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G20: Good and bad for UK

Robert Peston | 09:54 UK time, Monday, 17 November 2008

Barack Obama said last night that he would do "whatever it takes" to "avoid a deepening recession" and that "we shouldn't worry about the deficit next year or even the year after."

Michelle and Barack Obama on 60 MinutesThis commitment to pull out all the fiscal stops to avoid a slump, in a recorded interview for CBS News's "60 Minutes", was probably music to the ears of Gordon Brown.

After all, if the US cuts taxes, increases public spending and borrows as if there's no tomorrow, surely that provides cover for the UK to do something similar next Monday in the Pre Budget Report.

But does it? It probably provides political cover. "What's good for America is surely good for us," will be a natural conclusion for many to draw. And in the sense that the whole world would benefit if America's downturn could be a short and relatively shallow one, that would be correct.

It would, however, be potentially dangerous to assume that America's economic policy can simply be replicated in the UK - because, and this is perhaps deeply unfair, international investors condone apparently reckless fiscal behaviour by the US, while punishing similar behaviour by other economies (such as ours).

For all the damage over the past eight years to America's reputation for sound economic stewardship, the dollar is still the world's reserve currency.

Its public sector debt is well over $10,000bn, equivalent to around 80% of US economic output - which is double the share of GDP take by UK government debt (albeit on official figures that many would say understate the true level of British public-sector liabilities).

What's more, even before the advent of Obama, the US national debt has been on a strongly rising trend.

And yet given a choice between buying dollars and pounds, international investors have been opting for the greenback - and how. The value of sterling against the dollar has fallen by a quarter in just the past four months.

Or to put it another way, the US - still the world's biggest and most powerful economy - plays by its own rules. Rightly or wrongly, it is perceived to be fundamentally more robust than our economy. Which means that the US can live beyond its means to a greater extent and for longer than the UK, and yet be spanked less by international investors.

So some will feel it's a little unfair that so much opprobrium has been heaped on the head of George Osborne, the shadow chancellor, for warning that there's a risk of a damaging run on the pound, in the event that our national debt was perceived to have escalated to worryingly high levels.

Maybe, locked in the bowels of the Treasury, there is a secret book of fiscal and monetary etiquette that defines what chancellor and shadow chancellor may say at times of economic crisis. Maybe Osborne has committed a terrible breach of the Treasury's club rules, the equivalent of passing the port in the wrong direction.

That said, perhaps it was the furious reaction of ministers to Osborne's remarks that was more telling, in what it implied about their fears for sterling's vulnerability.

In that context, what mattered more for Brown than Obama's "I-heart-debt" vow was the statement by the G20 group of leading economies on Saturday night that they would "use fiscal measures to stimulate domestic demand to rapid effect."

What would suit the UK would be a massive increase in borrowing by all our competitor economies. Because if all economies were perceived to be shackled by mad levels of public-sector debt, then there would be no reason to single out the UK as being unusually burdened by the expense of service its borrowings.

But even then, the competitive position of the UK in an international beauty contest for investors' cash isn't brilliant.

Right now, our economy appears to be contracting more than that of any other major economy (a view reinforced by the CBI's forecast this morning that the UK's GDP will shrink 1.7% in 2009).

And although there are concerns about whether the eurozone economies will cohere at a time of such global stress, money managers right now prefer the apparent safety of investing in a currency, the euro, that pertains to a huge economy, rather than in sterling and the smaller British economy.

Which is why on the Ten O'Clock News last Thursday I highlighted sterling's weakness against the euro as a particular concern.

As for the other part of the G20's statement, on making financial markets safer and improving the regulation of financial institutions, Gordon Brown can take some satisfaction that the blueprint is similar to what the UK wanted.

Even so, he may regret getting what he wants. There will be significant costs to the UK over the next three to five years - and perhaps longer - of putting the financial economy on a sounder, more stable footing.

The G20's insistence that all financial institutions - from banks, to insurers, to hedge funds and private equity - should hold more capital and more cash means they will conduct less business and will generate significantly reduced profits.

The City of London will shrink. And what was for many years the engine of the British economy, generating a third of economic growth and a significant proportion of tax revenues, will be running at 30mph, not 90mph.

There is a cost to making the world a safer place. And much of the bill is being picked up by the UK.

UPDATE: Thanks to UltraTon for pointing out typo in paragraph three, now corrected.

Comments

Page 1 of 3

  • Comment number 1.

    In other words ! Go back to the models of ratios and lending respsonibly.

    Brown is loving his "new " role. He is doing what he loves best ! Dictating and being a control freak, without having had much of that in the financial sector.

    The UK is in crisis and he is digging the hole bigger and bigger. If anyone is in doubt about the problems then speak to local business owners. They are in meltdown and the way things are we will have half our non public sector workers laid off in January.

    Browns tax take and the tax rebates after layoff will be the final nail in his coffin. We need to get rid of this Government NOW !

    I suppose with his proposed Christmas "freebies" to the NON working class we should buy shares in Booze and fag producers

    Had enough

  • Comment number 2.

