Dec 10 2009
The predictable is happening. Yesterday afternoon the price of UK government debt started to fall. Today it has plunged. As the price falls so the interest rate the government has to pay for future borrowings goes up. Yesterday’s foolish insouciance of a Pre Budget Report comes with a high price.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
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It gives me no satisfaction whatsoever to have got this one right. This was not just on the basis of one school of economic thought or another, however you looked at it, this was a major risk, and all too likely on several counts. Let us just hope it does not become too sticky, or we are left without any strategy at all.
Stuart Fairney Reply:
December 10th, 2009 at 8:18 pm
Yes indeed, as long as you can handle the time theft, for a great analysis of the whole global situation, check out Austrian economics here
http://www.youtube.com/user/misesmedia
from the Ludwig von Mises Institute. It is the second internet site I have found talking sanity against the mainstream.
Talking of canine breakfasts, the pre-budget statement was basically “the situation is worse than we thought – and we are going to do nothing about it.”
As for the token gestures that Darling made:
(1) the solution to unemployment is increasing the tax on jobs. and
(2) the solution to the weakness of the banking sector is driving it offshore
I feel an impersonation of Private Fraser from Dad’s Army coming on….
No! No! I cannot believe it! Help! (Sarcastic laugh…)
Let me remind people what happens when a country falls into the debt trap.
This afternoon, at dusk, I was walking along our village road when two really scruffy men appeared out of the cold, wet gloom looking at the comfy, warm houses. Each was wearing dark clothes. One house had no lights on. The larger of the two men went to the front door, while the other looked round the back to see if he could get through the hedge…….
(Migrants-ed), driven over here by sheer poverty, these men had nothing to eat and they were now desperate. (Migrants-ed) are already being imprisoned right here in the Fens for stealing small quantities of food from ASDA. I could introduce you to these people.
Us next – unless there is a radical change.
Hells Teeth. The Confuscian curse “may you get what you wish for” seems to be coming true faster than my comment yesterday could have predicted. This is going to be interesting – and painful for us all. But it may just winkle this useless and incompetent PM and his hopeless government out of power in double quick time. Oh I do so hope so. Sorting out their mess cannot wait a day longer. I just hope, if you get in, your lot, Mr R, are up to it. The signs, with a few notable exceptions, are not universally good.
Does any one else think this is all deliberate to Bring this once Great and sovereign Nation and people, finally to its Knees.
alan jutson Reply:
December 11th, 2009 at 1:02 pm
No Adrian its just the old Socialist dream which they have called NEW LABOUR, their aim is to try to make everyone equal.
But in reality it means we will all have little to show for it in the end, as it is inevitably a leveling down process.
Its exactly the same as the Communism ideal in days past, its all about State Control.
“You lot stay were you are, and do as you are told”.
“The State knows best, and us in charge can have and do what we like, at your expense”.
It all ends in tears in the end, just as it will this time. Its just how far it goes down the line before the people revolt, or in our case, vote them out.
Mark Parker Reply:
December 11th, 2009 at 2:07 pm
No, New Labour’s aim was merely to keep themselves in power for as long as possible by spraying their client groups with money and thus buying their votes. To do this they had to push every liability as far into the future as possible. So they borrowed an amount they knew they would never pay back, and by keeping interest rates too low they persuaded (most of) us to borrow too much as well.
I’m sure they know it would end in tears, and now it has.
But they got 13 years of ministerial pay, pension entitlements, expenses, cars, perks, etc out of it. I’m sure they believe wrecking our economy was a price well worth paying. And indeed continuing to wreck the economy by not addressing the problems yet will secure some Labour MPs’ seats at the GE – another price worth paying, especially since the blame will transfer rapidly to a new Tory government.
Steve Whitfield Reply:
December 13th, 2009 at 6:08 pm
Adrian,
It is all a deliberate act by a political ruling class that despise our ancient , history, culture and freedoms. The position we are in cannot be explained by incompetence alone.
GB must have a very deep hatred of England (as many Scots do sadly) to act as he does.
