It’s time for the two main parties to unveil their messages, draft their pledge cards and tell us their “narratives” for the election. Put simply, Labour are saying their storyline is “We saw you through the recession. Don’t let the Tories spoil it”, whilst the Conservatives are saying “We are in a huge mess of Labour’s making. The Conservatives will have to clear it up”.

Labour have come up with some slogan or high level phrase I cannot quite remember about fairness and justice. As far as I am concerned it is higher fares for all with Labour’s one size doesn’t fit all economic policy. The Conservatives have come up with “We can’t go on like this. It is time for a change”, and may be launching more of their headlines today and next week.

Beneath the headlines it has become fashionable to have a pledge card, with five or six specific promises or aims on it to “flesh out” the high level messages and the “narrative”. Mr Blair started all this for his successful 1997 campaign. Most people have forgotten the specifics, but may remember there were “modest” pledges to show Labour was now a moderate and sensible party. It is ironic that Labour’s biggest and most important pledge on those cards was “set tough rules for government spending and borrowing”, followed by “get 250,000 under 25 year olds off benefit and into work”. It all goes to show that some pledge cards are just for an election and not for the life of a government. Because they won, many in politicis today think you must have such pledges.

In 2005 Michael Howard lost. He ran the longest most disciplined and researched campaign the Conservatives had ever run. It revolved around five propositions, expressed in just ten words. I remember them so well, as for six months I did nothing else as a politician than try to find ways of getting them across memorably to audiences. They were “More police, controlled immigration, school discipline, cleaner hospitals, lower taxes”. If a strong simple message and complete party discipline won elecitons, we would have walked it. If saying what people wanted to hear won it, we should have won, as these were well researched propositions that were popular. So why didn’t they work?

Each one of these five had its different problems. “More police” just led Labour to say they had appointed more police, and would appoint more. It also left some voters apprehensive. If they had just been fined for doing 45 mph on an empty dual carriageway with a 40mph speed limit where they thought 50 was a more apppropriate limit they were not amused at the thought of more police with speed guns.

Cleaner hospitals invited people to ask “How?”. All three main parties said they wanted cleaner hospitals. It was difficult persuading people that any lack of hygiene was all Labour’s fault, and that the Conservatives would clean it up.

School discipline again was common ground with all parties claiming to favour it. There needed to be a convincing phrase as to how discipline would be improved with a change of government.

Lower taxes would have been very popular. The Shadow Cabinet only agreed a package of tax cuts late in the day on the eve of the election. Then the leadership delayed its publication, and changed it, announcing the new package after the election had started. It did not leave enough time to get over the three propositions within the package or even to put them in most personal candidate leaflets.

Controlled immigration was the one which generated most controversy. Labour seized on it and tried to make it a negative. Some to this day think it was a misjudgement to spend so much effort on it, taking away from other messages. Others think it was the one which did work, showing that you have to be controversial to get heard. The leadership did not seek to weight it more, but with Labour criticism it developed a life of its own.

Polling after the election showed that voters generally had not picked up on any of the propositions, other than immigration, where a significant minority had heard and remembered the message.

What should we learn from this? Probably that the main message and the mood created by a party is more important than the pledge card, and that trying too hard to get a pledge card across is not time well spent. People want a sense of direction, an understanding of what a politicial party thinks the problems and the oppportunities are and how they will make judgements once in office. Blair’s pledge card was not remembered for its detail. It served to reinforce the message he wanted, that Labour was Tory lite and would not take risks with the economy. What a pity they did not stick to it. The Conservative 2005 pledge card was diverse and did not reinforce any central message about how a Conservative government would run the country, so it did not cut through with the voters. By all means have a pledge card, but ensure it is there to back up the main point or direction.

Today David Cameron will set out the general direction he wants us to go in. His central message will rightly be that this country is crying out for change. His specifics will support that message. His school discipline policy, for example, will show how it will be achieved. The sense of direction is what matters most. If we carry on as we are under the present government it’s a lifetime of debt and more debt for anyone staying in this country to pay the bills.

