A warning that applies to the Tories as much as it does to Labour

Marbury

What is the Tory "narrative" you speak of? Do they have one anymore?

Jayu

Are these the same credit rating agencies that rated Greek sovereign debt so highly? Are these the same credit rating agencies that rated Lehman Brothers and AIG debt so highly just days before one went bust, and the other needed a hefty government bailout?

Why anyone should rate their opinions so highly is beyond comprehension.

denis cooper

It would be much easier to convince people that public spending cuts are unavoidable if they understood the scale of the problem.

Like, the government is now having to borrow a quarter of all the money it's spending.

Only the dimmest would think that could continue.

Short the UK

How do you create a new currency?

Reserve Currency—>Industrial Currency—>Hard Currency—>Hedge Fund Currency—>?????? Currency?

If we do create a new currency, against immense competition, what options do we have? China is rapidly going up the value chain. America leads in Tech & Bio. Germany is just a powerhouse.

I think we must remain a Hedge Fund Currency, become a fully fledged offshore tax haven: low taxes. Strip back the State, invest heavily in science and hi-tech at Universities, make education competitive, then wait 15 years to see the business plan actualise.

With the right strategy we can rebuild, but with our political elite I’m not sure if they can do such simple things. They’ve got to get house prices down at least 30%.

Moraymint

"But, for the time being, the debt markets look on nervously ..."

It's not just the debt markets looking on nervously. Fort Moraymint is now on 24 hour watch.

It's so weird knowing that our economy is teetering on the precipice and no political party has the competence and/or the b***s to describe how they're going to prevent us from toppling into the abyss.

And we're expected to make an informed (ha!) decision at the ballot box. How does that work exactly?

Hey, we're going to get all we deserve once we're past the general election.

Chris lancashire

There is no question that the Tories can be better trusted to cut the defecit more quickly and more surely than New Labour. And, as you say, with an election round the corner why spell out the details.
As to the alternative to cuts - it's already unfolding: £ down 25% in 12 months, govt. debt interest rising. Next steps? £ at parity with , inflation 5%+ due to importing it, interest rates 6%+, double dip recession firmly established, IMF called in.

Moraymint

chris lancashire ... has the IMF got any money left? Has anyone?

Publius

Thank you Chris Lancashire. It's a shame Mr Hoskin can't write with such clarity and forthrightness. Instead we have the usual timid 'on the one hand' and 'on the other hand' wet fence-sitting. I sometimes wonder if he actually has any strong opinions at all.

No, don't tell me, Mr Hoskin, you're a LibDem and daren't admit it.

Publius

Denis Cooper writes:
"Like, the government is now having to borrow a quarter of all the money it's spending.
Only the dimmest would think that could continue"

The dimmest 33% perhaps? Trouble is, that is precisely how they live. Let the plastic take the strain, and then walk away from it and blame the banks when they can't afford the repayments.

Remember the days before credit cards, when you actually paid for what you bought? I do. You probably do too. They don't.

Gawain

No one's listening and no one cares. We are only allowed to discuss one topic in this election, Ashcroft !

Sir Graphus

You’re always worth reading, Shorty. If only you didn’t make such depressing sense. “Strip back the State, invest heavily in science and hi-tech at Universities, make education competitive, then wait 15 years to see the business plan actualise”. That’s what they said 25 years ago, when I started an engineering degree; we’ve got to invest in engineers, otherwise we’re finished. It didn’t happen. Instead we’ve replaced grants with tuition fees, a devalued a degree to the point of silliness. If only they’d told me to head into finance instead.

Chris lancashire

Moraymint: the Chinese have got it all.

Alfred T Mahan

What looks increasingly on the cards is the worst of all worlds - a Conservative administration that either can't, because of its low or non-existant majority, or won't, because of its leadership, cut quickly enough. The economy fails to recover in time for the following election, and Labour get back in blaming the Tories' economic mismanagement.

At which point, I would probably agree with them...

Richard

AAA rating is not at risk.
Never in the history of this country has it ever defaulted on it's debt.....not even after the war when our economy was worse than it is now.
Should this actually happen the dept could be wiped out just simply by taxing the top 10% at 90% for 6 months.
The gov could collect ALL the off-shore Tax debt due. I would warn the rich that they have more to lose.....keep talking Britain down and its only your own pockets your going to hurt.

