The reckless IMF?

Dean

Melanie, you will wait in vain for a coherent Tory response. Their stance on the credit crisis is ideologically rooted in the challenges of the 1970s, when stagflation was the main threat. The situation now is completely different.

The credit crisis originated in the banking system and then spread to the real economy via the contagion of monetary contraction and asset price deflation. It is ludicrous and totally unconvincing for the Tories to try to pin the blame for all this on Gordon Brown alone. In fact the majority view, amongst respected economic commentators, is that the main cause was the blind worship of market forces by financiers and regulators alike. It would be nice if the Tories could acknowledge this - who knows, it might even be their Clause 4 moment - but something tells me that this is not going to happen.

William Hannam

This man's advice is at odds with the President of the European Bank who advises close control of deficits, The German Finance Minister, The Poles, The Japanese Finance Minister etc. No fiscal stimulus has ever worked in the past, including the New Deal. Most Post-Keynsian economista would say Brown is ruining the country. I believe even Keynes would not be happy to spend money we don't have, having taxed, borrowed and spent with happy abandon in the past 10 years or so. Why do you, a non-economist think you know better? If you find yourself in debt do you go out and spend even more?

William Hannam

Dean,

The Conservatives have not blamed Brown for the World credit crisis. They have, correctly, blamed him for the poor state the British economy is in to deal with it. Brown has taxed, borrowed and spent with gay abandon and we are worse placed than almost any other country to face the recession. Even this chap at the IMF comments on the awful state that we are in compared with other countries. Open your eyes and start thinking for yourself. I doubt if the Conservatives have a quick fix for the recession but I do believe they would follow the advice of a previous Labour Chancellor - If you find yourself in a hole, stop digging! Brown would be well advised to take note.

Rhoda Klapp

GBs fiscal stimulus too cautious? In fact none of the measure so far have had any stimulating effect at all. VAT reductions aren't going to get people spending. It is correct for us as individuals to pay down debt with any excess money. It would be correct for the nation too. If he really wanted to provide a stimulus, it need cost him nothing in expenditure. Just get the rules out of the way. Employment rules, H&S, equality, all the thousands of extra little bits of friction he has put into the economy. Burn the lot.

phil

Do we have any contributors who understand what will happen if the economy is not supported? I will `pose one question (i have before)which nobody wants to confront -who is going to pay all the social security for those that will lose their jobs ,and where will we find the entrepreneurs to arise after the debacle ?-come on all of you who promote buckling down tell us !

william Hannam

Phil

Yes we do. It is estimated that around 3M people will be unemployed in this recession. This leaves around 25+M still working. These will pay the dole etc of all the rest. The question you should be asking is how long will our Children and Grandchildren have to pay interest equivalent to the combined spending on education and defence in interest alone because some other idiots don't understand economics? Brown and his cronies are probably well aware that what they are doing won't work but they have an election coming up so feel they need to be seen to care.

phil

william Hannam-well at least its an answer and it has logic rather than just emotion .so thanks

Shaun Pilkington

That would be the same IMF that, for many years now, has pushed what's known as 'The Washington Consensus'? Is it therefore any surprise that when that self same washington hands out $800bn to profligate bankers and tries to gift another $20bn to unprofitable car companies they find themselves coming over all Keynseian?

phil

william Hannam-sorry missed this bit out -why do you think only 3m will be out of work -what will the 25 m have to do ?,as there will be so many spin offs when large firms close eg motor car bulding and with it all the lesser factories -its only a for instance as I know they (motors)will get support -I am talking about deflation or stagnation .this situation is the worst I have ever seen and we are only just beginning -I am no supporter of G brown but so far I have heard nothing sensible from DC yet ,only party politics at a time when self interest ill behoves us .

Nick Kaplan

Well said William Hannam (all three times).

The truth is that none of these so called experts have any idea what to do (none of them who are now so quick to condem the market even had the foresight to see the crisis comming, unlike John Redwood who has being saying there is big problem for years). Thus all the suggestions from all these people don't amount to a stabalisation package because they haven't a clue wether or not their suggestions will work, instead they are suggesting we gamble the wealth of future generations on Keynesian policies whose past record has only ever been failure.

Shaun Pilkington

The problem, in so far as a legally, non-economics educated person can see it is that we chose to view being lent money as a right or, even, at the extremes of capitalism (see: sub-prime) a duty. It was your right to borrow money. Great. What was missing was the inculcation of the responsibility to ensure that the asset you borrowed against had sufficient actual (non-bubble) value to match the debt. People have always lied about their income or paid specialist accountants to produce the necessary documents to obsfucate an obviously false claim. Nobody thought.

