The debt contagion

Ted Tedford

This would be a good line for PMQs tomorrow.

If only...

Steve

Yeah, go on, rebut a metaphor. Good use of your time.

oldtimer

The message I took from the Sky News clip (via Politics Home) is this. He is worried that the IMF will have already committed its £250 billion line of support on other countries before he, Brown, is forced to go cap in hand to the IMF. He expects surplus countries (eg China and Russia) to bale out the UK when the time comes.

It is totally shocking.

Tiberius

He will pay the political price for his revolting posturing during this crisis.

Mike D

If there is to be any contagion it is other countries catching the British disease. The Germans must be delighted we didn't join the Euro. CDS prices for UK gilts will probably go the way of Italy's. The dire reposession figures are for Q2 of this year - months before the Lehmans collapse sent the banking market into a tail spin. If Q2 was bad just imagine what Q4 is going to look like now people have started tolose their jobs. Can anybody remember that 97 election poster?

TGF UKIP

Ah! some anger Fraser, some real anger from a Tory hack at last (Heffer always excepted.) Predictably, though, when it comes from the Speccie it's entirely misdirected.

If you were, indeed, an objective Political Editor, Fraser, you would be applauding Gordon for not only his brass face but for so manouevering your bosom friends HM Official "Opposition" and a goodly chunk of the erstwhile Tory media that he can so easily get away with it.

What is so striking about this very Tory website is the very real anger there is from ordinary Coffee Housers about Brown and his abuse of the this country and an increasing frustration verging towards anger about the Cameron Tories seeming inability or unwillingness to hold Brown to account or present a coherent conservative alternative.

However, I am increasingly coming to the view that such anger and frustration is being entirely misdirected. It should instead be targeted at those Tory hacks such as Finkelstein and Nelson who have consistently placed such complacently low demands on Cameron and Co and let them get away with being such a lame, unprofessional and docile an opposition.

Brown gets away with it and Cameron is unable to stop him and Cameron then gets away with his feebleness because his infatuated cheerleaders at the Times and the Speccie and the like choose not to hold him responsible for leading the worst opposition ever.

Am I exaggerating? Well after all the sleaze, incompetence and dishonesty of this government and this PM, and all Dave can manage is a single digit lead (probably concentrated entirely in the already Tory South East) tells I suggest its own story.

Am I being too hard and unfair on Fraser Nelson? Well I would suggest looking over his self indulgent debate with Finkelstein today and his continued bizarre infatuation with Osborne (what gives between you two Fraser?) evidenced in his piece yesterday ("A dynamic new approach for the Tories?") I don't think so - Britain's economy collapsing and voters have more confidence in Brown and Darling than Dave and Boy George tells its own story about the conviction carried by the Tories Fron Bench economic team.

We have a dreadful government, a useless opposition and a Tory Press that resolutely declines to give them the kicking they so plainly deserve and need.

Come on Fraser, we Coffee Housers are powerless and voiceless, you aren't. You have the power, you have the pulpit so for fuck's sake use it. As it stands, it's not just Dave who needs a rocket up his arse, it's Fraser Nelson too.

hadrian

If only the longsuffering public could get into as high dudgeon over Brown's sanctimonious and offensive inanities from No 10 as they have done over Brand's and Ross's crudities!

Fraser Nelson

Steve, if only it were just a metaphor. It is the government's official explanation for the crisis, and the remedy for the future depends on the analysis of the past. I really do think it's so important that this SARS virus metaphor is shot down.

TGF, i'm not paid to be objective. The Spectator's motto is "firm but unfair." You may think that includes being unfairly nice to Osborne, about whom we'll have to agree to disagree. I really rate him. He's dropped the ball in the last few weeks but he will recover.

Herbert Thornton

According to the Daily Telegraph some people are saying that when the IMF runs out of whatever currencies it has accumulated, so that it can't prop up any more countries, it's going to start printing it's own money.

Surely that's Alice in Wonderland economics? Grasping at straws? Or as somebody else said, Weimar on a global scale?

Why join the rest of the lemmings rushing over the cliffs to their own destruction?