Socrato Reply:
December 16th, 2009 at 3:24 am
Adrian,
I am also very worried about this most important of questions and have stated it here before as well. Whilst not wanting to get into a web of conspiracy theories, one explanation which would fit is to weaken the country to such a position that we would have to go begging to join the Euro. Such a scenario could explain why the govt seems to ignore all reasoning and has done their very best to make bad decisions every step of the way and renege on basic economic responsibilities (through all economic seasons I might add). It is difficult to think that decision makers, not one, but a whole class of politicians and civil servants, just got it wrong, took their eye off the ball. Such a simultaneous failure at all levels, including the private sector, seems difficult to comprehend – as many people (myself included) were concerned for a long while before things started getting ugly. I can understand why the private sector would ignore fear and go for greed, but its not like civil servants or regulators would be rewarded for closing their eyes….what was the incentive for them to abandon prudence and embrace and encourage what was undoubtedly a bubble – anyone not able to recognise such a phenomenon should automatically be dismissed as incompetent….any organisation too…for it to happen to so many agencies at the same time, if we are to believe it was just that, a series of mistakes – surely begs the question about who is competent to run such affairs. JR states that the BoE should be the best organisation to conduct such affairs. I agree. However, to all those who argue that this was in fact a series of innocent mistakes – should acquaint themselves with government attempts at data manipulation ie excluding all inflationary items from inflation indicies. I mean anyone with any right mind could see this – many commented on it at the time, but precious little was done. Similarly, in the US the data on M3 (broad money) was stopped being released. All of these incidents point to administrations who knew and understood very well the game they were playing To the extent that they tried to ‘mask’ adverse affect of their policies – to me they understood the problem very well and the risks it entailed. To somehow claim they were caught broadsided runs counter to the facts. Now of course, Mr Brown may have laboured under his belief that he had abolished the business cycle – no more boom and bust’ – i mean he said it publicly (yet such an incompetent has achieved promotion from his clearly overelevated position at the time of those remarks). I find it insulting to hear such a featherweight now tell me why i must pony up for his solutions – which are again clearly economic absurdity of the highest order. But what about all the other institutions and agencies involved. At the very least its a conspiracy of silence…this was echoed in the private sector – where people who questioned when the music may stop – were less favoured or altogether neutralised compared employees who ran with the music. Again, I understand the private sector incentives, but none of those incentives exist for those in the civil service. Politicians of course in the main wouldn’t want to rock the boat as long as their constituents home values rose along with stocks etc. and increasing public spend afforded by this *growth*. Still this represents a dereliction of duty on behalf of the collective political class in my opinion.
Im not sure who – or even how – top level strategic decisions and policy are formulated and implemented (it certainly isn’t done in Parliament anymore – or at least the democratic norms seem to have been abandoned as JR continues to inform us here). We know even less about shady backroom deals in the supranational arena – most importantly at the European level. Hannan was right when he villified the European parliament over Lisbon. He could see it was not democratic as any objective individual would. Which then begs the further question – why were we denied the vote Mr. Brown promised? He obviously felt it was in the nations best interest not to have one. This is coming from the man who ran scared from validating his own mandate. So I think there are tough questions to be asked….I don’t consider any of these issues wildly conspiratorial…they are simply facts which I haven’t seen asked or answered.
In a court of law, a profession I might add, known to many of the actors on the front bench, they would be expected to prove their innocence. In the weird and even weirder court of politics and public opinion it remains for the government to prove their ignorance.
The cases of Ireland and Greece-Spain-Italy are instructive. All are in the Euro and so don’t have the devaluation option. Ireland is the only one making a realistic attempt to stabilise its economy and its coming at the cost of drastic public expenditure cuts. Presumably smaller Euro countries – eg Greece – will be bailed out if need be by larger ones (highlighting a hitherto unrecognised liability for taxpayers in the Eurozone). We will not be – so the choice will be currency deprecation and higher interest rates + inflation or severe cuts in expenditure. The only possible long term remedy is the restoration of investor confidence to rebuild the tax base, which will require tax cuts, or at least an end to Labour’s endless political fiddling with the tax system. Its 1979 again.
Lindsay McDougall Reply:
December 12th, 2009 at 7:24 pm
It will be interesting to see when Germany’s tolerance of these fiscally incontinent Euro nations finally snaps.
