The IMF reveals just how bad it is

paracelsus

Economics isn't my strong suit, but where did you get the figure £904bn from?

The above totals add up to just under £1.7 trillion. Are you not including the 4 various schemes in the initial total?

Peter - Toronto

It's devasting! For Labour who must be doomed as all credibility and pretence of fiscal competence is lost and for the next government in the UK in trying to recover from the financial catastrophe.

Will we now hear political leaders around the world repeating at length, 'it all started in the United Kingdom'.

2B or Not 2B

Indeed it didnt Peter T, it started BECAUSE,things got out of control and therefore it had already begun, the outcome of which will resolve itself in due course depending on an accord.

Fraser, where do you get £904bn
is not so much the figure, the initial total is however relevant, yes indeed.

Stewart

This is all very well but it won't stop millions of gormless layabouts in urban areas up and down the country with no interest in economics beyond how many packets of fags their giro will buy them before they have to get their kids to steal for them, from voting Labour out of tribal loyalty and gratitude for not being asked to work for a living.

Laurence Hodge

paracelsus: the four schemes represent the increase in contingents. The list is a little misleading, therefore, in that the £777bn appears in two guises. But well spotted! Neither the Government nor the Bank of England would have noticed.

THX1138

Fraser I admit I struggle with all the Economic mumbo jumbo but I I do read a bit including Martin Wolf's column every week, Wolf had consensus charts last week that showed the UK, US and Asia coming out of recession faster than the Eurozone for instance, I wonder how this squares with the IMF chart?

Stockmarkets have rallied, liquidity is returning to market and sterling is strengthening against the USD and the Euro as I recall you predicted that the GBP would be practically worthless by now. I'm not saying everything is peachy especially after the awful unemployment figures this week, I'm totally "over" Brown but to be pining the entire world downturn at his door is a bit of a reach.

You're a smart guy but don't become a professional investor your political opinions would cloud your judgement.

The Spectator put Gordon Gekko's "greed is good" quote on the front cover recently perhaps a more apt quote for you might be Bud Fox "don't get emotional about stock."

Anyway the THX's are off to LA LA Land this morning for three fantastic weeks to spend all the USD I was sitting on- Have a great summer everyone, I'm out of here :)

Sally Chatterjee

I'm still not sure if the Conservatives would have done much different, I don't remember their calls to tighten bank regulation in the years past.

On the international aspect, one thing that strikes me when I travel but is not reported in the UK media is the extent that other countries regard this global recession as "Made in Britain". If there are a range of causes, abroad I find many who are convinced London's role exacerbated the crisis.

strapworld

Well, by the time this wretched parliament returns from the summer holidays- this report will have been forgotten!

Mr Nelson, you are doing an admirable job. May I suggest that an article- in the NOTW in layman's terms, would be quite devastating. As a number of comments have observed, economics is not everyone's cup of tea.

The answer is to make it readable, and understandable in the language of The Sun!

This report has to reach everyone. We all need to know the truth about this ghastly prime minister.

Dirty Euro

It was Bush's relaxation of predatory lending laws that stated this. Then UK banks bought that toxic debts. It was Bush's fault, President Bush;s depression.

Dirty Euro

Please can people start blaming President Bush and Dick Cheney for this collapse. Clinton and Gingrich have had more blame. It was Cheney and Bush that relaxed anti predatory lending laws, thinking that by increasing house ownership they were like Mrs Thatcher instead they started a depression in the USA and wrecked our banking system as out banks bought their debt.

Sheila

The irony is that the IMF is where Brown would like to go post-premiership.

Like all those bankers, Brown wants to be rewarded for failure.

Flemingcrag

@Sally Chatterjee
When the Labour Government proposed the setting up of the FSA and the Tripartite arrangement Peter Lilley for the Conservatives led the Conservative opposition to it, arguing that to leave the BoE only in charge of interest rates was a recipe for disaster.

In every subsequent vote the Conservatives along with the DUP 100% voted against the proposal. All other parties, including the Liberal Democrats voted for the change.

The Tories did not have to argue for tightening regulation of the banks, their arguement, proved correct by events was; "If it ain't broke don't fix it".

Any Colour but Brown

Sally Chatterjee, I doubt that the Tories would have allowed the kind of lending that Labour have allowed (I doubt that they would have sent the Bank of England into the banking wilderness). I further doubt that the Tories would have sold British gold for practically nothing, nor would they have borrowed in good times, they would have saved for the bad times - which is exactly the opposite of Brown.
The chances are that the situation may never have arisen under the Tories.

TrevorsDen

Another good job. Note though t was based on discussions in May. Note it suggest that future trend growth will be lower.