Yosemite Sam

There are a huge number of people who do not understand the seriousness of the economic hurricane that will strike if decisive action is not taken and soon. But why should they understand? The government have obfuscated the issue, and, with QE, found a way to put off the evil day. Furthermore, the majority of people are not suffering now. Their mortages are lower and they still have jobs. To be fair to the Tories they were honest last summer, perhaps still are, but less sure of themselves now. So what should the man in the street think? The headline disasters: Northern Rock, RBS, etc are history. There are some academics and commentators wittering on about potential catastrophe - but this is all hot air to most people. Why are the polls narrowing? Why have the Tories found no traction against the mad chancellor(as was)? Because a sizeable number of people think the Tories cried wolf last year even though they were being honest. Many people think everything will just go on for them as it is now. How can anyone convince them it will not?

Publius

"taxing the top 10% at 90%"

-- That's it, Richard, shout it from the rooftops. Every post from you is another voter turned off Labour.

Dean

Richard talks a great deal of sense. The risk of Britain defaulting on its debt is negligible and has been dismissed out of hand by such conservative figures as Mervyn King, Governor of the Bank of England, and Sam Brittan. It is clear that there has to be a credible and robust plan to reduce the deficit between now and 2015; but that's not the same thing as saying we're all doomed.

Someone raised the question of whether the IMF has any money left. Of course it has. The IMF is financed from the reserves of its member countries. For every budget or balance of payments deficit, there is an offsetting surplus somewhere else in the world, and it is these surpluses that are used to finance IMF lending operations. So it is impossible for the IMF to 'run out of money'. Clearly it is highly undesirable for countries to have to borrow from the IMF, but the presence of IMF balance of payments support substantially reduces the risk of sovereign default.

It doesn't help the Tory case to debate these issues in such hysterical, doom laden terms.

Richard Manns

Do you remember what happened the last time a Tory gave specific plans of cuts pre-election? I think he was called Heath.

I worry about Cameron sometimes, but at least I know that you don't hand your plan of attack to the enemy on the eve of battle.

Ludwig von Crises

@Richard: Britain defaulted in 1932 when it reduced yields on WW1 govt bonds from 5% to 3.5%. The difference was that the bulk of the bonds were held by British citizens, who took the haircut voluntarily out of spirit of patriotism. If you look at the markets, you will see that the AAA rating has already been removed in practice - perhaps a more reliable indicator than the ratings agencies, who scarcely have a blemish-free record.

Even leaving your historical, economic and political ignorance to one side, you should be wary of citing the 'sum of precedents' fallacy when making such predictions, particularly if you intend to put your money where your mouth is. Just because something has 'never' happened doesn't mean it cannot or shall not.

TomTom

France wants a European Monetary Fund or Agency to handle budgets and economic coordination of EU States. Merkel says it must be EU-wide and involve a new Treaty to circumvent the Maastricht Rules.

It would appeal to a devastated Britain to be swept up in the new EU Ministry of Finance and then it could happily bring its budgets under EU control with a fixed Euro-peg.

No doubt Ken Clarke discussed same with Barroso during his recent visit

General Zod

Oh yes, Richard, they'll collect billions and pay off the national debt by forcing those non-residents to pay.

Drivel.

Sir Graphus

Yosemite Sam and Publius make a great deal of sense. A credit card govt for the credit card generation, all of whom think the solution is to apply for a few more credit cards.

Yosemite Sam

Is Richard being funded by Unite? I think the public desrves to know. Is he Charlie Whelan incognito? I think the public deserves to know. Is he Alastair Campbell dodging the washing up? I think the public deserves to know. Does his mother know he is out late? I think the public deserves to know. Is he a complete pillock? I think the public already know that.

Short the UK

If you offer a critical analysis you are "talking the country down."

"A weak currency is the sign of a weak economy,which is the sign of a weak government"

Gordon Brown, 1995

Do you remember when the consensus was that Mrs T was wrong with her economic policy? Almost the whole elite came out against her, 364 economists wrote to the Times. I'm sure the FT was against her, they are Keynsians to the core on that editoral board.

The consensus was that we didn't have a house price bubble and that "boom & bust" had ended.

Consensus is very often wrong at the top of the market.

We are currently in a boom/bubble for a Keynsian solution to the Bust of Britain.