    Robert Peston, the willing fool who has helped this Labour government destroy 40,000 jobs in the takeover of HBOS by Lloyds.


    No one needs any lesson from this person on what is good or bad for the UK economy.

  • Comment number 3.

    This is amazing.

    Robert seems to have recognised that, far from being "best placed" to weather a "global" economic downturn (as Brown keeps telling us), we're heading into a home-made economic catastrophe.

    Never thought I would read it here!

  • Comment number 4.

    Good post as always. However, think there was a slip in the third para. "After all, if the US cuts taxes, increases taxes..." should read "After all, if the US cuts interest rates, increases taxes," shouldn't it?

  • Comment number 5.

    *The City of London will shrink. And what was for many years the engine of the British economy, generating a third of economic growth and a significant proportion of tax revenues, will be running at 30mph, not 90mph.*

    And a large part of the remaining two thirds was generated by consumer spending fueled by the cash machine installed in their back gardens plus credit card and other forms of debt.

    *There is a cost to making the world a safer place. And much of the bill is being picked up by the UK.*

    This sentence is totally misleading. It reads as if the UK had been landed an unexpected huge bill from a charity that it must pay. What the UK has received is not a bill, but a letter from the lenders asking for their money back. Yes, the one that was used to fuel the so-called economic growth that you refer to in your sentence about the *engine of the British economy*.

    And to solve this, Gordo wants to borrow even more to allow consumers to carry on spending. Crazy, methinks.

  • Comment number 6.

    Courtesy of The Daily Mash...


    The Pound is not just great, it's fabulous, the prime minister confirmed last night.

    Gordon Brown said he could not understand why anyone would say the Pound had collapsed in value by around 30% in the last three months when that was obviously not the case.

    He added: "According to this top secret report from MI5, a pound is now worth at least $47 while my network of spies has established beyond doubt that the Euro is simply a figment of your imagination."

    The prime minister spoke out following shadow chancellor George Osborne's nervous breakdown and his outlandish claim that the Pound seems to be doing particularly badly at the moment.


    Mr Brown added: "It saddens me when a young man such as Mr Osborne loses his mind and starts inventing fantasy exchange rates and fictional currencies.

    "This is a time when politicians of all parties should be in agreement. With me.

    "It is certainly not a time to go around pointing things out like some kind of homicidal maniac."

    Meanwhile Mr Brown will today outline his latest plan to kick-start the British economy with a series of tax cuts funded by "starlight, sunbeams and happy, happy thoughts".

    He will also unveil dozens of multi-billion pound infrastructure projects, including a state-of-the-art hospital for damaged fruit and a high-speed rail link to the undersea kingdom of Atlantis.


  • Comment number 7.

    GB seems to think that it is only government borrowing that matters, but when you take all of UK borrowing into account, whether or not you include the unfunded state liabilities, it is clear that, overall, the UK has been living beyond its means for several years because the level of overall debt has grown year on year, at the same time as savings - particularly pension savings - have fallen.

    Like a reckless individual borrower, a reckless country must, at some time, deal with an ever increasing debt, either by going bankrupt, or by living within its means, and showing the lender that it can pay down the debt instead of always increasing it.

    If our politicians are too weak to face government in austere times, while debt is being paid down, it may eventually fall on others (probably the IMF) to force the issue.

    An individual has the option of going bankrupt and walking away from most of their debts, which only stays on their record for a few years, but the consequences of the country doing the same are unthinkable.

    It seems to me that we need to think how we can somehow share the austerity fairly without resorting to further borrowing. Government ministers, BoE bosses, FSA bosses and unscrupulous bankers taking a big pay cut would seem to be a good starting point.

    The government just borrowing more and more, and cutting interest rates to try an stimulate more individual and business borrowing, does not seem to me to address the fundamental issue

  • Comment number 8.

    Wow some minor criticism of the government from the bbc

    now all we need is journalists who push for an answer to the question not a prepared statement

    shame no one remembered in '97 that you can have a functioning society or a labour government

  • Comment number 9.

    It would be nice if the truth could be reported about what was really said fiscal stimulii.


    QUESTIONER: What countries do you think should have it?
    MR. STRAUSS-KAHN: As I've just told you, I'm not going to make an announcement in place of the countries, but I want to answer your question candidly. Everywhere where it's possible. Everywhere were you have some room concerning debt sustainability. Everywhere where inflation is low enough not to risk having some kind of return of inflation, this effort has to be made.

    The answer is not everywhere - THAT CAN AFFORD IT

    Will we see a balanced and real reporting of what was said.
    Or will we just be told Gordon has got a green light?

  • Comment number 10.

    May I suggest you teach some of your BBC commentators a few financial facts of life.

    Their political take on Osborne and sterling made it clear not one of them was aware of the basics of what they were discussing lets alone that sterling had already fallen 20% against the US$.

    Bias is one thing, incompetence is another but BBC reporing on recent economic stories carries both to extremes...

  • Comment number 11.

    I think that going forward, we are in BIG doo doo.

    As a taxpayer I can say this, I don’t have the stomach for bailing anyone else out. I’m sick of paying for all the scroungers then when it goes wrong, having to pay to bail out the folk who created the scroungers!!!