If as the report says, "the UK’s close financial links with the rest of the world represent a key systemic vulnerability, highlighting the importance of successful stabilization now." ... then Brown has been negligent in not foreseeing this and leaving us vulnerable

THX -- the two projections are different because they come from two different economic groups. If you had 3 you would have a third projection. Your notion of a more benign economic recovery is I think wide of the mark

The IMF is a legitimate one to take seriously. The key point is the amount of money the banks were lending ... and to who. If Brown hit the roof it is PROOF that the banking system was not being regulated properly. HE was responsible for that failure and it is clear evidence that when Brown says it started in America - well he is lying once again.

If this report (p22) is not a smoking gun then it is definitely a thumping great clue.

If our banks have so criminally over exposed themselves to the US, 10% of US GDP!!, (sub-prime?) then just how secure are our bale outs? Has everything been declared?

Dear Sally if there is one thing you can be sure of - it is the Conservatives would have done better than Brown. Even you would hae done better than Brown. Don't you get it? Brown is an idiot. His entire paradigm was a mirage. A house built on sand.

Fraser Nelson

paracelsus et al, sorry we had a formatting issue - a subheading was included in the mix. I've taken it out. For the full details, go to p18 of the report.

Frank Upton

The Yanks have in the past even tried to blame us for the Great Depression, something apparently to do with the US Federal Reserve supporting Churchill's return to the gold standard. They shouldn't try to blame their overspending, overconsuming, overborrowing deficit economy on us this time, either.

oldtimer

Thank you for providing that link. I have read the main report (skimmed the annex). It implies a savage indictment of the past ten years of UK economic management.

A few comments stuck out for me:
p8 para 8 re MPC: "It is also reassuring that the Monetary Policy Committee (MPC) will not need Treasury approval to determine and implement a future exit from quantitative easing as required to meet the inflation target."
I was unaware that the BoE had carte blanche free of Treasury interference.

p8 para 9 re public finances: "The focus should be on putting public debt on a firmly downward path faster than envisaged in the 2009 Budget. The credibility of such plans would be enhanced by clarifying early the specific measures needed to achieve the adjustment, including in the context of the next Comprehensive Spending Review."
And what do we hear? The Comprehensive Spending review is on the back burner. How responsible is that?

p28 The IMF GDP 2010 growth forecast is 0.2% vs the Treasury`s 1.3%.

p40 Box 3 re fiscal adjustment: "Econometric evidence from OECD countries shows that although changes in revenue and expenditure
contribute to closing the fiscal gap, expenditure restraint brings about longer lasting and larger adjustment episodes, which are more successful in achieving a debt stabilizing fiscal position. Expenditure reduction demonstrates a firmer commitment to feasible and substantial consolidation, and may trigger lower interest rates and boost private demand."
Well I was pleased to hear that the Civil Service is now looking at 20% cuts - even if their political masters are in denial.

The way out of this will, in the end, rely on Adam Smith`s invisible hand - not on Gordon Brown`s dead hand. Let us hope that the next government reforms the tax system in a way that will promote such an outcome faster than the wretched system we endure today.

TrevorsDen

What I do not inderstand is that a review is given at the end by Alex Gibbs, IMF Executive Director for the United Kingdom, who comes out with comments like ...
"My authorities remain fully committed to allowing the value of sterling to be determined by market forces and indeed the sterling effective exchange rate has risen by 13 percent since its trough in December 2008."
"My authorities therefore stand ready to work with others, and take whatever steps are necessary to restore non-inflationary growth and sustainable public finances."

Err ... I thought the Chancellor was running the economy, not someone from the IMF.

Sally Chatterjee

Don't get me wrong, I'm not a fan of Brown. I think he'll be seen as the worst Chancellor in British history.

But even if Lilley did oppose the creation of the Tripartite system, let's admit things went quiet after that. If the Conservatives were pointing out Brown's borrowings, they failed to articulate them properly; the whole nation was glued to "property porn" TV shows, this was an economic crisis not just born in City dealing rooms but in kitchen extensions across the country.

Olaf Rye

The main blame should not be laid at the feet of Bush, Cheney, or (and I hate to say this, even Brown, although he certainly exacerbated the problem with his over-regulation, taxation and borrowing) but with the general avarice of the public that was happy to borrow, borrow and borrow to fund their lifestyles. Each and every nation in this recession has to bear the blame in this instance, for as much as changes in regulation made the borrowing possible, no one forced people to take the money on offer. This is in addition to those that insist on the best returns for their pension funds, invested in many of the industries caught in this bubble.