I am a contrarian and I think the consensus is wrong and leading us to Event Horizon. The passage below from another poster on a blog clearly explains the box that we are in:

"It’s astounding that people can’t grasp the simple concept that wealth (as opposed to money) does not grow on trees. We, individuals and governments, have consumed more than we produced, for a long time, or in simple terms we spent more than we earned. Now we, individuals and governments, must earn more than we spend, for a long time. Yes, that will cause a depression. It can’t be avoided because the consumption has already occurred and payment is due.

Our previous debt-bubble-fueled-overconsumption will be paid for, either by those who consumed, those who provided the goods, those who provided the credit, or the taxpayers. No matter which group pays, that group will consume less because they are paying for prior consumption. It doesn’t avoid anything if the government stimulates using more borrowed or printed money, just shifts the burden from one group to another. Creating future tax burdens by running large govt deficits just shifts the blame down the road a bit. Creating inflation is a tax on savers, which subsequently reduces their ability to consume. Defaulting on debt will be ruinous to creditors.

The “mother of all depressions” is still coming. We’re just rearranging the deck chairs and deciding who gets first dibs on the lifeboats."

Addenda

"When an entity/ enterprise / person goes bankrupt, the wealth that was formerly "owned" is now reassigned and actually used productively by someone who wants it, needs it and knows how to use it. It doesn't somehow disappear, "poof!". But when a trick like QE attempts to artificially prevent an undercapitalized asset (e.g., Brit Real Estate) from being appropriately reallocated, the result is zombie assets, lying around doing nothing. The expression "moral hazard" does no justice to this situation: "economic suicide" is better. This is the Japanese story from the 90s. Every pound spent on deluding Northern Rock's accountants is a pound taken out of a teacher's pay-cheque."

Anon

=====

One way or another we are going to have a depression, it can be "soft" or "hard" depending on the policy choices, it can be "inflationary" or deflationary" depending on the policy choices. I think at the moment our elite are taking us to a "hard" and "inflationary" depression. That is my call, only time will tell.

Fergus Pickering

Richard, that arse of yours is working overtime. Don't I remember Denis Healey saying he would tax the rich until the pips squeaked. But he didn't. And I DO remember him saying it was because he couldn't. How would YOU do what Denis couldn't? Got some special wisdom, have you? I'm all for taxing the rich as you describe, even hanging a few, starting perhaps with Lord Mandelson, Geoffrey Robinson, various rich Indians and Anthony Blair. No. Cancel the rich Indians, it's the cowboys we want. But you know what, Rich, you're all fur coat and no knickers as my old granny used to say in her council flat over a big cup of klim.

David Lindsay

Looks like the British people might defeat Tony Blair after all, choosing his bitterest enemy, with whom he has barely had a conversation in his life, over his clone and preferred successor, who is surrounded by his remaining representatives in Britain, a country he almost never visits, just as he almost never did when he was Prime Minister. Michael Ashcroft should demand his money back.

Having said that, we are not really talking about "the British people", are we? Labour won in 2005 with a mere twenty-two per cent of the eligible vote, and the Tories limped in with a pitiful twenty per cent. Each will be lucky to hit fifteen this time. Marginal, indeed.

Sir Graphus

Like I said, Shorty, old fellow, seldom a ray of sunshine from you, though I am quite sure you're right. I think I'll bury myself in PG Wodehouse, instead.

Richard

So what have I learned from these posts?

UK did once default in 1932 in the Great Depression.....ok

Rich people think the poor should pay for the rich bankers bad night at the casino.

Total agreement that the money to repay the 178 billion IS already in the accounts of the priveledged few.

Oh and the one thing I knew before anyway....Tories are willing to talk the country down to get their way (foot stamping in the nursery) you fail to see that the vast majority of the country just don't want Thatcher mk 2.....deal with it!

Short the UK

Richard

I think you are missing the basic premise:

"State Sponsored Inflation"

~Interest rates too low caused a massive property bubble.

~Government spending too high boosted the money supply.

We then had a debt merry-go-round in the growth sectors of the UK economy:

1. Property speculation.
2. The City.
3. Retailing.
4. Government spending.

It was a bubble.

The bankers are just a bit part player in the whole fiasco. The bankers lent the money to people who paid too much for property. The biggest banker in the UK is the Bank of England. The buck stops with them. Their inflation target was set by Mr Brown, the buck stops with him. These guys are the ones who control the money supply.