Who can criticise the thrice mortgaged when they themselves have fallen for a Madoff Ponzi scheme? Seriously?

Ian C

Contrary to popular belief, your own included Melanie, the origins of the crisis are not in the crash we are experiencing but in the imbalances that have been allowed to build in he world economy.

The symptom is the credit crunch and the consequences thereof. Your and this government's solution is like giving an aspirin for the headache that is caused by a terminal disease attacking the nervous system.

The problem was caused by cheap money and wrongful and lazy ill-interpretation of the changes in world trade - principally by the central banks and their governments, and by retail banks who believed they had found a new nirvana of cheap supply from abroad and massive eternal demand in their own markets.

This led to the western economies' binge on consumption through debt as a result of the diminution of their manufacturing bases combined with the weak currencies of the Asian emerging economies. The result was too much too soon for Asia and a consumptive west gorging itself on an eternal diet of debt that seemed that it could go on for ever.

The solution to the crisis is the paying down of debt. No one is going to spend until their balance sheets are back in order. This especially includes banks and must include indebted governments. Yes, investment in infrastructure should be a good thing but by the time it's ready to go we will be in the upturn and the injection will be inflationary. Governments, dictated by politics and electoral cycles cannot, by definition, act at the right time because they drive their economic policies by looking in the rear view mirror. "International Institutions" are only a little less reactionary as they do not have the electionary pressure.

I am afraid those commentators and politicians calling for this are too late and should have been shining their headlights on this 2-3 years ago if they wanted to avoid it. Democratic politics do not allow this to happen easily. There is really very little that can be done other than Quantitive Easing. That is fraught with similar dangers - and may not be necessary in the first the place.

But all the Captain Mainwarings are running around declaring that they are in charge and know what to do.

Rhoda Klapp

What stimulus. I've seen nothing but contradiction. This lot haven't a clue of how to do it, if they had they wouldn't have picked the useless VAT option. There is a good argument to be made for not borrowing any more, but if they must borrow and say it's for a stimulus, then by all means let's have something which might encourage someone to spend. It should not be people. They ought to be paying back if they are over-borrowed and saving if they are not, as the most sensible thing an individual can do faced with uncertainty. Don't tell me it's my job to spend money to keep the country going. And of course the money isn't going to the ones who could help, the better-off. Now, it might well be sensible for a business, depending on its circumstances, to spend. But where is the incentive from the govt? All devoted to headline-grabbing but essentially useless things.

William Hannam

Phil

Please note that you are not the idiot I was referring to! No, I believe unemployment may well exceed 4M but the logic still applies (see the 1980s when unemployment reached these levels). I am not convinced Cameron has the answers (I'm not convinced by Cameron at all) but some of the Conservative suggestions have merit - recapitalise the Banks (carried out but at too high a rate of interest - would you borrow money, as a Banker, at 12% and suffer interference?), freezing Council Tax (using the Government's advertising budget which runs into billions of pounds!), reduce national insurance for employers, letting VAT payments slide to the right for employers, guaranteeing loans to industry (I believe this will be taken up by Brown in the next few weeks. Note the present scheme is applicable to very few businesses). etc. All of these will help ease things but won't stop the recession. Nothing will but the loan guarantee is the best of the ideas.

I don't want to seem uncaring (I have Children and Grandchildren and fear for their futures) but I believe little can be done other than to help people in trouble. The economic situation will stabilise in time and we will survive but massive borrowing and massive debt will make things worse. Remember that any money Brown has comes from the tax payer. This means that they have less to spend on goods. Whom do you trust to spend money sensibly, the Government that has contributed greatly to us being where we are or good old Johnny Public. I will trust Johnny!

Just in case you think I am an un-reformed Thatcherite, I used to vote Labour but after the 70s (and looking at Michael Foot) I voted Conservative in self defence. I am not really a Conservative by conviction but more by experience. As Churchill said, any one who isn't a Socialist by the age of 20 has no heart. any one who isn't a Conservative by the age of 40 has no brain.

I will leave you with that!

barackobama

A large part of the problem is a fundamental shift in attitudes to child-rearing in Western countries. In 1970, almost half Britain's 15 year olds left school, got jobs and were financially self-sustaining. Only 30 per cent of 16-year olds that year were out of the labour force and only 5 per cent went to university. Today, practically everyone under 18 is not financially self-sustaining: they are paid for by parents, borrowing or the government. In other words, the average age that young people become financially self-sustaining has increased from between 15-16 in 1970 to 21-21 in 2008. In addition, the average cost of raising children has probably increased in real terms by at least five times since 1970. That year, a marginal child might have cost average parents no much more than 2,000 pounds annually at 2008 prices. Average middle-class parents probably now pay an average (including separate room for all children practically from birth) of at least 10,000 pounds. The additional annual cost of each age cohort in the UK is about 10 billion sterling at 2008 prices. Add the extra amount of time that children are un-self-sustaining and you come up with a pretty convincing explanation of why the UK has accumulated so much personal debt in the past 10 years.
Why is everyone spending so much more on their children? Is it anything to do with the massive amount of advertising directed at children and their parents, pervasive parental guilt due to women working and the success that manufacturers have had in convincing children are a fashion accessory?
It is also a scandal that so many banks offered credit cards to students on the basis of the postal address of their parents without the knowledge of their parents.

