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Tory economic attacks keep missing target


3:48 pm - December 11th 2009

by Sunny Hundal    


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Most of the time, the mainstream media acts like a baying mob with rarely a sense of nuance or self-reflection.

For example over the last few weeks we’ve seen journalist after journalist echoing the Tory line that Britain was in danger of having its credit rating downgraded because of its so-called “mammoth debt” (a narrative now taken up by the liberal press too).

At any other time the Tories would be furious at someone constantly trying to downplay the strength of the British economy. But when they’re doing it that’s ok.

And so it came to pass that Boy George’s constant dire warnings about the economy’s creditworthiness came to nothing.

As Richard Murphy points out:

In other words, the management of the economy is just fine right now in the circumstances that are being faced. There is no need for further cuts.

There is no reason to increase interest rates. The rating agencies are confident UK gilts can be sold.

And the entire scare programme of the City and Tories is complete myth based on fear and no analysis. And the entire Tory strategy of cuts, cuts and more cuts supposedly to prevent such a downgrading but which is actually intended to destroy the welfare state is shown as political warfare against the majority to suit the minority.

And yet have you seen any journalist actually question Boy George to ask why his predictions didn’t pan out? Me neither.

The nearest we have so far (via Paul) is the BBC’s Stephanie Flanders tentatively saying:

The Conservatives would rather the markets were less patient. If investors started openly to question Britain’s credibility as a borrower, George Osborne might have more chance of persuading voters of the need to be more hard-nosed about the budget than Alistair Darling was this week.

Meanwhile, the news that Germany and France have followed suit in backing the tax on banker’s bonuses, and forced Goldman Sachs to scrap its own bonuses.

So has anyone questioned the Tories to ask what happened to their dire predictions if a banker’s bonuses tax was imposed? Anyone? Nope. The media herd doesn’t want to know because the Tories are apparently on the ball when it comes to economic matters and no journalist really wants to upset that received wisdom.

At least one economics student had the right idea by inviting Boy George to join her economics class after his continual failures.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Story Filed Under: Blog ,Conservative Party ,Economy ,Media ,Westminster

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Reader comments


Good piece, absolutely right. Worth noting that Murphy’s wrong about the City, though. The crazy scheme to pretend we’re bust is purely Tory politicking; it’s not even in the UK financial industry’s interests [note: nutters like Andy Jarm don’t count as “the financial industry”] to spread that one.

> forced Goldman Sachs to scrap its own bonuses.

Er, bollocks. Goldmine Sachs haven’t “scrapped their bonuses”.

I know this is a blog, but please try and do some basic fact-checking before you post.

We’re printing money to buy our own debt. How is that not broke?

Are you suggesting that a projected national debt of £1.5 trillion by 2013 is not mammoth?

Moody’s forecast is explicitly dependent on three things: (i) strong growth in the short to medium term; (ii) on Quantitative Easing lasting for most of the next two years, and (iii) on ‘public consensus’ forming on substantial fiscal straightening.

The first of these is optimistic, the second rather leaves the question open as to what happens after QE stops, and the third rather depends on who wins the next election. Citi’s analysis is much bleaker, suggesting explicitly that it is only the possibility of a Conservative Government that is maintaining this confidence, and that if a hung parliament looks a likely result then the UK’s credit rating will be reappraised.

I’m sure you’ll like Citi’s conclusion:

Unless we get a credible set of measures put in place quickly, which seems unlikely unless we get a Conservative Government with a clear majority at the next election, we think the UK’s AAA rating will be right up on the radar screens in a very short space of time. The lasting legacy of the current administration may well prove to be the loss of the UK’s AAA credit rating.

Incidentally, it seems to me an extraordinary day to criticise Tory concerns over the capacity of this Govt to raise debt at the record levels it requires the day after complete carnage on the UK Gilt markets. Even the Guardian were reporting it.

Mohit Kumar, UK strategist at Deutsche Bank said: “There’s sovereign concerns. The UK is obviously next in line and seen as the most at-risk sovereign. We don’t expect anything to happen [from the ratings agencies] before an election but still it’s at risk and the market knows that.”

I must have mentioned this a dozen times on here, but the only net buyers of UK gilts this year have been the BoE (through QE) and, minimally, UK banks (thanks to their new rules on capital adequacy). Fund managers and overseas investors are net sellers. So, you won’t believe the opposition on this (which is fair enough) and you won’t believe the press (ditto), but you won’t listen to the markets either? Time to wake up Sunny…

Or, as Steltzer puts it rather more pithily

The Wall Street Journal reports that two years ago it cost $5,000 per year to insure $10 million of British government debt against default for three years. It now costs $52,000 to buy such insurance — and $72,000 to cover that risk for five years. That is $30,000 more than it costs to insure BP’s debt, and $50,000 more than to insure Germany’s. So the markets think it is more likely that UK plc will default than BP plc. Or McDonald’s. Or Gap.

Economic illiteracy of the first order.

The City of London more than anywhere else in the world would be hit hardest by a Tobin Tax – it is the global foreign exchange capital. This doesn’t just mean traders and brokers losing out, this means hundreds of thousands of dependent jobs (many low-paid operational jobs) across the industry.

It is quite something when you have a prime minister who for purely political reasons in the need to shore up his core vote is happy to strut the world stage proposing measures that would damage his own country and own economy far worse than any other.

Do you think Sarkozy would propose any measure that would damage French industry? They have no foreign exchange industry to speak of. No wonder Sarkozy is suddenly so happy to be at Brown’s side – as George Soros observed last week “France and Germany would like to see London’s financial-services industry sink”. The French and Germans have little banking either – no wonder they are so quick to support the bankers supertax when they know the cost will fall almost completely on London and our economy.