I think we need some fresh language to get over the significance of the state debt crisis to more people in the UK.

There is no state money. State borrowing is taxpayer borrowing. State debt is the taxpayers’ debt. Every time the government tell us the government will borrow more, that means you and I have to accept responsibility for more debt. Everyone concerned about the level of public indebtedness could help by calling it taxpayer debt.

Individuals know that if you run up too big a debt on your credit card or take out too big a mortgage you have to cut your spending. It’s no good saying you will simply borrow more money to pay the interest on the money you have already borrowed. That way it’s a slippery slope to bankruptcy. You can’t go on borrowing more in the hope you will win the lottery or that suddenly the government will offer you one of their super quango six figure salary jobs which would make the debt affordable. You have to be realistic about your prospects and your means.

So it is when we act together as taxpayers. Only dreaming politicians think that the Uk will one day win the lottery or be offered a big bung by the international community to keep it going. The rest of us know that everything the government borrrows and spends on our behalf is going to have to be repaid one day with interest. We will all have to work harder and longer to repay Gordon’s debts, because they are our debts.

The figures show that families and companies are reining in their spending and reducing their debts. They know they overdid the collective overdraft in the good years, and are now making the necessary adjustments. They are spending less and saving more. It is especially galling for all concerned that at the same time as the private sector is learning to live within its means, the government is busily placing us all at risk by taking on more debt than we can afford. Why did they learn nothing from the private sector debt crisis? Why do they want to do the same again with public debt?

Taxpayers soon have a chance to rise up and make their views known. All should remember there is no state money and state debt. Only taxpayers have money, and the state will want more of it.

There is considerable anger about the pay and bonuses being paid by the state owned banks, especially where they remain in loss overall. Labour say they believe in fairness and justice. Where is the justice in high pay and bonuses for senior employees in state aided concerns, when that aid has to be paid for by people with far less income than these executives?

I believe in good pay and bonuses for success. I would have no issue with bonuses accruing to good performers within state aided banks, if they were only to be paid these bonuses in cash if and when we the taxpayers have got all our money back with a profit.

The current bank defence to high pay is that most of this relates to investment banking divisions which are profitable. In that case, sell them off, so they flourish in the private sector. There they can pay what they like, as long as they do not come back to the taxpayer for any support. If these state owned banks sold their investment banking divisions it would produce a good capital receipt, which would then allow these banks to pay a special dividend to taxpayers, or return capital to taxpayers.

Whilst they are about it they should do the same with overseas banks in their groups. Why on earth did British taxpayers have to bail out investment and foreign banks in the first place, instead of lending them money short term as lender of last resort if needed and helping them find a market solution? Why do we go on owning them, when we need our money back and they are profitable?

The state aided banks are behaving like typical old nationalised industries. They get taxpayer support, they make large losses overall, and they put up their costs and pay because they do not have to take the tough action any private sector business would have to take in their loss making position. That’s why so many people are angry about what is going on.

The headline figures tell you losses have been reduced, and the investment bank has made some money. The full statement also reveals:

The bank’s balance sheet has been cut. Gross assets are down by almost £700 billion to £1522 billion. The bank wishes to make a further reduction, taking off probably around £300 billion more.

Net tangible equity, which was stated as 73.8 pence per share in December 2008, has fallen to 51.3 pence in December 2009.

Operating expenses are up from £13.5 billion to £14.954 billion.

The non core operating loss is up from £11.3 billion to £14.6 billion. The total operating loss is down slightly from £6.9 billion to £6.2 billion. Insurance claims are up. Impairment losses on both the core and non core businesses are up (that’s allowances for bad debts etc).

The new Tier One Capital ratio is up to 11% from 5.9%, so the bank is now financially much stronger thanks to the slimming of the balance sheet and the new capital injected.

The questions to ask include:

1. Why have operating expenses risen so much when the bank is being slimmed? Are the bonus arrangements really appropriate given the overall loss making nature of the bank?

