Friday, July 18, 2008

Gordon's Imperfect Economic Storm Approaches

An economic shudder has just run down my spine. I just read THIS on the BBC website. In June public borrowing reached a massive £9.16 billion. That's £9.16 billion of Her Majesty's Pounds. It's also 24% more than Treasury forecasts. In the first quarter of this financial year, the government borrowed more than £24 billion. Annualise it, and the government will be borrowing close on £100 billion this year - a seventh of all government spending. No wonder Alistair Darling is seeking to rewrite his own rules. In case you think I am being over dramatic, government borrowing is at its highest since April 1946.

Inflation is set to rocket. Unemployment is increasing. The Balance of Trade is at its worst level ever. The PSBR is out of control. And this is all before the recession has really started to bite. Have I missed anything?

If this sort of financial management goes on, I dread to think what kind of financial situation the Conservatives may inherit in May 2010.

More HERE from the very erudite Devil. And with no swearing...

50 comments:

Anonymous said...

Scary...Next move will be the IMF..Then we know he has lost the plot. Martin

Raedwald said...

Brown's a third-rate politics lecturer from a fourth-rate technical college too mediocre even to have been a poly - what did anyone expect?

It seems that Prudence is a quality as little known to him as Courage.

Anonymous said...

Iain, any idea how big their 'overdraft' is ? I mean that borrowing is only for 'this year', it only reflects their excess of spending over taxation for the current period.

How much is it when racked up with the borrowing from all previous years ? How much is the interest payment on all that annually ?

Anonymous said...

It always end this way with Labour Govts - why is anyone surprised. Problem is that I fear Cameron may be a Heath and not a Thatcher whoch wil result in a lack of decisive corrective action.

Yak40 said...

What's even more amazing is that Labour were voted in three times and there's still a sizeable proportion of the electorate who'd vote them back in tomorrow.

P.S. For a good laugh go the the Grauniad & read the comments about the proposed state funeral for Mrs. T.

Colin said...

"If this sort of financial management goes on, I dread to think what kind of financial situation the Conservatives may inherit in May 2010."

Er... they'll inherit the one they usually inherit from an outgoing labour government - a shit one.

Anonymous said...

So why did we all suffer thru the 80's and early 90's putting all the 60's Labour mismanagement right, only to find Gordon p1ssed it all down the John when he was chancellor?

Gordon is a Moron would make a great name for a tune.

ken from glos said...

this is deliberate scorched earth policy by brown.He will lose the next election and is using D.C,s credit card for 2010.Get it?

G.B = nasty and devious.

Astro-Turf Lawnmower said...

This is what happens next:

1. Government borrowing on this scale will force interest rates to rise, causing the housing market to go into freefall, record bankruptcies as people become unable to meet mortgage and loan repayments, and repossessions to shoot to an unprecedented level

2. Unemployment will shoot through the roof, particularly in the building, retail and financial sectors i.e. the very areas that hav been keeping the UK economy afloat

3. Sterling will fall off a cliff as the true picture becomes clear, causing the cost of imports and therefore inflation to rise

4. With unemployment and other benefits shooting upwards, and tax receipts (think income and corporation tax, VAT and stamp duty) plummetting, borrowing will increase at a truly terrifying rate as there are no reserves to speak of

5. A visit to the IMF, inconceivable just a year ago, becomes more likely with every week's record figures - record borrowing, record consumer confidence lows, record lows in housemoving activity, record increases in unemployment

No more boom and bust? We're just about to find out what happens after a 10 year boom when the government has done literally NOTHING to prepare for the inevitable bust.

It isn't going to be pretty.

Alcuin said...

I dread to think what kind of financial situation the Conservatives may inherit in May 2010.

One that will leave him with no option but to ditch the more wishy-washy aspects of nice Toryism and bin much of Labour's ghastly inefficiencies and bureaucracy.

I regret to say that this country needs such a shock to make it realise that socialism of any flavour is unsustainable and corrosive of more than just the economy.

Not a sheep said...

But Andy Burnham on Any Questions told us that the National Debt was lower than in 1997. Was he not telling the truth?

wrinkled weasel said...

I have been saying for some time that Neu Lab are going for a Scorched Earth policy.

I read an article today that gives authoritative credence to the idea the WW2 could have ended in 1942 if Hitler had listened to his advisors who told him he could not win the war. What did he do? He asked Albert Speer to draw up plans for destroying the entire physical and economic infrastructure of the Reich.