Our Prime Minister’s behaviour is the most treacherous and shameful I have ever observed in any of our leading politicians. Happy to stab the country in the back to secure a core vote for the declining Labour Party. It is a shame the public are too myopic and ignorant to understand how important these industries are to us. They will realise all too late.

@3: because we can.

@5:
14bp rise in yields != ‘complete carnage’. It’s a small fluctuation, talked up by people with incentives to talk it up.

Citi’s forecast is obviously fucking crazy: discount the government’s figures, sure, but it’s got the debt reaching 100% of GDP compared to PwC’s maximum of 80%.

Finally, CDSes on major developed government bonds are an irrelevance – at the point where the UK defaults, the world financial system has collapsed to the extent that nobody’ll be in a position to pay out anyway. As you know or should know (and as Stelzer certainly knows), the markets don’t think UK plc is more likely to default than BP, McD’s or Gap – rather, there are dull, technical, RM-policy-related reasons why those CDSes are trading at that price.

The French and Germans have little banking either

Similarly, the Saudis don’t have much sand, Newcastle doesn’t have much coal, and it seldom rains in Manchester. I mean, *what the FUCK*? How can someone who purports to work in the FS industry straight-facedly make such a ragingly bonkers claim?

9 – The reason that cds spreads on sovereign credit is important is that they are generally the primary indicator used by rating agencies in determining a country’s credit rating. The key comparison, therefore, is obviously not Gap or MacDonalds (I remember the kerfuffle when the UK ‘overtook’ MacDonalds a year ago or so – it’s not a useful comparitor) but Germany. That differential is extremely significant.

When the Spain-Germany 10 year spread hit 80bps back in March, Spain was put on negative watch. It was that that arguably led to the rapid rise to a 120bp spread which caused Spain’s credit rating drop. The UK-Germany spread is currently greater then 60bps. This has the potential to be important.

And of course the UK’s not going to default. But it might have to pay more for its debt, if investors persist in mistrusting its long term stability. And that’s something of a disaster, when you have quite as much debt to service as we do.

Incidentally, I don’t you’ve ever addressed the point re: who is currently buying UK debt. My understanding remains that the only net buyers of gilts this year have been the BoE and UK banks, and that fund managers and overseas investors are net sellers. Given this, do you not see any future problems with our unprecedetend borrowing requirements?

John B

Do you claim to working in the industry? Banking and Finance are unquestionably minor industries in France and Germany, unlike the UK, way down their list of major industries. And they really have very little foreign exchange business at all. In the thousands of FX trades I have done over the phone for years with practically every bank in the city I have never once done so with someone in France or Germany.

The bankers who service French and German clients are sat in London and pay tax to our government on their salaries and bonuses. Or at least they were until the bonus tax was announced on Wednesday.

I am an investment banker in London and when I work on a deal involving a French or German client it is with teams of French and German bankers who are ALL based in London. Only the end client (not a bank) is on the continent. And all the fees go to the UK….or at least they did…….

It’s difficult to get economists to agree and this FT article give a somewhat less optimistic view:

http://www.ft.com/cms/s/0/7f9daa08-e5ce-11de-b5d7-00144feab49a.html#

Apologies incidentally for my increasingly poor grammar. It must be a Friday evening…

At any other time the Tories would be furious at someone constantly trying to downplay the strength of the British economy. But when they’re doing it that’s ok.

Isn’t it funny how ‘pointing out a potential problem’ has now become ‘talking down the economy’? This could almost be termed the Ostrich tactic – stick your head in the sand and pretend the problem doesn’t exist.

The Tories are lying about the debt.

If it is as important as they claim ,then they would not be proposing cutting inheritance tax for the better off middle classes, and a number of other tax cuts for the top 40% income earners within seconds of taking office.

The real story is Tory shock doctrine. They see a big opportunity to slash public services for the poor and claim it was all Labour’s fault.. This of course is being pushed by the Right wing media who really, despite what The Sun and Mail would tell you are only interested in the affairs of the wealthy.

If, however the Eton mafia wants to cut taxes for the Rich then the deficit is obviously not as bigger problem as they claim.

“Isn’t it funny how ‘pointing out a potential problem’ has now become ‘talking down the economy’?”

Well it is what the tory scum did for 18 years, but I guess you missed that. Head up your arse probably.

16 – It’s a hardy perennial. In fact, I know that Sunny and Labour generally are pretty unoriginal, but is in fact the oldest talking point they’ve found?

WHEN John Major attacks ‘the gloom and doom merchants’ for ‘talking down Britain’, he is in fact criticising what is perhaps our oldest national tradition, one that goes back indeed to a time before England existed. Those who live in this island have always been addicted in hard times to grumbling, knocking and predicting total disaster.

The earliest of all our historians, the British monk Gildas, writing about AD550, bewailed the conquest of the Britons by the Saxons and blamed it on moral decline: ‘An increase in loose living, a plague of all sorts of crimes – in particular cruelty, hatred of truth and love of lies . . . drunkenness, hatred, rows, strife, envy and other such sins.’

@19, excellent and timely P Johnson-ery. Yes, we’ve a glorious national tradition of pretending everything’s going down the tubes, even though it turns out never actually to be doing so. That would seem to support mine & Sunny’s case more than the doomists, wouldn’t it?

@13, ah, you meant “investment banking” not “banking”. Perhaps you’d’ve done well to say so.

Pretend banker troll “I am an investment banker in London and when I work on a deal involving a French or German client it is with teams of French and German bankers who are ALL based in London. Only the end client (not a bank) is on the continent. And all the fees go to the UK….or at least they did…….”

