5.4 Million Unemployed, 17.3% or 1 in 6

Officially there are 2.38 million unemployed, in reality there are 5.4 million not in work who should be available for work. That is equivalent to 17.3%, or one-in-six of the labour force.  The left leaning economist Chris Dillow argues that capitalism can’t provide enough work to go round.  In reality it is only economic growth that can provide jobs.  You can’t tax and subsidise your way to sustainable economic growth…

Lies, Lies and Damned Statistics

Public Expenditure AnalysesThe sheer madness of Gordon’s state of denial became clear yesterday.  He stood there at PMQs and claimed spending would grow 0%.  He has set himself a dividing line alright, it is the line between economic reality and economic fantasy.  He is on the wrong side of that dividing line.

Andrew Grice reports that the rest of the Cabinet, including the Chancellor, wants him to take a reality check.  They have agreed to admit there will be some cuts out of necessity, but to argue that the Tories will cut more, this was the position that Mandelson argued for originally.  At PMQs Cameron and Clegg were united against Brown – the LibDem leader accused him of “living in complete denial”.  It appears the Cabinet agrees.  It remains to be seen whether or not they can get the Prime Mentalist to change his “no cuts” tune.

If you wade through the numbers in the Treasury’s recently released Public Expenditure Statistical Analyses 2009 (page 83), you can see the Tories are right about the government’s own plans to cut spending on services in real terms in 15 out of 25 departments in 2011.  Gordon’s lying has lost him the argument about cuts, the reality is it that it is a question about the degree and timing of cuts.

Economy Contracting Worst Since 1958

The UK economy contracted an horrific 2.4% in the first quarter of 2009, its biggest quarterly decline in 51 years, according to the latest ONS data released today. This comes on top of the OECD saying we can expect a severe recession to come. Didn’t brown and Darling tell us last year that the economy would be on the up by this July?  Still a day to go…

Mervyn on the Economic Shambles

Mervyn King’s testimony yesterday was shocking, he made public that the Bank of England was not consulted on Alistair Darling’s plans for the reform of banking regulation.  Call Guido old fashioned, but he somehow thinks that it might be a tad useful if the former student Trotskyite turned Chancellor, Alastair Darling, consulted the professor of economics turned career central banker, Mervyn King.  This is not mere student politics, this is the trillion dollar question of the moment.  Mervyn confirmed that the current tri-partite regulatory regime designed by Balls and Brown “was a mess”.

As if that wasn’t bad enough figures released yesterday showed that Britain has the biggest budget deficit in the world.  The best placed economy to weather the global crisis (© G. Brown) had government borrowing hit £20 billion in May, which means the government is overspending by nearly £30 million an hour. Gordon is spending way beyond our means and putting our children into debt at an unheard of rate.  He actually boasts that he is going to spend, spend, spend…

Mervyn basically testified yesterday that the government needed to cut spending much more dramatically than it is planning to do or else we will be ruined.  If Gordon is hoping for a recovery (as Alastair officially predicts) to save him in time for a general election the news from the OECD will not be encouraging.  The OECD said yesterday that Britain is in “severe recession” and that it was downgrading it’s expectations for the UK economy, predicting it will shrink by 4.3% this year…

Bailout : Gordon's £1.4 Trillion Fail

giltsHere is the futures price chart for the generic Gilt.  All that is stopping that chart going further south faster is that the Bank of England is printing money (though printing isn’t the way it done nowadays, the Bank just changes amounts in the electronic ledger).  Some of that money is recycled into mopping up gilts.  It won’t work for ever.

Gordon has convinced fellow members of the IMF to sell the fund’s gold reserves, this visibly holds down the gold price as the relative value of paper money is destroyed.   There will be an awful day of reckoning.

The gilt market will revolt sooner or later.   Darling’s fantasy forecasts will be rejected by those of us in the reality-based financial markets.   The numbers are horrific.  Bloomberg’s Andrew MacAskill has totted up the cost of the bailout as £1.4 trillion.  That is over 100% of GDP.

