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Listed below are comments made by Friendlycard between Wednesday, 11th November 2009 and Wednesday, 25th November 2009.

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UK still technically in recession 1:39pm on 25 Nov 2009 19. Co-operateordie:

A very perceptive assessment. The comparison with Norway is interesting. Norway puts its oil revenues into a fund for the future (NPF-G), whereas we squandered the lot on current spending. Much the same is true of asset sales proceeds. Where council house sales are concerned, I'm in favour of giving people the option of home ownership, but believed very strongly, all along, that the proceeds should have been invested in new housing. Similarly, our public sector pension obligation is not funded, but is paid for out of current taxation. This stores up problems for the future (and, incidentally, means that reported government debt is a huge understatement of true liabilities - if government obligations were marked-to-market, our national debt figure would be frightening).

Now some would argue - rightly - that Norway is a very different country, with a much bigger resource-per-capita equation. But what worries me is the attitude that we take - irrespective of which party is in power, we seem to want current consumption at the expense of longer-term prudence.

I don't particularly blame politicians for this - their short-termism will continue, unless or until we get a cultural change away from our 'want it now, don't want to save for the future' mentality.
UK still technically in recession 1:30pm on 25 Nov 2009 15. writingsonthewall:

Yes, I agree. One of my favourite commentators on this has warned of a "statistical recovery" - the numbers look better but do not actually reflect the reality. So yes, we do need to be cautious, especially where Eurozone 'recovery' is concerned.

On this subject, there are serious problems at the 'periphery' of the Eurozone. Greece is in a dreadful mess, and, where Spain is concerned, a lot of problems have been 'hidden under the carpet', I suspect, through not marking-to-market (the reported modest fall in average Spanish property prices looks completely counter-intuitive). Spanish unemployment (almost 20%, and almost 40% for under-25s) is frightening, and not getting any better. Italy doesn't look good either, and much the same can be said of several eastern EZ members.

I still maintain, however, that the UK is underperforming economies hitherto considered comparable, including Germany, France and the US. GDP comparisons are difficult across different currencies. Even if UK GDP performed 'strongly' (as reported in sterling), the international value of UK economic output would still be very much lower than it was two years ago, because of the slump in the purchasing power of sterling.

If you go to Eurozone holiday destinations hitherto popular with British visitors, you will see sharp downturns in business because of the comparative poverty (in euros) of British tourists. In Europe, Brits are often seen as 'the new poor'. A weaker exchange rate obviously benefits exporters, but can only do so if you have an adequate exporting base which, I would argue, is no longer the case here. On the other hand, imports obviously cost more, a big problem now that we have swung from energy surplus to energy deficiency.

Taking rising import costs (via weak sterling) and QE into account, the medium-term outlook seems to me an inflationary one. Government therefore needs to reassure international markets that the deficit is under control. Markets know that an election is due, so do not realistically expect action on the deficit before next June. After that, though, some form of action will be imperative.
UK still technically in recession 11:55am on 25 Nov 2009 Stephanie:

I commend the way in which you try to see the silver lining behind each economic cloud, but in the current UK situation this simply doesn't convince. The US is out of recession. The core Eurozone countries are out of recession. The UK is being left behind. And can I remind you that Mr Brown said that Britain was "best placed" to weather an economic downturn?

The UK recession is structural. We relied too much on financial services. The government spends too much, and is now monetizing debt, thereby building in both exchange rate and inflationary risk. Business is being strangled by bureaucracy.

It's time to face the fact that this economic model - 'building a new welfare state on the tax revenue from financial services' - isn't working.
Tories tweaking their message 7:07pm on 23 Nov 2009 56. gruad999:

Yes, it's QE. The deficit is predicted at £175bn this year, and the DMO needs to raise £220bn. At £200 bn, QE is right in the middle of that range (and actually exceeds the deficit).

The Bank claims that they aren't monetising debt (which is illegal under the Maastricht treaty anyway) because they are purchasing existing gilts. But this is specious - they are buying gilts from institutions which need a proportion of their funds in gilts, so therefore go straight out and buy new ones.

So yes - in my view, government is printing the deficit. What a shambles.
Tories tweaking their message 7:03pm on 23 Nov 2009 You are too complacent about the market implications of excessive borrowing, in my opinion.

