Osborne warns against "sowing the seeds" of the next crisis

AR

Effective? Don't quite see how.

Incoherent with no prescription as to how to get us out of the crisis will are falling into.

He calls for interest rate cuts, but he must know that this will do little good. The transmission mechanism has broken down and banks' cost of funding is well in advance of the Bank of England's base rate, so are unlikely to pass through more cuts. But even if they were, what good would it do? A significant percentage of people are now on fixed rate mortgages so will not help them until mortgage renewal time. This assumes that banks will have sufficient funding or the inclination to offer a new mortgage. Interest rate cuts would also not help those with unsecured debts, as the rates on this are instead increase. Businesses will experience the same problems, with neither the cost of credit nor its availability changing significantly.

Osborne's plan seems to be to do nothing and hope for the best.

He is out of his depth.

strapworld

excellent article by trevor Kavanagh this morning!

I agree with you,Mr Hoskin, far too little too late! It is, now,rather unseemly.

I will out-Obama you Mr Brown!
quite pathetic. yet if Cameron had listened to John Redwood. This policy would have already been published!

oldtimer

I agree with Mr Osborne. There is no future (worth having) in Brown`s Banana Republic of mountainous debt and a debauched currency.

And to think, we missed the now unmistakeable signal of what to expect from Brown, when Mr Milliband held aloft at the Labour party conference his banana - the new symbol for NuLabour Renewed.

TrevorsDen

No one should underestimate what low esteem Brown has for the electorate. he will treat us as if we are all thick. The fact that non structurally necessary borrowing is insane will not bother Brown if he can get votes out of it.

The tory policy is the correct one - make savings in bloated govt expenditure and offer tax cuts stimulate the needy sectors of the economy rather than bloated unproductive bureaucracy.

If and when the BBC refuse to acknowledge this then that is where the full forced of the independent media should come in and hold them and their left wing attitudes to account.

Ian C

It is quite clear that authorities on both sides of the Atlantic are fighting the 1930's depression when this downturn has its own character.

The problem is a shortage of money thanks to losses (recklessly) incurred. Dropping interest rates and spending money (wastefully as we know it will be) will not resolve the crisis and will make it much worse. Government action then made it worse. Today this mistake is about to be repeated.

This is the message the Tories should be banging. It is not a populist one now but it is the right one. And when in May 2010 we are up to our necks in it, Vince Cable and the Labour Party will be dead in the muck they have flooded us with.

seb

@ TrevorsDen

Making savings in bloated [hah, what an understatement] government expenditure is surely just the first leg on the road to some sort of salvation for the wreck that is the UK's finances. Assuming that Brown will be turfed out in 2010, all future government policy, be it in regard to borrowing, spending or taxation, has to aim at promoting genuine economic growth. The very word has been so hideously abused by New Labour that, if it were a living person, it would need the sort of counselling that victims of violent assaults receive.

RODEST

Peter; George Osborne's warning in his article is a very appropriate respone to Labour's borrow and spend plans, tho' the emphisis could be stronger.

The message that does not seem to be coming out of Tory Central office is that Britains falling GDP along with our current level of debt is likely to extend the time that we are in recession. Put these factors togeether and the massive debt that Brown intends to accrue, 'effective' tax cuts look very unlikely in the next ten years.

Punk Economist

Well I've read the article and I'm still not sure what the policy is. On top of a super-duper Office of Budgetary Cop-out, which will solve all of our problems just like the independent Bank of England and FSA have, it sounds like we're being promised a super-duper International FSA, which seems to be what Gordon wants.

What is a funded tax cut which doesn't permanently increase the deficit? It sounds like a tax cut covered by a gradual cut in expenditure - presumably you cut tax by £x, borrow £x, then phase a reduction in spending by £x+y over time slowly paying down the debt and interest you took on to pay for the tax cut. But you can do that without having a global recession. Six months ago, however, it would have been irresponsible and destabilising.