+++ Gordon Wants IMF to Sell Gold Stocks +++

That has worked so well for Britain.  Not.

UPDATE : Guido didn’t see C4 News but a co-conspirator over on HPC reports Mandelson on the subject of IMF bailouts as telling Jon Snow

PM : We won’t be at the top of the queue”

JS : “You didn’t say we won’t be in the queue”

PM : “I don’t think we will be in the queue”

Honestly he didn’t want to say that last bit. He was more or less forced to. Very sheepish and quiet whan he said it. All this after Mandelson spent a good minute talking about how the stigma of going to the IMF was being reduced and it wouldn’t be embarrassing to go to them now. He even used examples of other countries, Mexico, that were considering using the special drawdown facility. We are being primed. Pure and simple. Just as we were for low interest rates and QE.

Apparently Mandelson said “We are destigmatising going to the IMF”Anyone got the video?

Queen and King

Queen & King A governor of the Bank of England has never had an audience with the Queen before.  King had just told a stunned Westminster that there is no more money for another fiscal splurge.  Perhaps Her Majesty is worried that the currency adorned by her face is being recklessly devalued.  If she next calls in the generals for an audience our unelected, unmandated Prime Minister should really get worried…

Gordon’s “Favourite Banker” Has £14 Million+ RBS Pension

Derek Wanless – Gordon Brown’s most trusted banker – who chaired Northern Rock’s audit and risk committees, also has a multi-million pound pension paid for by the taxpayer. Vince Cable railed at the “collapse of Northern Rock; a product of greed and reckless gambling by overpaid executives”.

It was Wanless who failed in his responsibility to rein in that reckless gambling.

The government’s holding company, UK Financial Investments Ltd, is the majority shareholder in both RBS and Northern Rock. Based on the pensions data below, the taxpaying public as shareholders are funding a £14 million plus pension for Wanless. Does Brown think his friend Derek Wanless should be so rewarded given his catastrophic failure in his responsibility to exercise oversight of the risk?

Graphic credit : Paul Waugh

*Based on standard 20 x multiple.

Say that Again, Where Did the Problem Start?

Gordon was like a puppy on heat in the Oval office, clearly relieved that Obama managed to squeeze in his photo-op in between lunch and seeing the Boy Scouts of America. Here is what Gordon told the squashed in Lobby

“This is a global problem. It needs global solutions. There is a global banking collapse that we are dealing with. If we could have the same standards and the same rules that we are about to apply in the USA and in Britain to apply to other countries around the world, the same standards of disclosure and accountability and remuneration, I think the confidence in the banking system will be restored.”

For some reason he didn’t say the phrase about the problem “which started in America”. He did however ignore the questioner* who asked him would he apologise.

*Guido is sometimes harsh on Nick Robinson, but that was a blinder, Gordon looked winded as if punched in the solar plexus. We can but dream….

Canada “Best Placed to Weather the Global Financial Turbulence”

Canada, alone in the industrialised world, has not faced a single bank failure, has no need for a bailout or government intervention in the financial markets. According to the World Economic Forum, Canada’s banking sector is best placed to weather the global financial turbulence (which apparently began in America).

Gordon Brown’s Britain is ranked 44th.

What are the Chances of the IMF Bailing Out Britain?

Brown says Cameron is “ridiculous” to talk about the possibility of the International Monetary Fund being called in to bail-out Britain. Brown reckons that is impossible.

The money markets though say different, clearly they think it is a possibility. How probable is a bail-out? Guido listened on Wednesday to Gerard Lyons, Chief Economist at Standard Chartered, Geoffrey Wood, an economist at Cass Business School and Paul Ormerod, author of Why Most Things Fail: Evolution, Extinction and Economics talk at a Policy Exchange seminar on the Credit Crunch. They were far more sanguine about the economic prospects than Guido. Essentially they thought the recession would run its course over a year or two and we would come out of it with a huge bill in terms of the national debt. The consensus was that Britain probably wouldn’t be humiliated at the IMF again, but it wasn’t impossible. Some joked that if we were going to have to go to the IMF we should get to the front of the queue.

