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Has the IMF Given Up on Austerity?
Pinnacle Digest writes: In Adrian Ash’s latest report he explores the stark comparisons in British finance and politics nowadays to that of the era of the Great Depression. He writes “IT'S A COMMON MYTH that the Labour government in power when the Great Depression went global in 1931 was forced to resign by a banker's ramp...”
Back in 1931, as Ash explains, the bankers in England demanded the BOE back their paper currency with gold. This was done in order to cut the welfare programs, an order only sought by the rich and powerful financiers of the country. In fact, the demands were so severe it caused the resignation of the Labour party politicians who were elected by the working class. Shortly after, a coalition government of Conservatives formed power and made austerity cuts with impunity.
Adrian Ash asks the question: So who's playing the top-hatted villain today – and where has gold gone?
First and foremost, the IMF is at the top of the shot calling ladder according to Ash. Formed after World War II, Ash explains that the IMF was formed to represent the monied interest in debt resolution worldwide. And if a country wants aid from the IMF, it must structure a repayment plan spanning years into the future.
Ash explains “Today the IMF is most famous for bossing Asia about in the late 1990s. Those tigers learnt their lesson, building war-chests of foreign currency – and seeking to block inflows of "hot" money from Western speculators – all through the 21st century thus far. Thailand, South Korea and the rest learnt their lesson so well, in fact, that the global financial crisis, and the Eurozone catastrophe in particular, arrived just in time. Because after scolding wayward spenders like an English aristo's nanny for 60 years, the IMF found its own finances shot through by the start of 2008. Thanks on one hand to a lack of business, plus an over-staffed bureaucracy on the other. Praise be for Greece!”
Now the IMF has been giving advice to virtually all Western nations whether they ask for it or not. And according to Ash, in the UK, the Conservatives are citing this IMF advice for their own political gain and as a way to promote shrinking the size of government. When looking at the growth in public debt in the UK, it’s hard to argue against shrinking the size of the country’s government. England’s financial situation is a mess and likely the reason that country has been in a recession for nearly 5 straight years.
Ash states “Our chart shows gross UK debt – gross as in like grody to the max. Public debt has more than doubled since 2007.”
Since 2010, the year the Conservatives took power in the country once again, consumers have cut their debt by £119bn - equal to 2.9% of GDP according to Ash. So no matter how low rates go in that country, consumers choose to de-leverage. This has created has serious problem for England as it hits a deflationary spiral, which is not in-line with what the IMF wants, despite the organization strongly supporting Conservative leadership values.
Given the poor growth prospects for England, brought about by the massive de-leveraging process, the IMF wants Britain to “relax its fiscal consolidation strategy, aimed at cancelling the UK’s structural deficit by 2017, if the economy remained weak."
As Ash explains “The IMF used to think austerity would be its own reward, with Britain's GDP quietly recovering its pre-crisis levels as the government cut spending and raised taxes. But the UK economy won't play along – most obviously, everyone now thinks, because the government cut spending and raised taxes.”
The IMF now finds itself in a very precarious situation. It’s policy has been, for the most part, implemented in England, yet it has failed miserably. Now they want the country to shift course, but risk losing face globally.
Click here to read Adrian Ash’s full report on the subject.