  • Comment number 12.

    Am I wrong in thinking that a weak pound will encourage overseas investment in the UK, especially in the manufacturing sectors? It would be cheaper to invest here now; and British exports would be cheaper in countries with strong currencies like US and EU?

    Does the weak sterling also reduce our overseas debts? It's normally a trick the US when it's in too much debt with other countries - just reduce the value of the dollar? Just a couple of thoughts.

  • Comment number 13.

    It's easy to save money in our situation as a country at least.
    STOP THE ILLEGAL WARS.

    STOP THE EVER INCREASING GOVERNMENT.

    I shall be refusing to pay my tax bill this year and I suggest all that can do the same until we see some form of accountability and professionalism from this government.

  • Comment number 14.

    I agree with #10 - last nights 10 pm news report by Hugh Pym on Government debt stated that debt was back to around what it was in 1997 implying that we were in quite a good position.

    It ignored the PPI and massive unfunded public pensions liabilities the state (ie the taxpayers many of whom can't afford a pension) are responsible for.

    As a minimum the rather useless and not comparible state of statistics on national debt reported by different countries should be mentioned by BBC commentators.

    Having said that I hope the recent statements by some conservatives that real total public debt is around £1600 Bn are not correct as just servicing that will be a real problem in the future (and to add to the gloom this excludes non state debt of around £1100 Bn).

  • Comment number 15.

    Very good article Robert!

    In the recent past, as you imply, the earnings of the financial services sector have been a net contributer to the UK economy, therefore helping us consume more than we produce. Will this still be the case over the next few years? After all, does not the banking baleout mean that we are paying back private (as well as public) debt to foreign institutions via the issue of government bonds?
    ¸
    Also, the post af attorney general or shadow must be held by a lawyer. It's high time that there was a requirement for the chancellor or his shadow to be qualified in some numerate discpline: - at least A level maths (or equivalent)? This would have excluded both Osbo and Gordon Brown wouldn't it?

    I don't necessarily include economics as a numerate discipline either. Like some contributers to this blog, too many economists are prone to start with an ideology as to how they would like the world to be, then mould their perception of the facts around it.

    One final point: I wonder whether the hedge funds who finance Osborne's office are long or short in sterling? He may be absolutely honest, but Caesar's wife must be above suspicion. We cannot have any of these people funding any political party. This is not anti Tory: the perceived relationship of New Labour with some of its corporate sponsors has not been one which inspires trust in politicians.

  • Comment number 16.

    The crisis-point that we are facing - sooner rather than later, I suspect - is the moment at which foreigners will no longer lend to HMG. After all, why should they take the risk when there is plenty of competition for their funds?

    At that point, the Brown strategy - of pump-priming the economy with tax cuts and spending hikes, both funded by debt - will implode, because the implicit borrowing will not be available.

    My suspicion is that this crisis-point will be reached in January or February of 2009. Brown and his government will have the last remaining shreds of credibility stripped away. So too, unfortunately, will the UK economy.

    The inescapable conclusion seems to be that we are heading over an economic Niagara in a broken barrel.

  • Comment number 17.

    When will we here Gordon’s war cry?

    “Things can only get better”

  • Comment number 18.

    What is now abundantly clear is that the whole world economy was entirely dependent on a credit and housing bubble, i.e. even those countries that were not reckless in this way, e.g. China, Germany and Japan, are nonetheless inextricably bound up and so adversely affected by the mess affecting the USA, UK, Spain and Ireland.

    I thus fail to see how any 'fiscal stimulus' will kick-start a system that was itself run on I.O.Us, which, by their very nature, had to be repaid at some point, but are so extensive that there is no likelihood of them being so.

    But given that the politicians and economists haven't an alternative to a system that has died, it is understandable that they are desperately trying to resuscitate the body on life support, however futile that may be.

  • Comment number 19.

    at the risk of more smirking from those doing very nicely thanks can I just point out that in respect of this masterly euphemism:

    "There will be significant costs to the UK over the next three to five years - and perhaps longer - of putting the financial economy on a sounder, more stable footing"

    it means vast numbers of people and firms going bankrupt. This is how the banks are 'recapitalising'.

    Having a stable, sounder financial economy won't much matter then, except to pay the costs of state support. That's even if he succeeds, which he won't and if people agree to having their livelihoods stripped away, which they won't for much longer.

    If Brown had a scintilla of social conscience he would place a moratorium on legal proceedings for recovery of 'debt' right now. But he hasn't, has he?


    GC


  • Comment number 20.

    @12

    You're not wrong in that a weak pound makes exports cheaper and imports more expensive. That's not all good news, though, because:

    1. We import more than we export

    2. We are trying to export to the eurozone and the US, both of which are about to have punishing recessions as well, so imported British goods may still not sell even if they're cheaper

    3. Currency instability is bad for the UK's reputation as a place to do business - if Nissan (say) wants to set up in Germany or the UK, the UK has an advantage of cheapness now, but no reliability of exchange rates relative to the other major European economies, who are all on the euro.