Dear Penthouse, there is a woman at work who I am strangely attracted to, I can’t stop fantasying about her……..

20 – well, I dunno. Gildas was pretty much spot on wasn’t he? I mean lets face it, a downgrade of Britain’s credit rating was more or less the least of their worries in the sixth century.

And on the more serious point. No, we are not doomed DOOMED I TELL EE! But on the other hand, even mini-dooms related to the cost of borrowing can be quite a problem when we’re all borrowing quite so much.

This time the UK doomsayers might just happen to be right – some economies do fail every decade. In 1979 (when the last Labour government ran out of money) the North Sea Oil was just starting to flow, we had a youthful population and we had a tiny deficit relative to now. This was followed by the big bang in the City and its resurgence as a global financial centre. Our situation now is incomparably worse and all trends for the future from our rapidly retiring baby-boomers, gigantic deficit, lack of natural resources and dearth of manufacturing industry are big problems that take several years to being to turn around.

Dont listen to what us Brits have to say, listen to internation investors and economists (particularly as we are now completely dependent on international investors to fund us each month). They are universally worried and pessimistic about our prospects. They are not sure if a Gilts or Sterling crisis hits us this year or next – maybe not at all. But they are all reducing their exposure to the UK above all others.

See the below article from Soros. Love him or hate him, this guy has a better record than anyone at knowing when economies and currencies are vulnerable. And yet Brown is happy to push out financial services to bolster the Labour core vote…..truly shameful……And do you think the Swiss are stupid? My wife was in Geneva earlier this week…the mood was incredible, new schools and shops are opening, tax revenues are pouring in and retailers are doing fantastic business as the bankers and hedgies relocate and take their money with them….you really think it is they who are making the mistake and not us do you? It seems clear to me who is losing out here

By Tom Cahill
Dec. 9 (Bloomberg) — Billionaire investor George Soros,
who helped push the U.K. out of the European Exchange Rate
Mechanism in 1992, said France and Germany would like to see
London’s financial-services industry “sink.”
“There is thinking in continental Europe that would like
to rein in London and see London sink,” Soros, 79, said today
at a conference organized by the London School of Economics.
“There is this Franco-German alliance, I nearly said
conspiracy, an alliance or common ground.”

26. astateofdenmark

You can sell anything for the right price. By stating that the current level of borrowing is no problem and can continue, you are effectively saying that QE will continue in perpuity.

This, when the Darling forecast of RPI going from negative to +3% in the next 12 months is incredibly complacent.

We’re printing money to buy our own debt. How is that not broke?

Erm, because we’re not in fucking Robert Mugabe territory? We print money all the time. It’s just a matter of how much.

I’m sure you’ll like Citi’s conclusion:

I’m sorry – we are talking about the same Citibank which, until recently, was going to go bust and take down half the financial system with it right?

I only say that because if you’re going to offer some evidence to support your claim from right-wing idiots or defunct banks, then there’s a reason why I won’t take that shit seriously.

I know that Sunny and Labour generally are pretty unoriginal, but is in fact the oldest talking point they’ve found?

I suggest you read Iain Dale’s blog – your favourite tory – who was until recently railing against anyone who talked down the UK economy.

Our Prime Minister’s behaviour is the most treacherous and shameful I have ever observed in any of our leading politicians.

Unlike the poor bankers obviously. We should weep for the hardships they’ve had to go through… right?

Oh and no surprise at all to see Guido sucking up to Tory economic rubbish.

So printing money to buy our own debt is OK? Presumably the rising stock market and rising house prices are also a sign of our prosperity. We have low interest rates due to Gordo’s magnificant economic stewardship. All bankers are devil worshipers who wreaked havoc on the economy due to their own greed, nothing for lying politicians or over-geared households to take responsibility for.

You could go far, next Labour chancellor or something. Just don’t hold your breath.

29. astateofdenmark

Sunny

You should have a look at what happened in Zimbabwe. Did they mean to create hyperinflation? Of course not.

They started QE to fill a short term gap. Short term becomes medium term. Hyperinflation followed.

Now we are in a much stronger position, by virtue of our economy, history and reputation. Yet, at some point QE has to stop. When it does, spending has to go down or taxes up. Lets say the government will only have to find 30 billion as I’m feeling generous. That’s a near 50% increase of VAT. A one third increase in Income tax. Tripling of corporation taxes. Ten times what is taken in CGT. The cost of a High Speed rail line covering the entire country.

That is the scale of the deficit. Wishing it away, shouting at posters and linking to Richard Murphy of all people doesn’t change it.

“Our Prime Minister’s behaviour is the most treacherous and shameful I have ever observed in any of our leading politicians. ”

Well that must mean you are about 5 years old then.

Quite right Sally. His is only the most treacherous and shameful behaviour since the last Labour Prime Minister.

@astateofdenmark I think that’s reduction ad Mugabeum and the discussion now has to end…

… or not. There’s very little comparison between the two. For example Zimbabwe printed money to meet shortfalls in pay whereas QE has been worldwide effort to provide liquidity in the face of a banking collapse and has propped up asset prices in an otherwise extremely hostile market.

Moreover, the UK is still the world’s 8th largest manufacturer and its economy is far more advanced than Zimbabwe’s in nearly all ways. Its tax base is much larger and there have so far been no large scale expropriations of white owned farms. The British state still has credibility and is still AAA rated.

You may as well get it over with and declare we’re months away from adopting the Forint.

@28: “So printing money to buy our own debt is OK?”