The markets know that we have an election next summer, and expect the Tories to win it. That's why there's been no run on British debt. If the Tories don't win - or if there's a hung Parliament - sterling will drop like a stone and interest rates will have to be jacked up sharply in an effort to avert a sterling crisis. How will THAT help the economy?
Not the Queen's Speech 3:10pm on 18 Nov 2009 One thing intrigues me here. Why is government so keen on strengthening copyright law? Most people in the UK couldn't give a stuff about this, so why bother wasting Parliamentary time on it?
Cautious good cheer 7:55pm on 11 Nov 2009 39. Rugbyprof:

You make some very good points.

Essentially, we're in a bind. If we cut public spending, we get a downwards impact on demand. If we go on borrowing at these levels, interest rates go up. If we go on printing money, sterling slumps and inflation soars. And if we raise taxes then, as you rightly say, we get the drag effect.

I think one does need private sector experience to understand this. And I would add that we're in a global economy. If taxes are pushed too high, companies won't invest here. Bright entrepeneurs, who might otherwise have started new SMEs (which are the lifeblood of the economy) will start their businesses overseas instead.

Capital, innovation and management are global, and countries have to compete to attract them. This doesn't seem to be understood in the UK.

Bottom line is that the world is competitive. It doesn't owe us a living. We don't have a divine right to be one of the world's richer economies. We have to earn a living like everyone else. And part of that means living within our collective means.

I'm quite sure that no politician is going to tell us this ahead of the election. After it, we're either (a) going to get a very nasty combination of spending cuts and tax hikes, or (b) going to try to muddle through, which could be lethal, because running deficits and printing the difference is viable only as a very short-term strategy.
Cautious good cheer 5:36pm on 11 Nov 2009 24. Rugbyprof:

"Calm before the storm anyone?"

Exactly. I think the markets realise that, realistically, nothing is going to be done before the election. But they will expect immediate action thereafter. And i just can't see any government doing what is necessary.

Our politicians are being less than honest about this. The deficit is GBP 175bn. Mr Osborne's 'tough' proposal at the conference would save just GBP 7bn. Mr Brown plans to realise GBP 16bn, but that's a one-off sale of assets that cannot be repeated year after year.

Think of it like this. We need to cut the deficit by at least GBP 150bn. That equates to GBP 5,900 per household. This is going to get very unpleasant.
Cautious good cheer 5:29pm on 11 Nov 2009 11. writingsonthewall wrote:

".....let me guess, you work in the private sector perhaps?"

Yes, and I'm proud of it.

But the point I was making was that we are going to need BOTH spending cuts AND tax increases to bridge a huge chasm between income and expenditure. We're on watch from the markets - we either live closer to our means, or we see our rating cut, the pound slide even further, and interest rates rise.

Currently, the gap is 14% of GDP. Assume that we need to get that down to 3% (the level defined by Maastricht as 'prudent'). Doing it entirely through tax increases would mean pushing up taxes by about 31% (11% as a % of 35%). That would be a disaster - businesses would leave in droves, and individuals' disposable incomes would crater.

But neither can we do it all through spending. Here, we'd have to cut spending by 22%. Again, not feasible.

So we need a combination of both. We could put the UK onto a sustainable trajectory with a 10% cut in spending and a 10% rise in taxes. It's not a very palatable option, but not impossible. And spending far more than we earn in taxes, and then simply printing the difference, is a recipe for disaster.
Cautious good cheer 2:51pm on 11 Nov 2009 Essentially, QE means that HMG is printing money to pay for a deficit that can't be funded through normal borrowing. In turn, QE is undermining confidence in sterling, which is reflected in the weakening of the credit rating. This in turn means higher interest rates, which in turn will dent economic viability.

So it's a viscious spiral with only one solution - which is that cutting public spending is imperative.

This year, government is set to spend 49% of GDP whilst raising only 35% in tax. Taxes are going to have to rise massively, and there will need to be very deep cuts in spending, and yes, that does mean huge job cuts.

This mess is the consequence of simple incompetence - spending has got out of control on the assumption that revenue growth would never falter because of the abolition of "boom and bust". If we survive this at all, we shall do so in a permanently weaker and poorer state.

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