Taking a pounding

John

I think they are softening us up for the Euro.

Martin D

Of course if we switch to the Euro our manufacturers will have to take on European competition head on.

KMcC

your first point displays some classic mercantilist tropes, Fraser: the trade 'deficit' is a completely unimprtant measure. Consider this analogy - each and every one of runs a huge trade deficit with each and every shop we patronise; it's of no consequence at the personal level, and of no consequence at the national level. That this 'deficit' might have been financed by borrowing and debt may be of more moment, but the existence of a 'deficit' as such is irrelevant.

Second, the idea that the purchase of goods made elsewhere is only good for that economy elsewhere isn't true. If people can secure goods at a lower cost through international trade than they can be sourced domestically, then consumers are by definition wealthier - their money goes further in real terms.

We are truly scuppered though, because Labour, as per usual, is hanging an albatross of debt around the neck of every productive person in its futile bid to cling on to power

Rhoda Klapp

Well now, you mean there turns out to be nothing in the vaunted PBR but ineffectual stimulus and a counter-balancing load of real tax rises. The trailed aid for small business either didn't arrive or slipped my attention.

My suggestion was to give tax write-offs. Either all capital spending for 2008-9 to be allowed 100%, or all outstanding written-down items to be written right off. Rhis ought to have an effect on order books. There is no need to be precious about whether it boosts imports rather than home-made, a large proportion of money spent on imported goods does not leave the UK. If Primark sell a T-shirt for £5, only about 50p goes back to China, the rest is made here.

You didn't mention late payment. This is the biggest threat to business. It disrupts cash flow, and banks are not prepared (nor should they be?) to prop up incomings so you can operate for a little longer. Maybe there could be a govt backed factoring solution, I don't know.

I'll do a little more work on my final ultimate solution to the financial crisis and come back here soon with it. It's a bit of a modest proposal though....

Jeremy

Fraser, do you think it has become the policy of this Labour government to bankrupt the country precisely in order to make our newly-proposed entry into the Euro look both attractive and inevitable?

I'm not saying they started out with this aim, but I think the idea has now formed in their minds.

Richard Holloway

You mean McBrown can't save us?
Well who would have thought it?
When this all comes crashing down it's going to be quite a spectacle. No doubt Jackboot Smith will claim that 'it's not the government's job to run the country and we weren't informed that we'd completely buggered up UK plc over the past 13 years.'

Ian C

Fraser, the weaker Sterling gets the easier it will be to finance the deficits.

But it is going to take a clear vision of the future economic make up of 21st Century UK to enable a the re-balancing required.

Labour Matters

//We don’t have much of a manufacturing base left.//
You blame health & safety rules yet ignore Thatcher's legacy? That's ideology in your pen not ink, right?

Nagger

"That’s why the VAT cut is such a blunt tool. If it has any effect at all, it will mean more goods bought from China thereby helping its economy."

However as the main trading currency between UK and China is the $US, the fall in pound means that less good will be bought from China as the cost has effectively increased.

Catch 22?

Tradebot

Yes, the GBPeso is world's worst currency (bar Zimbabwe). The private sector wholesale lending shortfall is massive, approx +£700bn. Add another +500bn from public sector to and we are talking gigantic funding requirement for 2008-2010. There are no domestic savings available for the banks to draw upon so the funding has to come from international investors. As an international investor – why would I want to lend in GBP to UK? The yields are lousy, central bank has lost all control, economy is unbalanced and the Government is putting short term political considerations over long term economic prospects. No, thanks – YOURS the GBP as you say in the FX jargon.

TomTom

Sure, in theory, the falling pound helps British manufacturers

Ah yes, the world economy is booming and just waiting for British exports to become cheaper.....

Jim

And a falling pound does little to help British manufacturing if raw materials and component parts have to be purchased abroad with devalued sterling.

Paydirt

Since this is global meltdown, every country is affected and all face similar problems in manufacturing, whatever. Investors will want a safe place to invest, what and where is that these days? Ask yourself what attracted the foreign millions over the past few years to this country/sterling. I think stability is a major issue, this means the rule of law, low risk of default and a reasonable chance of growth. It’s all relative. The pound is going down mainly because the risk of default is going up. When the rest of the world collapses in a heap, they’ll all be buying pounds again (just don’t bet on UK being in the remaining few, what chance have we got with Brown at the controls compared to Obama, with all the US has going for it.)

Hugh

Ah Fraser,

The pound in your pocket.

kinglear

We've been dead in the water for years,it's only been Brown's massive borrowings and profilgate increase in government and proxy-government employees that has kept us going.
Now, he wants to borrow even more.
As Private Fraser would have said " We're doomed."

richardj

We are well and truely back to a Socialist government with a five year plan and a sinking currency (that's the market's view of the government policies)- those of you who are old enough will remember the 1960's and 1970's as well as the Russian five year plans so loved by the Communist party.

Bocephus

We are in a complete mess. Britain's economy was based around financial services, these are now in the toilet thanks to the appalling decisions made by a number of bank CEO's and Gordon Brown's disastrous regulatory regime and profligate spending in the boom years. Brown now seems determined to completely destroy the banking industry all over again by forcing them to lend at a loss, thus causing more chaos down the road. Every previous recession seemed to have a light at the end of the tunnel, with this one all I see is darkness.

