IMF tells UK: boost spending to save economy

[alp227]

Source: The Guardian

The International Monetary Fund has told the government it must kickstart the economy with a boost to spending and increased investment if it is to avoid a long depression and a "permanent loss of productive capacity".

In the clearest warning yet from an international agency that the UK economy is in trouble, the IMF said the government needed to act quickly to bolster consumer and business confidence and spur growth. Government action was also needed to avoid the worst effects of the euro crisis and the likelihood of further falls in property values, it said.

In a grim assessment the IMF concluded: "Recovery has stalled. Post-crisis repair and rebalancing of the UK economy is likely to be more prolonged than initially envisaged. Confidence is weak and uncertainty is high."

Labour leaped on the report, describing it as a devastating critique of George Osborne's lack of action during the past two years of coalition government.

Read more: http://www.guardian.co.uk/business/2012/jul/19/imf-uk-boost-spending-save-economy

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In contrast to the UK PM's warning of a decade of austerity.

[MrSlayer]

1. Keynesian economics always work.

Austerity NEVER works. It's economics 101.

[BT021]

2. excpt when it doesn't

Keynesian does not work when
the stimulus button has been being pushed
every day for 20 years.

on top of that, sooner or later,
the debt load will start to cause
financing problems

[MrSlayer]

3. Well yeah.

I meant that this situation we're in right now is classic territory. A massive public works program is just what the doctor ordered.

[dipsydoodle]

4. Yes but that's what Greece did in effect.

They used loans as investment, the I in the multiplier equation, to bulk out their public sector. That had the effect of reducing unemployment. The assumption was that the income of the increased public sector worked down to the private sector whose tax would then repay the loans.

Economic theories are invariably based on assumptions and in this case the assumption was that tax would be paid. It would appear that didn't occur. As such the predictability of multiplier theory collapsed.

edit to add - I agree with the concept of multiplier theory. Its just that external factors can screw it up.

[BT021]

5. new teritory, not classic

we are in new territory -->
interest rates are zero.
Monetary policy, (the Federal Reserve),
can't do much (other than inflate)
when interest rates are zero.

Bush started it in? 4,5,6 or so
with the (related to sub-prime)
very low interest rate era,
followed by deficit.
Obama samed.