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A plan not a timetable

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Stephanie Flanders | 17:30 UK time, Thursday, 8 October 2009

It wasn't a speech about economics, but today David Cameron found a simple way to tackle a complex economic argument about the deficit head-on. He said:

"[T]he longer we wait for a credible plan, the bigger the bill for our children to pay. The longer we wait, the greater the risk to the recovery. The longer we wait, the higher the chance we return to recession."

David Cameron

You can make a case for all three of those claims. The average person can also understand them. You can't always say that of a political leader's rhetoric on the economy.

What is more, the bulk of City opinion would sign up to the Cameron view. The financial markets almost always want governments to spend and borrow less.

Certainly, with a £175bn deficit, you'd be hard-pressed to find an economist who thinks the government is borrowing too little.

But it is important to note what Cameron did not say. He did not say that the longer we wait to cut the deficit, the bigger the bill for our children. He merely gave that impression.

He did not say that, because if he had, there would have been plenty of economists who disagreed, including Martin Wolf, the senior economic commentator of the FT and not a man who is known for his love of the state.

Of course, it's true in a tautological sense that borrowing will be larger tomorrow, if whoever is in power fails to make it smaller today.

The more interesting question is whether attempts to cut the deficit much more quickly than planned can succeed in a weak economy.

Why? Because, as I've said before, you're unlikely to be able to reduce borrowing as a share of national income (you may not even be able to reduce it in absolute terms) if national income declines at the same time.

Not only do you have a falling denominator (GDP), but you end up spending more on things like unemployment benefit, just as you are cutting elsewhere. Overall spending may not even fall.

If the next government withdraws too much demand from the economy, too quickly, that is what will happen.

I'm not suggesting that this is what the Conservatives will do. For all the rhetoric, I suspect that the shadow chancellor and his team know they can only take it so far.

That's why David Cameron spoke today only about the urgent need to have a "credible plan", not an urgent need to implement it.

Everything the shadow chancellor has said so far suggests that an incoming Tory government would pre-announce dramatic cuts for 2011 onwards, and some extra cuts - or tax rises - up-front.

But I'm not sure there would be dramatically more tightening in 2010-11 than Labour already plans. If the Tories won, they, too, would be looking at the strength of the recovery in making that call.

As I've said many times now, there might well be some economic benefit to announcing tough deficit cuts. We can expect the City to applaud, for all the reasons mentioned above.

And when you're borrowing this much, applause from the City is a very useful thing to have. That's why an early announcement of future cuts would make a lot of sense.

But we should remember that interest rates - short and long-term rates - are already extraordinarily low. In fact, one of the great surprises of recent months has been how easy it has been for the UK to fund this enormous deficit.

International comparison suggests that quantitative easing - the fact that the Bank of England is buying so many gilts on its own account - means that the interest rate on the British government's debt is perhaps 70 basis points lower than it would otherwise be.

But government bond yields have been low everywhere, despite record public borrowing.

In the Conservatives' view, interest rates will stay low for longer if there is decisive action on the deficit, which will help the economy. That's quite plausible. But it's hard to see how they could actually go much lower than they are today.

To believe that deficit cuts will bring lower interest rates - long-term ones, anyway - and boost the economy, you have also to believe that there will be a dramatic change to city sentiment - and a panicked rise in gilt yields - between now and the election.

In other words, you have to believe that the markets will start to doubt that a tough Conservative chancellor is about to take control. It's an interesting view for the opposition leader to take.

Enough already. If all of these permutations prove anything, it is that we now have an extraordinarily complex economic calculation at the heart of Britain's political economy.

David Cameron says "the longer we wait, the greater the risk to the economy". If we're talking about rhetoric, that is almost certainly true.

When you have a deficit as large as Britain has, politicians - whether they are in power now or have a good chance of winning it in future - all need to talk seriously about getting the nation's public finances under control.

If the government - any government - delays that conversation for too long, then they are indeed taking risks with the recovery. But when the prospects for private sector demand are uncertain at best, there are risks to translating that tough talk into action.

If any government does too much, too soon, then that could endanger the recovery as well. David Cameron talked of a plan today - not a timetable - because I think he knows that as well.

Comments

Page 1 of 2

  • Comment number 1.

    Perhaps David wasn't talking to the conference as a whole but to George Osborn in particular, the Man Without A Plan if ever there was one.

  • Comment number 2.

    BobRocket

    Perhaps Boy George should get a plan like Crash Gordons, and waffle on about how much more he will spend whilst having his head firmly stuck up his own ass.

  • Comment number 3.

    Stephanie:

    I'm sure that the real audience for this is the market - bearing in mind that at least two-thirds of all new borrowings come from foreign lenders.

    The big danger here is not that fiscal tightening will reduce growth - of course it will, so lower growth is an inevitable consequence of past profligacy. The danger is an inability to raise the necessary new borrowings.

    And what happens if foreign lenders lose confidence is really nasty - and much nastier than low growth. Essentially, we would face interest rate hikes (definitely) and a sterling crisis (probably) unless we convince the international debt markets that we can live within our means.

    Of course, you can always promote growth by running a deficit - but you can only run a deficit for so long before your ability to borrow becomes impaired and the cost of doing so shoots up.

    It's called 'debt vortex' - and it's a highwire that the UK is still walking.

  • Comment number 4.

    Is it worth the Tories making the big cuts and having a recession to shake the economy back into place?
    Regardless of the politics of it, and they are not mine, would a Short, Sharp Shock be better in the long-term?

  • Comment number 5.

    Actually, I'm not sure Dave and George do understand.

    The underlying assumption to their 'plans' is that there will be a recovery soon and that they can then cut public expenditure (same old doctrine) under cover of reducing the debt incurred bailing out the finance industry (which they will try to spin as all Gordons' fault).

    Trouble is,I can't see any mechanism for the massive increase in demand required to allow both a reduction in debt and any reasonable level of employment over the next two years.

    Germany is bound to unwind expenditure on its massive Speenhamland and automobile subsidy schemes soon and may well relapse as a result. Spain and Italy, trapped in the Euro zone, can't boost demand. China, India and Brazil, for all the talk, are basically all still stuck in the poverty trap in absence of Western demand. Only the USA looks positive but any growth here will, thanks to the Euro again, likely be skewed towards home industry.

    What the economy will require is more, not less public expenditure. Pray God someone finally realises this should be directed towards productive industry, not finance. We need to rebalance the world economy after all.

    This would not be the fiscal disaster the Tories are trying to spin. It is a myth that we 'must' reduce the deficit or the Gods of Finance will turn away from us. Where else are they going to park it? In roubles, oil futures, dollars? Everyone is and will be in the same boat in this scenario. Anyway its a mortgage the country can pay off when it likes - we don't have to do it all in a few years. Public debt as a percentage of GDP is quite low. Its also quite low on international comparitors. Its got exceptionally long maturity dates and its also being sucessfully issued at exceptionally low interest rates. Of all the things to panic about public debt isn't even in the top ten.

    Sorry, but even if we all feel fed up and time for a change I think it far to dangerous a time to elect economic illiterates apparently intent on playing out a monetarist fantasy.

  • Comment number 6.

    Too right Garthking, though not popular.
    The debt needs to be sustainable, not as small as possible. We have a better chance of paying it off with intervention, unless there is a Short Sharp Shock with very, very painful consequences (unaccaptable to me)

  • Comment number 7.

