Britain’s Austerity – Investors Beware (News from the Contrarian)

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By Adam Richardson

Further evidence that an “active” government is a destructive government…


Today’s guest post from contrarian investor and market commentator Samuel Kraigwest made me pause and think about Europe’s brand of “austerity”.  Having a distaste for most any government actions, and knowing the inescapable truth that the house of cards must crumble, I generally accept that sweeping (even severe) austerity is a no brainer for broke EU governments.

EU austerity
Fighting To Preserve What They Didn’t Deserve

But (especially in the EU & UK) the  State is so intertwined with Society that there is no way to punish one without doing terrible damage to the other.

As far as Socitey goes I’m reminded of the Ben Franklin quote that, “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”  Reworking this quote a bit (I’m sure Ben wouldn’t mind) we see that those who accept the “safety” of government handouts, bailouts and artificially created jobs are giving up something precious.  The consequence being that their fate is tied to a system that was not built to last, rather to enrich a small class of sociopaths and their hangers-on.

Excuse the rant, this wasn’t intended to be a commentary on politics or philosophy…but instead a warning to investors from someone who’s “been there, done that”.


The following is what Samuel has to say:



Britain’s Austerity – Investors Beware

By Samuel Kraigwest

Thousands Protest the UK Government’s Brutal Austerity … Britain’s government has introduced sweeping changes to the country’s welfare, justice, health and tax systems, including a “bedroom tax” that will reduce housing subsidies that primarily benefit poor people. The levy ostensibly aims to “tackle overcrowding and encourage a more efficient use of social housing,” resulting in an estimated million “social housing” households losing 14-25 percent of their housing benefits. – Nation

Numerous posts including this one from the Nation report on Britain’s new austerity measures. The most recent involves families that will receive fewer benefits if their houses include a spare room. The government has labeled the so-called bedroom tax an “under-occupancy penalty.” Apparently, the idea is that if you can afford a spare bedroom, you are not in as much need of government aid as those who don’t have additional bedroom space.

But government ambitions do not stop there. The new regulations rely on house or apartment dwellers to “self report” whether or not they have more space than the government deems useful. And admittedly there is a good deal of confusion over how the regs will be applied and what is considered a spare bedroom. The Guardian newspaper calls the new regime “exacting,” and has in various articles attempted to clarify what is being demanded. “If you’re a separated or divorced couple who share the care of your children, only one of you will be allowed extra rooms; if the other keeps a bedroom for the kids, it’ll still be deemed “spare.”

And children must sleep at least two to a room. “If a family contains two children of the same sex under 16, they must share, and the same will apply to mixed-sex children under 10.” Even disabled or autistic children will likely have to share, though in some cases local authorities will make the final decision. Many in the social services see the policies as counterproductive as there are not enough dwellings to go around that satisfy government demand. And as a result, people are feeling trapped between an additional tax and the necessity to move.

The result is already social protest. Trade unions members, advocates for the disabled, churches, and anti-poverty protesters have all marched against the “unjust tax” even though the government is holding firm.

The cuts have already resulted in some seriously warped means testing. The AP reports parents whose children are not considered “disabled enough” by local officials have been told they must pay. A particularly heartbreaking testimony came from a bereaved couple who couldn’t bear to change the bedroom of their 7-year-old daughter after she died of brain cancer. Under the cuts, they’d essentially be forced to pay a fee for their grief. (-Guardian)

The larger issue, however, is not the fairness of the tax but what it reveals about the larger social organization of Britain. This is a country that is about to enter its third recession in a half-decade, that is stimulating almost endlessly via money printing without success while raising taxes and facing almost endless revenue shortfalls from ongoing social programs. In fact, the “bedroom tax” will save the government some money but not nearly enough. And the social disruption it will cause is probably beyond calculation. These sorts of “austerity” measures during a bad economic downturn only inflame the general populace and make the social contract between government and citizens even more fragile.

Who today would invest in Greece, or even Spain? Until problems are sorted out, money will flee to safer and more enticing havens, perhaps in Asia or even in parts of Africa now being developed. Austerity itself – the idea of raising taxes while reducing social benefits – is generally a recipe for social disruption. The emphasis needs to be on reducing both regulation and taxation while keeping a social safety net in place until the private market can replace welfare and the “dole.”

Britain is going about it the wrong way, like much of Europe. Taxes and regulations are expanding while the social safety net is being reduced. The results are more unemployment and increasing social discontent that can easily lead to violence.
Such policies are disruptive, not conducive to prosperity. Where “austerity” is being applied, investors need beware.


Samuel Kraigwest is longtime commenter on the markets who grew up in the US but now travels the world in search of promising investments and the ever-elusive “best martini.” Kraigwest is also a contrarian investor who uses all of his life experience and investment knowhow to communicate the hard-truths of 21st century global speculation. Articles provided to Q Wealth are original compositions not to be found elsewhere. Other articles of his can be seen here:


Adam again.  I had a question for Samuel after reading this which is this; as a contrarian, doesn’t he think that the time to buy is when “blood is in the streets” and nobody else wants to invest?


Let’s have a debate in the comments below!


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