    So yes, it's a bit of comfort but not that much.

  • Comment number 21.

    Osbourne is being made a scapegoat, it's stating the bleeding obvious that the pound has been devalued and this will continue with Prudence Brown's crazy policy of borrowing way beyond our means.

    People on this very site have been saying the same for weeks now, Brown's policies are going to hit us hard in the long run.

  • Comment number 22.

    There's a certain amount of financial justice in George Osborne's comments on the exchange rate, as it's doing exactly what the Chinese Government did to kick-start their boom in the first place - force the exchange rate to a point where it becomes financially interesting to do business in and with the UK, ending the macho image of a "strong" exchange rate, the word "strong"'s complete BS here, run at the expense of a strong economy. At parity to the dollar, UK imports cost more than they did, sure, but our exports are worth even more, and there's every incentive to stop buying overseas as far as possible, which is again good in recession. Now it may not be interesting to foreign investors, sure, but who needs foreign investors in markets like these? Without being totally protectionist, an economy as exposed as the UK is has to start considering that charity - and thereby recovery - starts at home. and like you say, that also ensures that prudency in a lot of other matters becomes of the order of the day - including personal credit. The case of the bimbette spending money she doesn't have simply because it's a minuscule part of her existing indebtedness must stop.
    Now if that means shops can't keep their turnover up, that's just hot air lost like anything else in reducing the bubble, you can't live on exponential growth in the real world as we have been for many a long year.

  • Comment number 23.

    Bert - Gideon is da man

    lets score political points and go against the G20!

    from memory when Labour came in they were saddled with similar debt ratios !

  • Comment number 24.

    Poor grammer by me there, Monday morning That should have read 'hear' in my last post.

  • Comment number 25.

    Robert it's not a surprise that the UK economic outlook is grim. As you point out, an economy heavily reliant on the financial sector will inevitably suffer when that sector is in decline. The days of UK PLC as a major global player in high finance is ending.

  • Comment number 26.

    Sterling is dead... Long Live the EURO !!
    EURO is good for you !

  • Comment number 27.

    Surely people can see what is happening...

    Since September, LABOUR have re-united and now they firmly believe they can win the next election.
    They even had John Reid giving an interview; for the first time in over a year (Andrew Marr - Sunday) in which he also praised GB...
    This is a concerted effort to win over the population ahead of a May election...
    Their planned tax cuts will be aimed at the lower earners - to buy their votes.

    But their plan won't work..

    I work closely with the building industry. This has been decimated...
    I have colleagues who work in medium sized manufacturing – redundancies are being made every day…
    I have friends who work as Estate Agents – or rather did…
    My son works for the motor industry – their sales are down 80%...

    So, GB is offering Tax cuts – which will really be amendments to the tax credit system –

    THIS JUST WON’T WORK…

    Tax cuts are no good if you HAVEN’T GOT A JOB...

    It was both the Financial Services Industry and the House Building Sector that drove the economy over the past decade.
    It is these that need a major stimulation but that is not going to happen quickly – or at all…

    I urge DC and Co to DO NOTHING - SAY NOTHING – OFFER NOTHING…

    Let GB and his gang do it’s worse.
    Let them plan for a May election.
    Their core voters will not vote for them if they have been unemployed for 6 months or more.
    The sooner it is done – the sooner it will be over.

    (Yes, I know I am shouting – but I am angry)

  • Comment number 28.

    As Cassius puts it, George Osborne is simply the honest child in the crowd when the "Emperor" walks by in his suit of new clothes:-


    https://cassiuswrites.blogspot.com/2008/11/osborne-and-emperors-new-clothes.html

    I don't think either the Emperor or his tailors emerged from that as a hero!

  • Comment number 29.

    Others have noted that during the last recession, Brown has no qualms at all about criticising the government's policies to get us out of it.

    One might say he doesn't like it up him. Indeed, you might say that. I couldn't possibly comment...

    Osborne had every right to warn that Brown is going to crash us into the buffers at high speed. Indeed, as a leading member of Her Maj's Oppo - he was DUTY BOUND to do so. Well done George.

    Will New Labour blame him for sterling's rise this morning?

  • Comment number 30.

    While I understand the criticism of Brown in some of these comments, because I share it, and while I would praise say Australia for running a genuinely prudent policy, it's clear that even prudent countries will not escape this global recession. Meanwhile unemployment destroys lives, and anything even tax increases later that avoids unemployment is worth doing. Judging Brown is judging the past, stimulating the economy is saving jobs. Let's do both!!

  • Comment number 31.

    'Bewitched, bothered..' and certainly bewildered.

    Have I got this right? Our PD is less now than in 1997? Just?

    But in 1997 it failed to attract ANY body's attention. Not even the good Robert's eager eye.

    And was not some of this Debt paid off?

    Yes. We are in recession. And the number crunching is a different equasion.

    But don't tell me we haven't been here before - as far as the amount of debt is concerned. And nobody blinked. Then.

  • Comment number 32.