    Clegg, then Brown, now Cameron. A trio of uninspirational full-time windbags who've never had a proper job and now have the arrogance to set out their "plans" (a.k.a. policy on the hoof) to save us. For years they've said nothing as public spending spiralled but now they insult our intelligence by trying to convince us that they'll cut better and deeper than the next man. They're all as contemptible as each other. Caledonian Comment

  • Comment number 8.

    @ 5 GarthKing
    Thank you for a great exposé. You should write a largely read blog or write for print.
    I still remember the terrified Radio Silence of Osborne and Cameron when the crisis was in full shriek last October. And these people are going to govern Britain?

  • Comment number 9.

    Dear Stephanie
    May I suggest that David Cameron (or whoever wishes to win the general election)offers to remove our troops from Afghanistan? He could then use the money to pay off at least some of the UK's deficit. We cannot and do not want to afford this war. If the Americans want us to be there then they must pay us for the [doubtful] privilege. After all it was their junk loans which precipitated us all into this recession and debt in the first place.
    If I was in debt and was haemorrhaging cash like this I would take immediate steps to reduce the loss.
    Does anyone have any idea how much this war is costing? (I had heard 1bnGBP per day for the Iraq war)

  • Comment number 10.

    Stephanie, I have a question that's been bugging me for some time:

    This mess is essentially a debt bubble, right? Consumers borrowed too much, and financial firms borrowed against the income they were going to get from consumers, and so it went until we all realised and the rug got pulled from under the banks. So then the government borrowed a whole load of money to soften the blow to the economy from the rug being pulled - in fact all Western governments did the same.

    The question is this: doesn't that mean that the debt bubble hasn't burst, it's just that what started with consumers and moved on to banks (getting bigger in the process) is still around but has now moved on to governments (and has got biggger again)? If that's true, doesn't the bubble actually have to burst at some point? And won't delaying it by getting governments to borrow the money make things even worse when it finally does? Or will the debt just go round again to consumers as the economy picks up?

    It would be great if you could help me understand this properly.

  • Comment number 11.

    #10 mjms81 You got no worries, you do understand it properly. A final bursting of the final bubble is coming your way.

  • Comment number 12.

    So, it's no longer necessary to explain your proposals - it's sufficient to convince the world that there is a plan, even if nobody knows what it is.
    Haven't we had enough of that already?

    If David Cameron had promised to cap MPs' salaries and link them to the average income of their own constituents (the MPs who did well for their constituents will get more, the other 600 won't) then he would achieve the biggest landslide in history. If he can make the political classes 'fit for purpose' then his weaknesses in other areas might be overlooked. Conversely, if he doesn't, it will just be the same old cycle of rising hot air and declining confidence for another five years.

  • Comment number 13.

    #9 curiousman. I am also curious. Curious to know if your aversion to killing foreign people you have never met is purely financial, or whether if all our economic woes were to disappear you would be happy to step up the killing.

  • Comment number 14.

    #5 garthking

    "Trouble is, I can't see any mechanism for the massive increase in demand required to allow both a reduction in debt and any reasonable level of employment over the next two years."

    Well said. Consumers and businesses are still up to their eyeballs in debt, Banks still have enormous problems. Manufacturing industry is still shrinking even faster than the rest of the economy. Unemployment is growing all too rapidly. And as you say there is no reason to suppose that there will be rapidly growing demand in other countries that can solve our problems for us.

    Dramatic action is certainly needed. But not especially action to cut public sector spending. What we really need is need action to reduce our trade deficit. Action to reduce consumer and business debt. Action to reduce the gap between rich and poor. Action to price people back into jobs. Action to make us less dependant on the make-believe riches of the finance sector. This whole "spending cuts" thing seems like just a huge distraction from the more urgent problems that face us.

  • Comment number 15.

    The UK is about sleepwalk over a cliff if they elect the Tories. Sad thing is almost half the population has given up on politics, that's the real reason why Cameron will get in. The young Blair. His talk of hard cuts gives them a mandate to cut back on everything. Which they will, the health service, schools. It will set back the recovery and kill many a person's dream in the process. Can't we take a longer term view like with the WWII repayments to the USA? I'm not sure why the Tories talk about helping the poor because the poor never vote for them. Why would they? Maybe they will bring back the Pole Tax, that way the poor stop voting and dissappear again. Hold on, they've dissappeared already!

  • Comment number 16.

    #5

    I agree - more public spending, hopefully not via militarisation.

    What I think will and should end up happening is that the now nationalised and soon-to-be heavily regulated banks be made to reduce their interest rates on existing loans while keeping a portion of the monthly repayment saved fixed as principal repayment.

    This is for a number of reasons:
    a) The remainder of the monthly loan repayment can be used to justify income tax raises
    b) The level of private debt would drop more rapidly, taking the pressure off society and developing prosperity - reducing the debt/GDP ratio
    c) A nationalised bank that seeks to make profits is acting against the interests of the major shareholder (the public)
    d) As debt levels drop income taxes can be further raised to clear the public debt

    Anyone see anything wrong with this for a plan?
    d)

  • Comment number 17.

    #9 Curiousman

    It doesn't work like that. The military industry in the US is like the car industry. If you terminate these big contracts then unemployment and poverty back in the US would jump. It may be costing X but it's resulting in X*Y GDP increase for the Americans

  • Comment number 18.

    addendum to #17

    It's just another type of public spending 'fiscal stimulus' package. If there are offset contracts for domestic suppliers, then it's a stimulus for the domestic economy

  • Comment number 19.

    So we'll just have another anarcho free market lovin' sycophant as Primeminister after the next election!

    I wonder which bank Brown/Darling will be working for before the end of next year?

    Wake me up in October 2010....i.e. just in time for hibernation!

    Cynical....moi!

  • Comment number 20.

    I think when I detected the language David Cameron used about interest rates a few day's ago suggested that his plan was a half warmed fish (c.f Dr Spooner!?) rather than a fully worked out plan I was nearer to the truth that I suspected at the time. This talk that omits a timetable certainly compounds the issue. For without a timetable inflation becomes a seriously underestimated and destabilising issue.

    He does not appear to have a sound grasp of arithmetic - just of hot air! I would not buy a used car from him or his party despite appearing to be to the left of Labour with all the talk of poverty today. We are stuck with a number of jokers - none of whom are sound.

  • Comment number 21.

    I am in a nostalgic mood, and it occurred to me that once upon a time Gordon had a Golden Rule, a rather flexible one I admit, but a rule (ok a maybe it was like those extendenable/retractable steel rules) in between articles on Prudence, Investment and Fairness, it was forever being cited as the measure of life as we know it, I never hear about it now, anyone any idea why?

  • Comment number 22.

    #16 FrankSz - Your plan takes no account of the fact that banks are irredeemably insolvent. Take RBS, it has a balance sheet the size of the UK economy. Take JP Morgan, it has a balance sheet 1.5 times the GDP of the entire world.

    That is just 2 banks. Why do you think the FDIC has run out of money?

    Look at the numbers, the situation is hopeless.

    With all the borrowing and all the QE why do you think we don´t have raging inflation? Why do you think the bond yield curve is flattening? Why do you think gold is reaching record highs on an almost daily basis? Why do you think stock markets are rising whilst profits are declining and bankruptcies rising? The numbers are screaming the answer - but no-one is listening. Even Wal-Mart are telling you the answer, but no-one is listening.

  • Comment number 23.

    Ho, ho, ho

    Listening to the 'sample audience' on News at Six tonight.....what deluded fools!