Given most of Britain’s external debt is denominated in pounds, the way to avoid going completely bust is to print more money and devalue the debt. Which is what the markets expect to happen, hence they are dumping pounds…

Economics is a dismal science, but playing www.BailoutBrown.com is a bit more fun. Enjoy throwing your money at Brown for a change…

UPDATE 26 Jan, ’09 : Paul Ormerod emails to correct the impression that he isn’t pessimistic:

I am a great fan of your site. I am sorry you thought I wasn’t pessimistic enough at the Policy Exchange, I thought I was being. I did, for example talk about a 6 per cent switch in GDP purely through consumer attitudes, and on top of this is the impact of tight credit on the corporate sector. So I think things are pretty grim.

+++ GDP DOWN 1.5% Q4 2008 +++

Recession is now official.

Gordon’s Unfunded Spending

The UK budget deficit for December alone was £11.4 billion. The numbers are so big that you have to break them down. The government is overspending – tax receipts minus expenditure – by over £14 million an hour, 24 hours a day, 7 days a week.

At PMQs Gordon seemed to boast about his plans to overspend. This is not sustainable.

Economic Recovery Needs the Audacity of Hope

The City, home of eternal optimists, has begun to seriously price in the all too real risk of national bankruptcy. It would be the first time Britain has defaulted on the national debt since the dark ages. An historic legacy for the former chancellor who, ironically, once claimed to be prudent.
Guido had lunch with a Labour MP recently, when the conversation turned to the economy it became clear that the City and finance were a foreign place, far away, not really understood. The important thing was that there were new hospitals and schools. That the lights may go out with teachers and nurses left unpaid as result of New Labour’s Peronismo policies was not contemplated.

In contrast the writers on the Telegraph have gone into apocalyptic group-think; Simon Heffer wants the IMF in immediately to deal with the insanity of Brown, horrified that £37 billion has been wasted on the banks “a sum larger than our defence budget”, Iain Martin reckons history will see Gordon Brown as the Neville Chamberlain of economics, Ambrose Evans-Pritchard warns of the perilous mismatch between Britain’s foreign reserves at £61 billion (less than Thailand’s reserves) when our foreign liabilities are $4.4 trillion.

Clearly the dire economic situation is of an historic and epic magnitude. Brown is doing the only thing he knows, throwing taxpayer’s money down the plug-hole. The opposition response has been slow to coherence, now under the slogan of sound money they tentatively advocate fiscal responsibility coupled with measures to boost business lending. When seeking to blame Brown for the perilous debt situation, they need to avoid being relentlessly negative, Labour will accuse them of “talking down the economy”. It is a long dark tunnel, yet the opposition needs to offer some optimism and hope that there is light at the end of the tunnel.

Barclays Shares Down 25%

Most of the losses occurred in the last hour of trading. The City is awash with rumours as to why. With the Treasury looking at a second round of bank bail-outs it looks like the taxpayer is going to need a lot of lube for another big shafting. Admittedly it could just be an old-fashioned bear ambush now shorting financial stocks is permitted again…

*Guido covered his gilt short anyway, when fear grips the markets government bonds tend to rally. Will short gilts again later…

Business Lending Package, Too Late and Too Little

Guido’s main concern about the Tory plan to insure bank-to-business lending was that it would encourage risky lending in a failing economy. The lenders would not really have to worry too much about the risk because the taxpayer would pick up the tab. The government’s scheme will provide banks with guarantees covering 50% of the risk on existing and new working capital up to £20 billion. It shares the risk between the banks and the taxpayer, encouraging the banks to lend for the same profit for half the risk. This is in some ways smarter than the Tory plan.

The small business component is for a £1.3 billion of bank loans with a government guarantee of 75% to cover working capital. Presumably this is to reflect the riskier nature of small business lending. This is a drop in the ocean and will barely be noticed. We are six months into the credit crunch. The options were admittedly not very palatable. Why did it take so long to put a plan into place? Could it be Mandelson wanted to get the politics right to fit his timetable of spin? No rush..