I think the only solution is going to be the one Hjalmar Schacht adopted. Each country should isolate itself from the outside world, devise it's own internal currency, making sure it is issued only in amounts that avoid inflation, making sure that it's own industries are engaged only in genuinely beneficial activities and engaging only in such external trade as is genuinely essential and to it.

Schacht's methods worked brilliantly for Germany. So much so that I often reflect how Germany would have prospered if Hitler had used the German economy to build Volkswagens instead of tanks. In other words, if he had put his countrymen to work on manufacturing useful goods instead of armaments.

Of course, in order to emulate Schacht, whoever was in charge of a country's economy would have to be both honest and competent and I fear that the impulse to seek out people of his abilities may too often be lacking.

Fergus Pickering

OK Fraser, you rate Osborne. What is it about him that you rate? Is he clever? In whatdoes his cleverness consist. I would lov to rate him but can't find much reason to except a certain streak of honesty notably lacking on the other side. Does he know what to do when he get in? How do you know he knows?

mitch

And we have "typhoid brown" wandering the world.

Short the UK

The Tories must be ready for when the economy collapses in Q1 '09. I really mean collapse.

If any of you guys are interested in how the future is going to pan out:

The Final Crash by Hugo Bouleau

Wake Up! by Mellon & Chalabi

This article from the Observer in 2005 is a cracker:

Alphabet of global downturn

Financier-turned-economic pundit Jim Mellon sees no reason to be optimistic about the world's financial future

The Observer, Sunday September 25 2005

The unwelcome arrival of Katrina and Rita in the US has swept away illusions about American society. The competence of the authorities, the standard of living of many of its people, the fabric of the country's infrastructure - all have been cast in doubt by the storms' effects. Third World scenes of starvation, looting and rampage have emphasised the fine line between ordered society and the law of the jungle. No country is ever that many steps away from anarchy and chaos.

The same is true of financial markets. Although a natural optimist, I am going to make a prediction that is almost apocalyptic. In a short time - a few years at most - the rich West and Japan will have a terrible shock. Living standards will fall precipitously, companies will fail en masse and established institutions will find themselves in financial peril. Asset prices - particularly those of houses - will fall dramatically in some countries, notably the US and UK, and world trade conditions will deteriorate significantly.

Worse, global tensions will rise and China will not only be a threat to Italian sock and bra manufacturers, but a potential military threat to the Pax Americana.

There will be no warning of the arrival of this downturn, but the early signs are clear. Simplistically, I distil these threats into five categories, A, B, C, D and E. All of them represent confluent trends that herald the end of a long period of human advancement in the rich world. Six decades of technological advance, growth in material output, extension of human longevity, and unbroken peace in our cosseted part of the world, is coming to a conclusion.

The five trends are:

• Anti-Americanism and the beginning of the end of US hegemony.

• Balances - trade, fiscal and societal - which are out of kilter as never before.

• China's growth which has put it on the way to being the world's largest economy and the main Pacific power.

• Debts run up by consumers, companies and governments are at all-time peaks, and a dramatic and painful correction is the only remedy.

• Environmental: even ardent Bushites must be beginning to think man is having some effect on the planet's climate. The world's population has quadrupled in 60 years, and the problems of waste and consumption, as well as of pollution, are not going to get any better.

The anti-Americanism is a feature of nightly TV news bulletins. Since two-thirds of the world's population - the part that is young and growing - live in relative poverty, there will be frustration about and antipathy towards the Big Brother of the affluent world.

The US policy of acting as a roving cop has added to Second and Third World disaffection, and fundamentalism and terrorism are the children of disaffection. Efforts to help the poor world with rock concerts and debt cancellations are noble but insufficient, especially as Western farm subsidies do more harm to developing countries than our aid does good.

This anti-Americanism, and the US forays into hot spots around the globe, are in themselves not major factors in my economic predictions. But they add a backdrop of malaise to an already deteriorating situation, and will complicate any recovery from what is going to be a period of decline.

Balances - the B on my list - are glaringly awful. The US imports half as much again as it exports, and it pays for the deficiency in its own, self-printed currency. Trade's obese twin deficit - the fiscal one - is largely paid for by Asian central banks recycling surplus dollars they receive for selling goods to America, through the acquisition of US government debt.