    99% of TV watchers actuall believe the party games charade.

    oh dear!

  • Comment number 24.

    16 FrankSz
    Please add capping all interest rates to 10%, especially credit cards (and make them pay interest on positive balances).

    And outlaw direct debits - much of the personal debt in this country is as a result of people signing and then forgetting direct debits and thereby allowing suppliers to help themselves to as much as they want. You wouldn't give Dick Turpin free access to your bank account, so why Dick Branson? At least with cheques and standing orders you do have some idea of how much you're spending.

  • Comment number 25.

    Stephanie, you make great play here of the proposition that the Tories are aware of the risk of withdrawing too much demand from the economy too soon, implying that we can trust them not to do so. However, as you said in your previous blog, "Whisper it softly, but if they're committed to tightening more than the government in the first year - it's tax rises, rather than spending increases, that can raise money fastest." They have tried to fudge even this point, but the rhetoric has all pointed to them doing exactly what you assert here they know would be the wrong thing to do. The reality here is that electing this group and seeing them follow these policies in government is the surest way for us to ensure a double-dip "W-shaped" recession.

  • Comment number 26.

    22. At 10:13pm on 08 Oct 2009, armagediontimes

    Actually, I've no idea why the Stock Market is rising, can you explain? I'm baffled, I know something is wrong, but why would people buy shares if there is going to be a crash? Gold, I can understand, but shares?

    Where I last worked things were apparently desperate, suddenly seemed to be importing foreign staff as though there were no tomorrow (actually there wasn't for me, but thats another story), and their shares are rising! I feel I know I'm being taken for a sucker, and what is really annoying is that I probably am, but I don't know who it is doing it, nor do I know how to avoid it. Both the Optimists and Pessimists tell me that I'm going to be working more hours for Government and until I drop - whoopee, ain't life grand.

  • Comment number 27.

    ATTENTION BRITISH PEOPLES: The Dear Leader is desirous that the following message be reprinted in your state BBC media outlet.

    Please note that the Dear Leader first informed you, via an insertion into the BBC, of these events on 8 August 2009. This week your writer person known as Robert Fist confirmed to you the truth of the words of the Dear Leader.

    All hail the omniscient powers of the Dear Leader. Stand to attention and make ready to hear more from the Dear Leader. We know not when he will speak - so pay constant attention.

    Radio DPRK is closing transmission.


    "Greetings British men. You are barking up the wrong tree. Your QE is not relevant except that it shows your wagons are firmly hitched to the USA, or the former USA as the Dear Leader prefers.

    Soon now our brothers in China will demonstrate their ability to escape from the trap you have so diligently set for them. The sun rises in the East, and as our Chinese brothers say "sometimes little man eat more than big man, but eventually big man eat little man" The big man is hungry, although not for US$


    http://www.leap2020.eu/When-China-prepares-its-Great-Escape-from-the-dollar-trap-for-the-end-of-summer-2009_a3582.html

  • Comment number 28.

    If you have a short memory, David Cameron would probably be your man....if yours is longer, Brown may not be your man BUT you would certainly vote Labour. I find myself at a loss when I try to understand David's assertion that our children will (under a Cameron Government) afford a good education as that he attained at Eaton WHEN at the same time they (Conservatives) are talking of a financial squeeze on public spending.

    In the places you don't see, Mr Cameron and your Conservative barons, we know it is Labour's investment in Education, Job creation, Communities and the NHS that has made the difference here since your last Conservative government left us for dead.

    You simply cannot attain good education standards, Mr Cameron, with a shoe-string budget, END OF!

  • Comment number 29.

    "To believe that deficit cuts will bring lower interest rates - long-term ones, anyway - and boost the economy, you have also to believe that there will be a dramatic change to city sentiment - and a panicked rise in gilt yields - between now and the election.

    In other words, you have to believe that the markets will start to doubt that a tough Conservative chancellor is about to take control. It's an interesting view for the opposition leader to take."


    So conversely this could be read as saying we are currently benefiting from lower long term market interest rates to finance the government debt BECAUSE the market expects a Conservative chancellor to take control and start to tidy up the mess.

    Somewhat ironic is it not that labour excess with the public finances is only be financable if its only considered a short term blip that someone else will sort out.


    "Certainly, with a £175bn deficit, you'd be hard-pressed to find an economist who thinks the government is borrowing too little. "

    ..but by implication could quite easily find economists who think the government are borrowing too much?
    Suggesting that "average" opinion is that the deficit (and debt) is too high.

  • Comment number 30.

    "In the places you don't see, Mr Cameron and your Conservative barons, we know it is Labour's investment in Education, Job creation, Communities and the NHS that has made the difference here since your last Conservative government left us for dead."


    "Investment"???

    Suggesting up front expenditure for a long term pay back...

    Its generally not investment its straight expenditure or if you want consumption.

    In all the area you mention we consume more, but do we get better results?
    Sure, additional finance can help to address and issue, if it is spent wisely; but throwing money at the next headline is a different matter.
    Current policy seems to lack a guiding plan, and if people believe that whenever there is an issue it will lead to more finance being made available, where's the incentive for greater efficiency?
    Indeed, if this is considered the prevailing ethos there could be seen to be "advantages" in allowing a problem to become bigger, thus triggering greater funding.

    As Stephanie intimates, its not just about the money, its about the signals that are sent and the perception this creates; management of expectations is a strong lever to influence future behaviour.

  • Comment number 31.

    #24

    Yeah that's basically what I am suggesting - interest rate repayment caps, but for existing loans try to keep the monthly repayment up but pay down the principal.

    So if business/person X pays 1000GBP monthly on loans, of which 500GBP is interest , force the (public owned) bank to lower the interest rate so that the new situation would be 700GBP monthly on loans, of which 100GBP on interest. The 200GBP monthly saving can be used to justify income tax rises.

    The banks are sitting on taxpayer money that they are hoarding. They don't pass the low base rates on to the consumer. The main problem is private debt to GDP ratio. The government is solving this by converting private debt ratio to public debt ratio. Just as Japan did. A better chance of stimulus happens when the individuals are given funding, not the banks, because the money multiplier is not working.

    The banks are or should be or will be publically held. They should act in the public's interest. They should lose profit, remuneration should be low in the bank, costs should be low in the banks (small offices, not central London monuments), and the profit loss should be cost savings for the individual. This opens income tax opportunity, the government can use this to cover the debt that they created to bail the bank out in the first place.

    End of story.

    As for armagediontimes point that JP Morgan is sitting on a gazillion dollars worth of derivatives, that's a different kettle of fish and I have no idea about how to deal with that. Save wind it up.

  • Comment number 32.

    Aarrgh:

    http://news.bbc.co.uk/2/hi/business/8298252.stm

    Should read

    "Dollar rises on oil supply scare".

  • Comment number 33.

    Is it me, but after watching the Conservative Party conference I'm getting a real sense of 'Deja Vu'. It is almost like being back in the 70s and 80s at the height of the Thatcher era. The country in an economic mess; Labour failing miserably; and the unions threatening industrial action. All we need now is a 'winter of discontent'.
    I could almost feel the presence of Margaret Thatcher hovering over David Cameron as he gave his speech to the conference.

  • Comment number 34.

    No 16 "What I think will and should end up happening is that the now nationalised and soon-to-be heavily regulated banks be made to reduce their interest rates on existing loans while keeping a portion of the monthly repayment saved fixed as principal repayment."