Try this simple guide to Quantitative Easing (QE) by the BBC:
http://news.bbc.co.uk/1/hi/business/7924506.stm

With no possibility for the Bank of England to cut interest rates below the floor of 0.5%, the motivation for QE was to prevent any slide into deflation (falling prices) by injecting more money into the financial system thereby enabling the banks to lend more to individuals and to business. In fact, the banks have not been increasing their lending to business:

“As official figures show lending to businesses is continuing to fall, the country’s largest companies are bypassing the banks and issuing corporate bonds in record volumes to get funds.”
http://www.guardian.co.uk/business/2009/nov/09/small-business-credit-problems

Additional lending to individuals has been very modest compared with the £200bn of QE which the Bank is currently committed to applying through to February next year. For the present, no decision has been made to increase QE beyond current commitments.

The risk of deflation seems to have been averted but QE has done little to nothing to boost bank lending. Instead, the banks appear to be adding the extra cash in the system to holdings of reserves – which carries a potential danger of a future surge in bank lending after the economy is definitely growing again. That is why the authorities need to consider a policy option of counter-cyclical variations in banking reserves.

Btw “European Central Bank falls into line and embraces quantitative easing”
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5292781/European-Central-Bank-falls-into-line-and-embraces-quantitative-easing.html

34. astateofdenmark

32

No, it’s a warning. Of course we’re nothing like Zimbabwe, which I think I mentioned, for a start they don’t have our tax base. Nor the Bank of England.

Point is QE has to stop at some point. When it does, the budget has to balanced. That difference is the structural deficit. I was kind and put it at 30 billion. Others put it at somewhere north of 60 billion.

How will this structural deficit be closed? Taxes or spending? We’re not talking small beer. The defence cuts on C4 news suggests parts of the government want to quietly get on with it.

BTW, the reason I chose 30 billion, is that was the deficit Brown was running in the Boom.

When are the tory trolls going to tell us where they will cut about 100 billion of spending.

Until they do so please piss off because you just copying your lying tory friends who also won’t answer the question. If you won’t tell us, then you can’t bleat on about how important it is.

Thanks in advance.

36. astateofdenmark

35

When will you tell us how you’re going to close the structural deficit. Choose your own figure. Until you do, please piss off, as you’re in government the onus is, I’m afraid, on you.

TIA

I recognised a few of the acronyms used in previous posts and I’m smart enough not to go to war against those who use them. I’ll just pick up on Sunny’s remark about Tories downplaying the UK economy.

One of the few things that I think that I understand about economic trading is “confidence”. If you are selling shares in your company, the buyers have to believe that you are going to be in the game for a while and earn a bit of profit, or at least maintain value. If you want to buy a company, you slag off the management in order to convince share owners to back your proposition (to maintain value) or to sell shares at a lower price. When this thing called the market has no confidence in you, your business is either doomed or a phoenix project.

So if you really, really believe that you are going to be the next Chancellor of the Exchequer, does it make sense to defecate on the UK economy that you are going to pick up next year? After you have told lenders that the UK is a basket case, how are you going to get into their pockets, particularly given that you have no record of running anything?

@36: “When will you tell us how you’re going to close the structural deficit”

According to this news report in the Guardian about the IFS’s assessment of Darling’s Pre-Budget Report:

“Labour’s boost to public services spending since 2001 ‘will be wiped out by cuts’ says IFS”
http://www.guardian.co.uk/business/2009/dec/10/pre-budget-report-institute-fiscal-studies

I take what the IFS says very seriously.

When will you tell us how you’re going to close the structural deficit. Choose your own figure. Until you do, please piss off, as you’re in government the onus is, I’m afraid, on you.

TIA

But you are the ones getting your knickers in a twist. So you must tell us how you are going to do it. Your beloved Tory party is too dishonest to tell us so so answer the question brownshirt or fuck off.

40. astateofdenmark

38

Cheers. So Labour are going to deal with the structural deficit with a very severe contraction in departmental spending. I look forward to the LibCon blogs slating Labour for savage cuts.

41. astateofdenmark

39

See 38. Labour are already on it.

“One of the few things that I think that I understand about economic trading is “confidence”. If you are selling shares in your company, the buyers have to believe that you are going to be in the game for a while and earn a bit of profit, or at least maintain value. ”

Yes, that system worked so well with banks. Just shows you can never believe anyone.

In some respects, not too much has changed in financial markets over the last 300 years:

“The prize must surely go to the unknown soul who started ‘A Company for carrying on undertaking of great advantage, but nobody knows what it is.’ The prospectus promised unheard of rewards. At nine o’clock in the morning, when the subscription books opened, crowds of people from all walks of life practically beat down the door in an effort to subscribe. Within five hours a thousand investors handed over their money for shares in the company. Not being greedy himself, the promoter promptly closed up shop and set off for the Continent. He was never heard of again.”

Burton Malkiel on the South Sea Bubble in the London stockmarket of 1720 in: A Random Walk Down Wall Street.

For all that is said about protecting the NHS from spending cuts:

“NHS hospitals are to face a four-year spending squeeze in an attempt to drive up their productivity”
http://www.ft.com/cms/s/0/2c0383d2-e5f5-11de-b5d7-00144feab49a.html

So printing money to buy our own debt is OK?

I think you must have missed the bit in the post where the credit ratings agencies (though admittedly they are useless fuckwits as well for missing the financial crisis) say the economy is fine.

When will you tell us how you’re going to close the structural deficit. Choose your own figure

By growing the economy. Only an economics idiot like George Osborne would assume tax receipts are going to remain the same over the next ten years.

I do concede the point the structural deficit has to be closed. During boom years we should have run more of a surplus… but we did bring our national debt down so frankly the Tories have little to complain about that.

The points I’m making relate to what is going on now and the points that the Tories are making now.