2. What action is being taken to control impairment losses?

3. What action is being taken to improve the insurance divisions results?

4. If the aim is to reduce a bank with a £2.2 trillion balance sheet to a bank with around a £1.2 trillion balance sheet, what impact will that have on the value of the shares?

5. Couldn’t more of the risk reduction and balance sheet slimming be done by selling businesses from within the Group?

The government missed a big opportunity to impose controls on cash bonuses before the Group is profitable overall when it failed to make that a condition of the new capital. Surely the best way to motivate new staff being recruited, or existing staff when renegotiating contracts, is to give them incentives geared to the realisation of profits for taxpayers?

Money is still easy for the public sector. For all the talk of cuts, tight and tough public spending conditions and the need to rein in, the monetary easing has all been concentrated on providing huge sums of borrowed money for the public sector at interest rates below the rate the market would normally charge without the Bank’s interventions. For all the talk, there is no evidence yet beyond the reductions in allowable expenses for MPs and a few cuts for Higher Education that the public sector has truly got the message that it has to do more with less. Today’s announcement of “low” Council tax rises comes at the price of a further substantial increase in grant funding for Councils. Only some Councils are pressing on with business style changes to raise productivity and efficiency. Those that have done this well already have actually cut the Council tax, or managed without an increase for more than one year.

Meanwhile money is still very short and expensive for many businesses. The private sector has completely transformed its behaviour. In 2006-7 some individuals were taking out large mortgages and many businesses were taking out large loans during the last wild fling of the private sector credit boom. Today companies are repaying debts, husbanding profit and cashflow, keeping stocks low, and cancelling capital projects. Individuals are not moving home, not buying the first house, or moving up the housing ladder in anything like the numbers of three years ago. Some are paying off credit card debts and saving more. In 2006 the private sector had a small overall deficit of 0.6% of GDP. The surplus in 2009 was 10% of GDP, and is likely to be at least that again this year.

Banking regulators seem to want to perpetuate this hot and cold world. They have set regulations which mean the private sector has to keep on generating surpluses and repaying debts, to get the bank balance sheets back into the much more prudent shape the regulators belatedly want. Meanwhile the authorities say they might do some more quantitative easing if there is a threat of much dearer money for public borrowing.

This lop sided economy is not going to deliver a strong sustainable recovery. It is only a matter of time before markets impose stiff penalties on a government which is persisting in borrowing too much. The Uk needs a strong and growing private sector to get out of this mess. Curent banking policy, tax policy and the public sector deficit prevent this. All the time the public sector runs such a huge deficit, the private sector has to save more to offset it and finance it. Later on the private sector will be squeezed again by the higher taxes to pay for the excess debts. We need to change policy before it becomes a vicious circle we cannot easily break.

The Uk government now has to pay 1% (100 basis points) more than the German government to borrow ten year money. Today the Bank of England Governor said they might need to do some more quantitative easing. I guess that is an attempt to stop the rot with markets forcing rises in UK interest rates.

The pound is also around $1.54, a further erosion of value in recent weeks.

There are interesting debates going on within the main parties over how they should approach the last few weeks before a General Election. Should they try to appeal to floating voters, seeking to win over the least convinced voters from the other main party and trying to squeeze the Liberal Democrats, or should they seek to please and buttress their core supporters, to make sure they all vote? Do traditional Labour and Conservative voters mean it when they say they might vote for a fringe party that cannot win a single seat, or might stay at home if their party does not do more to please them? Would talking about their concerns make it impossible to win over the floaters needed to secure a majority?

It has always been the case that parties have tended to try to woo the floaters “in the middle” of politics, taking their natural supporters somewhat for granted. Modern pollsters and strategists are right about this. It was also the case, however, that winning parties always tried to change the salience of issues in ways which favoured them, which in part could cut against wooing the “centre ground”. When Conservatives won they usually stressed the importance of the economy, taxation, immigration, Europe, defence, issues where they traditionally had a good lead in the polls. Labour usually stressed public services, especially health and education, and support for minorities, where they often were ahead, even during periods of Conservative government. Blair’s strategy in 1997 when he won was to stress the Labour areas of public service as his main theme, whilst trying to neutralise the economy issue by promising to stick with Conservative spending plans and Conservative income tax levels. Margaret Thatcher won on turning round the economy, allied to a strong message on national security.

