Ricardian equivalence – it’s a shame the MSM don’t pick up on it.

It’s the root of the problem – George believes in it – but even the author himself (Ricardo) dismissed it as ‘too simplistic’

Simple is as simple does eh George?

http://en.wikipedia.org/wiki/Ricardian_equivalence

Did nobody get the hint when the BoE dropped to RECORD LOW interest rates?

Judge people by their actions – not their words.

So in other words Osborne was hoping that the economy would recover by households spending more and the BoE reducing interest rates.

But given higher inflation, in part thanks to the increase in VAT, neither now seem likely in the near future. Which makes Osborne’s plans for a magical recovery all the more unlikely… yes?

@2,

Yes, pretty much.

@2 & @3

I would also add that ‘Georgy Boy’ also planned to do the old ‘tried and tested’ method of currency debasement which promotes an ‘export led recovery.

However ‘the boy’ forgot 2 crucial elements.

1) We don’t manufacture anything to export – other than weapons (see Cameron’s REAL reason for the middle east tour)

2) Everbody else (i.e. the world) is playing the same game – clearly ‘the boy’ doesn’t understand the phrase ‘global’ when its prefixed the word ‘recession’. You see currency debasement and export led recovery is what everyone else is attempting….and in addition to this the Chinese don’t want to o from ‘biggest seller’ to ‘biggest buyer’ and rebalance things because their people are not so materialisti.

A 5 minute ‘economics refresher’ could have helped George out immensely. Although as most economics is based on ‘the past’ – it’s a bit crap at predicting ‘the future’ – for that you need reason and logic – two elements not welcome in the modern day Tory party.

To make matters far worse – our ‘friends’ across the Atlantic are pumping money like there is no tomorrow. For the rest of the world this makes bugger all difference – but as the dollar is the worlds reserve currency, the inflationary effect will be worldwide and not just in the US.

Get prepared people – this isn’t inflation yet – wait another year and then you’ll know what inflation looks like.

…unless of course George cuts the legs off the recovery and we spin into a depression which will be deflationary.

This is the problem with Capitalism – the politicians tell you they are in control – but when crisis occurs it’s blatantly obvious they are not.
The economy has been backed into a corner – there are no easy solutions – no matter what is presented by Westminster.

…oh and no nation (ever) has created a recovery through spending cuts – just to make things worse.

Nothing spells disaster for Osborne as money completely protects him from ever suffering the consequences of his actions and has done for his entire life. For this government politics is something to play at while waiting for pater to die and leave them even richer. The worst disaster in Arsenose’s life apart from mirrors is inadequately chilled champagne.

@5 Surely you mean incorrectly chilled? One can have one’s Bolly too cold, y’know.

@Winston

The funny thing is that Ricardo himself did not believe Ricardian equivalnce – it was merely an intellectual curiousity:

“the people who paid the taxes never so estimate them… do not manage their private affairs accordingly…. It would be difficult to convince a man… that a perpetual payment of £50 per annum was equally burdensome with a single tax of £1000″

If the person who invented it didn’t believe in it, how can others possibly do so?

@7

@Winston

The funny thing is that Ricardo himself did not believe Ricardian equivalnce – it was merely an intellectual curiousity:

“the people who paid the taxes never so estimate them… do not manage their private affairs accordingly…. It would be difficult to convince a man… that a perpetual payment of £50 per annum was equally burdensome with a single tax of £1000?

If the person who invented it didn’t believe in it, how can others possibly do so?

Sadly the entire Conservative party seem to and it is the entire basis of their ‘economic’ ‘policy’

AFZ

it’s a bit odd to complain about the VAT rise on the basis that it has caused inflation – inflation of the sort caused by a one-off VAT rise is a one-off increase in the price level, and would not make the BoE’s job any more difficult, it can be safely ignored.

As Luis says there is a bit of confusion here with price level effects and core inflation. It has been pretty obvious for sometime that the Bank does not pay much attention to headline inflation. Some say they are not paying much attention to core inflation either. Apart from VAT the coalition have added 0.2% to inflation through rises in tuition fees. Pensioners and benefit recipients get the benefit here but are unlikely to be paying for tuition fees. I would not fancy telling pensioners that their pension increases are too high.

What will scupper Mr Osborne, the OBR growth forecasts and the Bank is if the UK non-inflationary trend growth has fallen. The OBR assume and Mr Osborne’s plans are based on trend growth of 2.35% per annum. Does not look like this is achievable to me and trend growth does look like it has fallen as UK financial services have contracted. They are placing a lot of faith in improvements in real incomes through rising wage growth next year as headline inflation falls. However, credit expansion through expanding GDP is not unreasonable.

Ok, geniuses. Inflation before crisis was 4.5% on average in 2007, interest rates were 5.5%…let that swirl around in your head for a bit, so firstly, inflation was just as is now, but with no world hike in food, fuel to include, BUT now you can borrow with lower interest rates than then …so consumer spending has all the chances of doing much better than it did before the crisis. ..except this time, we make more on the spending because that 4.5% inflation includes the vat rise

Dunno – inflate away some of the debt, sorted. Not ideal but such is life etc etc.

“now you can borrow with lower interest rates than then”

Not if you’re unemployed or maxxed out or bankrupt (friend of ours has just been made bankrupt due to unemployment, in fact) don’t have the collateral, can’t afford the repayments due to a squeeze on income or plain can’t persuade banks who are more interested in reducing bad loans than taking new ones on to lend.

There are people (me, I suspect) to whom none of this applies but I’m not keen on taking out new loans because a) I work in an industry reliant on flogging stuff to, basically, the working people of Britain and b) Osborne and co. want to make it easier to sack me and export my job to India. I’m not sure a policy of making people insecure and then demanding that they borrow money will fly, really.

DBirkin

It’s growth that matters – in 2007 we had some – which means the inflation then was a reflection of growth and keeping apace – now we just have prices rising.

Inflation hasn’t changed a great deal, but you’ll find the things that matter (income) whether it be fixed (pension) screwed by low interest rates or employment (wages) kept down under the threat of the sack – then you’re effectively poorer.

Back to economics 101 for you sonny – inflation is a treadmill and we stopped moving around the end of 2008.
You’ll find out if you ask your wife how much the shopping bill has gone up in the last 2 years.

Tom

It’s not even true (the original statement)
if you look carefully at the loans on offer – most mortgages that offer 2% above base (which are the best deals) – require a 60% LTV.

For a 200k house that’s 80 grand! – good luck finding that sort of money as a deposit!

Mortgages of 80% LTV attract a rate nearer 5%.

This is also the explanation for this (a picture much ignored by the MSM who like to report ‘rises’ in mortgage approvals M-o-M…but forget to mention they are rises from the basement. Still, whatever fools the sheepeople eh?….

http://www.housepricecrash.co.uk/graphs-mortgage-approvals.php