Cameron Says U.K. Is Determined to Kill Off Debt `Specter'

Prime Minister David Cameron will reassert his commitment to eliminating Britain’s budget deficit amid criticism that his plans are choking economic recovery.

British banks, households and the government all need to reduce their indebtedness to restore a balanced economy, Cameron will tell the World Economic Forum in Davos, Switzerland today.

“Our first priority is to kill off the specter of massive sovereign debts,” Cameron will say, according to remarks released by his office in London. “We can’t just flick on the switch of government spending or pump the bubble back up.”

Cameron is fighting back against warnings that his plan to almost eliminate the deficit within four years is too severe. Critics including billionaire investor George Soros say the squeeze is sapping economic confidence just as accelerating inflation puts pressure on the Bank of England to end its emergency stimulus.

Britain’s economy unexpectedly shrank 0.5 percent in the final three months of 2010 as the coldest December in a century hampered services and retailing, data this week showed. That suggests the recovery faded even before Cameron’s government implements the fiscal squeeze, the largest since World War II.

Soros Warning

Soros, who reportedly made $1 billion selling the pound in 1992, said this week that the government will have to rethink its budget deficit-cutting plan or risk pushing the economy back into recession. Cameron’s plan cannot “possibly be implemented without pushing the economy into a recession,” Soros said.

Chancellor of the Exchequer George Osborne, who also speaks at the Davos gathering today, will hit back at criticism from the opposition Labour Party by warning that its policies left Britain more indebted than most other major nations.

“Over the last decade our economy became perhaps the most extreme example of any major economy of the dangerous imbalances that now need to be unwound,” Osborne will say, according to extracts of his speech released by the Treasury.

‘Illusion of Growth’

Britain experienced “the biggest housing boom, the most leveraged banks, the most indebted households, the biggest budget deficit,” Osborne will say. “An illusion of growth built on easy money that has now turned to dust. Adjustment will not be without struggle.”

*Sound familiar? Henry Hazlitt indeed warned in Economics in One Lesson (1946) -
"The ardor for inflation never dies. It would almost seem as if no country is’ capable of profiting from the experience of another and no generation of learning from the sufferings of its forbears. Each generation and country follows the same mirage. Each grasps for the same Dead Sea fruit that turns to dust and ashes in its mouth. For it is the nature of inflation to give birth to a thousand illusions."

Cameron will say that without determined action to cut the deficit, higher real interest will prevent a recovery from materializing.

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