He doesn’t just mean it’s time to protect your assets. He means it’s time to stave off disaster. As he sees it, the world faces one of the most dangerous periods of modern history—a period of “evil.” Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether.
“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”
Is Soros just a naturally gloomy guy? Or are things really that bad? Felix Salmon is roaming the corridors of the Davos conference and says that gloomy or not, Soros is no outlier:
No one but Soros will actually say these things, at Davos — but everybody here fears them, which is one reason why we have the slightly ludicrous sight of billionaires bellyaching about the global burdens of inequality.
Security this year is tighter than ever — the first rule of security at these events is that it can only get ratcheted up, rather than loosened at all — and there’s a besieged feeling to this Alpine town I haven’t felt before. The financial crisis concentrated minds and was seen as a big problem to be addressed and even maybe solved. But the current breakdown of trust in global institutions cuts at the heart of the World Economic Forum’s founding principle — that if you get a bunch of important people together in the same place, they can actually make a difference.
I doubt that it's time to stock up on canned food or anything, but it's an interesting observation. Are the world's governing elites losing confidence in their own abilities? I wouldn't blame them if they were, considering how they've responded to the events of the past few years. When the big test finally came, they didn't do very well.
Yep. This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory.
By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again.
In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.
That is quite an accomplishment.
As Phillip Inman of the Guardian puts it:
the UK's plan for recovery from the financial crisis was based on a full-throttle recovery in 2012... consumer confidence, business investment and general spending would converge to send the economy on a trajectory of above-average growth... the lack of investment will perplex ministers. They have done what the right-wing economists told them to do and moved out of the way – the theory being that public sector spending and investment was ‘crowding out’ the private sector...
It did not work: “Spain is showing the way with its austerity-driven recession. Where the weak tread, we [in Britain] look keen to follow...”
That expansionary austerity is not working in Britain should give all of its advocates great pause, and lead to a great rethinking. Britain is a highly open economy with a flexible exchange rate. Britain has some room for further monetary ease. There is no risk or default premium baked into British interest rates to indicate that fear of future political-economic chaos down the road is discouraging investment. There was an argument--I’m not saying that it was true, but there was an argument--that the Blair-Brown governments had overshot Britain’s long-term sustainable government-spending share of GDP (in contrast to those countries that had reduced their debt-to-GDP levels in the 2000s, where there was no such argument, and in contrast to the United States where the problem was not spending overshoot but taxation undershoot under the Bush administration) and that spending cutbacks were advisable in the long run.
Yet with a ten-year nominal interest rate in Britain of 2.098% per year, if low long-term Treasury interest rates were the key to recovery, Britain would be in a boom. If there was ever a place where expansionary austerity would work well--where private investment and exports would stand up as government purchases stood down--if its advocates’ view of the world was reality rather than fantasy, it would be Britain today.
But it is not working.
And the lesson is general.
If it is not working in Britain, how well can it possibly work elsewhere in countries that are less open, that don’t have the exchange-rate channel to boost exports, that don’t have the degree of long-term confidence that investors and businesses have in Britain?
Liberal Party leader Nick Clegg ought to end this farce today. He ought to tell Queen Elizabeth II Windsor that his party has no confidence in her government, and that his humble suggestion is that she ask Labour Party leader Ed Milliband to form a government.
It is true that if he does this his political career and his party’s electoral future are dog vomit. But his political career and his party’s political future is dog vomit anyway. At least defection from the ill-advised Conservative-Liberal coalition now would benefit his country.
Policy makers elsewhere in the world take note: starving yourself is no road to health, and pushing unemployment higher now is no road to market confidence.
The United Kingdom, meanwhile, is a notable tale. The country has seen the biggest explosion in debt of any of these countries since 2007, which, in turn, has triggered a drive for austerity by David Cameron’s government that might end up exacerbating the slowdown. At the same time, the U.K. isn’t on the euro, and has the ability to control its own currency, so markets haven’t been panicking about the country’s ability to repay its debts the way they have been about Italy. .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=69655467
European markets hit by eurozone Robin Hood tax plans [...]
"This is a major step forward which leaves the UK increasingly isolated in insisting that a financial transaction tax must be global to work. Rather than standing on the sidelines, David Cameron should join Sarkozy and Merkel to make banks pay their fair share," said Lawson. .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=66283568
LOLOL - E.U. Leaders Set to Conclude Austerity Is Not Enough
European Commission President Jose Manuel Barroso, left, spoke with President Nicolas Sarkozy of France as European leaders met in Brussels on Monday.
