Rumour reaches Guido that despite the Credit Crunch the biggest party in New York on election night will be held by… the BBC. It is a fact that the BBC has more reporters covering the U.S. election than any domestic American broadcast network. Evidence, if evidence was needed, that it is incredibly bloated and over-funded. Bet the Beeboids can’t wait to crack open the champagne…
Vince Cable is ignored on the ground shouting random directions to attract attention from the crowd. Little can be done to avoid Gordon claiming credit and to be fair, his contemporary version of the Swedish bail-out model was better than the Paulson Plan Mk 1. The Tories plan in their attack to hold off until recession bites and then point the public towards Gordon and give him the credit he deserves for the magnitude of the bust.
Might work, though Gordon will try to pass the buck as ever, blaming Iceland or the non-appearance of the tooth fairy for Britain’s woes. The triumphalism of this week may fade from the public’s memory pretty quick. Danny Finkelstein has nailed it to Gordon, “If this is a triumph, I’d hate to see a disaster“. Fink’s argument needs to be re-scripted in populist form.
In a month or so attack videos need to replay Gordon intoning an end to “boom and bust” over and over again at different times in different ties, than replay him asking last week “has another bank gone bust?”, zooming in slow motion on to that, for once, authentic smile. As recession brings unemployment and repossessions, his self confession to presiding over the age of irresponsibly low interest rates and a failed regulatory regime he designed needs to be drummed into voters – along with Gordon’s smile of triumph amidst disaster.
Tempting odds for a value bet. When you drill down in some of the most likely to vote groups, McCain is strong, older voters for instance. Even if almost all Hollywood stars are voting for The One, they are not that numerically strong. Do you really think this going be a wipe-out for the Republicans?
Billions in future tax payments are being risked to bankers. They are supposed to pay back the debt to the Treasury when things pick up. Hopefully.
The economy won’t pick up until the housing market picks up. Kick-starting the housing market is going to take one helluva kick. In America Obama is talking about a 90-day moratorium on home repossessions and McCain is advocating government-backed mortgage rescheduling, another policy idea doing the rounds is giving home buyers $15,000 tax relief, effectively making a mortgage deposit tax deductible.
Something glaring that strikes Guido as unfair in the British tax system* is that whereas the bank corporations will be able to deduct loan interest payments from their tax bills, individuals can’t. Why not bail-out homeowners too by making their mortgage interest payments tax deductible? Consumers are feeling the pinch, if they could claim the same tax relief that the bankers will, they would spend it and boost the economy. Boosting the economy is key to keeping the recession short. Unlike the banker bail-out this isn’t a handout from taxpayers, it lets taxpayers keep their money flowing into the economy.
*Gordon took away mortgage interest tax relief in 1999.
UPDATE : The comments below from some call this proposal neo-Keynesian, suggest it would re-flate the housing bubble and call it a middle-class subsidy.
The idea that people should be taxed less to promote spending growth is pretty straight forward. Keeping people’s earnings in their pocket to spend promotes growth in a much healthier way than the government taxing their earnings more to spend inefficiently. Some people fetishisise taxes as if they were a good thing in and of themselves. The property market is not going to bubble again in our lifetimes, have no fear. A subsidy is what public sector tenants have, taking less in taxes off people is not subsidising them.
Peter Mandelson drank Chinese milk 9 days before his kidney problems surfaced. He flamboyantly drank a glass in front of the Chinese media to “show his support for the Chinese dairy industry” which has been hit by child poisoning contamination disasters.
Premier Wen Jiabao said he was very moved when he saw Peter Mandelson drinking a cup of Chinese milk on Friday to show his trust in China-made products. “It’s because he not only sees the present, but the future as well,” Wen said. Oh dear…
Hat-tip : Shanghaiist
Trevor Kavanagh this morning points out that the collapse of Britain’s banks was not inevitable, “it hasn’t happened in Canada, Australia or Sweden”. So much for Britain being uniquely placed to weather the financial storm. Gordon designed the regulatory system, Gordon allowed the property bubble to inflate. Gordon’s bubble has now popped.
Gordon is spinning that he is leading the world, either he is delusional or deliberately lying, in Europe they are calling the EU-wide rescue plan the “Sarkozy solution”. If any country can honestly claim leadership, it is actually Sweden, the EU plan being based on a nineties solution to a Swedish banking crisis. Gordon, for some reason, needs us to believe he is saving the world.
Listening to Will Hutton and Polly Toynbee you would think they were actually monetary economists when in reality they are just soundbite savvy talking heads spouting the latest fashions of the metropolitan media elite. Both property millionaires in their own right, three-houses-Polly and Hutton have substantial family stakes in the property market. If they had such great economic foresight would they have got so badly caught out? Rumours circulate as to the viability of Mrs Hutton’s extensive property portfolio.
Toynbee has now realised that Gordon is staying and that her flirtation with David Miliband was just a passing fancy. Her tune has changed, now saying (once again) that Brown is the man for our times when only weeks ago she was telling the cabinet they were spineless not to get rid of him. Laughable.
Polly’s advice and economic genius is as suspect and as reliable as her loyalty to whichever politician she is championing this month. At the beginning of the year she was still loyal to Gordon and chiding Cameron for his new year message which she claimed
smacks of callow point-scoring, with his five repetitions of “Labour’s hopeless” – and it will look even thinner in retrospect in a year’s time if Brown has steered through economic rapids without most voters feeling any adverse effect.
She was confidently predicting
A minor slowdown with neither inflation* nor unemployment rising will see Brown’s old “no boom or bust” boasts triumph this time next year.
Guido suggests we leave Polly and Will to their studio soundbites and ignore their siren voices – they have been advocating their brand of redistributive social democracy as the solution to everything for decades. If policy makers are looking for guidance on avoiding a depression (alas a recession is upon us already) they should dust off the works of Ludwig von Mises and Milton Friedman – Mises wrote the seminal “The Theory of Money and Credit“. If this book had been read by more central bankers outside the Bundesbank we would not be in this mess. Guido once listened to an LSE lecture by a Bundesbank board member speaking in reverential tones about Mises’ thinking. He is the high priest of monetary theory.
If history is not to repeat itself then reading Friedman’s “The Great Contraction, 1929-1933” should be a priority. If you think this is irrelevant to the state we are in you should note that the current Federal Reserve chairman, Ben Bernanke, pays tribute to this work and is quoted in the introduction to the current edition. Whereas Mises is heavy going, Friedman and Schwartz are essential reading.
Guido can summarise the primary policy response to the situation we are in succintly : cut interest rates, to lessen the pain of the inevitable reckoning.
“I notice over the past day or two some commentators wondering if by chance the current economic disasters might not turn out to be Brown’s Falklands moment.D’you know I think they’re right. With Brown as Galtieri.”
He has invoked Anti-Terror laws against Icelandic Fundamentalists banks rather than normal bankruptcy procedures. He threatened to freeze the assets of other Icelandic owned companies, without any legal basis. Is he going to arrest Father Christmas at Hamley’s if Iceland doesn’t pay local councils for their losses?
Last night in a BBC interview, during which he smiled randomly like an over-medicated hypermaniac, he told Nick Robinson that “everything was being done” and that “I have to restore confidence in the banking system”. Bonkers – bank stocks collapsed on the open this morning. “I” is the Prime Mentalist…