King warns the spending bingers that 'markets can be unforgiving'
James Forsyth 7:13pmMervyn King, the governor of the Bank of England, is giving a speech tonight at Exeter University. King, as you would expect, avoids getting into politics. But one passage is attracting interest in Conservative circles:
“Of course, there is a perfectly sensible debate about the appropriate timing of the withdrawal of the temporary fiscal stimulus as the economy recovers. Some has in fact already been withdrawn with the return of the standard rate of VAT to 17.5% at the beginning of the month. But uncertainty about how and when fiscal policy will respond has a direct bearing on monetary policy. And markets can be unforgiving. As Federal Reserve Chairman Bernanke said recently about the similar fiscal position in the United States, “near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth”. The Chancellor has made clear that the Spring Budget provides the opportunity to do precisely that.”
Reading between the lines, it is clear that King is saying that the spring Budget can’t be any kind of pre-election give away. He is also putting himself firmly in the camp of those who argue that there needs to be greater clarity about how the government actually plans to reduce the deficit. The grip of the restraining influences on Brown just got a little bit tighter.
Update: Sure enough, George Osborne has run with the King quote. In a statement released by his office, he says:
"This is a very important warning from the Governor of the Bank of England, spelling out the consequences for this country of not having a credible plan to deal with the budget deficit. I agree with him.
"Sadly this divided Government failed to provide a credible plan in the Pre-Budget report."
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JohnOfEnfield
January 19th, 2010 7:35pm Report this commentYou mean.....like a noose?
Count me in on the lynch mob.
lawrence greek
January 19th, 2010 8:04pm Report this commentWhy does he keep out of politics? If he thinks we need to cut the deficit he should come and bloody well say it. A string independent voice would put untold pressure on Brown and has band of incompetents.
oldtimer
January 19th, 2010 9:20pm Report this commentA good speech.
To Pick up on your headline quote "markets can be unforgiving": his quote from Keynes, “the process of adjustment is compulsory for the debtor" was much stronger. So for "can" substitute "will" and we have a better idea of the UK`s predicament.
All in all, it is chilling but realistic prospect for the UK.
Moraymint
January 19th, 2010 9:43pm Report this commentI just wish "the markets" would get on with it and precipitate the demise of this Labour government (and, ideally, the whole damned Labour Party itself). What are they waiting for? Why are "the markets" playing with us like this - giving the political gangsters in Whitehall more time in office ... for what purpose exactly?
Surely, for each passing day without action to address the national debt - Brown's grotesque legacy to the country - we're all just shoring up more trouble for longer?
C'mon market makers ... make a move ... bring this shambles of a government to book and facilitate the democratic process. Sure as hell, Gordon Brown doesn't do democracy: never has, never will.
Since we can't/do armed revolution any more, the next best thing must surely be death to Marxism courtesy of capitalism.
As Henry Root would say, "Here's a pound; let's go!"
abraham
January 19th, 2010 10:57pm Report this commentyou still listen to King? Isn't he the guy that didn't see the financial crisis coming? Isn't he the guy that argued for higher rates month after month before slashing them with egg on his face?
And HE is listening to Bernanke???!!! No wonder he doesn't have a clue. Isn't Bernanke the guy that said the housing market was "contained" in 2006? And the one that predicted a "soft landing" in 2007?
These two guys are either stupid (not likely), or bare faced liars. Trust neither of them. They know what's coming next, and they will say exactly what they need to to ensure the people they work for (citizens)lose their shirts, while the people they are supposed to be independant from (the government) get to carry on burning our money.
abraham
January 19th, 2010 11:00pm Report this commentPS before anyone retorts "he's saying what needs to be said, leave him alone", I retort in advance WHAT TOOK HIM SO FREAKIN LONG!!!! He should have saved the debt crisis from ever taking off in the first place, and has been as responsible as Labour for where we are today. He is a coward or a puppet / crook.
Ian Walker
January 20th, 2010 8:59am Report this commentabraham: While he is culpable in not predicting the crisis, the oversight of the banks was the responsibility of the FSA.
And the MPC is forced to concentrate on CPI only and use only base interest rates to control it. That's like trying to drive while only using the accelerator pedal and the wing mirror.
Ideally, the MPC would be given other tools to use, such as less extreme quantitative easing, and more targets to keep (such as keeping both CPI and RPI at 2%)
Michael Dartnell
January 20th, 2010 9:28am Report this commentIf inflation is too much money chasing too few goods, who has too much money at the moment?
Not those who have lost their jobs, nor those who have had their hours cut or no increase in pay.
2trueblue
January 20th, 2010 9:58am Report this commentLook around the world and note how many people saw it coming..... not many. King always warned in the early 2000's that debt was too high. There are a few economists who warned it was all going to go to hell in a basket and they were derided, no one wanted to know. I can not remember a single speech by a politician clearly stating that there were real problems coming.
You can get some of it right, but even Warren Buffett lost a lot in this current tsunami of chaos. People still do not trust this current bull run in the markets. I would trust King more than all the politicians I know.
Some people got out of property, equities, commercial property, etc. and went into cash. Then it is always a question of when and what to do after that has worked. Where to now?
We will get very little real truth from Liebore in the run up to the election. They did not know what they were doing for 13yrs so I have little faith that they can fix what they destroyed. Liebore always leave the finances in ruins, but this time we are not in a benign economic world so it will take a bit longer.
I would rather some half way sensible discussion on the plans to reduce the deficit. But when your government has spent 13yrs employing smoke and mirrors to cook the books, walked us into closer union with the Eu, (which is not benign) then I worry. Their finances have not been audited since??????? The cost to us must outweigh the benefits.
We will not know the truth about the finances until after the election. And then it will be too late. Most people do not want to know.
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