New York, NY (PressExposure) November 23, 2010 -- "Firm but fair", said the UK's Chancellor of the Exchequer, George Osborne. Earlier, this fellow had just announced that, as part of his coalition government's bid to slash the largest deficit in the G20, he was wielding the axe to cap the maximum amount in state welfare benefits any one household could claim to 500 pounds per week . In addition, he was ending child benefit payments for middle class families with income above 44,000 pounds per annum.
Asked for the firm's take on the sharp cut in the country's welfare bill, a senior analyst at "EurasiaTrade" said that it was "fantastic news" but added that she couldn't help feeling that it was yet another step towards segregation of the rich and the poor. "Look at it this way", she suggested. "An unemployed family of two adults with two children living in, say, a 3 bedroom home in London will, as things stand, be unable to remain in their home if it's being rented in the private rental market. When one considers that a 3 bedroom house in even the cheapest parts of London won't fetch less than 350-400 pounds per week, all you have to do is add in Jobseeker's allowance and other benefits and that family will have to move elsewhere, perhaps outside London", she concluded.
Evidently, the Chancellor is hoping that some of those affected who have, perhaps, been somewhat work shy given the comfort the current system affords, will be forced to secure gainful employment but, as the "EurasiaTrade" analyst enquired, where on earth are the jobs going to come from?
The UK government has embarked on a deficit reduction plan that will see half a million public sector and up to 700,000 private sector jobs disappear in the next 5 years. How, then, with all the cuts and the tax increases, is the UK economy supposed to grow?
"EurasiaTrade" believes there are two choices. Either the Government will have to revisit its deficit reduction plans OR the Bank of England will have to buy more UK treasury bonds from the British government with more newly-inked money then hope and pray that the banks will pump it into the economy instead of hoarding and speculating with it in order to rebuild their battered balance sheets.
If the government DID ease off the throttle with the cuts, then markets would take a very dim view and Britain could face a run on its sovereign debt much like Greece and Portugal have in recent months but if the BoE prints more money, sterling will be obliterated. The "EurasiaTrade" analyst said, "But that's EXACTLY what they want to happen because it will make what little Britain exports a lot cheaper. Unfortunately, it will also make what it imports more expensive so expect gasoline prices to soar along with utility bills."
With this in mind, we think that British investors will really want to be holding on to their precious metals.