So, the race is on. The General Election date will have to be announced soon. If they leave it too late much more nasty stuff will happen – and destroy any prospects they may have, even of a hung Parliament.
As Willem Buiter pointed out in the FT, the Fiscal Responsibility Bill is Newspeak straight from the Ministry of Truth. He regards the BoE as purchaser of first resort for gilts (at least while QE continues), and expects banks will be force fed when QE is halted, but after that, yields will start to rise sharply as foreigners and private individuals become the only possible buyers. He foresees a full scale gilts and sterling crisis, with gilts becoming unsaleable, given Darling/Brown’s budget. I agree.
The fact is that the BoE is effectively the sole net purchaser of gilts, using the printed money which funds government expenditure. Losses in the gilt market today ranged to over 2% of the capital value for long dated low coupon issues (including index linkers). The BoE’s losses on its purchased gilts under QE (some £166bn nominal) amounted to £1.96 billion between close of business yesterday and today (calculated from price data from DMO and BoE holdings as at COB on 8th December). Are we on the hook for these losses too? And how about the bond holdings of nationalised banks and our pension funds? What will these losses look like when real buyers have to be found for gilts?
And the real question… what happens when the music’s over?
Turn out the lights
“Carbon trading fraudsters may have accounted for in some European countries, up to 90pc of all market activity with criminals pocketing an estimated €5bn (£4.5bn) mainly in Britain, France, Spain, Denmark and Holland, according to Europol, the European law enforcement agency.” (Telegraph)
Hi JR,
The lunacy rolls on…I also watched the PBR and was stunned when the Chancellor just reduced the loss estimates from £50 bill to £10 bill…assuming away £40 bill as ‘the situation in markets has improved’. Tell that to the banks holding Dubai instruments or Greek paper or in fact investments in any number of countries (our own has got to be high up on any list) that threaten to kick-off the next and most vicious downturn. The govt have had 1 year now to reduce the size of bank balance sheets, yet the progress is far too little in terms of size and too relaxed on the timing eg 2013 for RBS. What this goes to show again, as with the Chancellor’s widely acknowledged, ‘wildly optimistic’ growth forecasts – is that he is wearing rose tinted specs – I mean is laughable really that he continues to get away with this sort of thing. Unfortunately, the Shadow Chancellor did and does not do enough in my view to discredit the Chancellor and his policies – especially given all the ammunition and past record. He has to really nail it…i have yet to see such a performance from him. However as feared – Labour have tried to add to their cohorts of paid for votebank by promises of more spending. Must we have a debt downgrade and sterling crisis before anything changes? I find this cynical attempt to ‘buy’ more votes absolutely staggering. Really I feel there should be much more incisive and effective questioning and criticism in the chamber. Just remember when Daniel Hannan tore Gordon Brown apart in the European chamber, it was a big hit on youtube etc. It resonated with peoples anger towards this administration. Conservative ratings improved after this. Since then, the passage of the Lisbon Treaty has happened, and all I read about is how DC has backtracked on his referendum commitment…clearly the biggest villain..who brought this upon us, without our promised mandate…seems to get off scot free. Why is this so? This is the sort of public ridiculing that the opposition should be constantly dishing out on this most dangerous bunch of political and financial terrorists. Its time to take the kid gloves off and go for some proper head-to-head. Can I also ask why you are not on the front bench?
Keep up the great work, yours appears to be the only voice of reason.
We now have two dysfunctional banks which wag and dominate the fate of their even more dysfunctional tail otherwise known as the Brown government.
I am beginning to wonder whether this reckless takeover of the banks will in an odd way force the government to bow their knee to the market. In fact I am certain that the day of financial reckoning for this utterly inept government is at hand.
But, is that day before or after the election. Again somewhat curiously perhaps I am more optimistic despite Brown and Darling’s gross negligence. Why? Because after the election we will get the cost cutting we need:-
either: because the IMF will force it onto a reluctant Labour minority government.
or: because a Tory government will have to do it to avoid IMF intervention.
Cold comfort perhaps but one way or the other it’s gonna’ happen.
You can’t buck the markets !!