    This is unenforceable !! People have the right to choose how they will repay their debt(mortgage) so long as they pay the interest and that pirtion of the capital within the period stated in the terms of the mortgage !! Reducing the interest rate simply gives them more in their pockets without reducing the capital sum owed !!

  • Comment number 35.

    Do these politicians (and vulgar economists) really understand the nature of crises?

    Do they understand why financial crises occur and their root cause?

    Do they understand that fiscal stimulus, without advances in labour productivity, only transforms and postpones the crisis?

    Many have an inkling as to what's going on but not the theoretical models to back it up.

    Profit is seen at its surface level, as a return on the whole of the capital advance (i.e. both the purchase of labour power and the purchase of means of production).
    They cannot see, or seem to care, that the total social (i.e. global) rate of profit depends upon:

    1. The rate of exploitation: the difference between the amount paid for labour power and the amount realised for the commodities sold

    2. The organic composition of capital (ratio of labour power to variable capital (i.e. means of production)

    3. The turnover of capital

    It is the second point, the organic composition of capital that necessiates a devaluation of capital, i.e. depression &/or inflation.
    In trying to preserve the value of capital through fiscal stimulus inflation becomes the more likely outcome.

  • Comment number 36.

    Why did Cameron not mention once in his speech the 'contribution' that the mad excesses of the financial services sector and the City of London made to the UK debt crisis and to the 'broken society'? Has he been asleep over the past 18 months? This is not a good sign that the would-be Prime Minister forgets the 15 Trillion US dollars which tax payers and citizens around the world had to guarantee to stop the global economy from collapsing. Why bother about 15 Trillion US dollars you may ask when we can save (maybe) a few hundred millions in cracking down on a few incapacity benefit fraudsters, and a few billions here or there with other measures (whilst creating more unemployemnt)?
    I am afraid Cameron is a political lightweight who does not want to tackle the multiple structural madnesses underlying so much of a laisse-faire, wild west capitalism which ran amok in London and New York.
    He is a nice man, but his Oxford education went to waste when analysing the biggest causes of the global credit and debt crises.
    Let me ask you a few questions:
    Beyond the party political slogans and rethoric of his speech, let's look at some facts and what they may tell us. Is Lord Ashcroft a tax avoiding/evading billionaire? Yes or no? Is he the Deputy-Chairman of the Tory Party? Yes or no? Was he seen by anyone on national TV anytime during the Tory conference? Yes or no? Does Lord Ashcroft like to work in the shadows? Yes or no? Has David Cameron ever criticised Lord Ashcroft publicly? Yes or no? Has David Cameron in recent years criticised Ruport Murdoch? Yes or no? Has David Cameron during the Tory party conference criticised either the financial services sector or the City of London for their mad behaviour in recent years and their massive contribution to Britains debt? Yes or no?

  • Comment number 37.

    # 26 - why is the stock market rising? The answer is simple. Where do you think all the liquidity provided by the BoE as part of the bail out/QE has gone? Don't just take it from me; I sat and listened to an economic adviser to RBS say this earlier this week. The stock market is the next bubble.

  • Comment number 38.

    #37 nedafo

    ...that's funny, because Jim Rogers is saying that commodities will be the next bubble.

    Jim Rogers predicts that commodities boom could last 20 years
    http://www.telegraph.co.uk/finance/newsbysector/industry/6276453/Jim-Rogers-predicts-that-commodities-boom-could-last-20-years.html

    I think I should be the next bubble!

  • Comment number 39.

    #5 Spot on
    Dave is promising 2 years of austerity and Baldwinite fiscal rectitude then it'll all be alright, and the view will be rosy....er I don't think so.
    Somehow, someone [Clue this will not be George Osborne] needs to get a grip of the UK economy and find a sustainable way out by employing people in something productive that will lead long term to pay off the debts (private and government). This is the only way to pay off the debts of the banking sector that have been nationalised. Gordo's £175bn merely buys us time to sort this out and the clock is ticking.
    People should only understand the debt as buying time for transformation of the economy - we in the west are not conditioned for tumultuous change such as this. Be afraid be very afraid!
    I fear the rosy view from the peaks will be our cities burning again like 1981.

  • Comment number 40.

    #34 ishkandar

    No, read what I posted.

    I said fix the monthly repayment so that most of what is saved goes to principal repayment. SOME can go to the consumer, to be siphoned off as VAT and income tax.

  • Comment number 41.

    HEGEMONY: MAKING UNPALATABLE OPPOSITION OFF LIMITS

    Will this benefit those in the Financial Service sector (anti-statists, deregulators, campaigners for Small Government), especially once Poland and the Czech Republic ratify Lisbon, enshrining the right to run a business, proscribing eugenics and 'egalitarianism' via the ECHR? Do critics really know what they are talking about, or the damage which they may be unwittingly doing when they thoughtlessly take offence at things which they only vaguely understand or consider 'irrelevant' or 'off-topic'?

  • Comment number 42.

  • Comment number 43.

    http://www.telegraph.co.uk/news/worldnews/europe/eu/6274961/Lisbon-Treaty-Czech-president-Vaclav-Klaus-sets-new-condition.html

    We will see. :-) I think Joe Biden is popping down to Prague soon. I wonder what to talk about.

  • Comment number 44.

    What is wrong with the following plan? Anything? Why would it not be implemented then?


    a) Mandate state owned banks to drop interest rate charges on existing and new loans AND
    b) Set the monthly repayment amount to drop only a bit, so that principal repayment accelerates (with the reduced interest rate) whilst putting some extra cash in the consumer's pocket
    c) Raise income tax and VAT

    This serves to
    a) Pay back the government debt
    b) Avoid cuts
    c) Stimulate the economy
    d) Prevent future bubble speculation by reigning in banks and making them more conservative


  • Comment number 45.

    BSR - Jim Rogers might be right and I might be wrong and indeed you may be the next bubble! I am however fairly sure that much of the liquidity made available to the banks is finding its way into the stock market but who's to say much of it is not also being used to buy commodities.

    On Jim Rogers, this is the guy who recommended investing in Zimbabwe in the 1990s.

  • Comment number 46.

    ODD PEOPLE'S THINKING

    Is gold fungible ;-)

  • Comment number 47.

    IF YOU HAVE THEM BY CRIPPLING DEBT, THEIR HEARTS AND MINDS WILL FOLLOW

    FrankSz (#44) Following swiftly on from the debt link provided by doom-monger_but_on_the_right_track armagendontimes elsewhere, what if all this economic-terrorism has been yet another contrived political tool to control the masses through fear given that jihad is proven so difficult to wage safely, effectively and economically in recent times? If they have the masses in major debt, their hearts and minds will follow?

  • Comment number 48.

    BSR - I'll match your Jim Rogers with my Nouriel -
    http://news.bbc.co.uk/1/hi/business/8298182.stm

  • Comment number 49.

    No 21 "I never hear about it now, anyone any idea why?"

    It got swept out to sea by a Tsunami called "No more boom or bust" !!

  • Comment number 50.

    No 24 "And outlaw direct debits - much of the personal debt in this country is as a result of people signing and then forgetting direct debits and thereby allowing suppliers to help themselves to as much as they want."

    Oh dear, more nanny state then !! It is bad for your health, therefore we will ban it !!

    If people sign direct debits, then they should make sure they have the funds to cover them. It is not the fault of the merchant if the customer over spends !! Or do you think everyone should only be allowed £10 per day pocket money and the rest *HAS* to be saved for their own good ?? That people should be treated like irresponsible kiddies ??

  • Comment number 51.