My sense of the current public mood is that there is no longer a large group of floating voters in the middle who can be attracted to vote for whichever of the main parties is the most “moderate”. Many more people today think abstention or fringe party voting is an option for them. Fewer think it their civic duty to vote, and fewer want directly to help make the main decision about whether to have a Labour or Conservative government, as they say they do not like either. Many more people are single issue people, strongly preoccuupied by one important matter and judging all political parties by a standard of purity on that issue that no broad coalition party capable of forming a government is likely to match.

In the past, for all the love bombing of the centre, after party cross dressing and all the polling, the approach to the economy has often been the crucial tie breaker. It has been difficult to win an election if a party is widely distrusted on the economy. This election will be, above all else, an election about the economy. I think the two main parties have no choice but to slug it out on that central raft of issues. The economy as an issue encompasses public spending and debt, inflation, taxes, returns for savers, mortgages and house prices, jobs and the business environment.

The public sense that we face a serious debt crisis. Worse still, private sector workers are well into the sharp decline in their living standards which low wage growth and high inflation are now delivering. Public service workers are about to experience the same thing, as the government starts to squeeze public sector pay. There needs to be more debate and more enlightenment for the public on when and how the deficit has to be cut, when and how inflation is brought down, when and how living standards start to rise again, when and how Uk manufacturing can be turned round, when and how our balance of payments is in surplus, when and how the public sector can deliver more for less.

Labour will argue that more borrowing and more money printing is the way to go “to see us through” recession. Conservatives will argue that you cannot have a sustainable recovery without controlling the deficit. So far the markets have been hinting at problems ahead, with a further slide in the pound against the dollar and a further rise in the cost of government borrowing. If the Conservatives are to seal the deal they need to reinforce their messages that we are in a serious mess and they can show us a way out of it. If Labour is to steal the deal they need to explain how they can avoid going the way of Ireland and Greece, and how they are going to get some balance back into a very lop sided and public sector heavy economy.

Put on your tin hats. You can expect there to be a lot of flak flying over the question of character. The anti bullying charity will be put under media pressure to produce evidence or back down. Supporters of Gordon Brown will claim he is much misunderstood. There will be lots of heat but probably not much extra light as the various sides slug it out in the studios.

To me the more important question than the question of character is the question of judgement. One person’s sterling virtue seen in a leader can be another person’s weakness or undesirable trait. A character people love one day – like the widespread appreciation of Mr Blair in 1997 – can become a very different set of feelings for many ten years later. The change of mood is often affecrted by judgements or decisions leading figures make. Mr Blair’s Iraqi war changed the way people saw him. Mr Woods, the golfer, is seen differently today than a year ago because people have learnt something more about how he lived his life.

In the case of a Prime Minister the thing that matters most to most of us is what judgements he comes to, what decisions he takes that shape our country’s destiny. The public can live with a PM who turns most normal Parliamentary questions into an invitation to try to put down political opponents, if all the main calls he is making are correct. If he gets it wrong it grates more that he does not try to answer. The public can live with a man who either keeps himself to himself, or is very open about his background and family life – if he is getting the decisions right it doesn’t matter much which of the two approaches he adopts.Inconsistency on these issues can annoy if the country is not performing well.

So the questions to ask about our current PM remain the same today as before the current story about relations in Number 10. They include

1. Why did he tax pension funds, and why are so few private sector funds now open for new members?

2. Why did he sell gold at the bottom of the market?

3. Why did he get so little improved service for all the billions he gave to public services in the last ten years?

4. Why did he allow such a huge build up of public debt before the Crunch?

5. Why did he approve the Basel bank regulations and the decisions of his new Regulator, which encouraged banks to overextend their balance sheets?

6. Why has he presided over a higher rate of inflation than target on average? Why did he change the inflation target to CPI from the commonly used RPI?

