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…
The 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.
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 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…
Here 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.
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?
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…
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.
“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….
Gordon Brown’s Britain is ranked 44th.
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…
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.
Recession is now official.
At PMQs Gordon seemed to boast about his plans to overspend. This is not sustainable.
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.
*Guido covered his gilt short anyway, when fear grips the markets government bonds tend to rally. Will short gilts again later…
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.”
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.
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
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.