    No 31 - Frank - "The banks are or should be or will be publically held. They should act in the public's interest. They should lose profit, remuneration should be low in the bank, costs should be low in the banks (small offices, not central London monuments), and the profit loss should be cost savings for the individual. This opens income tax opportunity, the government can use this to cover the debt that they created to bail the bank out in the first place."

    Well nationalising banks will wipe out a few pension funds and ensure that everyone will have to work until 99 years old !! :-)

    "As for armagediontimes point that JP Morgan is sitting on a gazillion dollars worth of derivatives, that's a different kettle of fish and I have no idea about how to deal with that. Save wind it up."

    Crash it !! That will remove a lot of "toxic assets" from the balance sheets of various banks/insurance companies/governments simply by evaporating those "assets" and thus reducing their viability. Rampant inflation will hit those countries that haven't the assets to back their currency and a new economic day will dawn !! A bit like the tale of Noah's Ark, really !!

  • Comment number 52.

    No 32 No doubt someone will point out that this is a nefarious Chinese plot to raise the value of the US$ so they can sell off more of their US$ debts and, thus, reduce their holdings of that stuff !!

    I would sincerely suggest that you start hoarding Euros, if I were you !! Good as gold, or better even, since gold is at an all time high !!

  • Comment number 53.

    No 33 "Is it me, but after watching the Conservative Party conference I'm getting a real sense of 'Deja Vu'. It is almost like being back in the 70s and 80s at the height of the Thatcher era. The country in an economic mess; Labour failing miserably; and the unions threatening industrial action. All we need now is a 'winter of discontent'.
    I could almost feel the presence of Margaret Thatcher hovering over David Cameron as he gave his speech to the conference."

    She's not quite dead yet, you know. Therefore, I doubt that she'll "hover" over Dave the Rave !! However, if you miss St. Maggie, just look across the ditch into Germany. Frau Nein, over there, is trying to set herself up as Maggie Thatcher Mk 2. :-)

  • Comment number 54.

    THE CHICAGO=STOCKHOLM EXPRESS

    Today, the windy, corrupt city is in the news again.

    Does anyone here wonder, at all, about large, rogue, failed states, and what brings them about?

    Is anyone here into statistics and base-rate (2% of the USA population but 56% of the USA's economics laureattes) improbabilities? ;-)

  • Comment number 55.

    17. At 9:42pm on 08 Oct 2009, FrankSz wrote:

    #9 Curiousman

    It doesn't work like that. The military industry in the US is like the car industry. If you terminate these big contracts then unemployment and poverty back in the US would jump. It may be costing X but it's resulting in X*Y GDP increase for the Americans

    - Yep - it's called a 'War Economy' - which is why, despite supposed peace since 1945 the US and Britain have engaged in many conflicts simply to satisfy the greed of the arms makers.

    Human life has an 'economic value' and clearly it's well below what you probably hoped it was.

  • Comment number 56.

    23. At 10:13pm on 08 Oct 2009, BankSlickerminustheR

    I know - when I hear the opinion of the 'man on the street' it drives me to despair.
    I am sure the BBC select these clips of people people in the same way as the clips are selected for Britain's dummest animals.

  • Comment number 57.

    # 44

    So you're saying; making lending cheaper and increase taxes..

    Encouraging the transfer of debt from the public to the private sector.

    Increased tax rates do not necessarily lead to increased tax revenue and is likely to put additional pressure on businesses (depending on the nature and level of tax increases this may result in further damage to our international competitiveness and thus our oft overlooked balance of payments issues).

    Also the suggested approach would seem to be rewarding debt wile expecting others to pick up the tab for excessive government spending and a current shock to the system created due to excessive debt.

    The government is already providing cheap finance to the banks, and indirectly via the low base rate to the mortgage market; whilst lowering interest rates for businesses could have a positive impact, risk should also be taken into account with any loan and there's no guarantee that the loans would be considered "viable" at lower rates, indeed forcing down interest rates chargeable further could reduce the availability of credit to businesses and forcing lending would do little to strengthen bank balance sheets as is also being insisted upon.

  • Comment number 58.

    Did anyone see the contradiction of Tory policy?

    A few months ago the Tories were blaming Golem and Darjeling for slacking off on the regulation rope - which led to the financial crisis. This seems a fairly popular view - if this and other blogs are anything to go by.

    However yesterday he reverted to the old Tory ways of 'light Government' which folks means 'light financial regulation'.

    Now you have the benefit of hindsight - are we all prepared to let the financial services industry have another go at self regulation?

    It would appear Mr Cameron is confused and either has to change his ideology or commit to something which is unpopular with the electorate.

    The reality is he will tell you before the election he is all for regulation - but he'll soon forget it afterwards.

    You see politicians may be good liars - but they are not that good. He cannot deliver Economic stability and smaller Government simultaneously.

    Neither party is addressing the fundamental cause of the crisis because they are all in denial. The reason they do not wish to face the facts is because it's akin to discovering your whole house needs re-wiring just as you're adding the finishing touches.

    However we all know from our own experiences that if you don't address the fundamental issues they will fester and cause even bigger problems in the future - like a fire for example.

    The simple fact of the matter is your great and good leaders are too scared to tell you how bad it really is for fear you might punch them in the nose for not telling you earlier!

  • Comment number 59.

    No 36 "This is not a good sign that the would-be Prime Minister forgets the 15 Trillion US dollars which tax payers and citizens around the world had to guarantee to stop the global economy from collapsing."

    Excuse me ?? "citizens of the world" ?? What has the mad excesses of the US and UK got to do with the Chinese and the Indians ??

  • Comment number 60.

    No 38 "I think I should be the next bubble!"

    No sooner said than done !! Just spend the next whole month eating nothing but McDonalds' products !! For more proof, see "Supersize me" !! You'll definitely be the next bubble if you aren't dead by then !! :-)

  • Comment number 61.

    #24
    ClaphamBusman wrote:

    "And outlaw direct debits - much of the personal debt in this country is as a result of people signing and then forgetting direct debits and thereby allowing suppliers to help themselves to as much as they want."

    Erm direct debits are much cheaper and more efficient to administer than most other payment methods. Their absence would drive up costs which is far from desirable.
    Although the way DDs are used by utility companies tending to take more than you owe should be stooped and is against the supposed principle of them - i.e. taking what you owe (rather than some excessive estimate meaning you provide them with free finance)

  • Comment number 62.

    No 40 "I said fix the monthly repayment so that most of what is saved goes to principal repayment. SOME can go to the consumer, to be siphoned off as VAT and income tax."

    It's true that's what you posted. But in my haste to fetch and carry for she-who-must-be-obeyed, I had not completed my post.

    What I meant to say is that the savings cannot be forcibly put against the capital sum. It is not legally enforceable !! Therefore all the savings *may* go towards spending and, thus, increase the take from VAT and income and corporation taxes from the purveyors of goods and services !!

  • Comment number 63.

    No 43 Klaus is simply saying "My way or no way "!! The commission has less than a month to run this mandate !! This man really knows how to twist the knife !!

  • Comment number 64.

    50. At 3:20pm on 09 Oct 2009, ishkandar wrote:

    "If people sign direct debits, then they should make sure they have the funds to cover them. It is not the fault of the merchant if the customer over spends !! Or do you think everyone should only be allowed £10 per day pocket money and the rest *HAS* to be saved for their own good ?? That people should be treated like irresponsible kiddies ??"