Indebted Slavery to the Gilt Market

The Tories are highlighting the terrible debt burden being foisted on Britain’s children. Guido was recently chatting to the economist Tim Congdon about the gilt market and the historically unprecedented taxpayer liabilities in terms of the government’s admitted debts, the unfunded public sector pension liabilities and the PSBR trajectory even if the Tories win the next election. We also discussed on the prospects for the U.S. and Ireland.

The conclusion was that if Guido wants his daughters to grow up in an English speaking economic powerhouse in the coming century, unburdened by high taxes servicing government debt, perhaps it is time to look to India. The external debts of Britain amount to approximately $166,000 per person, the equivalent figure for India is some 1% of that, which combined with their better growth prospects suggests that economic opportunities in India might be greater in the future. When it comes to bonded slavery, Britons will be worse off than Indians in the future.

McNulty Slams Brown’s “Desperate” Golden Hello Jobs Plans

Gordon Brown’s Job Summit at the Science Museum in London will announce plans to pay employers “golden hellos” of up to £2,500 for recruiting jobless people. What does the DWP’s Jobs Minister, Tony McNulty, say about the plan?
Press release
Tuesday 11 November 2008
For immediate use

Tories making headlines on the hoof – McNulty

Tony McNulty MP, Labour’s Employment Minister, responding to the Tory announcement on unemployment said: “This is desperate stuff from the Tories, who continue to scrabble around trying to find a coherent economic policy.

“There is no way they can get 350,000 new jobs out of these proposals. There are too many restrictions being applied, the incentive is too small and many of these ‘new’ jobs will simply displace other people seeking work.

“In addition, the Conservatives just cannot pay for this tax cut – it is misleading of Cameron to say he can pay for getting the short-term unemployed back into work by using figures of savings you would make from the long-term unemployed.

“Osborne’s judgment is wrong yet again. They are making headlines on the hoof and they will be found out. “They need to make their sums add up – particularly at such a difficult time for the global economy.”

ENDS
Editor’s notes:
1. Their figures on how many jobs would be created are complete fantasy. The Tory plan assumes that an employer would create a new job for someone unemployed for more than a year for just £2500. The Tories have failed to take account of the displacement of workers who would have gotten jobs anyway. Currently 60% of people come off job seekers allowance within three months – this number would drop dramatically under Conservative proposals as employers would be incentivised to overlook people who have been out of work for 13 weeks or less.

The sharper among you will point out that this is a Tory plan he is criticising as a “complete fantasy” and “desperate stuff”. So what will McNulty say about the plan now the government has lifted it lock, stock and barrel? McNulty’s Shadow, Chris Grayling, welcomed the chance to implement his policy by proxy “I think it is the right step to take. But it is ironic ministers are walking around saying the Conservatives are a do nothing party, then adopting our policies.” Ouch!

UPDATE : Some bloggers copy party press releases, some blogs are copied by party press offices… CCHQ at 10.38 sent out a press release quoting McNulty’s above November attack on what is now government policy. Wonder where they got that idea?

Hat-tip : Bloomberg

+++ BoE Cuts Half Point Off Rates +++

Bank of England cuts rates half point to 1.5%, the lowest rate in over 300 years. Is it because we have the economy best placed in the world to weather the recession?

UPDATE : Am particularly impressed with the insight of Edmund Conway, the Telegraph’s economics editor, with the base rate now at 1.5% he sagely tells us Interest rates are now nearing their bottom”. Well spotted Ed.

Fred Explains Bailout Economics

As it is in the U.S. of A. so it is in the U.K., borrowing is how Gordon will save the economy. Our children will be truly in Gordon’s debt.

+ READ MORE +



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Alan Sugar on Jeremy Corbyn:

“It’s clear you alluded to students refunds to get votes from young impressionable people. You are a cheat and should resign.”

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