I'm afraid you have fallen for the easy target that the bankers caused the Bubble.

Here is a neat explaination of what went down:

"Central banks hate recessions. So they keep interest rates low. People borrow to buy homes and other assets. The bankers see the bubble and rein back. Borrowers and their banks run out of cash. Governments bail everyone out and print more money. Public debt soars and the currency falls in value. Foreign investors get cold feet. Bankers raise interest rates to restore confidence. Everyone is squeezed, and consumer spending falls. There's a recession. Governments bail everyone out and print more money, and off the cycle goes off again, round and round, until eventually you get stagflation, hyperinflation, and a huge collapse."

Sir Alan Greenspan was the biggest Bubble Addict of them all, he had the famous "Greesnpan Put" named after him. Which meant if the market went down he'd flood the market with cheap money. Hence we had the Dot Com fiasco and the Sub Prime Meltdown. You'll be glad to know Mr Brown had him Knighted :-)

Politicians only seem to know how to spend, run up debt and debauch the currency.

Never forget it is our money they are wasting, and it is us they are taking to penury with their unsound monetary policies.

Living within your means is so simple if you are Conservative. Come join us and see the light.

DCT

GDP is, of course, boosted by the stimulus and by borrowed money in general. In fact, there is theoretically a 'multipler effect' that hopefully boosts GDP by *more than* the amount 'invested'. When we say we are going to cut the deficit to 3.3% of GDP, do we mean GDP as it is now, or the reduced GDP as it will be when the spending slows? In other words, the cutting will be chasing a rapidly diminishing GDP. Do we really know just how far we will have to go to achieve the required ratio, if ever..?

Athesius the Facilitator

Yosemite Sam. Richard is Ed Balls. You can easily tell. They both write a load of old mundungus in the same accent.

Will they charge 90% tax on yours and the Mrs expenses Blinko?

Richard

@Fergus

Wise old bird your Granny!
Mine used to say...."some fights are better lost"
Another...."never trust a man who says he knows the answer"
When all the models are run and the spread bets are placed, the rich will survive and the poor will become a bigger slice of the welfare state. Those that can will leave and those that can't will stay. The government will go on and the markets will continue to play....selling long and selling short hedging and holding us all to ransom...so why worry it really doesn't matter who gets in they won't have an idea or a clue on what or what not to do.
Blimey almost a poet.

echo34

Richard 'Should this actually happen the dept could be wiped out just simply by taxing the top 10% at 90% for 6 months.'

Can you tell me which department will be wiped out? I'm all for it.

Malcolm Freeman

Reading the comments from afar it appears to me no really understands what is required to reduce the UK debt. A friend of mine in the UK told there was a story going around that they will be sacking 250,000 public servants. While this may be just a story, it goes to show what happens when governments can't tell the truth.
Both Labour and the Conservatives need to say what are they going to cut. The reason why is of couse it will be political suicide.
I guess comments like above coming from someone in the so called the lucky country with the lowest debt in the G20 and a robust economy it may be not the right thing. However we had massive debts back in 1996 and during the following 11 years of the Liberal government, the debt was paid off and we had surplus budgets. The banking system is also highly regulated.
In other words conservative or right wing governments save while Labour governments spend and it is as simple as that.

denis cooper

Publius @ 3:24pm - That's the sort of attitude which turns many people off the Tories.

In any case it can't be 33%, as apparently 47% of adults don't use credit cards at all, and of those who do roughly half pay their debts off each month.

I'd say that maybe 5% of the adult population are too dim to understand that if your income is only £15,000 a year you can't carry on spending £20,000 a year - not unless you're sure that a large lump sum will be coming your way pretty soon, which unfortunately is not the case for the UK government.

It would be better if the Tories used billboards to impress on people the magnitude of the hole in the government's finances, in simple terms, rather than trying to build a personality cult around Cameron.

Short the UK

Denis,

Dead on mate, the Tories should be out educating the public on the nation's finances.

If I were running the Shadow Cabinet I'd have had twice weekly teach-ins with the finest economic & trading minds brought in to make them understand the gravity of the situation. Then you would build a cohesive unit who would fan out and teach the public. I'd also include some journalists so they could see first hand what lies ahead.