Fabio P.Barbieri

Melanie, are you serious? The nonsense of spending your way out of debt and depression has been tried before, and never worked. The point is that the bad debt must be worked out of the system, and until it is, it will go on devouring money. For you of all people to take this kind of buffoonish statement seriously is really astonishing.

James Murphy

Man goes to his bank manager and says "I'm completely broke, I've spent all my money on rubbish and I've just been sacked. I've got no chance of ever repaying the loan I already owe you - no, what I need is a much bigger loan. You know - the sort that would make you bankrupt if you were stupid enough to lend it to me...' The bank Manager looks at him and says 'Certainly! We've run out of money at the moment but I'll go and print some more right away!' and gives him a wheelbarrow full of cash. Next day the bank manager does the same for another man, and another, and another, until, sure enough, his bank goes bankrupt with bad debt. He then decides to go and visit the bank next door for a loan to bail out his own bank, but finds that that bank has gone bankrupt too. As he looks up and down the street he sees hundreds of men and women with wheelbarrows full of cash exchanging them for an apple here, a loaf of bread there. 'Strange!' he thinks, 'so much money round - and so little real wealth!' S'pose that's what they meant by hyper-inflation! Who would've thought it - ah well, At least we've got a printing press!

Straydingo

Australia enters this economic downturn in far better shape than UK and a major contributing factor is because it’s former Prime Minters John Howard who ran the federal government in surplus. As a consequence the now Labour Prime Minster Kevin Rudd has been able open up the chequebook and embarks on a spending spree.

The British Government has overseen the same economic boom that Australia also benefited from, with the primary difference being that British Labour never stopped spending and has leaked money like a sieve blowing it all on every type of minority group you can imagine.

I’ve just finished watching a BBC news report (I like to torture myself) which reported the growing concerns at the fact that there are not enough places to cater for the children who will be entering London primary education in the coming years - This is because of an explosion in child birth rates, Greenwich (where I live) has seen a 36% increase...I can tell you now that this number is not made up of families that actually provide any economic benefit to our society i.e. they are dole bludgers or immigrants that leach of the system.

It’s time that the voting public wakes up an realises that nothing in this life comes for free – to use an old and dusty Physics cliché “for every action there is a reaction”.

W. B. Harris

As FDR efforts failed under all that is being discussed now – no one dared mention how this spiraling economy stopped in his era – WAR!

A very poor way of ‘bailing out’ the economic situation then and now… but it may happen. Whether it’s a world war or war within each country between the haves and have nots.- its looming.

George Steiner

I am not as sophisticated as you fellows, but people will have to chose whether to eat, pay for two or three cars, pay for fast internet, cable television, cellular telephones, two or three dogs, throw away clothes every twelve months, eat in restaurants constantly, travel far and wide for holidays, and many other things I have forgotten to mention.

Even in sclerotic Britain there are still some entrepreneurs who will create enterprise and jobs but nothing will happen quickly. And that is the major problem. To climb out of this hole that was willingly dug by all the inhabitants will take a long time. Not months. Years. Even with educated citizens it would be hard to do in a democracy. And you no longer have educated citizens. I don’t envy you.

Frank P

I think Gordon Brown should revise his readings on John Law, another nutty Scotsman, who tried to solve France's economic problems in the French Regency period.
http://www.devvy.com/pdf/biography_john_law.pdf

Plus ca change ...

I'm surprised that particular Law man has not been discussed throughout this latest global economic debacle. It would be interesting to learn what the many economists who obviously contribute to this blog think is the reason that nobody has echoed John Law's adventures in the current context.

I know nothing of national fiscal and monetary governance but I can smell a con man from two miles upwind and Gordon Brown is a classic example. I too worry about Melanie once again giving implied credence to policies applied by the Brown bullshitter, though I agree with her that the Tories are not able to reassure us that they will have the answers if they were to win the election. Seems to me that nobody has the faintest idea about how to get out of this mess. It will probably work itself out as every other financial crisis has done throughout my lifetime and it will be the adventurous who will eventually create wealth to replace what has been pissed away by the current crop of political chancers. In the meantime it would surely be crazy for families to rack up more debt to save NuLab's ass in the next election.