For years we were told Brown was an economic genius, a details man, finger in every pie, micro manager etc, yet he managed to miss all the reports from the IMF telling him Britain was borrowing way too much, he missed the 100% mortgage offers hanging in the windows of every bank, he forgot about all the PFI liabilities he had stored up and he thought he had ended the economic cycle. I can think of no other politician who would take so much pleasure in the sheer devastation and ruin his economic policies have caused.

Even Fred Goodwin resigned in shame and disgrace is it not about time Brown did the same.

Margaret

Surely a typo when you say it's good we weren't in the euro? Europe looking in vastly better shape than us - paying attention to things like bank leverage and excess government spending seems to have worked for most of the countries there?

The Laughing Cavalier

In the Spring of 2009 we shall be at or near parity to the Euro. Then, in his final act of destruction Brown will announce his greatest triumph ever, entry into the Euro at the rate of 1:1, thus completing the task he set himself in 1997 of destroying private savings and pensions.

oldtimer

We should worry a lot because it signals a rise in inflation via the cost of imported goods and quantitative easing". Probably it also reflects the belief of holders of sterling deposits and fx traders that the government is about to turn on the printing press (called "quantitative easing" in poltically correct language). This will help bailout the over borrowed, namely the government and personal borrowers.

The FSA has also just published new liquidity and capital ratio rules for the banks. These will compel them the buy billions upon billions of new government debt about to be issued to cover the huge deficits in the PBR. This looks suspiciously like the mechanism to be used to facilitate the inflation, sorry "quantitave easing", that is on its way.

It is not just manufacturers who will be screwed. This will screw all savers. Inflation is the deadly enemy of all on fixed incomes. In the 1970s high inflation was accompanied by high interest rates. This time it is different - rates for savers are on the floor. It will be a deadly combination.

Cash will not come from the Chinese. The chairman of China`s biggest sovereign wealth fund has said (see todays DTelegraph) that China has no intention of "saving" the West from its financial crisis. His fund has already lost a packet ($2.4bn) on Blackstone. He said that panicky changes of rules by Western regulators also gave him cause for concern. China will look after #1. They have already started to devalue the yuan.

Victor, NW Kent

It is alright for Brown and Darling to talk about borrowing billions but who will lend it? Foreign investors will not wish to put good money in get bad money out, particular at paltry interest rates.
They might get some from retired savers if they pitch the coupon high enough, say 6% or so. That might allow people like me to continue receiving an income from savings in their old age.
Waffling about zero interest rates ignores the lack of beneficial effect these had on Japan. Nobody lends at 0% so there is no money to be had at that level unless the printing presses work overtime. In that event we might find ourselves at 10 Pounds to the Euro within two years.
We are indeed in uncharted economic waters but Brown is steaming ahead as though he had a good chart. Ahead there are shoals, rocks and icebergs but he hopes he will evade them all by making waves.

Bocephus

I have said this before but I believe the Euro fix is in. All it needs is an ignorant public, compliant media and Brown's economic policies of the madhouse.

When the pound reaches 1=1, which at this rate will be early next year, Brown will agree with the EU Commission that the pound should be fixed to prevent Europe being destabilised by the collapse of its second largest currency. Naturally this will be blamed on George Osborne for talking down sterling. BBC will then spend hours flogging Osborne while asking Brown if he would like a pillow.

At this point GBP and Euro will be interchangeable. Tories will be outraged that we have effectively joined the Euro without a referendum and demand sterling be re-floated. Rumours will fly around that if GBP is floated it will be worth less than a Euro. Brown will fly to Brussels for a "peace in our time" crisis meeting (with media still blaming Osborne). The leaders of France and Germany, after consulting EDF, BMW, Mercedes etc - who no longer want their British sales purchased in used toilet paper - will agree to a take or leave it offer of GBP1=Euro1.10, thus give everyone in Britain an instant 10% pay rise.

Brown calls referendum still blaming Osborne for the chaos, even the Sun, with Murdoch panicking about the worthlessness of all his UK Sterling holdings, reluctantly backs membership. Everyone is told if they don't vote yes they will never again be able to go to Ibiza on holiday, grim images of holidays in Margate will be flashed on the TV screens. The Great British public rises up from watching The X Factor long enough to vote yes. Brown has saved the day again. Tories are crestfallen. GE called within weeks, Brown wins 150 seat majority. Osborne becomes more vilified than Gary Glitter.

seb

At the risk of making an abysmal mess seem even worse, might I mention one more elephant in the room, the issue of education? Manufacturing requires people who can read, write and behave. Our schools are the manifestations of the beliefs of psychologists, politicians and various well-intentioned progressive sorts who are interested in everything except imparting the skills needed for a manufacturing renaissance.

A large number of people who've acquired a reasonable education despite our schools determined efforts to turn them into morons will soon be voting with their feet and emigrating.

