Consensus economists were predicting 0.4%. Gordon will use this to spin that this means he can’t cut the deficit because it would take spending out of the economy. Cutting taxes would of course boost the private sector and keep more money in the economy. In recent years Cananda and Sweden have both cut government overspending by 10% in a recession and achieved strong economic growth…
Having been the front man for the entire LibDem campaign until 45 minutes into the Leader’s Debate, Vince has all but disappeared into the background this week. No longer the nation’s favourite politician, his soothsaying sage act is also washing a little thin. Inflation figures released yesterday were higher than Cable expected again at 3.4%, leading him to claim that “the inflation rise appears to be a blip caused by things that are out of our control...”
But that’s not how he saw it when he was reading his magical economic runes three months ago in January, then he said with his characteristic bluffer’s confidence “these figures are almost certainly a temporary spike.” Doesn’t seem too temporary to Guido,* in fact when you print £200 billion and call it quantitative easing (as supported by Cable), you inevitably get inflation.
Perhaps if Clegg would let him back on the platform, he might be able to explain why inflation has remained high and got even worse over the last three months. Could certainly liven up this afternoon’s Chancellor’s Debate…
*Have you taken Guido’s advice?
On the Marr show Gordon raged against the moral bankruptcy of Goldman Sachs; “I want a special investigation done into what has happened at Goldman Sachs.”
Perhaps he could ask Gavyn Davies to investigate? For many years he has been advised by Gavyn Davies, who made some £150 million during his period as a Goldman Sachs partner.
It was Davies who last year urged Gordon to implement Mugabenomics, turn on the printing presses and call it quantitative easing. Davies has been a big donor to the Labour Party and a long-term supporter. Davies’ wife Sue Nye was Gordon’s private secretary in Downing Street and they are known to be good friends. Perhaps it was they who stole Gordon’s moral compass.
UPDATE : The more Guido thinks about this, the more he likes Gordon’s idea. Questions Guido would like the Goldman Sachs special investigator to get answered:
- Exactly how many boardroom lunches and suchlike did Gordon Brown have with Goldman Sachs figures?
- During the many lunches Gordon had with Goldman Sachs did he discuss policy or matters which they were able to exploit to their advantage in the markets?
- Goldmans were known to be major sellers of gold before Brown announced his extraordinarily ill-conceived plan to sell the Bank of England’s gold reserves.
- Gavyn Davies was an adviser to Gordon Brown during this period. Did he recommend, advise on or know anything of the intended gold sales policy? Did Sue Nye know of the intention to sell gold?
These are not matters of little import, Gordon’s gold sales debacle cost the Treasury £6 billion, the amount that Gordon claims will devastate the economy if the Tories cut it from public spending. The bank is known at rival firms as ‘Government Sachs’ because senior partners keep so close to governments and in particular finance ministries…
The billions lost by Brown’s decision to sell Britain’s gold reserves are mounting as gold prices have more than quadrupled since that debacle. He has the reverse Midas touch when it comes to market timing. This chart shows what is known in the gold market as “Brown’s Bottom”:
Cameron brought it up on budget day, Labour spinners reckon it is ancient history, even though they constantly hark back further to Thatcher’s days. Guido thinks it is worth the Tories bringing up gold sales fiasco as emblematic of Brown’s bad decisions.
Gilt yields, Credit Default Swap rates, inflation projections, Public Sector Borrowing Requirements and Quantitative Easing are incredibly important for an understanding of the economy, but they are unfortunately almost incomprehensible to the general public.
Selling off the Bank of England’s gold reserves is easy to understand, it was an act of monumental stupidity and it was executed incredibly badly (Brown tipped the market off to his future intentions). Anybody who watches TV at the moment is bombarded with adverts offering to buy people’s gold (cheap), Dale Winton is telling viewers day and night that gold is up, the demographic that this is aimed at are C1s and D1s. These voters might not be interested in the finer points of monetary policy, but they all know one thing for sure, it was a catastrophically expensive economic error to sell the Bank of England’s gold reserves. Driving home that simple message graphically will undermine Brown’s claims to making the right judgements. Whenever he says that he should be asked Was it the right judgement to sell gold at the bottom? In the past he has retorted that he bought euros, that has had very little return over above what the Bank of England could have got from leasing gold out to short sellers and nothing like the 300% return from holding gold over the same period. It is easy to understand that selling gold was Brown’s £7 billion misjudgement…
March 15 (Bloomberg) — The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
Update : II : Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said under the ratings company’s so-called baseline scenario the UK will spend more on debt service as a percentage of revenue this year than any other AAA rated country: “We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing … This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.” Moodys predicts the UK will spend 7% of tax revenue servicing debt this year and between 9% and 12% in 2013. Financing costs above 10% automatically put countries outside of the AAA ratings category.