    ....but that's the problem see - people do act like kiddies and there are so many of them they can easily bring the system down.

    However - to be fair to the kiddies - how are you supposed to behave when you're spoon fed consumerism from the earliest point in your life and are introduced to debt when you hit 18 - either through your instilled desire to consume or the cost of your education (for the aspirational)?

    Added to this real wages have been falling over the years so it's very difficult to survive in this country without borrowing. I mean when was the last time you heard of someone saving up to buy a house? In old-man writingsonthewall days he was able to do this - however the current generation don't have a hope.

    There are 2 ways to solve this dilemna - 1 is the nanny state and 2 is to educate your populous so they all have an excellent understanding of finance.
    The problem with the prefered option 2 is how will business be able to make money from these financially astute people - and banking would be dead.

  • Comment number 65.

    Nobel prize win 'humbles' Obama
    http://news.bbc.co.uk/1/hi/world/americas/8299824.stm

    Not bad for 6 months work!

  • Comment number 66.

    No 44 "b) Set the monthly repayment amount to drop only a bit, so that principal repayment accelerates (with the reduced interest rate) whilst putting some extra cash in the consumer's pocket"

    Modify this condition to "reduce period of repayment to enforce a higher rate of repayment of the capital sum" will do more good !! :-)

  • Comment number 67.

    No 45 "On Jim Rogers, this is the guy who recommended investing in Zimbabwe in the 1990s."

    There's still one commodity that Zimbabwe is selling a lot of *AND* they will *NOT* mess with that for political reasons !! They are flogging an awful lot of tobacco to China !!

  • Comment number 68.

    No 46 "Is gold fungible ;-)"

    Ask the Vietnamese boat people !! They seem to think it is !! Icould introduce a few to you in the UK !!

  • Comment number 69.

    59. At 4:26pm on 09 Oct 2009, ishkandar wrote:

    "Excuse me ?? "citizens of the world" ?? What has the mad excesses of the US and UK got to do with the Chinese and the Indians ??"

    ....errrr don't we owe them so much that if we don't pay they will have their own Government debt problem?

  • Comment number 70.

    # 44

    Apologies - in my earlier post I missed another obvious factor;

    The approach would basically be increasing he money supply (printing money) via the banks, giving it to lenders and then taking it back to try to pay for public spending [whether the spending is necessary or not].

    This would seem to create inflationary pressures penalising non-lenders disproportionately to lenders.

  • Comment number 71.

    No 55 "..which is why, despite supposed peace since 1945 the US and Britain have engaged in many conflicts simply to satisfy the greed of the arms makers."

    More than 100 years ago, Kipling (Rudyard, that is, not the one who makes exceedingly good cakes) wrote about "the savage wars of peace" in his poem "The White Man's burden" !! Although he wrote about Gatling-armed Americans fighting the bamboo spear and sword wielding Moros of the Philippines, it could also be read in conjunction with Iraq and Afghanistan today !!

    According to that poem, it's a few rich men who stand to gain whilst the young are sent to foreign countries to fight and die for their profits !! Worth a read every now and then to keep things in perspective.

  • Comment number 72.

    #28 "it is labour investment...." that would spending money they did not have, and could only pay back if the economy grew a boom rates for the next 10-15 years then.

    You forget that even before the credit crunch Labour was overspending by some £50-75 billion a year. Labours solution to all social ills is to spend money and if that does not work spend some more (and so on).

    We had reached the stupid situation where in parts of the country (including my home) 60-70% of the working population were either employed in the public sector or substantially dependent on state benefits, in my home time for every person who works in private sector and actually generates wealth is now responsible for supporting 2 other people working as faceless civil servants or on benefits. That is completely unsustainable.

    Your beloved Labour govt may have spent money like water but sadly all they have done is make the problems worse. Public spending needs to be slashed by 15-20% simply to make the budget balance in good times (never mind bad times).

    Whether cameron is any better is I think highly questionable. I do not see any willingness to tell us how bad the position really is

  • Comment number 73.

    48. At 2:42pm on 09 Oct 2009, nedafo wrote:
    BSR - I'll match your Jim Rogers with my Nouriel -

    Since we are now in the casino, I'd like to go in large with you on Roubini so long as I can keep my Lady Gaga.

  • Comment number 74.

    #59 ishkandar,

    "What has the mad excesses of the US and UK got to do with the Chinese and the Indians ??"


    It can be argued that they are complicit in the whole shambles. Instead of growing their economies on a sustainable basis, they over-heated them to satisfy the apparent ever=growing demand of the Western economies. They now have economies that can only sustain themselves with high %age growth. So they too are in a predicament -it just happens to be a different one.

  • Comment number 75.

    No 64 "The problem with the prefered option 2 is how will business be able to make money from these financially astute people - and banking would be dead."

    For millenia, the Chinese have been obsessive savers and their banks and businesses are still going strong. Witness the Hongkong and Shanghai Banking Corporation !! It's just a matter of adjusting to the spending patterns and trying a bit harder !!

    And I agree that it's all a matter of education (or should that be re-education ??) !! :-)

  • Comment number 76.

    # 64.

    writingsonthewall wrote:

    "Added to this real wages have been falling over the years so it's very difficult to survive in this country without borrowing. I mean when was the last time you heard of someone saving up to buy a house?"

    Borrowing to survive, sounds like the governments economic policy on a personal level, although in this case allowing house prices to fall to a sustainable, non-bubble level would achieve the desired result (although the lost "wealth" would no doubt be considered as not being politically acceptable, given that the "creation" of this was the heart of the "economic miracle".

  • Comment number 77.

    # 72.

    Justin150 wrote:

    "We had reached the stupid situation where in parts of the country (including my home) 60-70% of the working population were either employed in the public sector or substantially dependent on state benefits, in my home time for every person who works in private sector and actually generates wealth is now responsible for supporting 2 other people working as faceless civil servants or on benefits."

    Sounds like a safe labour seat to me.
    Its just a sufficiently indirect way of buying votes (with the money of those who pay into the government's coffers) to not be illegal.

  • Comment number 78.

    No 69 "....errrr don't we owe them so much that if we don't pay they will have their own Government debt problem?"

    At the moment both governments have *surplus* problems, not debt problems !! What to do with all that lovely lolly they've made with their exports !! Sticking them under the mattress makes them awfully lumpy and is not conducive to a good night's sleep !!

  • Comment number 79.

    THE COST OF ASSUMING TOO MUCH EQUALITY AND LISTENING TOO LITTLE?

    ishkandar (#50) "Oh dear, more nanny state then !! It is bad for your health, therefore we will ban it !!

    If people sign direct debits, then they should make sure they have the funds to cover them. It is not the fault of the merchant if the customer over spends !! Or do you think everyone should only be allowed £10 per day pocket money and the rest *HAS* to be saved for their own good ?? That people should be treated like irresponsible kiddies ??"


    Let me remind you of the subtle reality of cognitive diversity and what it entails. Cognitive ability is largely genetic and inherited. It is Normally Distributed (Bell Curve). This means that 2/3 of the populations of most European countries have an IQ between 85 and 115. However, due to changes in immigration and birth rates which go with immigration, plus other factors skewing the birth rate, the population mean can shift, changing the proportion of the population with low 'skills' and educability. The mean of many S. Asian countries is in the 80s and in some Sub-Saharan African countries the mean is about 70. This means, for the latter countries, 2/3 of the population has an IQ between 55 and 85 and 84% of the population has an IQ below 85. Now, the point here is that there are classes of behaviour which become more rare (i.e. less frequent) as one moves down the IQ distribution, these include tasks requiring numeracy and the ability to inhibit behaviour i.e delay gratification. Think of it in terms of people being more child-like as IQ is lower (it's why we used to talk about IQ in terms of Mental Age and Chronological Age). The nanny-state idea comes when you recognise that some people (and in some nations, this amounts to most people) just are not literate/numerate enough to manage a bank account, credit or a lot else. Such nations do better with nanny states, authoritarian, or command economies where the country is planned and people are not left to choose, because they can't do so in an informed way.

