GB: Every recession in the last 60 years has been caused by inflation… this is a completely different event that results from a global banking crisis. America is in recession, caused by irresponsible lending practices. There are issues of regulation to deal with.
[FN: No, this probem was caused by a debt explosion – ie, the over-supply of money. The old rules had inflation as a proxy for the supply of money, but this didn’t work because of the deflationary shock of globalisation. The Bank of England fixes the price of loans, not the bankers. The BoE acting under Brown’s instructions let the debt taps on full – creating an asset bubble which has now broken.]
ED: How long are you expecting the recession to last?
GB: It depends on the degree of international co-operation.
[FN: As if! No serious economist would argue that the date of the UK economic recovery can be materially influenced by ‘international co-operation’. But Brown is setting up someone else to blame. Officially he thinks the recovery starts in Q3 of this year. When it doesn’t, he’ll want to blame America again.]
ED: You reject the idea of David Cameron that we may have to go the IMF 1970s
GB: We have low public debt
[FN: Untrue. It’s 47.5% of GDP last month, according to the ONS, over 100% according to the IFS and 127% according to the CPS.]
GB: We have low inflation.
[FN: Nope, CPI is 3.1% - way over the target of 2.0%].
GB: Wages are under control.
[FN: For the lucky ones still being paid – Brown is setting up an Aunt Sally here saying there are no indicators of a 1970s style recession. So what? The debt burden is crushing, and this is the issue.]
ED: But huge liabilities?
GB: We are dealing with a global banking crisis…
[FN: Global debt crisis, a different thing]
GB: ...and to do so you have to take very specific measures ... I do feel that it’s only if you properly understand what the problem is can you deal with it, if I may say to our opponents, that you can deal with it. If you think the problem is caused by inflation or something in Britain you’ll come to the wrong conclusion.
[FN: What he means is that, as Orwell said, he who controls the past controls the future. Pushing a fake analysis of the past is Brown’s best hope for political safety]
ED: But they don’t think that. They’re looking at the plunging pound and the fact that foreigners don’t want to put money in the UK. We had Jim Rogers, the prominent investor, saying ‘sell all sterling’. We have the pound plunging as foreigners think how will the UK repay all these debts?
GB: If you think we’re going to build our policy around the comments of a few speculators who want to make money out of Britain then you’re very, very wrong indeed.
[FN: Note, a change of defence. Brown used to deny weakness of sterling was an issue – now he wants to blame it on wicked currency speculators. Nothing to do with his driving Britain to near-bankruptcy then! So Brown attacks Rogers rather than seeking to address the undeniable issue of people selling sterling at the GBPeso at $1.37]
GB: If I can just repeat on the measures we’ve taken for the banks…
ED: No, please don’t. Because we have a lot of ground to cover. We know the measures.
[FN: I bet Davis was cheered here across Britain. We’re sick of Brown using interviews to rehash what he thinks are his key messages.]
GB: We have put the public finances on a sustainable path for the future. We are the only country...
ED: (sounding irritated) On the public finances, we are in such different terrain than we were two years ago, lets not pretend that we’re on the same ground as we were when you were Chancellor
GB: (...ignoring the question) sustainable public finances because we are the only country that decided to take tax rises at the right time when the economy recovers.
[FN – Nope. First, Obama doesn’t have tax rises to pay for his tax cuts – his rebate is permanent. Next, Brown pencils in tax rises to coincide with a recovery which he believes will start in July. If he can't tell us when the recovery will be, he should shelve those tax rises smartish]
ED: You’re not suggesting that the legacy of the government that takes over at the next election is comparable to that you inherited in 1997 are you?
GB: We have had ten years of growth in this country that no government has had in any period.
[FN: It was illusory ‘growth’ produced by debt that the country could not afford. And anyway, over those ten years the UK economy grew by just 39% - a worse performance than any other country in the English speaking world.]
GB: We’ve already decided in our discussions that this is a global financial crisis.
[FN: Note the totemic importance Brown attaches to this point. It’s his debating trick, one of his beloved dividing lines. He asks the interviewer to agree that it is a global crisis. If the answer is ‘yes’ then this – according to Brown – means that it is cannot be attributable to UK policies such UK-generated debt explosion]
ED: You can’t mention the ten years of economic growth without mentioning the bust that comes with it. Suddenly your legacy as Chancellor looks like ‘average’ rather than ‘best postwar Chancellor we’ve ever had’.
[FN: Average? I suspect history will record Brown as one of the most destructive Chancellors ever seen when you compare what he inherited and what he left. Even Healey didn’t leave more damage.]
ED: What is your legacy? It wont be as good as the one you inherited
GB: We created millions of more jobs.
[FN: Imported them, more like: two-thirds went to (or were created by) immigrants]
ED: And now we’re losing millions of jobs.
GB: I wouldn’t put it like that. We’ve doubled investment in education and health.