    "surely that provides cover for the UK to do something similar"

    Not really - because (a) Obama hasn't done anything yet (of course) and (b) despite Labour spin, and despite what Brown desperately needs, the G20 didn't all agree to carry out his plan in a coordinated fashion, as the communique makes clear.

    This should give Brown pause for thought, and perhaps it will. But if he ploughs on regardless with unfunded tax cuts, it's just another example of his scorched-earth strategy. We'll all pay - after 2010, of course !

  • Comment number 33.

    It is worrying if as hinted Barack Obama thinks he can resolve his countries economic woes by just spending and being protectionist which will put off much needed business restructuring and delay the rebuilding and turnaround and the payback.

    It is also worrying that Brown and Darling are using the Obama post election feel good factor to also go on a spending borrowing binge ignoring very expensive off balance sheet PFI debt to claim that our public borrowing ratio must be ok as it is better than Italy and giving prudency the big e.

    Of course our currency is knackered with a pair of walter mitty clones at the uk gov economic helm desperately now falling back on old labour economic policies, bowing to their union funders, whilst spouting the mandy/campbell/powell party line that it is all global and not us gov and don't argue differently as that would be anti team GB and any further fall in the £ would be your fault. Also Brown running around the world in his superman underpants for political domestic reasons is bound to pee off other world leaders who do have genuine economic clout like the chinese and indians and japanese and probably the americans as well.

    Come on you labour political spin merchants you will have to do better than that to convince the next 1.25 M that are being made unemployed and even the tabloid newspapers.

    The lack of responsability of the governmenmt for its past over spending policies and economic mis management is of the same magnitude of the real team GB summer medal haul.

  • Comment number 34.

    I'm not a banker.
    I'm not an economist.
    I'm not a politician.

    I have only the vaguest interest in these things, and this interest only stems from self-interest, if you see what I mean.

    In 2003 I bought a house in London on the basis that I lived and worked in the area and that it seemed like a decent price. In the Autumn of 2006 my neighbours sold for what seemed like a ludicrous, frankly alarming, price.

    I wondered at the time how people could afford this. I did some research into the prices of houses in this one street in Wandsworth, calculating which ones had been sold recently and for how much. I added in the usual mix of statistics about average mortgage levels and borrowing and came to the conclusion that on this one street alone, something like £20 million had been borrowed. Multiply this by the huge number of similar streets in SW London in particular and get get a truly horrifying number. It was clear to me at that point that the housing market was due for a serious correction/crash/slump, so we sold in April 2007 for an even more astronmical price and decided to rent for a year or two and wait for the prices to drop before buying again.

    I did some more research and decided that the best place for the large pile of cash that we had was Icesave, and for a year or so that all went swimmingly. In the Spring of this year I sensed from the newspapers a few tremors about Iceland's economy and hit the books once again. The same picture of totally unsustainable borrowing emerged, so I withdrew every penny and put it into a UK high street bank, who fortunately are still going strong.

    My point is this:

    I am not an economist, I am not a banker, I am not a mathematician or a statistician. I do not work in the financial markets, I do not own stocks or shares, I do not even have a degree - but even the most basic research on the internet and from the newspapers made it clear that the UK economy was heading towards a big problem within the next year or two.

    If a muppet like me could see this coming and make provisions to get out of the way, then what exactly was our much-vaunted chancellor doing over the last couple of years when he could have taken action to lessen the effects?

    Choosing new carpets for Browning Street perhaps?

  • Comment number 35.

    There has been a conspiracy not to talk about Sterling's decline. It has been kept in a dark corner - unmentionable. How dare Osborne raise this as an issue - you are not meant to talk about such things. I agree with Robert that it was the Government's sharp reaction to Osborne's comments that are so revealing. And if any one is responsible for the latest round of Sterling's decline it is Mr King of BoE fame, whose gloomy comments destroyed what little confidence was remaining. A report on the BBC (not Robert) on Friday night indicated that the price of imported goods in the shops must rise. Mentioned were expensive items like IPODs and jewllery - these could even dissapear from the shops. More to the point, what about simple staple fare like imported vegtables and fruit imported from Spain. Mr Brown may cut taxes and borrow to stimulate the economy in the short run, but this will just trash everyone's standard of living. There will be two options going forward to rescue ourselves and our economic well-being - IMF bail-out or joining the Euro. This Government is out of control.

  • Comment number 36.

    "which is double the share of GDP take by UK government debt (albeit on official figures that many would say understate the true level of British public-sector liabilities)"

    UK debt is more than 100% of GDP if you take into account all the 'off balance sheet' PFI liabilities, NR, B&B... This is why we're in a worse mess than the US.

    It's only Gordon Clown who thinks we're not.

  • Comment number 37.

    Maybe we should have joined the eurozone after all?

  • Comment number 38.

    Time to join the euro, then?

  • Comment number 39.

    Calling Osbore-supporters, have you forgotten that he still has some mates who belong to the hedge-fund 'community', and who fund him and the Tories?

    I may be a cynic, but I imagine some of these 'spivs' have made a many millions by shorting sterling over the last few months, and days.

    Funny how the pound lost about 3% v the USD and Euro the day before 'oik' George's ill-judged 'collapse' comment was published.