7. Why did he put so much money at risk in state supported banks, when there were cheaper options available to get us through the crisis?

8. Why has he allowed large banking bonuses to be paid by state subsidised banks?

9. Why has the balance of payments been so weak on his watch?

10. Why has manufacturing output fallen under Labour? Why has the UK economy grown so little since 1997?

11. Why did the UK economy stay in recession for longer than other major economies , and why is it so far making such a weak recovery, if all the actions the PM took were right?

Whenever anyone criticises the government for spending too much, for borrowing too much, for putting too much of our money into wayward banks, for hiring to many people into non jobs or for pledging too may spending projects for the future, they are told that every one of these decisions was crucial to see us through the recession. Without all this we are invited to believe that our worst recession since the 1930s would have been even worse.

The truth is these measures did not limit the downturn or cushion the fall. Their cack handed way of first helping pressurise the banks the banks then giving them too much support has simply allowed RBS and Lloyds to go on paying too many executives far too much money at our expense. It has not led to a good flow of much needed business finance to most of our private sector. It has not led to the timely reorganisation of those banks to make a competitive and lean banking sector. The recession which we were told was going to be a middle class recession for the south east – as if that made it alright – has turned out to be a savage industrial downturn for the midlands and north.

The reason we had such a bad dowturn is they followed a destructive monetary policy, choosing targets and interest rates that increased the damage and altering banking regulation from too loose to too tight at exactly the wrong point of the cycle. Spending so much and borrowing so much in the puboic sector has now led to even tighter money and higher interest rates for the private sector, making recovery more difficult.

Running the state sector in such an inefficient and expensive way does not boost the economy. It sandbags it. The productive sector has to pay the bills – in the short term through higher interest rates and in the longer term by higher taxes. Labour seem to think that putting so many people onto mega salaries in state subsidised banks, quangos, Councils and Whitehall will of itself create the extra demand the private sector needs. Instead that creates extra demand for imports, whilst a stressed private sector struggles for finance.

If the government’s case was right and all this public spending powered a recovery, surely £200 billion on with their money printing for public spending we should be well into recovery? If their policy was a good one, wouldn’t the UK have been first out, ahead of countries with better public spending control, instead of last out?

Today the issue is how Mr Brown behaves towards his civil servants. The bigger issue is why he has instructed them to so debauch the public accounts, that any recovery will be damaged by the need to raise too much money and the need to make very large adjustments to either spending or taxation to sort things out.

Labour’s one correct claim is that there have been fewer redundancies in the private sector than some forecast. As readers of this site will know, that is because there has been a big move from full time to part time working, especially in industry. Many workforces and managements have decided to share the pain by each taking less pay but keeping part of a job. That does not make it healthy or a happy private sector. Now the private sector want to know when the public sector is going to wake up to reality and realise the game is up for all these highly paid jobs which we cannot afford. Do they want work sharing and lower pay like the private sector, or a more conventional post cutting programme using natural wastage and voluntary redundancy to slim the numbers?

Dear Shareholder,

It’s going brilliantly. Everyone I asked said I was so good the other day when I spoke for your company on television. I told all our shareholders a bit more about me, which is what they all apparently wanted to hear. I had been so busy increasing the borrowings and spending that I had failed to explain just what a lovely family man I am as well. I have always been too self deprecating.

You may have seen that last month when we normally get paid by lots of customers we still managed to spend more than we got in. That’s another crucial milestone in our loan led expansion. I wasn’t sure we could pull that off, so I kept quiet about it in advance. You will also be pleased to see the value of our trading currency going down, which will make it easier to sell abroad, and will mean the sterling loans we have taken out from foreigners get cheaper to repay. If you don’t like the higher prices for all those Chinese goods we buy, just put in for better easy terms which we can organise through our special offers department or through our banking subsidiaries.There’s plenty of money around for eveyone. It just gets better and better.

