Liberal Re-Writing Of History

In interview after interview, Liberal spokesmen have responded to questions, about why they changed their position, over the Cuts, by saying that it was a pure co-incidence that their change of position was simultaneous with their negotiations, with the Tories, to get their grubby hands on a share of power. The real reason they changed position, they claim, was that the crisis, in European debt markets, so changed conditions that they had to change their position. Besides being economically illiterate, and unsupported, this also represents a re-writing of recent history.

Anyone, looking back, knows that their claims are simply untrue. For example, some time before the election, the situation in Greece, and the other PIIGS, was so severe that, even in April, I wrote a blog, which opened with the sentence "Greece has gone bust!", and featured a CNBC interview with Jim Rogers to that effect Beware Of Greeks In Need of Gifts. How bad did the Liberals need the situation to be before they felt that they had to change course??? Or are they so incompetent that they were unaware of what was happening in the European economy? What does that tell us about the confidence we should have in Comrade Vince?

But, its a re-writing of history for another reason. At the time the Liberals were involved in these negotiations, with the Tories, and claiming that the situation in Europe had changed, so significantly, as to require them to change their policy, I was in Spain, and watching things unfold at first hand. In that previous blog, I'd spelled out how the crisis could be resolved, through debt monetisation, and the establishment of a centralised European Debt Management Office, as part of a single European State, with control over Fiscal Policy. While I was in Spain, and at the time the Liberals claim this game changing event took place, the first part of that was what European leaders did. They announced a huge package of European aid, to bankroll the PIIG economies, to avoid the danger of immediate default, and the ECB announced that it would begin buying the Bonds of the PIIG economies i.e. monetising their debt, in the same way the Bank of England had done in the UK, and the Fed has started to do in the US. I was writing about this while I was away, but could only blog it when I got back, towards the end of May, in my blogs The Return Of Illiterate Economics. But, as I wrote in that blog, the initial response, to the announcement of the package, was that the Yield on Greek Bonds fell from 15%, to 8.5%. Stock Markets soared in Europe, and around the globe, and the Euro rose against the dollar. Why, because the monetising of the debt was precisely the solution that Global Capitalism needed, to avoid an immediate crisis, to provide breathing space, and to provide the basis for the long-term debt problem to be dealt with via restructuring and growth.

But, as I also wrote in that blog, a week later, all that had been dramatically reversed. Why? because the ECB had announced that it was sterilising the money, it had pumped into the economy, to buy Government Bonds, by withdrawing money through selling commercial bonds, it was holding, and because, partly as a result of pressure from Germany, who had resisted providing any assistance to Greece in the first place, the PIIGS were being asked to implement precisely the kind of fiscal austerity that would lead to their economies being cratered, and the potential for the very growth required to solve the problem undermined. In other words, the very policies the Liberals claim they had to change to, were precisely the policies, which had led to a big sell-off on European Markets - and then world markets - and the dramatic fall in the Euro! If anything the experience in Europe during that period should have led to the exact opposite of the conclusion the Liberals say they were led to. It should have led to the conclusion that what was needed was further Quantitative Easing, and at least no tightening of fiscal policy to ensure that this additional liquidity found its way into the economy!

But, even if none of that were the case, the Liberals argument makes no sense. As I wrote, in my blog, Britain Is Not Greece, and Britain had many options not available to individual Eurozone economies. For one thing, at the time, the yield spread between Greek Bonds and German Bunds was more than 12 points. By contrast between Bunds and UK Gilts it was only 2 points! There was a considerable chance that Greece might have defaulted on its debt - and that risk still exists, and has been increased with the austerity measures - but there is absolutely no chance that Britain is going to default on its debt, and the traders in the Bond and Currency markets, who are pretty savvy people, when it comes to not losing their shirts - know full well that there is no chance that would happen, which is why UK Gilt Yields were less than 4%, which is historically low - itself hardly a suggestion that the markets were going to refuse to buy UK debt, or push interest rates to unspeakable levels!

And the irony is that, in the intervening period, as a result of the austerity measures, introduced in the PIIG economies, the weak recovery, they had been experiencing, has been reversed, as a direct result of the Cuts, and, in consequence, just as borrowing had to increase, in Britain, in the 1980's, under Thatcher, as Tax revenues fell, and welfare payments rose, so the PIIG economies are facing a similar scenario, and as a consequence yields on their debt are now back almost to the level they were at in April! If the Liberals want to learn from the experience in Greece, then they should learn that lesson, that if the policy of Cuts was intended to reduce interest rates, it hasn't worked! All it has done is to increase misery, and make it more difficult to resolve the crisis through growth.

But, the Liberals are not that stupid or ignorant. They know that nothing really changed that justified them changing their stance of opposition to immediate Cuts. The only thing that changed was that, if they wanted to get jobs for themselves in Cameron's Government, they had to be prepared to sacrifice whatever principles they might have had, as well as sacrificing the jobs of hundreds of thousands of workers, and maybe more if the idiocy of this policy is persisted with.