Sunday, June 27, 2010
Government austerity is the new fashion
Political and Economic Developments
Government austerity is the new fashion, a mantra espoused by some and imposed on others, studiously avoided by US politicians who face November mid-term elections. The new UK coalition government will hike Value Added Tax to 20.0%, while the Japanese government mulls raising theirs from a current 5.00%. Government spending slashed all round Britain too, cutting out not just ‘waste’ but right into the ‘bone’. Moves will not be popular but weakened trades unions and no job security mean employees have few options other than the ‘sick note’, currently the dodge of choice.
US Existing Home Sales dipped to 5.66 million annualised in June while New Home Sales collapsed to an all-time low at 300K, a series going back to 1964 and a fraction of peak 1389K in 2005. Interestingly the US Treasury reports widespread fraud with the homebuyer credit introduced in 2008 with at least 15,000 erroneously paid out, of which 1,295 prisoners successfully claiming credits worth $9.1 million. Also worrying for those hoping for a floor to be established on property prices is anecdotal evidence that some are maintaining consumer spending by going into arrears on their mortgage payments, banking on the lengthy foreclosure and eviction process to tide them through. Australia has a new PM and its first female one to boot, Julia Gillard, the deputy who ousted Kevin Rudd whose plans to tax big miners more heavily brought about his downfall. This should serve as a warning to tinkering politicians; the uncertainty alone can destroy businesses, especially those with very long term time horizons.