I am promising a new service of free care for all the elderly, new railway lines to places that would like them, more quango heads, better equipment for our security department workers, and lots of subsidised windmills. I think it’s a great time to promise more and spend more. I love to see the looks on the faces of our killjoy competitors Conco everytime I lift our offer. They keep on asking how we can afford it. They just don’t get it. You borrow it or print it. That takes the waiting out of wanting. They will never get to take over if they remain so reluctant to spend, spend, spend. Now is not the time to damage it when it is all go so swimmingly.

I want to be remembered as the man who spent more than all the others, the one who achieved record spending and borrowing, the one who didn’t want any of you, the shareholders, to want for anything. Never has this company had so many employees on its books before, never has it had so many people receiving its free offers before, and never has it been so large before.

The wonder is that so many previous CEOs did not get on with providing all these goodies. How stupid they were. I can’t see how all those focus groups can be right which suggest we might lose the Board elections. I reckon we will romp home, with so many people for ever grateful that we have been never knowingly underborrowed.

Some board members with faint hearts say we could end up like Greece PLC. I met their CEO this week and I can assure you he can’t give a tv interview like the one I just gave. We are in a different league when it comes to the size of our borrowing and our media performances, so sit back and enjoy the ride.

Yours in the spotlight

CEO

When I wrote in support of the 20 economists who sent a letter to the Sunday Times urging quicker action to tackle the deficit, the one gnawing worry in my mind was the past foolishness of economists writing letters to papers. This morning more than 60 economists have put my mind at rest. A majority of those signing letters have decided to back the wrong side of the argument, restoring my faith in the way the world works!

Readers of this site will be tired of hearing of the build up of unsustainable public debt. This is indeed a very slow crash so far. Unfortunately the fact that to this point it is slow and happening in little steps rather than as a headlong rush does not make it any less real.

The government is now having to pay more for its borrowing than a year ago, despite the purchase of £198 billion of government debt by the Bank of England. The pound is inching lower, and has already devalued by around one fifth in this crisis. This morning the pound is at $1.54, comparing it to another heavily indebted country.

Interest rates for the private sector have been forced up to high levels, with people haivng to pay 18.5% for credit card borrowings and 4.5% for a mortgage. Businesses are paying well over 5% and some over 10%. This is the price of regulatory failure over the banks and the weak bank balance sheets which the government finances and the rash monetary policies have created. There is a price to pay for excess public spending, in short term higher rates for the private sector, and longer term higher taxes to squeeze enterprise more.

It is intruiging that only now have some of the newspapers really gone to town on the debt. Yesterday’s figures showing the state borrowed another £4 billion in January were not especially shocking. They were, as the Treasury points out, the kind of figures you would expect given the published forecasts for massive borrowing this year.

There are signs of hope in the reaction. The fact that January is usually a month when revenues exceed spending is just an excuse. I guess what is happening is that the British establishment is coming round to the view of the 20, not the 60 economists. Lots of “serious” people now agree that the deficit is too large. It is time for a new Dunning resolution – “The debt has increased, is increasing, and ought to be diminished”.

Mrs Villiers, Shadow Transport Secretary, has declined to give Labour a blank cheque for its proposal to build a high speed rail line from London to Birmingham. Far from being the end of the transport world as we know it, as presented by some, this is welcome news.

New high speed rail lines pose two serious problems. One is they are very costly to the hard pressed taxpayers, requiring substantial public subsidy. For that reason I understand that new high speed rail lines are being considered not for the next impecunious Parliament, but for the one after that, in the hope that by then there will be sounder and more ample finances. It means there is no need to rush this decision.

The second problem is they can be very damaging to the environment. Labour’s proposal may entail driving an intrusive swathe of concrete sleepers and steel overheads through an Area of Outstanding Natural Beauty in the Chiltern hills. Successful high speed lines need to be as straight and as flat as possbile, requriing substantial earth moving. Anyone living near the proposed route will want to be able to object and to discuss the level of compensation that will be appropriate for loss of amenity, increased noise and vibration should they lose their case.