These negative balances - which apply to the UK as well - have been around for a long time, but we are close to the limits of their expansion. Any refusal by the Asians to keep on funding US profligacy, or any serious moves to protectionism by the major Western nations, will tip us into a rerun of the 1929 Wall Street crash.

There is only one way out for the US, and it involves pain. I forecast that a deflationary period of adjustment is imminent and that while, confusingly, we are in a short period of commodity-induced price inflation, ultimately asset prices will fall.

The Anglo-Saxon housing bubbles are close to popping, and that will drag down consumption - the great driver of the world's economy - by more than anyone now imagines.

And that brings me to China. Its growth and ambitions are well known. Nearly a quarter of the world's population are prepared to work for wages which are on average one-hundredth of those in Germany. Whatever Germany, or the US or Italy, try to do, they cannot compete with that. More and more production will go to China, protectionist pressures will intensify and diplomatic tensions will grow with them.

All sorts of potential flashpoints exist, but if I had to pick one it would be Taiwan. China wants Taiwan back and one day it will have a go at getting it. The US response to that should be of more than casual interest to us.

In a way, we are in 1912 again. British supremacy was waning then and a new military power rising, one based on economic achievement. Then, of course, it was Germany. We have to hope a similar conflict doesn't result with China.

The first problem with debt is that US and UK consumers have been using rising house prices as a kind of ATM machine to take out equity to spend, often on imported goods. When the merry-go-round stops - as is beginning to happen - the consumption stops too. A slump in consumption lasting a decade or more, as happened in Japan, is possible for both nations. American debt is higher today relative to the size of the US economy than it was in 1929, and all the monetary and fiscal tinkering in the world can't cure its pernicious effects.

Last there are environmental issues. Wind farms, solar power and carbon credits will be nowhere near enough to combat the effects of population growth, China's higher consumption of commodities and the obliteration of the rainforests. Less consumption and more nuclear power are the only solutions.

In short, within three years the world economy will be in a significant downturn, and the correction process for the Anglo-Saxon economies will last as long as a decade.

Pay, and therefore living standards, will have to adjust to the effect of Chinese competition. Stock markets will collapse, house prices in the over-extended markets of the UK and the US will fall by up to 50 per cent, and major investment banks and other financial institutions will go bust.

Opportunities will abound for those with cash and little or no debt, but remember that the people who threw themselves from Wall Street windows in 1929 were generally not those who got caught up in the early part of the Crash. They were those who bought when shares had halved. Cheap can and will get cheaper.

• 'Wake Up! Survive and Prosper in the Coming Economic Turmoil' by Jim Mellon and Al Chalabi, is published by Capstone at £12.99

simon

My guess is Osborne will be under increased scrutiny in the next few weeks on the real issues of his response to the crisis.

I hope you are right fraser. Those arguing he should be pushed overboard underestimate how central he is to the whole cameron project

TGF UKIP

"Being unfairly nice to Osborne" - no, as you well know Fraser, my allegation is that you are unhealthily reluctant to get stuck into the whole gang of the inadquates. Your precious pair of Bullingdon Boys Cameron and Osborne first and foremost of course, but including the semi detached Hague, the perennially unimpressive star of the silver screen Sweetie Duncan, the Invisible Man Ainsworth and pillocks like Maples at Cameron HQ who came out on the World at One with the priceless view that to save money the government shouldn't cut civil service jobs at a time of rising unemployment, it clearly being the Cameron Tory view that only private sector employees should lose their jobs.

As I intend to keep pointing out the main reaon why Cameron & Co are such a lame and lamentable opposition is the unwillingness of Tory hacks like Fraser Nelson to lambast them for their inadequacy.

As Guido so succintly put it yesterday in his post on Sterling's decline "The Tories seem incoherent and without a macro solution ............It has come to something when the LibDems offer voters more in tax cuts than the Tories ........The Tories are too timid and scared of the old Labour attack lines." Sums up your Pusillanimous Pair and their gang to a "T", Fraser.

Tiberius

TGF: once again you completely miss the point about the Cameroons. (And please don't ask me to set it all out again.)

cuffleyburgers

@Herbert Thornton

YOur suggestions make no sense whatsoever.

A totalitarian isolationism is the last thing we need.

What we really need is sound money, to cut government spending and to cut taxes, deregulate the real economy.

Where did you get your extraordinary ideas from?

