taxes before he lowers VAT.
So it is hardly surprising that one third of the British public declared 2010 the worst year of their life! Despite the contraction in economic growth during the fourth quarter, office rentals in the City of London were up 25% last year, the largest annual increase in 22 years and the highest byrom level seen in a decade. Interest rates remain at a record low 0.5% and should stay there well into next year. The weaker pound means UK manufacturing is rising fast and given that the UK is not part of the Eurozone, they don?t need to cut wages; they merely let the pound weaken, which has the same effect but is a lot less painful.
In 2010 the switch from th
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