Gordon Brown’s Baldrick-style Cunning Plan for global finance involves using the International Monetary Fund (IMF) as an “early-warning system”. Great idea. When I was a business journalist, I remember the IMF early warnings – about how Brown’s switch to debt-fuelled profligacy post-2000 would end in tears. The key misjudgement made by both Brown and Greenspan was to try and get around the 2001 slowdown (which would have flushed out bad businesses and dodgy loans) by pumping the economy full of cheap debt. Pain delayed today means disaster tomorrow in financial markets. The IMF said in September 2001 that Brown’s spending spree was “regrettably pro-cyclical”. And since then? Here, via what Guido would call a co-conspirator, are some IMF “early warnings” Brown could have done well to heed…
September 2006: “A key risk on the demand side is that the continued cooling of advanced-economy housing markets will weaken household balance sheets and undercut aggregate demand. At this point, concerns center on the United States, although other markets, such as those in Ireland, Spain, and the United Kingdom, also still seem overvalued by most conventional measures.” (IMF, World Economic Outlook, September 2006, p.10)
“House prices in Spain, Ireland and the United Kingdom still look elevated, and could come under pressure in a rising interest rate environment” (IMF, World Economic Outlook, September 2006, p.45)
April 2007: “In the United Kingdom, the fiscal deficit fell to 2 and 1/2 percent of GDP in 2006, and tight spending control will be needed to halt the rise in public debt.”
August 2007: “Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.” (Federal Reserve Board, 17 August 2007)
September 2007: “The [UK] cyclically-adjusted budget shortfall is still substantial and significantly larger than in most other OECD countries. There is a need to further reduce the government deficit… the UK fiscal balance is in a relatively worse position than most of the other G7 countries”
But did Brown listen?
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