Forlornehope

Governments have a very simple way of "reducing the burden of debt". It is called inflation. That is how the very high levels of UK government debt in the fifties were reduced in the following decades. The effect of this is, of course, to transfer wealth from lenders to borrowers. It may well be time to take out a large mortgage in a year or two - if you can find one.

Ted Crilley

Here Here William Hannan.

The 12% issue was raised at the beginning of all of this as the main stumbling block. Yet this aspect hardly gets any attention. Nobody in the media ever seems to ask Gordon Brown any difficult questions on air. The Americans and the Germans had to make sure their rates were at 5 or 6% before their deals with the banks were agreed. Why did Brown get away with 12%. The analysts say it is impossible for the plan to work at such a high rate. Why are so many people singing its praises.

Tony

Let's face it, NOBODY has a fool-proof answer to the world's economic mess.
If I was a politician I would shut my mouth until a clear path to salvation came along. This sounds a bit like Cameron's strategy to me, which doesn't make him any thicker than people claiming to know the answer.
Anyway, there's something nasty lurking in the wings in this world financial collapse and it sounds to me like someone is wanting to take total control out there. The Hegellian Dialectic says you need to break something so you can fix it, but who will control the 'fix'? A New World Order perhaps?

phil

William Hannam-no problem I didnt think you meant me :)

EC

Frank P: "I can smell a con man from two miles upwind and Gordon Brown is a classic example."

"Bullshit baffles brains" and "if there's money involved then it's bent" are favourite sayings of an old acquaintance of mine. He rough in manner and appearance and bears more than a passing resemblance to the Philosopher of Govan. Many people would dismiss him as thick. However he's actually very intelligent and has been more than a handful, in every respect, to your former colleagues on a number of occasions. He's got no time for the Govan **t either.

Great Law link. A right rivetting read.

Ronnie

Yesterday there was a report in the times concerning a visit by Lord Adonis (I always smile at that) to Japan.

It seems that he, as a transport minister, has been studying the bullet trains that were developed in Japan in the early 1960s and were envied by every other country in the known world. His conclusion seems to be that we should consider developing our own 'bullet' trains and that their introduction could be completed in 20 years, with a new line from London to Manchester.

Several thoughts occured to me, unfortunately all at the same time so it has taken me this long to put them into some kind of order.

I used to see reports about Japan's bullet trains on black and white TV so why has their existance come as an apparent revelation to Lord Adonis (another smile) and the government? Are we so far behind? We'll be reintroducing the Hillman Imp next

Why should Britian be looking back as far as the 1960s for inspiration when there are so many more modern examples of transport systems in Europe, such as Germany's new Magalev trains?

Why would it take us 20 years to develop a high speed railway option. Have we fallen so low? Maybe the Olympic stadium will be ready by then.

Finally, and to be truly Keynesian, am I the only one who sees a link between the dire need to stimulate the economy and the opportunity to build something really big and useful to bring the country forward, NOW? Should we not be spending all those billions on something worthwhile rather than just handing it to bankers to keep their current, failed, finance systems afloat?

Alexandrovich

Ronnie: you, of all people on this site, surprise me. 29 Bullets have already been ordered and paid for, manufactured by Hitachi and built in Japan. Three have already been delivered, going into service on the Ashford to London line early in the New year. Someone knows what they're doing, if not (smile) Adonis.

You may be surprised at the level of investment being poured into High Speed lines by Europe and Russia.

Regards.

Ronnie

Ah! Thanks Alexandrovich, I didn't know that.

Can I just comment on the difference between high speed trains and lines. Its new lines we need, not just new trains running on old lines and I hope we can get a grip and do something about that.

David F

first of course it is awful that our children will inherit a lot of debt but the alternative, balancing the budget in a recession esp one like this one would be a disaster resulting in mass unemployment well over the 3m that we will face anyway. Of course some will say that that we should take the pain now to avoid the debt later, a noble argument admittay. Unfortunatly it is flawed for the following reason. First, unemployment once risen always stays high for years, look at what happened after the 1980s and 1990s recessions. Our children will hus inherit that unemployment since it will become "endemic" so they will avoid the debt, yet not have jobs t make a living and wil spend their lives on the dole!!! hardly a future to give your children. Also, since THEy wont be working, who will pay for their pension? THEIR children..so all that happens is the debt is carried down to the other generation instead and the children are written off to unemployment. But if you let debt rise unemployment will not become endemic so altohugh yes they will inherit debt, they will be able to pay it and will avoid debt in the genration that follows since they can then provide for their own pension.....Oddly no one has ever looked at it this way?