Compare and contrast:

“Labour has promised to halve the deficit [of £178 bn] in four years. Mr Osborne thinks that that is nowhere near fast enough.”
http://www.timesonline.co.uk/tol/news/politics/article6953950.ece

The big question is what effect would a faster cut in the deficit through spending cuts have upon GDP and employment?

George Osborne is conspicuously vague on specifics.

As reported, he is not promising to abolish the top 50p tax rate – and he takes a “similarly pragmatic view” of a windfall tax on bankers’ bonuses. He says he “will do everything” he can to avoid the rise in NI contributions. The previous commiment to abolition of inheritance will be delayed for two years. But he likes big projects, such as Crossrail.

we did bring our national debt down so frankly the Tories have little to complain about that.

Ahh, that old chestnut. Let’s just see (from http://www.independent.co.uk/news/election-97-labour-to-toe-tory-line-on-economy-1265050.html) – other figures come from the PBR

Labour government will be sticking to the Conservatives’ spending plans […] for the next three years

So, although Labour took over in 1997 with debt at 42.5% GDP at end of 1996-97, they followed Tory spending plans for three years, meaning the debt at the time Labour’s spending plans took over was 35.6% GDP (end of 1999-00).

By 2001-02 this had come down to 29.7% GDP (so, some success there). By March 2007 though, net debt was up to 36% GDP – up 0.4% since they came off Conservative spending plans and down only 6.5% in the 10 years since they took over despite a decade of growth averaging 3% per year – and is forecast to be 55.6% at the end of this year.

2001-02 was the last year our national debt went down as a % of GDP. It’s not a record of “bringing down debt” to be proud of.

Oh gawd. Sunny’s trying to do economics, bless him.

RUN FOR THE HILLS.

@45:

The credit ratings agencies have said nothing of the sort, but as an economic illiterate leftie, I’m not sure I’d expect you to be able to comprehend even if they have.

Moody’s best guess is that under Darling’s catastrophically-received PBR, Britain’s AAA rating would be at risk circa 2012-2013. Fortunately, the markets are pricing in a Labour defeat, so they’re not spooked yet.

I don’t know how much wrong-headed this article could get.

This is Elmer Fudd economics for the mass denial movement that is the Labour Party. The PBR was an act of mass delusion, no wonder Labour MPs didn’t stick around for the reality check; it was too obvious.

Face it, Labour hasn’t just screwed up for a couple of years, Labour has surpassed Callaghan and Healey levels of sheer economic idiocy. A screw-up that’ll take a decade of pain to sort out.

51. Dick the Prick

Scottish independence and we’ll never get Labour ever ever again – and the jocks can get out of England’s government for keeps; blessed dream!

“I’m sorry – we are talking about the same Citibank which, until recently, was going to go bust and take down half the financial system with it right?”

You know, I probably wouldn’t have used this rhetorical point. Not if I were one of those who had railed about how the ratings agencies had entirely fucked up analysing the CDOs. And was then using the judegment of said rating agency to say that everything was just hunky dory with the UK’s finances.

Anyway, as ever with Murphy it’s useful to go to his source and actually see what he’s left out of what he did say:

http://uk.reuters.com/article/idUKTRE5BA0JV20091211

That’s Murphy’s source.

“The top sovereign credit ratings of Britain and the United States are not under threat of a downgrade right now, but a worst case scenario foresees a cut by 2013,”

Oh, they do see a cut, depends upon what comes to pass.

“”Only the UK and the U.S. are classified as ‘resilient,’ rather than ‘resistant.’ Their resiliency will be tested in the next couple of years, but for now they have a high degree of financeability and debt affordability,””

We’re OK for now but what’ll happen in a couple of years?

“”The rise in debt and higher interest costs could test the ratings under some scenarios, but not right away.””

Depends upon how quickly that deficit is closed and what happens to interest rates in the meantime.

“The analysts said they did not expect either country to lose its “Aaa” rating but two risks to this view are how quickly interest rates rise over the next few years and debt financeability.”

There are indeed risks to the Aaa rating: depends upon what happens to interest rates and who is willing to buy the debt.

Compare and contrast what the article Murphy refers to says with what Murphy says it says.

There’s more than just a subtle difference there really, isn’t there?

Tim W: In a couple of years the economy will also be in much better shape. So trying to scare-monger about that, when you know economic conditions will improve, is a mug’s game.

As for your jibe about ratings agencies, I said this above: though admittedly they are useless fuckwits as well for missing the financial crisis

It would help if you read what I wrote.

As for the ‘ZaNuLieBore PM should be impeached’ people above – *yawn*

“Labour hasn’t just screwed up for a couple of years, Labour has surpassed Callaghan and Healey levels of sheer economic idiocy. A screw-up that’ll take a decade of pain to sort out.”

C’mon. Instead of dogma from predictable sources, try the IFS instead.

For an assessment of the state of public finances before the full onset of the recession, readers may be interested in this from the IFS a year ago:

The UK Public Finances: ready for the recession?
http://www.ifs.org.uk/bns/bn79.pdf

The initial reactions of the IFS to Darling’s Pre-Budget Report on 9 December:
http://www.ifs.org.uk/pr/pbr09.pdf

Detailed IFS briefing on the Pre-Budget Report on 10 December:
http://www.ifs.org.uk/projects/314

I can vividly recall Nigel Lawson’s screw up as Chancellor in managing the economy at the end of the 1980s – an unsustainable boom, a house-price bubble, and resurgent inflation as the result of which the Pound was forced out of the ERM in September 1992. It took until the final quarter of 1995 for Britain’s standardised (ILO) unemployment rate to fall below that of France, Germany or Italy.