Lord Adonis may fancy his role as the man who drew a line on a map for the future. Just drawing a line is the easy part. It is raising the money and selling the idea to all who will be affected by it that is the difficult part. New roads can be paid for from private money and tolls, and new roads can be more flexibly designed as they can take more hills and bends than railway tracks. Perhaps that’s why they are not so popular with fans of big government. Both main parties did co-operate successfully on the M6 tollway.

Today we learn that Councils are refusing to publish the salaries of their senior officers. How can they get away with witholding this important and interesting public information?

We the taxpayers pay their salaries. We have just seen how expense bills for MPs can be cut once the details are published and the public allowed to see and comment on the claims being made. If it works for public officials on £64,000 a year, surely it could work as well for public officials on six figure salaries? Why should they be immune to the cleansing winds of transparency?
Highly paid people on boards of private sector companies have to reveal all their remuneraiton in the accounts once a year. Why can’t we know what the Education Officer or the Planning Officer earns and claims?

One of David Cameron’s best and most radical policies for curbing the deficit and reducing needless and wasteful spending is his pledge to publish on line every item over £25,000 spent by central government, should he become Prime Minister. You should expect officials to become much more circumspect about what they spend if such a regime comes to pass. Why can’t we have it now from our local Councils?

We know that Councils can vary enormously in how much they charge for what they deliver. In my local area we have Parish Councils under both Lib dem and Conservative control. The Lib dem one charges £114.65 a year for a Band D household, twice the level of any Conservative one. The lowest cost Conservative Council charges just £17.50. Some of this is the range of things the Council thinks it needs to do, but some of it is efficiency and cost control. If we the public knew more of what they spend, we and our Councillors could be better watchdogs of the public purse. We might decide we want fewer things as well as seeing obvious ways to do more for less.

Argentina discovered that the Falkland islanders are British and wish to remain British. Many countries aorund the world have islands close to their shores that are not under their control. Truly democratic countries accept the right of peoples to self determination. If the offshore islanders wish to remain independent, they should be allowed to do so in peace.

Yesterday we learned that Argentina wishes to claim the seas around the Falklands, pressurising the Falkland islanders yet again over sovereignty. The international community with one voice should say “No”. The UK government should make clear its resolve to look after the Falkland islanders, who are united in wishing to remain under British protection.

This website is being considered for a list of the top green blogs – results of the Konector review on Thursday!

I am grateful to City AM for reminding us that yesterday Barclays revealed a 55% tumble in its UK banking profits. Meanwhile its liquidity and capital surged to meet new regulatory requirements. It is now 20 times leveraged – the level banks averaged in the 1990s before Labour’s crazy experiment with more borrowing – down from 28 times.

Barclays has more than met the new need to hold more cash and to have more capital. It holds £650 million extra liquidity and has cut the size of its balance sheet. As the weaker state owned banks try to go the same way we should expect more trouble for people and businesses trying to borrow money, less economic growth, and higher prices for banks’ services.

All this is the direct result of disastrously lax regulation in the noughties, followed by much tougher regulation now we are in a financial hole. Boom and bust regulation is reinforcing boom and bust money policies.

Some things are as easy to forecast as the conventient truth that night follows day.

When they were setting up the Euro some of us said if they allowed in countries whose economies had not converged there would stresses and strains. If they let in countries that were borrowing too much and had too much inherited debt, they would first free ride then struggle to stay the course.

The people setting up the Euro said they knew that. That is why they set strict criteria for membership. They said every state joining had to have total debt below 60% of GDP, and no state should borrow more than an extra 3% of National Income in any given year. That was all very sensible.

Then they started fiddling the figures. Everyone knew they were fiddling the figures. They could not help themselves, as they put the poltics of it ahead of the economics. That meant putting the interests of the poltical elite determined to do it over the interests of the electors who stood to lose their jobs or suffer lower living standards from the governments fiddling it. Today the elites are blaming the banks who did the deals for the governments who did the fiddles!