Brown is a mad man. An utter raving loony. The problem is, Brown is also in a bunker, surrounded by sycophants and nutters. When they all emerge bleary eyed and blinking on a morning in May 2010, there will be nothing left to govern. Nothing.

Democracy has failed. It is time to start a revolution, and I don't mean that metaphorically.

Blue Eyes said...

New Labour, Same Danger.

Anonymous said...

British national debt:

March 2001 £311 billion

October 2007 £513 billion

June 2008 £640.8 billion

March 2009 £581 billion - budget forecast as recorded by nat stats online -(ha ha!)
not including Northern Rock debt it seems

He's borrowing £9-10 billion per month which implies national debt of £710 billion plus
by March 2009.

He probably comforts himself with the thought that debt as a percentage of GDP actually peaked
in 1997 (43.4%). Since then it has dropped to a low of 29% in 2002 and erising ever since- now
at about 38.3% at least.

don't forget the implied national debt of pension debt probably £1 trillion or so

plus PFI of ? £128 billion

its the classic pattern of the credit card junky.

Trumpeter Lanfried said...

Here's an interesting scenario: Spring, 2009, following a winter of discontent: Brown goes to the IMF.

The IMF tell him, 'Nothing doing mate. We warned your predecessor, Mr Callaghan, what would happen if you did it again.'

javelin said...

I think we avoided a very serious meltdown early month when the US handed control of oil negotiations over to local Iraqi groups - opening up future supplies from oil fields that make up 4-5% of the world oil, where before these fields were producing almost nothing. This halted a continued rise in the future price of oil down, and even prompting Libya to threaten to reduce oil exports.

I don't see investment-based industries being hit as hard as retail, service or Government. Globalization is causing an averaging out the Global standard of livings. This is partially caused by a Government that does not prioritize UK citizens.

REAL unemployment is over 3 million (including partially lazy/disabled). These people cannot afford higher bills and the Government cannot afford to pay them anymore.

The Labour Government did nothing for years except give away free cash. They have given it away until they have no more to give.

Anonymous said...

alcuin @10.13 is spot on "I regret to say that this country needs such a shock to make it realise that socialism of any flavour is unsustainable and corrosive of more than just the economy."

That is why, to save their own skins the Conservative Party have got to say they will have a root and branch audit, and publish that audit. The only way for people to grasp the full extent of this maladministration is the truth laid out before them.

Then they must proimise to hold to account all those responsible for the state of the nations woe.

The public will want to drive them all out of public life!

My fear is that the wrath of the people may be such that they will not trust the old way of politics again. I fear that they will turn to extreme parties or solutions.

We are now entering unchartered waters. Cameron is NOT a leader and will be unable to control the rabble.

Perhaps the military will bring the discipline this country badly needs in everything, from schools, local communities, banking and big business and national life.

Perhaps, as history does repeat itself, we are heading for a return of a Cromwellian character to knock this country back into shape.

I am afraid that our Queen has let us all down by giving royal assent to the EU Lisbon Treaty!

I hope I am hopelessly wrong. I do not believe that I am.

Tom Harris said...

Sorry, Iain, but do you have inside information to the effect that inflation is going to reach anywhere near the double-digit levels reached under the Tories?

"And this is all before the recession has really started to bite." I assume you mean "And this is all before a recession has really started."

Johnny Norfolk said...

And the BBC is just plodding along with all this, so as not to upset its Labour friends.

Just imagine if it was a Conservative government that was in this mess. They would be having special programs, most of the news would be taken up with it.

It just makes you sick with the BBC.

Praguetory said...

I think you're all beginning to catch on.

PS - Where was the Labour boom? Disposable incomes are down from 1997.

Anonymous said...

Get out of sterling, get out of the US$. Get into gold and other precious metals. The whole lid is going to be blown off the Anglo-American economic miracle, primarily through the bust of the banking system. It's not illiquidity and never has been - it's insolvency.

And it's only days or possibly weeks before the Grim Reaper strikes - once the whole edifice crumbles the fall out will happen overnight.

Have a good weekend everyone!

Seb Smith said...

Sorry to burst everyone's collective chest beating about this but borrowing figures in cash terms regularly set records because of inflation / growth, in the same way that we're all earning more than we were 20 years ago. You might want to look at some figures as a %age of GDP, which puts it in a bit more context. For example:

- public sector net borrowing (what we're borrowing each year)) was 7.8% of GDP in 1993/4
- public sector net borrowing was 2.3% of GDP in 2006/7

Surprisingly the sky didn't fall in after the massive public sector borrowing of the early 1990s (forgotten who was in power then) sure it won't now.