For all Mrs T’s tax-cutting agenda, tax revenues as a percentage of Britain’s GDP were much the same just before the 1992 election as they had been before the election in May 1979 which brought in Mrs T as PM.

“In a couple of years the economy will also be in much better shape.”

No. That’s the thing we’re trying to work out, see?

We cannot assume that the economy is going to be fine and dandy when what we’re trying to work out is whether the economy will be fine and dandy. And part of this working out is trying to figure out what is going to happen to debt and interest rates: thus what might happen to the credit rating.

Still waiting for the trolls to tell us how they are going to cut the debt.

Now of course I realise that they only come on here after they have been to troll central for their talking points, and at the moment troll central is not saying how they will cut the debt. So we understand that the poor little darlings are a little lost without guidance from their tory masters. But they must answer the question if they want to be taken seriously.

Their great white dope Osborne says cutting the debt in half in 4 years is not good enough, so where are they going to cut spending? Bearing in mind they are going to give away huge tax cuts in inheritance and share trading, and they are going to spend billions more on defence. Or at least one can only assume that they are going to spend more on defence seeing how many tory armchair generals appear on my TV every night saying we must give the troops more equipment.

Show us the money trolls or STFU.

Sally – The usual suspects – single mothers, quangos, local government, social services, taxpayer funded police translators, and of course the army of desk polishers in Whitehall, – will bear the brunt of any cuts. To that I personally would and an end to funding for Scotland and Wales, the end of all subsidies for “the arts” and the introduction of a punitive road tax for cyclists.

One thing I don’t understand is why the dodgy dictators benevolent fund, sorry the overseas aid budget, is sacrosanct, and why we signed up to giving yet more money away the day after the PBS

My answer in no way implies that I consider myself to be a “troll” BTW.

“To that I personally would and an end to funding for Scotland and Wales”

Oh dear, not that old chestnut. The South East of England gets far higher per person govt spending than Wales or Scotland.

Mind, it is good to see how angry Wales and Scotland have made the English tory. GOOD. You deserve a taste of your own medicine, and as usual the Right can dish it out but not very good at taking it. You thought it was fine to use Scotland as some Thatcher test tube to try out your loony theories . So it is good that Little tory Englanders have got really angry when they have been govt by Scots. Maybe it will encourage English Tories to be a bit more humble in future. (I doubt it though, arrogance is the tory middle name.)

Oh, as for your other idea. Small beer. You will have to do much better than that if you are going to half the debt in less than 4 years.

This ‘trolls’ main method would be pro-growth tax cuts (i.e. comparing the £175bn deficit against the approx. £5bn it would cost to cut corporation tax to 20% it seems like small change) and a cash terms freeze in departmental expenditure for however many years it takes to drive efficiency (a cash terms freeze is equivalent to a 2.25% cut next year, and would save nearly £7bn against PBR projections).

Of course, I don’t make Tory policy so you can’t exactly attack them on that – but I think any normal company is able to meet small cost challenges (2% is a very small cost challenge) and the scale of waste in government means this level of cut should be easy to meet without affecting service (if it results in job losses then so be it – it is NOT the role of the state to provide employment).

“(if it results in job losses then so be it – it is NOT the role of the state to provide employment).”

Shorter troll ……I GOT MINE, FUCK YOU.

And they tell me the tory party has changed. I think not.

sally – you must have missed the part where I said “I don’t make Tory policy”. At no point do I claim to be either a Tory voice or in any way representative of the Conservative party. These are my views.

If you must know the company I work for is having a re-organisation and around 10% of the jobs at my level are going because, frankly, they don’t need them any more – so no, I haven’t “got mine”. I just work in the real world where cost challenges mean, shock horror, we can’t just employ people for the hell of it.

In terms of the cost to the state, you could give the people you get rid of very good settlements. Job loss doesn’t have to mean ‘being sacked’. Voluntary redundancy could be brought in, along with recruitment freezes to allow natural wastage to reduce the number of state employees. You’d also need a government that was willing to reduce the amount of work that needs to be done by the state (‘cutting bureaucracy’ – so that the less work that needs doing the fewer people you need to do it).

We ought to be implementing as many non-compulsory methods of reducing public sector employee headcount as we can early on.

@58: “The South East of England gets far higher per person govt spending than Wales or Scotland.”

C’mon. London and the South East regions are net contributors to the national exchequer while Scotland and Wales are net recipients:
http://www.thisislondon.co.uk/news/article-23416323-details/The+REAL+north-south+divide:+South-East+is+'bankrolling'+Britain/article.do

And:

http://www.oef.com/free/pdfs/finance_report(oct07).pdf

It is often overlooked that only 18% of the civil service work in London and only 12% in central London.

Even the Guardian starting to realise the downward spiral Brown and Darling have us in……..

http://www.guardian.co.uk/commentisfree/2009/dec/13/andrew-rawnsley-budget-brown-cameron

“Even the Guardian starting to realise . . ”

More specifically, Andrew Rawnsley is saying Brown and Darling are leading . .

Of course, the fact is that the recent recession has afflicted virtually all the leading OECD economies, including Japan, several of which have sustained greater GDP losses than Britain. To attribute all that to Brown and Darling isn’t credible to any but the most ignorant and gullible readers of the Mail and Telegraph or the dedicated followers of Philip Hammond, the shadow Treasury secretary.

Some of us can vividly recall Nigel Lawson’s screw up as Chancellor in managing the British economy at the end of the 1980s – an unsustainable boom, a house-price bubble, with resurgent inflation and negative equity after the house-price bubble burst, as the result of which the Pound was forced out of the ERM in September 1992. It took until the final quarter of 1995 for Britain’s standardised (ILO) unemployment rate to fall below that of France, Germany or Italy.