    All advocates of the free-market, especially members of the UK Conservative Party and the US Republicans, should be keeping very quiet at the moment, not spouting off in newspapers and blogs such as this. Brown et al. are simply trying to fix the mess that the application of your philosophy by banks has caused. If he had tried to rein in UK banks any sooner, you'd have been squealing 'nanny-state' all the way to mummy.

  • Comment number 40.

    As an individual, or a financial institution!!, if you spend, spend, spend when you haven't got the money then eventually you have to count the cost and go through some/ a lot of pain.

    As a country/world we have arrived at the time to suffer the pain of all this spending money we never had but we are going to try and eliminate it by governments stepping into the individuals/financial institutions breach and, guess what, spend, spend, spend money they don't have.

    This may delay a lot of the pain but its going to hurt an awful lot more further down the line I think.

    I believe the correct course of action would have been to suffer the pain worldwide, retrench and start again. Unfortunately due to the way all governments are elected no government could allow this necessary short term pain to happen.

    In other words however bad things would have become the whole financial system should have been allowed to collapse - I suspect this could have been rebuilt quicker than what is now going to happen will be sorted out.

    Good luck to us all!

  • Comment number 41.

    There is an awful lot of short memeories around here. Either that or the hatred for Gordie blinds folks to reason. Here are some IMF economic numbers :

    UK Govt debt as % of GDP:
    1993 32
    1994 37
    1995 41
    1996 49
    1997 50
    1998 47
    1999 44
    2000 41
    2001 38
    2002 38
    2003 39
    2004 40
    2005 42
    2006 43
    2007 (43)

    Note the rapid rise upwards prior to the Labour government coming into power and the levelling of the amount thereafter, even up to the present day. Clearly this contradicts the Tory charge of Gordon overseeing increasing debt.

    Now here's the same data for 2006 (the 2007 values are still tagged as estimates) for other countries in debt:

    US 60
    Germany 66
    France 66
    Japan 195
    Canada 73
    Italy 106

    So the UK is the lowest! Hmmm

  • Comment number 42.

    I agree that the "what's good for America is surely good for us" cover simply doesn't hold water.
    However in reality what choices does GB have left - certainly not being criticised for doing something everyone else is doing is a coping strategy. It tends to be the lone sheep that gets eaten by the wolf rather than one stuck safely in the flock.

    GB isn't a complete doofus so I think much of the recent plans and statements are aimed to try to get the real motor of the world economy the US to pursue policies which would help rather than retreat to protectionism as has been the lesson of the past. This certainly would have resulted in Depression 2 with the likely same outcome.

    That the UK economy was closer to the waterfall than most others when the paddles fell overboard is unquestioned. Can GB stop the UK going over the edge, unlikley as there is not one sector of the economy left which can provide that motor. Whether we hit the rocks or find the splash pool and recover remains to be seen and largely depends on others.

    Primarily it is this lack of any need for GBP that is driving the slide - you just don't need pounds for anything other than paying back the UK banks. For trade USD and Euro is all that is needed.

  • Comment number 43.

    In yesterday's Observer Will Hutton argued that now was the moment for the UK to finally join the Euro. His logic was - all of Gordon Brown's criteria have now been met and it was the best way of stabilizing the situation we are now in.

    I simply can't understand why this argument is getting more air-time. Surely it is a win-win. Are we still not joining the euro because of some residual notion that we have a currency/sovereign status to defend?

    Please someone tell me why I'm wrong.

  • Comment number 44.

    34 eddixon:

    Superb post. A lot of the problems now manifesting themselves have been obvious to the intelligent observer for a long time.

    We therefore need to ask whether government, who presumably employ some very bright people, saw this coming.

    My guess would be that they probably did see it coming. They must have been equally aware that their own policies were creating the foundations for a massive economic slump.

    In that situation, the best policy probably appeared to be to hold out until the rest of the world hit problems, at which point our home-grown crisis could be passed off as part of a global problem for which Labour could not be held responsible.

    So I think we need to be clear that, despite the smokescreen of the global malaise, our problems are largely home-grown. Labour has shifted the balance of the economy from the productive to the non-productive, from value generation to value distribution.

    The ratios involved are simple ones. Take the total number of bureaucrats, plus the total number of welfare recipients, and divide that number by the total of productive workers, and you will arrive at a ratio that has been getting steadily worse for the last ten years, maybe longer.

    Then, calculate total debt including PFI, consumer debt and public sector pension obligations, and measure that as a percentage of GDP. Again, the result is an unsustainable ratio.

    The root problem is a culture of bureacracy and welfare which has imposed ever greater burdens on the productive parts of the economy. The gap between the two has been borrowed, but this process cannot, by definition, go on forever.

    The trouble here is that the economy has to become bad enough to jolt the UK out of its bureacracy and redistribution culture. Only the most severe of economic crises is likely to be sufficient to do this.

  • Comment number 45.

    This is all George Osbornes fault for speaking at the weekend. It's him who has caused trade figures to collapse and the CBI to wake up to the disaster.