Have a look at the statistics on page 203
http://www.hm-treasury.gov.uk/media/7/3/bud08_chapterc.pdf

Oh and Andy Burnham was absolutely right that public sector net debt (total amount we owe) is lower now (38% of GDP) than it was in May 97 (43% of GDP).

See table PSF8 in the attached link:
http://www.statistics.gov.uk/pdfdir/psf0708.pdf

Sorry to spoil a good scare story - really not that hard to find some actual facts if you really want to.

Cameron's Evil Twin said...

Lol you Tories are fiscally conservatively f**ked!!!

permex said...

alcuin writes:
"I regret to say that this country needs such a shock to make it realise that socialism of any flavour is unsustainable and corrosive of more than just the economy."

I wrote much the same here about two years ago. I still think that only a major & deserved catastrophe/meltdown will bring the UK to its senses...although, to be truthful, I think it has passed the point of no return.

Rog said...

As has been mentioned...
Add the PFI debt,
Then the pension liability...

Try not to wibble too much, it's truly scary.

Newmania said...

...I think thats a pretty good summary Iain. Why then do you expect Cameron to cut taxes? Yes I know the theory , low tax driven growth will replenish the coffers .
Maybe eventually , but in the short term its just a theory which did not work for Bush.

Any prospective government ,right now ,who did not warn of possible tax rises would simply not be a Conservative from whom we expect responsible management of the public purse.

Newmania said...

Sorry, Iain, but do you have inside information to the effect that inflation is going to reach anywhere near the double-digit levels reached under the Tories?



Allow me to assist...unemployment is the one you remind us of or maybe interest rates . Inflation is the one at 15% when the dead were unburied under Callaghan
These are like magic spells to you aren`t they , and on this occassion you got them confused.

Alex said...

Spot on Johnny Norfolk - the BBC are reporting nothing of this Economic nightmare.

Thankfully I emigrated to escape it. I managed to re-tune my TV the other day to rid it of BBC, replacing it with a South American shopping channel.

Alex said...

Iain / Everyone, don't despair! Don't be so gloomy! Courtesy of the Brown Broadcasting Corporation, there is some good news!:

http://news.bbc.co.uk/1/hi/magazine/7513563.stm

kinglear said...

I've continually said it - Brown understands nothing of economics, of markets, or of the human psyche. He has no principles, and I'm perfectly sure has absolutely no idea why it has all gone so wrong.Naturally, neither does anyone else in the government.
Interestingly, I would suggest that the turnaround in Tory fortunes was a leading indicator of how bad people thought it was going to get - bit like the stockmarket turning down long before anyone realises things are bad and up before it is apparent things are getting better. The collective madness of crowds is a wonderful thing.....

Rohan said...

As I mentioned on the Clegg post the unknown here is the attitude of the EU Commission. We are in stage two of EMU. What if the EU brings an action in the ECJ to force us to reduce the deficit to levels we agreed to adhere to?

Anonymous said...

Very interesting to see Labour and its supporters are in denial about how serious the economic situation is and the mismangement and incompetence of Brown's time as Chancellor and just keep "harping on" about how much worse it was under the "Tories" and how high unemployment and inflation was then than now. That was over 11 years ago comrades get over it ! Your man has been found out and ultimately found to be incompetent to actually manage the economy. Its becuase of his high spending plans on a unreformed health and education system for very little return and his encouragement of a bloated state sector and statist system that the country is in the mess it is. So stop making excuses and face the unpalatalble facts - Labour has screwed up the country's economy big time and the main offender is Brown. the sooner the country is rid of the lot of you the better. The only trouble is just like 1979 the Conservatives will be left to sort the mess out.

tapestry said...

The airports are working. You can still get out. Once the EU takes over, you might not be able to. Take your money with you.

Anonymous said...

The BBC is controlled by Comon Purpose who, itself, is controlled by the EU. We all know that the EU is dominated by the left!

end of story.

end of our liberty.

Goodbye and goodnight.

Lithgo said...

What do you mean by highest since 1946? Do you mean as an absolute number (if so does it take into account inflation etc?) or do you mean as a percentage of total expenditure?

Anonymous said...

Anonymous said...

"So why did we all suffer thru the 80's and early 90's putting all the 60's Labour mismanagement"

Ha ha. Very funny. Blame the evil Thatcher government for the disasters of the 80s and 90s.

Anonymous said...

Anonymous said...

"I fear that they will turn to extreme parties or solutions."

I certainly hope so. It is much needed.

No country can possibly go through the disaster of the Thatcher-Brown years and expect to emerge without big trouble.