I suppose he'll claim the saving will come from spin doctors and consultants. Like the Lib Dems and their extra 1p on income tax, this is the gift that keeps giving. I forget what happened to that Lib Dem policy.

I've thought for some time that there's a Tory mole in the Treasury giving Osborne advance tip offs about Labour's next moves. So if he's saying this sort of thing now it's a no-brainer Darling is going to cut taxes in some shape or form in the Pre Budget Review. Osborne will be in a bit of a pickle when they catch this chap and sack him.

Ian C

If anyone needs convincing about the real nature of problem read David Roche in Saturday's WSJ.

All government interventions are doing, according to him and his case is clear, are funding the losses incurred/yet to be. That much has been obvious for a while. That's why Paulson's plan was the better one (but insufficient alone) but too long term for all especially in a pre-election hothouse.

He goes on to say " the world economy has become accustomed to using $4 to $5 of credit for every $1 of GDP growth. Even if this profligate use of capital is halved, it still means credit expansion of 10%-15% is needed to achieve real GDP growth of 2%-3%. The recapitalization of financial institutions so far is only enough to maintain existing credit assets, but not expand them; ergo the credit crisis continues."

The only way that growth can be achieved is if we all save more and spend less.

SO we don't need life breathed into illiquid asset markets such as property. Lower mortgage rates are thus irrelevant. Incentives to save are what matters.

Tories should be beating a path to his door because no-one else wants to hear what he and a few others are saying.

JR

As I commeted on Fraser's post - there's no detail here. They need to firm up the proposals quickly. And the talking about automatic stabilisers is a bit misleading - the rates of benefits in this country are generally so low as to not make an impact anymore (i.e. a middle class person with a bit of savings being made unemployed is likely to only be entitled to £60 per week for 6 months).

Short the UK

Ian C - you are right. The Tories should be talking to people like David Roche. His book New Monetarism graphically showed the problems. In recent months even Independent Strategy have been behind the curve as they thought reflation would buck equities up in the summer.

I think the key people Osborne should be talking to are: Nouriel Roubini, Roger Bootle & Satyajit Das.

I think the MSM are not aware of how quickly our economy is collapsing. This was obvious after Northern Rock but the elite continued to live in the Brown Bubble that it would soon pass. The ineptitude is staggering.

The fin de siecle.....

Barnaby Trubble

Incentive to save? I can save for what I want, but my money will be in a non-secure bank, a pension fund where it can be nicked, or under the mattress where actual holdings of real cash may become illegal in the years to come.
Or I can borrow and go out and buy what I want. If it all goes belly-up, I'll be bankrupt, but the state will look after me by penalising the thrifty.

No Brainer!

JONNYj

Don't want to spoil the party but Osborne still must go. And be replaced by someone with the necessary punch, gravitas, weight and experience.
So is Cameron about to move him? Has he been listening to us? Is he waiting for a face-saving moment like Christmas to make the change?
Or is he going to go on backing his chum for eternity, however many times he trips up?
Does anyone have an earthly?

mac

The politico-economic narrative we're all living through would have seemed laughably unreal as a Jeffrey Archer novel 20 or more years ago. But coaches and horses have been driven through the claims trumpeted from 1997 and earlier of New Labour's cleanliness, prudence, probity, and 'fairness'.

The state we're in really is no surprise given that the principal architects of the party in government have so ruthlessly brought to life the plots of 1984 and Animal Farm.

Ian C: Incentives to save is sound policy but, unfortunately, Barnaby T is right about the attendant reality: this crass, inept and doctrinaire government has no compunction in following a ruinous beggar-my-neighbour approach to milk savers to subsidise their client spendthrifts who expect all that they want, when they want it (which is right now), and bleat that it's not 'fair' if they don't get it.

Gordon Musgo-soon

I can't help thinking Mr Osborne has delighted us long enough (has Ms Austen's phrase been used here recently? Something put it in my head) and it wouldn't be too bad if his fans on the magazine didn't blog his speeches here UNTIL he can say something both interesting and sensible. It it hinted he is on the same planet as the rest of us, that would be good too.