    Honestly, the labour apologists here are living in delusion. Your man is a busted flush, it's just you and much of the media here who haven't woken up to how utterly wiped this country already is.

    The battle can't be won because it's already lost. From here it's just a matter of how fast the decline is and how painful, and what kind of society emerges at the other end.

  • Comment number 46.

    Shares...

    Prepare for major falls this week

    https://money.cnn.com/2008/11/15/markets/sunday_weekahead/index.htm?postversion=2008111615

    My forecast for this week is - end of week -

    DOWInd less than 7000
    FTSE100 less than 3400

    long term forecast - as previous..
    DOWInd less than 5000
    FTSE100 less than 1000

  • Comment number 47.

    One for the Labour Party christmas quiz.
    Who said "A lie can travel half way around the world while the truth is putting on its shoes."

  • Comment number 48.

    Oh by the way Robert, was it you I saw on that forklift carting out that huge box of baked beans from Aldi last weekend? Don't get me wrong, but are you trying to tell us something?

  • Comment number 49.

    #41

    So you agree that the Tories left Gordon an economy on the up, and by obeying their spending rules for the 1st few years things went well. We're making progress.

    Of course, he then benefitted by the creation of monopoly money over the last 8 years, something now being unwound (the fun thing about this palaver is that far from destroying wealth that existed pre-1997, we're just recognising that it never existed anyway)

    You also seem to have overlooked Gordons off-balance sheet financing in your calculations. Factor them in, and the forthcoming extravaganza and you'll easily make the stratospheric levels you're looking for.

  • Comment number 50.

    Er excuse me.

    Do hedge funds short currencies?
    I thought it was borrowed stocks and shares that they gambled on.

    Can someone who knows please tell us

  • Comment number 51.

    This is indeed the begininngs of a miserable time. But we survived the Great Depression, and the Great War and we will survive this too.

    Unfortunately we didn't learn from the Great War, and we ended up with a second. Now it looks as though we didn't learn from the Great Depression either.

    The history book on the shelf,
    Is always repeating itself...

  • Comment number 52.

    @drummerboy

    If you want to know why the Euro argument isn't getting more airtime, take a look at the comments on any Have Your Say story related to the EU. This is the level of public thought and understanding we are working with.

    Willem Buiter on ft.com today suggests that although Euro entry can't happen overnight, the Gvt should announce that it will go for entry as soon as possible, and peg the pound to the Euro. I'd support that.

    He also worryingly suggests that the financial services industry has caused a "Dutch Disease" effect for the British economy, with unrealistically high exchange rates and the finance industry starving more reliable industries of human and cash capital.

  • Comment number 53.

    Sterling

    The next run on the pound, which I predict will be during the Christmas Break or early January 2009, the parity between the Euro and Sterling will make an easy case for the UK to finally join the Euro

    We have nowhere else to go. Saddled to large and increasing debt, no real exports, a major recession and tax receipts falling, 2 million unemployed and rising, Brown will finally take us into the Euro.

    We are then fully intergrated Europeans, moving to political union in the next decade.

    Meanwhile Brown will be off to run the IMG who will see off bankruptcy of UK PLC or he will become Chairman of the New Super Bank at Lloyds/HBOS

    Either way, the control power freak gets his way, leaving the rest of us a busted flush. Lets have an Election now!!!!

  • Comment number 54.

    #52

    Great point on the "Dutch Disease". The undoubted talent diverted to the casino in London has been a loss to industry in general, to the detriment of the country long term.

  • Comment number 55.

    Firstly, the GBP is down against virtually all serious currencies not just the dollar. The market is rightly bailling on the UK. Brown's "solution" is simply hair of the dog.

    Secondly, banks and other financial institutions should hold more capital and cash? What do you think they are doing or attempting to do right now? And how does the government trying to force banks to lend at summer 2007 levels - ie top of the bubble rate - tally up with the goal of having more solvent and robust banks.

    Thirdly, I don't remember Blair and Crash Gordon holding back after "Black" Wednesday. Hands up anyone who has heard that "Under the Tories interest rates were 15%"? Pot, Kettle? I guess when you are brazenly lying to public you don't want someone shining a ray of light on your BS, I mean it's not like the media is doing it's job and pointing out the idiocy of Crash Brown's policies.

    Finally anyone who has actually read the issued communique knows that essentially the rest of the G20 stuck two fingers up at him - quite rightly too.

    https://online.wsj.com/article/SB122677642316131071.html

    Spot the bit on fiscal stimulus - and note "where appropriate" before it. and note this bit ain't getting quite as much press:

    "Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption" - wonder who they are talking about?

  • Comment number 56.

    Fix site please.

  • Comment number 57.

    As a life long fairly right wing Tory voter and medium sized business owner, the comments of George Osbourne leave me speechless. He is SO blatantly partisan in his comments that surely nobody even in his party can have listened to his comments over the weekend without feeling a sense of dread and betrayal. Although I detest GB and New Labour with a passion, the last few weeks have taught the whole country that Conservatives have no new ideas to combat the current crisis, and in recent days GB has even stolen the tax cutting clothes that DC and GO have been too afraid to get out of the wardrobe. GB now has implicit backing from BO and other world leaders for the tax cutting agenda and so I can well forsee GB calling a snap election in February and being returned. More fool the Conservatives for allowing this to happen.