C Powell

Have a look at the proposed amendments to the Banking Act. No more transparency from the BoE re what it is up to. A way of disguising that they're going to print the presses and we'll get inflation/hyperinflation and the destruction of our savings.

Until we start paying off debt, we'll never get out of this mess. Brown seems to want to go down the Argentinian route. Even the IMF would be preferable to this - at least that way we might get the public sector cuts which are needed.

As for the euro, why would the rest of the eurozone now want to be saddled with a basket case economy?

hadrian

Well, if I never went on holiday to Ibiza I for one would be rejoicing! What a dump!
Plain fact is as Fraser says we simply have insufficient solid manufacturing industries left to enrich us through such trade. So- the alternative? Looks like either equivalent of the 'global workhouse' and national penury or enslavement to foreign masters ie., investors. However, one point worth noting in all this- just the merest glimmer of a chink of light- we are indeed as countries go, still a comparatively trustworthy lot, despite our lunatic borrowing, so it may be in the long term investors will prefer to put entrust their wealth here and not elsewhere. Anyway, time to dig out my old Tawney and the Protestant Work Ethic! Mercantilism= merely earning your living. Does the world owe us our inflated standards of living?!

TGF UKIP

Bocephus may be painting a mischievously dark and cynical picture but there is more than an element that rings painfully true.

From your point of view, though, Fraser, the most depressing thing in all this must be the almost complete absence of your friends Dave and, in particular, Boy George.

The only analysis, diagnosis and prescription that appears in the media is Gordon's.

When a Speccie hack appears to have far more of value to contribute on economic matters than the Shadow Chancellor, then that would appear to carry a very clear message as to the capabilities of the current incumbent. A message which, to the delight of the Labour Party, will continue to be ignored.

Unless your clueless Pair do start to really clang the warning bell on the levels of spending and debt, they will not reap the the political gains of "We told you so" when the IMF or ECB do arrive.

And Coffee Housers, be under no illusions, if we do get dragged by default into the eurozone, Cameron and Osborne will be equally to blame for their lamentable deficiencies in mounting any sort of coherent opposition to this appalling government.

And you, Fraser, and your like minded fellow Tory hacks will also be in the frame for not kicking your hapless Pair up the arse more frequently and vigorously than you do.

HJ

Perhaps I should point out to "Labour Matters" (as he or she is clearly ignorant of the fact), that manufacturing output grew over 20% overall under the last Tory government and the growth was accelerating when Labour came to power.

Since Labour came to power, overall it hasn't grown at all (and is set to shrink)- in contrast with, for example, the US where it has grown 30% since Labour came to power.

It is, of course nonsense to primarily blame H&S legislation as Fraser does. Factors such as increased employers NI contributions (making it more expensive to employ people) and the fact that there are too many sectors of the economy that charge the rest of us high prices untroubled by overseas competition (public sector, medics, lawyers, accountants, etc.) thus making the UK a very expensive environment for those that have to compete internationally to survive in, have been much bigger factors.

Consider also why we always need higher interest rates (which hurt manufacturers) than our competitors to keep inflation under control - it's because too many groups (esp. public sector) can just charge what they like. Manufacturing has long had to try to compete with one arm tied behind its back

Simon Stephenson

"Of course it’s true that a weaker currency is good for the economy overall, as will help exports."

Overall?

I don't think there's any theory that proves this. It may well help exports, but there are downsides that need to be offset against this.

Verity

TGF UKIP - I thought Rhoda Klapp, above, had some interesting thoughts. At least they are real thoughts that address the problem.

Dave and George are keeping their powder dry.

TGF UKIP

Verity, agreed. I rarely disagree with Rhoda K and always enjoy her posts and I have little doubt that her "ultimate solution" will have considerably more to recommend it than anything we can expect from Boy George.

As for the Hapless Pair's powder, it may be by now be sahara dry, it's just that I'm not so sure what sort of powder it is. Nowt explosive, that's for sure.

Rhoda Klapp

OK guys, now we are alone, here's the ultimate solution. Given that one of the main problems is to restore liquidity, and another is to kickstart the only engine of wealth creation, business. One thing (actually a lot of things, but to keep it simple) in the way of business is what I call friction. It's the cumulative effect of overwheening regulation. Not wanting to hire people in the face of employment law. H & S, rules, rules, rules. You have to be prepared to have a real bonfire of regulations. Not just the unreasonable top layers, everything. That's not original to me, but be in no doubt as to how radical it would need to be to succeed. It's what led me to the next one. Many will find this hard to swallow.

I sold my car the other day. At auction at the BCA. In the counter window was a sign for all the sheepskinned wheel dealers to read. The maximum cash amount acceptable is £9000. So I got to thinking, would not the removal of all money-laundering regulations, possibly with a time-limited amnesty, release a whole pile of money which is not now even part of the equation. Black money, some of it, but far more belongs to innocent tax-dodgers than the drug dealers and terrorists they always say the regs are aimed at. Anyhow, there's a ton of it. Find a way to allow those who have it to spend it. Instant kickstart, no real downside.(You weren't ever gonna recover that tax anyway, and if it's drugs or guns, the effect is for the public good for a change.)

I'm aware the regs are international. Desperate times, desperate measures.