In “Our currency, our country”, the Penguin I wrote to urge the UK to stay out, I wrote in 1997

“At present only Luxembourg could properly qualify for the single currency as designed in the Treaty of Maastricht….five countries (including Greece) are so far beyond all the requirements they have no chance of joining on any sensible interpretation….It is confidently expected that when the decision comes to be taken in the first half of 1998 a more tolerant view will be taken of the requirements…” (and how! – all were allowed to accept the poisoned chalice)

In the run up to monetary union Greece was borrowing 8- 14% of her National Income each year and had a stock of debt more than 100% of National Income. Her inflation rate was 8% and her long term interest rate a massive 15%. Why did anyone think she was ready?

In 2001 I wrote “Just Say No” to provide the 100 best arguments against the UK joining the Euro, in case Labour carried out its threat and held a referendum on this proposal. I saw the scheme as the ultimate rigged exchange rate system and said

” History shows that rigged exchange rates do not work. The Gold Standard…bankrupted many businesses and created mass unemployment.The snake in the 1970s failed to keep the pound at a constant value against the Continental currencies. The Exchange Rate Mechanism caused a bad recession, and then collapsed.”

I went on to explain how you needed a single economic policy, a single budget and a single country to make any success of a single currency.

“There isn’t one exchange rate that is right for London and Lisbon. (or for Athens and Aachen).There isn’t one interest rate that is right for Manchester and Marseilles. (or for Lisbon and Lubeck) You cannot have a single economic policy without a single budget. The poorer and richer regions are too different The poorer ones are likely to lose out. There isn’t a single labour market because there isn’t a single language. There will be areas of high unemployment as a result.”

Nothing has changed. The political elites drive on against the interests of their electors. It isn’t the bankers who sold the swaps or the bond traders who sold the bonds that created this mess. It is the politicians and senior officials who wanted a new currency for Christmas, whatever the price.

This morning for anyone up bright and early the BBC broadcast the answer to the climate forecasters who told us to expect an early spring. A daffodil grower from Cornwall told us his crop will be one month late this year. I was relieved to hear it is not just my daffodils taking it easy before springing into life. His crop is still dwarves without flowers so far.

Apparently it is another case of too much weather and too little climate. We just have to be patient and fight our way through the rain and the wrong kind of “wintry showers”, as snow is now called by a Met office that finds it all so difficult to call.

So it’s another inflation letter. That’s no suprise for readers of this site. What is so sad about the MPC is their failings are so predictable. They lurch from boom to bust to attempted boom, and the inflation figures career all over the place as you might expect. Today they had to report that during the worst downturn in the economy since the 1930s inflation has soared to 3.5% on the CPI, 3.7% on the RPI and well above 4% on RPIX. Now the savage cuts in living standards that Labour’s economic policy was always going to deliver are upon us, as wages are not going up by anything like the current rate of inflation.

In 2008 I explained that rates were too high and this was going to cause a worse downturn. In 2009 I warned rates were too low and too much money was being printed. That was bound to cause an inflationary surge. The MPC is meant to concentrate on controlling prices, and keeping them to around 2% a year. Why do they find it so difficult?

They are not asked to avoid slump or control booms, to consider output or the levels of the currency. Sometimes they seem to be acting as if they were, but they do this also by reacting too severely too late. We have lurched from overheating to severe downturn despite- or more properly owing to – their energetically destructive monetary policy.

Today they tell us we have very low interest rates and they are going to keep them that way despite the high inflation. They have no sense of irony – or apparent knowledge of the real world. On this very day we learn credit card rates are above 18%, or 37 times the base rate! The other day a local bank told me a small business could borrow at 8.5% or 17 times the base rate. Mortgages if you can get one are on offer at around 9 times the base rate.

Who is the MPC kidding? I fear, just themselves. Their rates are too low and their money printing has been too energetic. No-one in the private sector can do any business at anything like so called base rate. Markets largely ignore the MPC. All they seem to want to do is to help the government overspend, borrowing more cheaply, whilst the rest of the economy pays totally different rates. Meanwhile the regulators force the banks to lend less and raise more capital at the bottom of the slump, making it more difficult to finance a recovery. No wonder we are in mess.