Ray

Echoing Cuffleyburgers, Hjalmar Schacht's autarkic policies were on the verge of bankrupting Germany by 1939. His Fuhrer was only saved by the conquests of Europe that followed, which allowed the Nazis to loot the occupied territories of the manpower and materials they needed to prop up the 'Thousand Year Reich'.

Meanwhile, the Soviet Union had seventy years during which to savour the joys of economic autarky. Look what that achieved for the prosperity of its people.

Herbert Thornton

cuffleyburgers -

No sense whatsoever? Why not, when there, plain for all to see, is the example of Germany's rapid rise from the penurious aftermath of World War 1 and the disaster of the Weimar inflation?

Hjalmar Schacht's financial guidance so boosted the German economy that it could - and did - bring full employment and made the German economy enormously productive. The fact that Hitler put Schacht's success to such evil use in no way invalidates the virtues of well managed "isolationism".

The point is that his "isolationism" worked. To attempt to denigrate it by calling it "totalitarian" isolationism makes no more sense than did the Nazis' attempt to denigrate the Physics of Einstein's Theory of Relativity by calling it "Jewish Physics".

I agree with you on one point though - what we need is sound money. Schacht understood that need better than anybody. He understood too that money can only be sound so long as people believe it to be sound. That is why he so resolutely opposed allowing the money supply to be inflated - a belief he so firmly held that it eventually led to his falling out with Hitler and being sent to a concentration camp.

Herbert Thornton

Ray,

Your post amounts to saying that the real reason Hitler started World War 2 was that Germany was going bankrupt. That is inaccurate & very much mistaken thinking. It was started because of Hitler's mad ambitions.

Your argument that isolationism can't work is not proven by the isolationism of the USSR, any more than it is proven by the conspicuous failure of North Korea's boasted Juche. It is not the isolation as such that fails. It is the internal policies followed by the government of the country that chooses to isolate itself as much as it can.

Obviously Britain can't be completely isolated, with no trade at all, because it needs in particular to import some essentials such as food, but that is no reason why it should become a part of, and subject to, a thoroughly ramshackle international financial system.

TGF UKIP

Ah Tiberius, so there you are. So low has your profile been recently that I was coming round to the view that you were at last so embarrassed by the lamentable performance of your Precious Pair as an opposition that you considered a period of invisibility on your part to be most apposite.

So subtle indeed is Dave's master strategy that it appears to bypass the voting public completely with of course the exceptions of sophisticates like yourself and your teenage alter ego.

As you've always appeared to be a most compassionate and understanding man, though, Tiberius, don't you feel that in all this the guy we should be feeling most sorry for is poor old Major.

My God he must think every waking hour "why couldn't I have been faced with an "opposition" like this, I'd still be PM now!"

Ray

Herbert - to be sure, Hitler didn't start World War II in order to head off bankruptcy. Rather bankruptcy was the price the Germans paid for enabling their leader to eventually be able to indulge his warlike megalomania.

Indeed, in his masterful 'Rise And Fall Of The Third Reich', William Shirer describes how (inter alia) Schacht issued 12 billion marks worth of 'Mefo' bills that were essentially an off-book method of financing German rearmament, as Count Schwerin von Krosigk (Hitler's Finance Minister) once admitted, through "printing money".

Obviously, Schacht has found an eager latter-day pupil in a certain James Gordon Brown.

Herbert Thornton

Ray,

You are right that bankruptcy was the end result of Hitler's megalomania.

And I agree that viewed in terms merely of "printing money" Gordon Brown and Schacht can be thought of having something in common. But that is a superficial similarity. There is far more to fiscal management than merely printing money and to think that printing money is all there is to it entirely misses the point. The really important factor is skill in the management of a country's fiscal affairs.

Schacht managed Germany's finances with the consummate skill of a genius, all with close attention to the particular, detailed needs of the most vital segments of industry and of the economy.

Brown on the other hand shows little sign of having that sort of skill. His skills seem to be more of the nature of "spin" than in genuinely wise fiscal and policy management. Indeed, to my mind, he is a long way from having much resemblance to Schacht and has more in common with the manipulators who concocted and touted the unsound financial "securities" and the labyrinth of traffic in them that have caused the present financial turmoil.