Reykjavik on Thames
Fraser Nelson 8:35pmIs Britain going the same way as Iceland? Iain Dale says that my reference in my political column to senior economists referring to London as “Reykjavik on Thames” is “terrifying, if true.” Cheeky wee monkey. ‘Course it’s true. The phrase I can attribute directly to Willem Buiter, one of Brown’s first appointments to the MPC and a pro-Euro enthusiast (but that doesn’t make him bad and wrong). He makes the Iceland case, and coins the phrase, in this rather technical but sobering FT blog post. Now you could argue he’s just one maverick. But I’d make three points in defence. 1) Buiter was denounced as a maverick when he said Iceland would go pop. He was right, his critics wrong. 2) I’ve heard his case echoed by other serious economists, who I can’t name. And 3) Patrick Hosking of The Times – no maverick, but a first-class journalist – spells it out in this excellent piece that Gordon Brown will not want you to read.
The risk of a new banking crisis, exploding on the public books, is a real one - albeit (at present) an unlikely one. In times like these, when the unthinkable happens with alarming frequency, you can’t afford to dismiss anyone as a weirdo. We’re going through a rare paradigm shift in understanding the economy, similar to that of the late 1970s. The old analytical tools which helped us understand the post-ERM era (ie, inflation fixation) are no use. They weren’t any use in post-globalisation era, hence the bubble (and the bust). A new era is upon us now, so until we understand it we can’t dismiss anyone as a maverick."Like Iceland, we boast a huge banking industry out of all proportion to the overall economy. Like Iceland, we have an unfunded depositor lifeboat scheme totally unequipped to grapple with failing banks. Like Iceland, our national output is dwarfed by the vast liabilities of our banks. Like Iceland, our banks for years scoffed at relying on domestic depositors to fund their activities and developed a dangerous addiction to wholesale money. Like Iceland, our Government is poised to go on a borrowing spree to try to soften the pain. Like Iceland, our currency is on the skids as foreign investors pull out."
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Austin Barry
November 22nd, 2008 9:00pm Report this commentAnd, I suppose, with fellow citizens like the late Mr Rashid Rauf, a little like North Waziristan on Thames.
hadrian
November 22nd, 2008 9:12pm Report this commentWell, Reykjavik is quite nice for a holiday, actually...and maybe it's exactly on a holiday that most of London, not to mention our wider economy, will be headed. Never mind, my modest savings are with the little Airdrie Savings Bank, one of the few sane sctors of our money industry left!
Herbert Thornton
November 22nd, 2008 9:15pm Report this commentRemarkably, this is very similar to what the BNP's Nick Griffin has been saying for a very long time.
My own opinion is that Globalisation is only making things worse. International trade is fine, but it needs to be balanced between individual countries.
Several weeks ago Conrad (Lord) Black also wrote an excellent commentary on the financial crisis that appeared in Canada's National Post and he described Britain's service economy as a fools' paradise.
I think it's quite likely that we're going to see a repetition of 1940/45 when there was virtually no private traffic on the roads and everybody had ration books to make sure there was enough food to go round. Even a re-run of the Weimar Republic is possible. Whether a virtual reincarnation of Hjalmar Schacht will emerge and be allowed to avert even worse catastrophe remains to be seen.
Short the UK
November 22nd, 2008 9:19pm Report this commentFraser,
I think the unlikely will become very likely when the markets see our Services and Consumption based economy collapse in 2009.
GDP is expected to contract 1% to 2%. I expect it to be 4%+.
The buy-to-letters are our subprime slime and in their forced liquidation house prices will crash further than anticipated.
It's all brewing for a perfect storm.
The markets could rout GBP any day in the coming months.
The Tories would be best to let Brown win in January and then watch his party implode as the economy goes into an L. It will destroy him and Labour. It is best to think like a bear and play the long game.
'Bulls make money. Bears make money. Pigs get slaughtered.'
RODEST
November 22nd, 2008 9:53pm Report this commentI think we are looking at a re-run of the latter part of the 1970s and the early 1980s. Labour wrecking the country and Margaret Thatcher taking drastic measures to rebuild the economy. Unfortunately, the meding process after labour leave office will be harder and longer than anything the Thatcher government imposed.
Augustus
November 22nd, 2008 11:33pm Report this commentOf course, the real trouble starts when international creditors completely lose faith in the UK's ability to manage the economy sustainably. Ever since Brown has been waffling on about 'fiscal rescues' sterling has tanked. With the debt to GDP ratio over 100%, borrowing over the £100bn mark, confidence must surely collapse. A sharp slide in sterling also implies higher long-term interest rates as bonds are sold off, thus raising the cost of borrowing for the Government, and implying even steeper tax rises later on. Further sterling falls and the Government may not even be able to guarantee all this debt, in terms of both foreign currency reserves and with less cash to draw on at home. This could be a very nasty recession indeed. Some European pundits are even describing it as potentially "the nastiest recession in the Western world".
Old Hack
November 23rd, 2008 6:52am Report this commentUnlike Reykjavik our Banking Sector is of global significance. Put simply, Britain going pop still counts for something whereas Iceland was far more manageable.
Perhaps that's why things have not got any worse?
mitch
November 23rd, 2008 8:56am Report this commentPerhaps the UK should have a closing down sale. Flog everything share out the cash and all leave to less ruined economys.
seb
November 23rd, 2008 9:31am Report this comment@ Short the UK
Gloomy and dramatically put, but, as usual, not wrong.
I am increasingly inclined to agree that it would be best for Brown to win, say, in January or spring. He's most likely to win with fewer votes than Cameron, which will grievously dent his authority and credibility and he may have to rely on partners of dubious commitment to his noble cause. The subsequent election could take place not in 2014 but in 2011, if The Saviour is lucky.
John Fuller
November 23rd, 2008 10:17am Report this commentThere's another worrying similarity - peripherality.
Iceland is physically situated on the edge of Europe.
So is Ireland.
So are we?
In the UK we tell jokes about the Irish. In America, the same jokes substitute the word 'Newfoundland', or the 'Newfies'. The reason? Both countries are 'on the edge'
Do we need to remind ourselves that we are separated from the European landmass too?
Jim
November 23rd, 2008 11:00am Report this commenthttp://www.bbc.co.uk/worldservice/programmes/the_interview.shtml
Governor of the Bank of Canada, Mark Carney talking to Carrie Gracie
A devastating criticism of our failed tripartite system of bank regulation introduced by you know who.
Canada's banks have avoided the financial fiasco so far.
Gordon Musgo
November 23rd, 2008 11:16am Report this commentquote:Willem Buiter, one of Brown’s first appointments to the MPC and a pro-Euro enthusiast (but that doesn’t make him bad and wrong).
It does, you know, and evil too.
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