By STEPHEN CASTLE January 29, 2012
BRUSSELS — Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need is a dose of economic growth.
A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral.
The difficulty, however, is that reaching such a conclusion is not the same as making it happen.
Instead, leaders will discuss long-term structural reforms and better use of E.U. subsidies, while avoiding mention of the one thing that could change the climate: a fiscal stimulus from Germany, the euro currency zone’s undisputed powerhouse.
Then the summit meeting, which is to be held in Brussels and be greeted by a national strike in Belgium, will try to satisfy Berlin’s desire for fiscal discipline by wrapping up talks on a new intergovernmental treaty.
With its emphasis on punishing euro nations that exceed deficit and debt level, the agreement, or “fiscal compact,” has been described privately by one official as a plan to criminalize Keynesianism.
Nevertheless, the hope is that if it gets the treaty it wants on fiscal discipline, Germany will agree to far-reaching efforts to end the debt crisis.
And while some see the new, pro-growth rhetoric as empty — or even cynical — others believe that it marks a psychological turning point.
“I think it is an important shift, particularly from Germany but also from others, from the phase where it was all about fiscal balance and consolidation to a more comprehensive approach where you have an all-encompassing look at economic sustainability,” said Nicolas Véron, senior fellow at Bruegel, an economic research institute in Brussels. “It is quite promising, but at this point I don’t see it translating into immediate measures.”
Those are badly needed in a Europe with more than 23 million people unemployed. Indeed, the lack of growth was highlighted by Standard & Poor’s this month when it downgraded several euro zone nations, including France.
“We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues,” S.&P. said.
Other analysts concur, and some highlight the need for those few nations with room to maneuver to stimulate demand.
“Even countries with relatively strong public finances such as Germany — the country’s budget deficit fell to just 1 percent of GDP in 2011 — are tightening fiscal policy,” Simon Tilford, the chief economist for the Center for European Reform in London, wrote recently. “In so doing, European governments are standing conventional macroeconomic thinking on its head. Governments are withdrawing demand from their economies at a time of pronounced private sector weakness.”
Output in both the euro zone and the European Union is still around 2 percent lower than before the crisis.
The Spanish and British economies are still almost 4 percent short of their pre-crisis peaks, the Italian one nearly 5 percent, and the Greek and Irish economies 10 percent to 15 percent, Mr. Tilford added.
Greece’s deep recession has thrown its financial rescue package off target, complicating yet further efforts to restructure its debt and create a second, larger, bailout.
Germans increasingly accept that this is a dangerous outlook, said Joachim Fritz-Vannahme, director of the Europe program at the research institute Bertelsmann Stiftung.
“Many people now say that it will never work to push all the Southern European countries into austerity, hoping that, one day, they will pay back what they owe,”’ he said.
In Germany, the opposition Social Democrats have been calling for a new Marshall Plan for Europe, a reference to the U.S. aid program for the Continent after the World War II.
All of this makes the disjunction with what is on the table at Monday’s summit meeting more striking. The European Commission president, José Manuel Barroso, will propose better use of up to €82 billion, or about $108 billion, in E.U. subsidies, though it remains unclear whether national governments will agree and how much could be done quickly.
The 27 E.U. countries will also be asked to press ahead with a familiar list of proposals to liberalize their economies and remove bottlenecks — a long-term task that moves at a glacial pace.
Meanwhile, several nations are also expected to champion the need for a financial transaction tax, a plan that one official study suggested could cut growth.
Mr. Fritz-Vannahme contends that domestic politics makes it difficult for Angela Merkel, the German chancellor, to move because there is little trust that nations like Greece will make necessary structural reforms unless they are under acute pressure. Many Germans still feel that they are being blackmailed into bailing out nations that will not do their own homework, he said.
And some consider that Germany’s relatively healthy economy is already providing an economic stimulus to neighbors. German private consumption grew 1.5 percent last year compared with 0.6 percent in 2010, aided by a reduction in unemployment.
“The recognition is coming that austerity won’t work,”’ said Mr. Fritz-Vannahme, “but how to get beyond austerity politics is completely unclear. There is no master plan under discussion in this country.”
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