Well done Nigel.

@ 58 Sally – Firstly I’m not “English” I was born here and it’s part of my cultural DNA, but it’s not what I put on those “where are you from” tick boxes.
Secondly I’m not a tory. I’ve only ever voted labour. As you guys seem so intent on labelling everyone I’ve picked the label libertarian, but it might just as well be unreconstructed marxist feminist (4th wave) for all the difference it makes.

I don’t really follow the point of the rest of the post, yes the tories did try out the poll tax on the scots, largely I’d imagine beause it’s a sparsely poppulated quasi automonmous administrative region with very low propoerty values, so why not. The tories did at least admit the poll tax was a mistake (something new labour seem congentially incapable of doing).
Now that Scotland has its own parliament would you care to explain why the rest of the country should subsidise free higher education for them, and free prescriptions for wales ?

@64 Bob B

But unlike other countries, the hangover from this recession will be with us for far longer. To extend the Tories ‘fixing the roof’ analogy, where most other countries used the decade of sunshine to repair the holes in their roof whereas our government chose to buy lavish new carpets and decorations under the mistaken idea that it would never rain again.

Then along came a storm the likes of which no-one could have foreseen. Widespread floods affected all the houses. But all those who fixed their roof have seen only the contents of the bottom floor ruined where we have had our entire home soaked from top to bottom.

While the culpability of our government is the flooding downstairs is open to debate, the destruction that happened upstairs is absolutely down to them.

where most other countries used the decade of sunshine to repair the holes in their roof

*bangs head against wall in absolute disbelief*

But our national debt in 2008 *was lower than that of most of our neighbours*. That’s the whole bloody point, and the reason why the high deficit for 2010 and even 2011 isn’t a vast concern – even at current deficit levels, it’s not until 2012 that UK public *debt* would reach the kind of level where refinancing would be a problem.

67

It’s not about debt, it’s about the deficit. In my personal circumstances I have low debt but if I started spending lots more than I earn I’m really going to be in trouble should I lose my job, whereas if I stick to spending less than I earn I can make some some savings up but more importantly I’m able to cope better with a drop in income.

The fact that we’re even talking about the UK having potential issues in 2-3 years time shows the hole we’re in. This is the UK, one of the largest economies in the world. We shouldn’t ever be in a situation where people doubt our ability to repay our debts yet here we are with very legitimate concerns that if something isn’t done we’re going to have serious problems.

Every country has suffered because of the recession, but ours is one of only a handful being talk about for possible downgrading – doesn’t that tell you that our problems are not exclusively down to the recession?

@66: “But unlike other countries, the hangover from this recession will be with us for far longer.”

As has been pointed out before: Britain has a relatively large financial services (intermediation) sector compared with almost all other affluent economies.

Some working in financial services like to boast about that but the rest of us will have to pay for the consequences of flawed banking practices.

In 2007, the Financial Services Skills Council reported that “Financial services constitutes about 7 percent of total output (GDP)” – try Figure 2 in:
http://www.fssc.org.uk/post16_selcom_response_jan_2007.pdf

This reports that Financial Services together with Business Services contribute 31.2% of Britain’s GDP:
http://news.bbc.co.uk/1/hi/7789844.stm

For an independent assessment of the state of Britain’s public finances before the full onset of the current recession, readers may be interested in this from the IFS a year ago:

The UK Public Finances: ready for the recession?
http://www.ifs.org.uk/bns/bn79.pdf

So far, and it is only so far, this recession has been nothing like as bad as the Tory ones of the early 80s. When huge sways of British business was sacrificed at the alter of moneyrism.

But the trolls are so up their own arses that they won’t tell you that. They live in a fantasy world where only tories should be allowed to govern. They see any other govt as un British. Tories always believe that they have a divine right to govern.

@70: “When huge sways of British business was sacrificed at the alter of moneyrism.”

The fact is that “monetarism” was formally abandoned as a government policy in the autumn of 1985 – not least because it turned out to be impossible to keep the growth in the money supply within the official targets.

The IMF produced an illuminating obituary on “monetarism” in 1996:

” …instability of monetary demand, especially in the context of supply shocks and declines in potential output growth, complicated the task of monetary authorities. As a result, during the 1980s most central banks – with some notable exceptions – either abandoned or downplayed the role of monetary targets.”
IMF World Economic Outlook, October 1996, p.106.

But it would be wrong to blame all problems of the British economy in the early 1980s on monetarism. Because of North Sea oil, Britain became a net export of oil at a time of relatively high world oil prices – which eventually halved over about 12 months during 1985/6.

As a result of becoming a net oil exporter, the value of the Pound shot up in foreign exchange markets and that made much of British industry uncompetitive against foreign competition when it was already weak because of the 1970s – productivity in several then important sectors, such as the motor industry, steel and coal mining, actualy declined on trend through the 1970s.

Btw the Bundesbank – the “independent” central bank of west Germany – had almost consistently applied a monetarist policy throughout and with much comparative success in controlling inflation there. The big mistake here was in thinking the German model could be applied here when Britain’s financial system was being deregulated.

After monetarism had been abandoned in late 1985, Nigel Lawson, as Chancellor, compounded problems by keeping interest rates too low (!) for too long to maintain a more competitive exchange rate so Britain could enter the European Exchange Rate Mechanism, which we did in October 1990, after Lawson had resigned as Chancellor. The outcome of that was an unsustainable boom, a house-price bubble and resurgent inflation – see @64 above.

70 – sally

I like it – the recession in the 80s and 90s were Tory recessions but this one has nothing at all to do with the governing party… hmmmmmm, ok then.