Lola said...

Y'know Tom Harris, go and take a look at the course of inflation from 1947 to 2008. You will see it peaked in 1976/78, under waht was a labour/tory heath quasi socialist hegenomy. The last Labour PM (Callaghan?) seemed to vaguely grasp what was goingon but it was Thatcher (and Regan) who adopted policies that controlled money supply and government spending and agreesive policies that won the Cold War in 1989 that eventually conquered inflation. Brown inherited the fruits of this and has destroyed most of the good work. He is a prat.

The painful (and I accept to a agree overdone ) industrial reconstruction policies of Thatcher/Major have not been capitalised upon by Brown. Instead of re-investing the surplus capital that it generated he has sepnt it. Just spent it. It's gone forever.

So we will now have to set about again reining in the gross overhead of Statism so that industry and commerce can generate surpluses that will be required to provide the jobs.

IMHO as a country we have been living above our means since 1997 - and earlier. Globalisation will bring about a levelling up of living standards (even Africa) and for some countries that will mean a reduction, e.g. UK. We just canot afford to have millions of productive people living on benefits. Benefits that are set at a level higher than which employers can pay wages if they wish to compete internationally. Similarly redistributive benefits like working tax credit sequester income and capital which then cannot be re-invested or makes those taxed workers equally uncompetitive.

Socialism has failed. It will always fail. The 'project' has failed. It's failed because it is a philosophy. The alternative free markets (or better anglo saxon libertarian judeo christian free market capitalism with thrift responsibilty and compassion and the rule of common law) just works. It is not a philosophy. It is a description of what works. And the sooner that prats like Brown get their heads round this the better.

PSJ said...

Don't blame me - I voted for Major.

I don't think we will need to go to the IMF - borrowing lots of money would not do any good, except give us a temporary illusion of prosperity to avoid addressing our problems for another year. Aside of course from the moral implications of grabbing, for Labour's rescue, money meant for much poorer lands.

What we need to do is hardly rocket science - cut useless public spending, reduce taxes and end crippling over-regulation. A lot of it could be done relatively painlessly, though some of it might involve a great deal of short-term pain. For instance, if we cut our foreign aid budget, dismatle ID cards end our net contribution to the corrupt and useless EU and only pass EU laws when they are of benefit to this country, we would have done a good part of it.

Also, we need to attack ambulance-chasing lawyers and the HSE to improve the climate for business, but that's another story.

Chris Paul said...

What have you missed? Well the essence of the debate is what. Biggest borrowing since 1946? Pah! Biggest % of GDP borrowing under Labour but still not as much as same under last Tory government.

As Will Hutton said on Newsnight borrowing more is the RIGHT THING TO DO at this point. And the "should have put money aside" line is disingenuous given recent Tory performances in government.

The massive investment in schools and hospitals and railways that has been achieved was catch up for 18 years of running down everything in the public services under the Magwitch. It was necessary.

Anonymous said...

Astro-Turf Lawnmower said...

1. Government borrowing on this scale ....

Agree with everything you say but one thing you don't mention is the massive effect these losses from repossessions are going to cause banks.

Most are already insolvent as they stuck their snouts into the US mortgage debacle (and it's NOT just sub-prime!), they're hanging over the precipice and face massive losses within the UK both on residential mortgages and commercial lending to the likes of Barratt/Taylor Woodrow, etc.

In 2 yeasr, the only 2 banks left in the provate sector will be Lloyds and, possibly, HSBC. Although if the credit derivative bubble blows, HSBC could disappear overnight.

Welcome to the Third World UK. Just hope Bob M helps us out and all those African contries relieve us of the debt mountain we've built up!

K said...

Tom Harris said...
Sorry, Iain, but do you have inside information to the effect that inflation is going to reach anywhere near the double-digit levels reached under the Tories?


You're an MP, Tom Harris. When did you last buy or rent a house or flat and have to actually pay the rent or mortgage yourself as opposed to the taxpayer picking up the tab?

House price inflation - which is excluded from the government's inflation rate - has gone through the roof thanks to competition generated by our huge level of uncontrolled inward migration.

I rented a private flat but had to give up and return to live with my mum because my rent was so high. A place of my own is an impossible dream.

My mum says the massive increase in house prices has taken mortgages way above the amount she had to pay for an average mortgage on an average terraced house when mortgage rates were 15%

My brother is paying £1200 a month mortgage for a tiny, tatty flat, despite low mortgage rates. My mum paid about £1200 a month for a large, three bedroomed house in a good area when mortgage rates hit 15% - and the rate was reduced after a while. My brother's mortgage is never going to be reduced.