Update : III : For a completely different take, see the BBC – UK Credit Rating Viewed As Safe
Just how much debt-fuelled danger is Gordon risking with the UK economy? A reasonable question and the only place we can get hope to get objective answers is from the debt default insurance market place. Harriet claimed at PMQs yesterday that it is unpatriotic to ask questions about the British economy. As an Irishman that doesn’t apply to Guido.
Chile has just had an 8.8 on the richter scale earthquake, looting and rioting are commonplace. Even so, U.S. investors still prefer Chilean government debt to UK government debt as measured by CDS rates. Do you get how bad things are?
Data source : Morgan Stanley
Gordon loves to quote the policy endorsements of Paul Krugman, the New York Times columnist and Nobel Prize winner – always neglecting to mention that Krugman is a friend and ally. The New York Times today however is not so keen on Britain’s economy.
The business section is mainly read by Wall Street liberals, nevertheless they run investment funds that move markets. The UK this morning is bracketed with Greece, the NYT warning that if the Tories don’t get a strong majority:
“… investors could start to make it greatly more expensive for the government to raise funds, setting the stage for a potential double-dip recession, if not worse… If you really want a fiscal problem, look at the U.K… In Europe, the average deficit is about 6% of G.D.P. and in the U.K. it’s 12%. It is only just beginning… the British government … has been able to finance a budget deficit of 12.5% of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.”
As the pound slid Nick Clegg tried to reassure investors that if there is a hung parliament the LibDems would not risk Britain’s creditworthiness – surely that effectively means he can’t prop up Gordon Brown. Clegg said this because he realises that once foreign investors realise the only buyer of government gilts last year was the Bank of England and they lose confidence in a Tory election victory, they could rush for the exit. Foreign holdings of gilts fell from 35% to 29% last year. Capital flight is already starting…
The pound has just fallen through the psychologically important €0.90 cents to the pound level, if it were not Greece we would now have £/€ parity. It is sinking against the dollar as well. Think what a hung parliament and the inevitable political paralysis would mean for deficit reduction. Markets would go into a tailspin, the cost of borrowing would rise. We would be looking at a Greek tragedy…
UPDATE : Gilt market has opened down as well. The market has already removed the Triple-A rating on UK government debt.
The papers are reporting an emergency EU meeting over Greece. Gordon is attending despite the UK not being in the Euro. At the end of last week Guido learnt that next week Gordon is scheduled to meet George Papandreou, the socialist Greek prime minister who has led his country to ruin.[…]
Today on Threadneedle Street in the City, the Monetary Policy Committee meets to decide the Bank of England’s base rate and whether or not to keep the printing presses running The base rate is currently of symbolic importance (unless you have a base rate tracker mortgage), because prevailing real world market rates are far higher than the official 0.5%.[…]
Annual consumer price inflation increased by its greatest ever amount in a single month in December, that is well well above the Bank of England’s 2.0% target and consensus economist’s expectations that it would come in nearer 2% today.
Get your wheelbarrows out, stock up on gold and baked beans.[…]
At 10.30 this morning we will have the first auction of government debt this year. Gilts are ticking down* a little as the market awaits the outcome of the sale. Mandelson is being wheeled out today to say that – shock, horror – the First Lord backs government policy; emphasising spending reductions, tax increases and reducing the deficit, all to reassure the bond markets.[…]
If you haven’t got any gold, stock up on baked beans, because inflation is coming back. Data released this morning from the Office for National Statistics showed inflation in the UK rose for the second month in succession to 1.9% in November, jumping from 1.5% in October.[…]