“THE WORST BIT IS YET TO COME”

What happens when a sovereign issuer of its currency decides that it’s going bankrupt?  Well, in the case of England David Cameron happens.  We’re just beginning to see some signs of what’s to come as austerity sets in:

“LONDON — Last month, the British government abolished the U.K. Film Council, the Health Protection Agency and dozens of other groups that regulate, advise and distribute money in the arts, health care, industry and other areas.

It seemed shockingly abrupt, a mass execution without appeal. But it was just a tiny taste of what was to come.

Like a shipwrecked sailor on a starvation diet, the new British coalition government is preparing to shrink down to its bare bones as it cuts expenditures by $130 billion over the next five years and drastically scales back its responsibilities. The result, said the Institute for Fiscal Studies, a research group, will be “the longest, deepest sustained period of cuts to public services spending” since World War II.

Until recently, the cuts were just election talking points, early warnings of a new age of austerity. But now the pain has begun. And as the government begins its abrupt retrenchment, the implications, complications and confusions in the process are beginning to emerge.

In Coventry, Mr. Mutton said that the City Council was bracing for an uncertain future.

“The worst bit is yet to come,” he said. “We’re not just talking about cuts in services, but real people losing their jobs, not being able to pay their mortgages, families becoming homeless. I don’t want to be scare-mongering, but these are the kind of consequences we face.”

I am the last person to advocate wasteful spending programs and misallocation of resources, however, in this time of deflationary risk you just have to wonder why David Cameron is so concerned that England is the next Greece.  Surely, cuts would be in order were there serious signs of inflationary threats, but this is simply not the case*.  Throwing fuel on the fire is the downtick in housing prices:

“A U.K. housing-market gauge showed the first decline in prices for a year in July as demand for homes fell, in a sign the economic recovery may be losing steam. The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 8 percentage points, compared with a positive reading of 8 in June, the London-based Royal Institution of Chartered Surveyors said in an e-mailed report today. A third more real-estate agents reported an increase rather than a drop in properties for sale. The housing market is faltering just as services and manufacturing also show signs of weakening after the economy’s fastest quarter of expansion for four years.”

David Cameron has called for the pain.  It looks like pain is what the people are getting.

* Addendum:

UK CPI