[FN: and is anyone out there bold enough to claim that the quality of education and health provision has doubled?]
GB: Just as I dealt with the problems of inflation when we came into government in 1997, I’m dealing with the problem for global financial crisis.
[FN: Ha! A new Brownie. Inflation was slain in 1993 – see graph here for details. But he wants to concoct a past victory, to kid us on that he’s competent enough to deliver victory again.]
ED: A lot of people have credited you with the recovery plan, and I think it should be recognised around the world.
[FN: Sigh. And Evan was doing so well. The bank bailout, if that’s what you’re referring to, certainly wasn’t a recovery and was designed by the Swedes in 1992 and used just before Brown by the Dutch and the Germans on a smaller scale. Brown’s genius was in persuading journalists that the world was imitating him.]
ED: Looking back, with hindsight. What mistakes were made?
GB: The whole of economic policy was focused on how you control inflation. And with low interest rates, and low inflation economy, you continue to grow.
[FN: He’s exactly right. Inflation targeting – the entire premise of his economic policy – was a mistake. The BoE was given the wrong target. There was a deflationary shock from China between 2000-03 which artificially reduced consumer prices. The BoE needlessly fought this benign effect, thus sparking an avoidable credit boom. This was the problem. Not that Brown would admit that there was a debt crisis, though.]
GB: ...we also believed there was a possibility of institutional failure in the banking system. So we did all sorts of simulation exercises. But what we didn’t see, nobody saw, was the possibility of complete market failure. Markets seized up. You had the sub-prime market in the States...
[FN: Market failure? That’s a good one. This so-called ‘market failure’ was simply a debt bubble bursting – predictable and predicted by watchdogs like the Bank of International Settlements. The failure was political failure: failure to recognise the credit explosion. Failure to give the BoE the right instructions. Failure to realise that having household debt at 178% of income, the highest any G7 country has ever known, was taking a reckless gamble. Failure to realise that, while a debt bubble begets an asset bubble and makes the electorate feel rich (and grateful) there is a price to pay. Brown used to joke that there are two Chancellors: those who fail, and those who get out in time. He figured he’d be the latter.]
ED: That’s really your mistake? Not spotting sub-prime?
GB: It’s very difficult for us in Britain when we don’t have cross-border regulation to see what’s happening in a market the south of America.
[FN: Not difficult to see M3 money supply growing white hot, though, and this was the problem. The ECB factors this in as part of its rate setting policy – hence there was less of a credit boom in Europe than in Britain.]
ED: People could point to bigger mistakes than that. Like cutting interest rates in 2005. In hindsight, you must think you’d rather have strengthened the public finances.
GB: The issues about lax banking practises…
ED: You cant blame it all on the bankers?
GB: You can deal with domestic problems...
[FN: Or, in Brown’s case, cause domestic problems by presiding over the biggest debt binge known in this or any other major country]
...to deal with a global fiancial problem lax standards in America that spread across to Europe. For the last ten years, people have told me there is too much regulation not enough.
[FN: Mistake was wrong-touch regulation, not light touch. Brown failed to set leverage ratios for banks, let them lend 125% mortgages. Simple rule changes could have averted this disaster – Spain and Canada both did this. How many banks have gone bust in those two countries? None. But Brown, let’s never forget, was as hungry for his tax take in City profits and bonuses as the bankers were themselves seeing as the rest of the economy was slowly atrophying.]
GB: Governments all across the world were worried about dealing with inflation. The problem was we had a complete market failure. The markets seized up.
ED: Will we get growth this year?
GB: It depends on the level of economic co-operation. If China could create more domestic expansion itself then we’d . Co-ordinated banking, as you yourself have said.
[FN: Note how he doesn’t repeat the official Treasury prediction that growth resumes in Q3 of this year. Again, he’s preparing us to blame the rest of the world – ideally in the G20 summit, which will accomplish the same as all previous G20 summits, which is nothing].
ED: It’s boom and bust, isn’t it? Let’s agree one thing, that we have see boom and bust.
GB: Once you establish the nature of this problem as global financial failure, then you are in new territory.
[FN: His constant refrain. If it’s global, it’s not my fault. History will blame this on inflation targeting, on seeing it as a proxy for growth in money supply. The BoE should have looked not just at CPI inflation but asset inflation and M3 money supply. And Brown was so mesmerised by the feelgood factor created by the credit splurge that he convinced himself high household debt didn’t matter. This blinkered, narrow remit of central banks led us into this unalloyed and entirely avoidable disaster. Had debt been kept at 125% of income, or even the European average of 100%, Britain would not have a debt crisis. End of story. The banks, for all their deplorable misbehavior, operated within parameters set by this inept, tax-greedy, short-termist government. Brown enjoyed the political fruits of the credit binge so much, not to mention the tax revenue (that stamp duty cash was borrowed, not earned). He couldn’t bring himself to call the party to a close. Now his political future depends on spinning the past.]