We have a lot of trouble in the UK because of the moronic desire to regulate and tax every aspect of our lives and keep masses of civil servants in employment to achieve this. This is a disaster the government and the public has much to answer for.

simon s

The Tories seem to at least understand the City and banking. Brown and Blair and New Labour - after the collapse of the socialist model in the late 80's - cosied upto to banks and big business without really understanding it.

Why hasn't the econonmic mess been hung like an albatross around Brown's neck.

Denis Cooper

Looking at those charts it should be asked - what would have happened if the Bank of England hadn't agreed to start printing money for the government to spend?

Which has been the effect of "quantitative easing" as it has been practised since March 11th, with the Bank creating new money and using it to buy up previously issued gilts from the market, while the Treasury has continued to sell new gilts into the market.

The end result is that the Bank and the Treasury have swopped their respective IOUs to a total value of over £100 billion; the Bank getting gilts, the Treasury's IOUs, while the Treasury has got money, the Bank's IOUs, but by an indirect mechanism because a direct swop would be forbidden by Article 101 TEC.

Without that operation, the Treasury would have had to rely on normal sales of gilts to private investors, without the Bank propping up the market, and it's unlikely that it could have borrowed as much as £100 billion, which is about 7% of GDP; so by now the government would have been forced to make emergency cuts in public expenditure, and that dotted line on the chart would be heading downwards very steeply.

I object to the deceit surrounding "quantitative easing", but nevertheless I have to say that it was the right thing to do.

I'm also prepared to stick my neck out and predict that in the absence of any clear signs of genuine economic recovery the MPC will see that turning off the printing presses at this point would still lead to a major collapse, and as it would be a deflationary collapse they will feel justified in continuing with this form of "quantitative easing" well into 2010.

Denis Cooper

oldtimer - "I was unaware that the BoE had carte blanche free of Treasury interference".

Strictly the legal position is this:

When the Bank of England was nationalised by the Bank of England Act 1946 the Treasury was given the power to tell the Bank what to do:
"The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest"

but Section 10 of the Bank of England Act 1998 qualified that by inserting the words “except in relation to monetary policy” because the decisions on that were being delegated to the Bank under Section 11.

However under Section 19 the Treasury still has reserve powers:

"The Treasury, after consultation with the Governor of the Bank, may by order give the Bank directions with respect to monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances."

but the order will lapse unless both Houses of Parliament approve it within 28 days.

Hysteria

@ DES - do your research mate - it was the Democrats under Clinton that relaxed the tight lending laws (call them predatory if you like - what they did was prevent banks lending sub-prime)

Anyway - it was Bush who tried to stop this and got prevented by Congress.

Although it runs counter to your typical socialist world view nonetheless you can lay a lot of this mess at left wing/liberal attempts to achieve equality through manipulating banking regs to expand home ownership.

oldtimer

@ Denis Cooper

Thank you for the clarification of the legal position re BoE and Treasury.

I see, in the Annex to the IMF report, Alex Gibbs (UK rep at IMF) says as follows:
"My authorities agree that the success of the QE policy hinges crucially on the Bank of
England maintaining a strict focus on price stability. As Staff note, the design of the QE
framework is helpful in this regard. First the March 2009 exchange of letters between the
Governor of the Bank of England and the Chancellor establishing the Asset Purchase Facility
make clear that the MPC retains operational independence, with its remit unchanged.
Accordingly, the MPC will decide the timing and size of asset purchases and sales, together with the level of Bank Rate; with the outlook for inflation determining the rate at which the current exceptional monetary stimulus is withdrawn. Second, the operational framework of
the Asset Purchase Facility Fund, as a separate legal entity with a separate balance sheet, indemnified by the Treasury, acts to underline the operational independence of the Bank. An indication of the potential inflationary risks of this stimulus is provided by the stability of the latest medium-term inflation expectations surveys (as noted by the Staff in the report). These surveys suggest that expectations continue to be well-anchored to the inflation target."

If will be interesting, to say the least, to see how this plays out over the next year.

jon

Brown did not hit the roof!
Brown believed in the transference of debt through the markets, its why he sold the gold and lowered the capital holding requirements of banks.

This was all part of the plan to transfer debt away by him and his banker advisers. When he was Chancellor we accounted for 21 percent of entire world external debt. Its now around 18 percent because of the fallen pound.

O Lindop

All said, the report concludes that "The UK authorities’ policy response to the deep recession and financial crisis has
been forceful and wide ranging."

We should definitely remain vigilant to the fact that other European governments (notably that of France's President Sarkozy)may seek to use the opportunity that has arisen to destroy the competitiveness of the City of London by increasing levels of red tape.