“But the trolls are so up their own arses that they won’t tell you that. They live in a fantasy world where only tories should be allowed to govern. They see any other govt as un British. Tories always believe that they have a divine right to govern.”

Excellent accusing the Tories of arrogance whilst presenting and arrogant generalisation of them. Can’t beat a bit of hypocrisy.

As it happens I have no problem with the idea of a Labour government. What I do have a problem with is a party taking over an economy with 42% debt, a low and reducing deficit and strong growth and turning it into one with 55% debt (as forecast for end of 09-10 in the PBR) and a 12% GDP deficit that only comes down if you get the heroic levels of growth forecast by a party that has long been governing in the party, rather than the national, interest. I do trust you can see the difference there.

How come the other leading affluent OECD economies, including Japan, have all been through deep recessions with several losing more GDP than Britain?

Does anyone this side of sanity seriously suppose all that is the fault of the Labour government?

For independent assessments of the Pre-Budget Report and the background, try reading the IFS reports:
http://www.ifs.org.uk/projects/314

The decline in British industry has many twists . One aspect which is ignored is the ability to produce a better educated workforce and move into higher value manufacturing. Higher value manufacturing uses fewer but better educated and trained employees. The unskilled and semi-skilled unions refused to reduce the numbers of unskilled and semi-skilled employed without which there was no point in investing in more advanced technology. Often a significant cost of investing in new technology is the amount spent on training. Unskilled and semi-skilled unions by kept the employment high and reduced the differential with skilled personnel ,especially those who has responsibilities, such as charge hands and foremen. Consequently many skilled crafstmen emigrated in the 50s to 80s.

Salaries for car production workers are higher in Germany than the UK but because they produce higher value products and the productivity is higher, it is worth investing in new technology to create advanced cars .

If the print unions had kept a control on those who could be employed, costs of production would be kept high and it would not have have been worthwhile to invest in the new technology which has reduced the costs of producing newspapers. The print unions failed to realise the new computer controlled printing operations would need electricians and control technicians, not those with compositing skills. The creation of containers reduced the need for dockers. The transfer away from coal to oil and natural gas has reduced the need for colliers and the cretaion of much larger tankers. A 0.5M tonne oil tanker can carry the same amount of energy has tens of colliers probably with the same number of crew. Consequently the number of British seamen and dockyard workers involved with the transport for fuel has declined. The strikes in the shipyards in the 60s and 70s meant when supertankers were first designed , they were built in Japan and Korea and not the UK .

Labour has totally ignored how the development of transistors, silicon chips and PCs has created new industries and greatly reduced the costs of production and the numb ers of unskilled and semi-skilled people employed. Even farming with the development of ever larger tractors has seen reduction in employment over the last 30 years. The development of off-site fabrication with ever larger parts being assembled on construction sites could reduce the number of workers in this sector.

Coal and steel were hampered by overmanning, especially with regard to unskilled and semi-skilled positions, driving up costs. What is left of the British steel industry is competitive. The development of large mines in the USA meant they were able to produce coal cheaply. The British coal mines
were deeper than many others and had other complication which drove up production costs. The development gas fired power stations also reduced the need for coal.

The Left need to realise technology is wave which we need to learn to ride. The Left cannot stop technological evolution, all that can be done is to ensure we have the best education, trained, innovative and agile workforce which can either initiate development or adapt to it faster than any other country. Rupert Murdoch has been far better at harnessing technological evolution for his benefit than the Left in Britain and working class have suffered accordingly.

“The decline in British industry has many twists .”

Excuse me, but what decline in British Industry is this?

The Index of Production ( the measurement of output from industry) was at 100 in 2005 and at 80 or so in the 80s. Given that manufacturing output has gone up it’s difficult to say that there’s been a decline really.

A decline in manufacturing employment, yes, a decline in manufacturing as a percentage of the economy, yes, but out put has still been going up.

By Andrew MacAskill
Dec. 14 (Bloomberg) — London will be relegated into third place in the rankings of global financial centers as growth in China propels Shanghai to second place behind New York in the next decade, according to law firm Eversheds LLP.
Only 22 percent of London’s business leaders said they are optimistic about the outlook for economic growth, compared with
91 percent in Shanghai, Eversheds said in a report titled ‘Boom or Gloom?’ published today. Overall, 65 percent of business leaders around the world said they are more confident about economic growth than they were at the start of the year.

Where Gordon Brown, Blair and their advisers, such as Ed Balls, are (at least partly) to blame for our present predicament – as well as the Bush administration – is by buying into all that garbage about the self-correcting power of free markets. Naturally, they were egged on by greedy bankers, the Conservatives and their friends and allies on the otherside of the Atlantic.

Just in case you think I’ve got this all wrong, try Alan Greenspan’s testimony on 24 October 2008 to the US House of Representatives Oversight Committee:

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
http://online.wsj.com/article/SB122476545437862295.html

So much for all that cant we’ve heard about the fiduciary responsibilities of the directors of banks and about what’s necessary to maintain the competitiveness of banks.

Btw for years I’ve been posting to blogs saying the claims being made on behalf of free markets are rubbish. Just for starters, the efficient functioning of markets requires a whole infrastructure of laws and regulations and law enforcement agencies to protect property rights. The sensible debate is about what laws, regulations and methods of law enforcement agencies are the most conducive to well functioning economies and to economic growth. We don’t get too much of that from the champions of free markets, do we?

Interesting report today from the Press Association:

Tory lead ‘falls to single figures’
(UKPA) – 14 December 2009
http://www.google.com/hostednews/ukpress/article/ALeqM5hB92zi98c495lBoMPeevWEgNLsZw


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