    Things have been happening in both the USA and Europe. The demographics have been changing. Making out that everyone is equal is fine if one only mixes with people like oneself who frequent blog, but many people can't string sentences together, and they can't plan, and are very easily duped, or other wise preyed upon like Monty Slater. Note year of link - 2003. Note the 'witnesses'...

  • Comment number 80.

    ishkadar (#75) "For millenia, the Chinese have been obsessive savers and their banks and businesses are still going strong. Witness the Hongkong and Shanghai Banking Corporation"

    The Chinese and other East Asians have the highest group mean IQ on the planet next to Ashkenazi Jews. They lead the way in our schools too (and in the USA).

  • Comment number 81.

    No 74 FDD - "....errrr don't we owe them so much that if we don't pay they will have their own Government debt problem?"

    They *HAVE* to grow rapidly in order to get the wealth to (hopefully) re-distribute to their less fortunate brethren.

    Look behind the Golden Wall of Southern and Eastern China and you'll see a huge (800 million) population still in poverty in the Central provinces !! Their current project(s), to build 4 high speed rails laterally (East to West) and 4 more North to South, will go some way towards ameliorating their unemployment and poverty problems *BUT* the "money has to come from somewhere" !! Borrowing is an anathema to them !!

  • Comment number 82.

    # 78. ishkandar wrote:

    "At the moment both governments have *surplus* problems, not debt problems !! What to do with all that lovely lolly they've made with their exports !! Sticking them under the mattress makes them awfully lumpy and is not conducive to a good night's sleep !!"

    Very true, all from underwriting the consumerism of the west and elevating its standard of living & in turn they buy up our industries.

    If the trend continues the UK private sector will be owned by China and the Middle East meaning profits leave the country and its even harder to fund public services or indeed, once there's nothing left to sell, to sustain sterling and finance imports.

  • Comment number 83.

    ishkandar (#68) "Ask the Vietnamese boat people !! They seem to think it is !! Icould introduce a few to you in the UK !!"

    No need, altough many Chimnese are prone to magical thinking too. If you want to see another example of the type of thinking covered in the article I linked, you need only browse the Newsnight blog. I'm pretty sure it's got to be a Central/Eastern European prevalence issue - i.e. a penchant for very creative writing/thinking in the absence of evidence.

  • Comment number 84.

    #69

    Its true that China would lose a lot of the wealth it has built up in recent years if we defaulted on our debts to them, but then they're already massively exposed to a collapse in USD.

    However, it is just stockpiled wealth, they don't use most of it or indeed "need" it.

    Defaulting on debt would devastate our credit rating and cause a massive loss of confidence, resulting in considerable economic problem.
    However, these would be nothing compared compared to if China decided it didn't want to play our games and decided to use its economic muscle and our dependence on it to sabotage the economy.
    Things are bad now, but its hard to envisage quite how horrendous things could get in such a scenario.

  • Comment number 85.

    # 75. ishkandar wrote:

    "For millenia, the Chinese have been obsessive savers and their banks and businesses are still going strong.!!"

    High savings mean there are funds available to invest, without resorting to excessive leverage via high capital-asset ratios.

    Also, Eastern philosophy tends to be more long-term, encouraging a structured, planned approach and not requiring immediate pay-back and so ideally suited to investment in the future.


  • Comment number 86.

    #84 Reaper_of_Souls I think are using the wrong tense. China has decided that it doesn´t want to play our games and is taking actions to defend itself. This will have the consequence of destroying our economy.

    Actions have been taken, we are simply waiting for the consequences of those actions to become manifest. If we assume (big assumption) that war is avoided then go visit parts of the third world for an insight as to how we will be living quite soon.

    You want evidence read Robert Fisk. Look at Chinese pronouncements regarding gold and how its companies have been granted the right to renage on derivatives contracts where the counterparty is something other than non Chinese entities.

    JP Morgan is not a Chinese bank. JP Morgan has a balance sheet of $89 trillion.

    Prior to making their pronouncement on gold the Chinese paid for consultation with GATA. What do GATA say about gold? If what they say is correct then what are the predictible effects of Chinese actions?

    Full spectrum meltdown is the inescapable future. Prepare to defend yourself and to adapt or get crushed. As Margaret Thatcher once said "there is no alternative." The tipping point has been passed.

  • Comment number 87.

    At 7:27pm on 08 Oct 2009, Garthking wrote:
    Actually, I'm not sure Dave and George do understand.


    Do you understand. It's ok banging on about "Dave and George", just tell me how Brown and puppet Darling are actually addressing the deficit, let alone the debt.

    Go on, tell me.

  • Comment number 88.

  • Comment number 89.

    'ASK NOT WHAT'S INSIDE YOUR HEAD, BUT WHAT YOUR HEAD'S INSIDE OF'

    armagediontimes (#86) "You want evidence read Robert Fisk. Look at Chinese pronouncements regarding gold and how its companies have been granted the right to renege on derivatives contracts where the counterparty is something other than non Chinese entities."

    The Chinese and others appear to want a basket of currencies as a reserve currency in order to spread the risk rather than depend on the dollar or any other single currency. Prima facie, that's just good sense is it not? They certainly have leverage and they may well use that politically, but why would they want to reduce the USA to a Third World economy when it's already doing that all by itself as I keep pointing out? Europe isn't far behind on that score. It's a consequence of changing demographics and genes. Too many people here live in their heads rather than what their heads are inside of...

  • Comment number 90.

    # 86.

    armagediontimes wrote:

    "I think are using the wrong tense. China has decided that it doesn´t want to play our games and is taking actions to defend itself. This will have the consequence of destroying our economy."

    Current Chinese actions are just defensive, without the west provoking economic warfare by refusing to honour debts (as a previous post suggested was an option).

    The US certainly has a shock coming with one of the main supporting demands for dollars potentially being removed.

    However, China still has some interest in keeping western economies functional to maintain its export markets, although if their raw materials purchases can be supported via other trade...

  • Comment number 91.

    No 84 "However, these would be nothing compared compared to if China decided it didn't want to play our games and decided to use its economic muscle and our dependence on it to sabotage the economy."

    The wicket flees where no man pursues !! What *earthly* reason would China want to sabotage the British economy ?? Are they scared of three teeny, little Trident subs will do them great harm ?? They have far bigger fish to fry than worrying about the British economy !! The EU economy, perhaps !! The US economy, definitely !!

    Perhaps Britain should worry more about getting its own house in order and less about trying to play at being a top-table member. Our own government is probably doing more to damage and destroy trust in our economy than any external enemy (real or perceived) could !! If we can't sort out our internal problems, all external enemies pale into insignificance !!

    Now, back to the needed cuts....

  • Comment number 92.

    #89 Jadedjean. That is one way of looking at things. But you need to explain gold. Why have they urged their citizens to buy gold?, why does the state want to buy gold?, why do they want gold in the basket of currencies?, and why have they moved to ban the export of gold?

