Stazjia’s Commentary

Forget the Moderately Good News – It All Looks Bad

Posted on: October 20, 2008

In my last post I suggested we had some moderately good news with falls in prices of food and petrol (gas). Well, while all that remains true, there is a suggestion we are already in recession according the Ernst & Young’s Item Club.

The housing market is collapsing, unemployment is rising, Ernst & Young predict a rise to 2.2 million, and the budget deficit is increasing, again according to Ernst & Young, it is likely to hit £92 billion (British pounds).

According to Chancellor, Alistair Darling, the British Government plan to fight the worst effects of the recession by reflating the economy with public spending so signalling a return to Keynsian economics (John Maynard Keynes).

Alistair Darling, British Chancellor of the Exchequer

Alistair Darling, British Chancellor of the Exchequer

Darling said, “Much of what Keynes wrote still makes sense. You will see us switching our spending priorities to areas that make a difference – housing and energy are classic examples where people are feeling squeezed. What I want to avoid is getting ourselves in a position governments have done in the past, where you face an immediate problem and cut back on the things the country will need in the future … we can allow borrowing to rise.”

It seems like a good idea to get money moving around the economy but, in the end, taxpayers will  pick up the bill. The alternative could cost those same taxpayers even more – maybe their jobs, their houses, or, if they are lucky and lose neither, increased taxes to pay. More unemployment means the tax burden is carried by fewer people but with higher benefit payments added to the burden.

It look like we are living in interesting times, unfortunately.

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