The government has just switched inflation in the housing market from mortgages to house prices - and made it worse.

Anonymous said...

chris paul 11.06

Yeah, right, let's just follow the Will Hutton line. He's the prat who backed Brown whilst he economically raped the country's exchequer to pay for his 'benefits' votes.

Chris, 10 years down the line there will be NO welfare state. The UK can no longer afford one just as the US government finances have and will continue to be broken on the back of Medicare.

You borrow from a position of strength, that's the idea of an economic cycle. The only result of borrowing now is a rise in interest rates because the government takes a bigger slice of the monies available. The rest have to fight over it!

You may have a political brain but you sure don't have a clue about economics - much like your beloved Will.

JessTheDog said...

I predict that the beginning of the end for the UK aspect of the downturn will be the ousting of Labour from office, by 2010 at the latest. Labour will be wiped out as a political party, as they no longer have a mass labour movement or ideology as they did in the early 80s to keep the party going.

Things are only going to get worse - the mortgage market has been allowed to collapse, this has crippled the housebuilding industry, food and fuel prices are rocketing and the latest warning is on the price of gas.

What do we do as consumers and taxpayers? It is galling to listen to calls to tighten one's belt when utility companies are making huge profits, MPs continue to dodge the worst effects of the crunch by claiming expenses that are denied to the rest of us, public sector workers are threatening strike action over pay, and council tax will rise as costs are pushed back onto taxpayers.

I think that we should fight back. We should hold a Consumers and Taxpayers Strike. For one month, we withhold payment on mortgages, utilities bills and similar bills (licence fee payments) and council tax. All organisations are dependent on cash flow for profitability and heavily exposed to the cost of debt if cash flow suffers. This would cause a temporary cash flow crisis if tens or hundreds of thousands defaulted for one month, and would send a clear message to politicians, banks, utility companies and others that they cannot simply pass the buck onto the rest of us. As with any mass action, it is impossible to chase those who default en masse, unlike chasing individuals. Bring it on!

Anonymous said...

will hutton has been wrong on almost every statement he has ever uttered. the man is a complete tosser!

Why anyone should listen to him is beyond sense. BUT there again as he is always propping up Broon and his incompetents the BEEB will be there knocking on his door.

Hutton should be shown the door and sent off to Afghanistan to do something useful for this country!

Lola said...

Jess the Dog - Yep. Can't turn a business around until you change the management.

Tom Harris - Didn't realise that you were an MP! If so you are part of the problem. In fact as you are Labour MP you ARE the problem.

Brown is no good because he thinks he's an economist. The situation he's got us into is because he has no idea about simple prudent money management.

He's taxed and spent other people's income. Worse yet he's taxed and spent capital - stamp duty, pensions tax etc. Spending capital is disasterous because it destroys the potential for investment. He's borrowed on balance sheet in times when he should be building up reserves and reducing debt. He's borrowed a shed load more off balance sheet. He's taken on liabilities that are not the business of the state - Northern Rock - which should have been allowed to fail. He claims to have 'reinvested' this cash but since most of Government expenditure is wages he has not re-invested at all - he's just spent it. All governments (all - right or left wing) are totally and absolutely useless at the efficient allocation of capital, but he's proved this in spades.

He's condemned millions to benefit dependency. And whilst doing all this he's lied and deceived as a technique for political points scoring and news management and conning the electorate.

He is an absolute disgrace.

BTW I live in Suffolk and I really really hope I catch sight of the prick as he drives through here on the way to Southwold. I have been nicely ageing some eggs.

Lastly. I think he is genuinely a decent man (anything being better than the preening snake oil salesman that was his predecessor). But he is deluded and essentially deceitful. His major flaw is that he really wanted to be PM. This, by definition, makes him totally unsuitable for the job, and so it has been proved.

Devil's Kitchen said...

Iain,

I have written a long and largely swear-word free expansion of this topic, also tying in the private banking sector, that may interest you.

DK

Guthrum said...

any idea how big their 'overdraft' is


Its not their its OURS, or rather our grandchildrens

John M Ward said...

Non @ 9.52 wrote: "Gordon is a Moron would make a great name for a tune."

Could be. Meanwhile, we already have Going Down with Gordon Brown and Always a Frown With Gordon Brown. Any budding songwriters here care to make it a hat trick? You already have the title...

John M Ward said...

Ken from Glos wrote: "G.B = nasty and devious."

Personally, I think "G.B." means "Gargantuan Borrower.