    Look up Larry Summers academic publications, look up the core complaint of GATA. Then tell me how if there is anything other than the obvious explantion. The BBC have previously banned my posts which sought to specifically explain the academic publications of Mr. Summers.

    It has nothing to do with genes and everything to do with the (alleged)rigging of markets.

  • Comment number 93.

    No 89 "JP Morgan is not a Chinese bank. JP Morgan has a balance sheet of $89 trillion."

    It is also absolutely trustworthy !! Why, it has no less a personage than Our Glorious Former Leader, a Mr. A Blair, advising them for a mere $1 million a year !!

  • Comment number 94.

    armagediontimes (#92)

    "During the California energy crisis of 2000, then-Treasury Secretary Summers teamed with Alan Greenspan and Enron executive Kenneth Lay to lecture California Governor Gray Davis on the causes of the crisis, explaining that the problem was excessive government regulation.[11] Under the advice of Kenneth Lay, Summers urged Davis to relax California's environmental standards in order to reassure the markets.

    Summers hailed the Gramm-Leach-Bliley Act in 1999, which lifted more than six decades of restrictions against banks offering commercial banking, insurance, and investment services (by repealing key provisions in the 1933 Glass-Steagall Act): "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," Summers said. "This historic legislation will better enable American companies to compete in the new economy." Many critics, including President Barack Obama, have suggested the 2007 subprime mortgage financial crisis was caused by the partial repeal of the 1933 Glass-Steagall Act."


    Wikpedia Entry

    You surely aren't surprised that the BBC pulls posts which make the sorts of allegations you mention? Isn't the above enough? He's one of the 'libertarians' - unwitting or not. Still, if you have references, by all means post them. The belief that markets could determine value and not be open to 'rigging' beggars belief, post 1999 surely?

  • Comment number 95.

    #70 Reaper Of Souls

    Well it would be inflationary in the sense that it would be attacking the length of time ongoing deflation could persist, but that's being generous.

  • Comment number 96.

    I am off for a drive to the mountains . I need to try my new differential.

    In the meantime, think seriously once again please about the consequences of forcing interest rates for existing loans down, while capturing part of the resulting consumer saving as income tax and VAT.

    I really, really think this is a seriously viable way out.

    Bear in mind that Australia is doing better than both the UK and the US in terms of economic stabilisation because AND THIS IS IMPORTANT because it is aiming fiscal stimulus at the individual, not at the bank....

  • Comment number 97.

    #94 Jadedjean. OK try these

    http://www.gold-eagle.com/editorials_01/howe082201.html

    http://www.gata.org/node/4165

    You can find a lot more if you wish. Search for "Gibsons Paradox Lawrence Summers" Is any of this true? If it is not true then the Chinese are going to find out once and for all.

    If it is true then the bullet has been fired - imagine the exposure of "commercial" organisations with huge naked short positions that are all going to get called. Who can save them?

    Why did they pay for consultancy with GATA? Why did they act as they have done? It goes beyond academic economics - remember Litvinyenko, different reasons but the MO is clear. People are fed up, and they intend ending it. It is deliberate, the consequences are known and understood but they press ahead regardless.

    Full spectrun meltdown is coming.

  • Comment number 98.

    #95

    FrankSz

    Your previous proposal was "existing and new loans"...

    thus the government would be increasing the money supply - more money, without an increase in underlying value tends to logically reduce the value of money i.e. cause inflation...
    The current money creation via QE should result in inflationary pressure, however this is currently happening as that money is merely being used to strengthen the balance sheets of the banks.

    Of course if this were only applied to existing loans, money supply wouldn't be increased, but then this would discriminate in favour of existing borrowers and be less of a "stimulus". There would be all sorts of issues with this being anti-competitive both in terms of finance and in favouring those with existing loans with nationalised banks.
    The entire basis of your suggestion is inherently flawed in that it looks to "reward" personal debt whilst expecting others to pick up the tab.
    The denial of the need for cuts in public sector expenditure, which has got out of control and is living beyond our means is worrying.
    The expectation that increased tax rates will result in greater tax income is simplistic, there may indeed by some need for tax increases given the scale of the problem that has been created, but care needs to be taken as to the level of these and how they are targeted and structured; but these must be combined with getting spending under control. There's no point in throwing more money into state control if we're not spending it effectively.

    There is however a reasonable core to your argument, financing the strengthening of bank balance sheets isn't much of a stimulus to the rest of the economy, and if it is to have such an effect a considerable lag is likely. The classic stimulus approach revolves around investment, borrowing to put the building blocks in place to be more competitive in the future, but there has been little sign of such projects, and governments history of selecting and controlling such items is far from good; pandering to interest groups for political capital rather than focusing on benefit to the economy and negligent failing to control costs. The fact the public sector tended to be the main target of cartel operations in the constructions industry comes as no great surprise given the naivety of much of the public sector in commercial matters which is responsible for considerable waste.

    I would certainly prefer people to be able to choose how to spend their money rather than having the government fritter it away on the pet project of the day, the problem is, with our reliance on imports to meet demand, a significant part of money released to fuel increased consumption is likely to exit the economy and be lost to the likes of China. We certainly need to do what we can to keep the wheels oiled and the real economy ticking over or risk taking even more of a hit, but this is likely better to be done more directly rather than via overspending in the public sector.


    As to Australia, Australia is not the UK and the US, different countries face different challenges, the UK's level of dependence on financial services and its levels of personal debt and obsession with excessive house prices did much to define its poor position to handle the downturn.
    It may be a global problem, but we in the UK were massively exposed due to economic mismanagement.

  • Comment number 99.

    # 97 armagediontimes

    You may know that Sephanie has interviewed last month Lawrence Summers in the context of the Pittsburgh Summit:
    http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/09/three_big_picture_objectives_f.html
    Stephanie may rather like Summers' pragmatic, no nonsense, money is power attitude.
    What a shame that Lawrence Summers' former de-regulation dogmatism has so spectacularly backfired and almost bankrupted the US and the UK. Never mind, Summers may say one day, we all get it wrong sometimes.
    I hope he will avoid costly mistakes in future! I also hope that Obama is more intelligent than Clinton and reins in the Wall Street cowboys and remaining neo-liberal economists before they can create even more destruction.
    Nobel Laureate Prof Joseph Stiglitz is a much better choice for sound advice. Nobel Laureate Stiglitz and Nobel Laureate Obama would be a dream team!

  • Comment number 100.

    No 97 "If it is not true then the Chinese are going to find out once and for all.

    If it is true then the bullet has been fired - imagine the exposure of "commercial" organisations with huge naked short positions that are all going to get called. Who can save them?"

    The Chinese know all about huge naked short positions being called, alright !! The two cases that spring immediately to mind are the Copper case at the LME and the oil/aviation fuel case in Singapore. The trouble is that knowing is one thing but getting people trustworthy to do the dealing honestly is another thing altogether.

    Until recently, most of their major traders for SOEs were politically connected appointees !! They know everything about Mao's Little Red Book and the right phrases to utter at the right time than they do about trading !! So the State lost billions in just those two cases alone !! The two aforementioned persons were recalled and "dealt with". Since then, the state has been scouring the world for traders with the requisite knowledge BUT *of Chinese origin* because, in their thinking, such persons are more trustworthy !!

    So much for Socialism with Chinese characteristics !!

    As for who can save them, they have to reserves to weather such storms, at least for quite a while AND they have the examples of the aforementioned pair "to encourage others" !!

 

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