  • Comment number 58.

    #53

    All the talk of the retreat to the safety of the Euro misses one question; Will the Europeans want to take our toxic economy onto their balance sheet, and if so at what price (rate)?

    No such thing as a free lunch, you know.

  • Comment number 59.

    Question: - What is the difference between competitive protectionism in tariffs etc. and deliberately allowing the devaluing of our currency?

    Answer: - Very little.

    So I find it a bit rich for our Prime Minister to be lecturing the other member of the G20 - when he has 'deliberately forced' a 25 percent devaluation in the pound. In this he has connived with the Tories to achieve an effective 25 percent surcharge on all imports and a similar benefit to exporters.

    Seen in this light Mervyn King's action in cutting interest rates to improbably low long term levels and letting it be known that 'he' will lower them further was a deliberate attempt to provide a protectionist barrier to trade.

    This action by the powers that be is a deliberate attempt to impoverish the British working people. We should stand up and say so, not act in the supine manner that our press has adopted! The poor pay for the rich to continue playing their city games at our expense!

  • Comment number 60.

    There are two problems. One is the global one precipitated in the US. The other is the domestic UK problem which is present due to poor policy and strategy. G Brown continues to try and muddle the two but it does not wash. If the UK is vulnerable and facing a bigger bill than other European countries it is because of the domestic policies of the last few years. It remains the job of government to effectively regulate the market place and the job of the private sector to exploit the market place. That balance has been lacking in the UK. Any idea that other countries will just sit back nad not exploit the UKs weakness to gain commercial advantage is unsound. The rules that apply to the UK do not apply to the US which is far more dynamic as a economy with a history of quick recovery compared to the UK. G Brown is in trouble but all that means is we are all in trouble and it is not going to go away quickly.

  • Comment number 61.

    Re 50...

    Hedge funds - Buy/ Short / Go long on Anything they think they can make money on.

    If you really want to know read Roberts book...

    https://www.guardianbookshop.co.uk/BerteShopWeb/viewProduct.do?ISBN=9780340839447

  • Comment number 62.

    It must be now becoming increasing clear even to most jingoistic that Britain should be in the Eurozone. This would bring much needed stability. The pound is in real danger of being sqeezed between two powerful currencies used by the two most powerful trading blocks, the USA and the Eurozone.
    As part of the Euro we would be able to increase our borrowing as the rest of Europe and the US will do without the exchange rate constraints we now find ourselves in. The pound only has the backing of the 60million who live in Britain, the Euro has the backing of 440million who are the most industrialised people on the plant.
    One of the reasons it would appear Gordon Brown opposed the joining of the Euro was in large part to allow our bloated banking sector to carry on making enormous profits from currency exchange which adds unnessecary cost to doing business with our main customers. Surely the folly of appeasing the banking sector is now clear to all.

  • Comment number 63.

    Re 61... Forgot to add... Only £5 at TESCO's

  • Comment number 64.

    Look as far as i see it the best way out of this mess is just to change the way we calculate the figures...

    To keep inflation low everything that was going up in double figures was removed house prices etc etc...

    So all that has to happen is not include anything bad in the figures.....then you use personal attacks against anyone who notices....

    As for this G20 lark the message that came out of it to me was......

    Each country is not going to follow Brown to the promised land, but they are going to do what is right for themselves...infact it looked to me as though he was marginalised in the world press rather than he would like to be seen , as some sort of financial messiah....

  • Comment number 65.

    #41
    nice work putting actual figures into an arguement which is a welcome addition. However as no doubt the Gordie bashers are eagerly pointing out GB has been doing an Enron on the nations finances for many years with off balance sheet PFI. So the IMF figures which rely on official on balance sheet HMG figures don't reflect this additional borrowing, it would be interesting to know if this was included whether the figures still look so good compared to other leading nations.

    If they still look good it would still not neccesarily back up borrow to spend (which afterall is the root cause of world/UK plc's problem) arguement as there is still a major question of how without a rampant impecunious financial sector or overblown housing sector UK plc could afford to pay any of it back. Other countries, Italy excluded, even if they don't pay down the debt - their economies could still in theory do so in the medium/longer term. As we lack a significant resource base we cannot use this, we lost much of our industry, our service sector is by and large un-exportable and we seem to be dumbing down our education to a point where an idea's based economy seems beyond us.
    All we seem to be able to export is our capital base, talented people and pensioners who ultimately dont bring much back in to UK plc as their tax income is lost.

    So all in all whilst certainly we are not at lights out stage we are badly placed in all aspects until we resolve as a nation what it is we want to be.

  • Comment number 66.

    I think it is accepted by all that the country desperately needs to try to rebuild some manufacturing capabilities. Reliance on paper shuffling, smoke and mirrors and insider dealing for the informed is not going to repay our colossal debts.
    The pre budget report next Monday should include large tax incentives for investment in manufacturing capacity. I would, as a start, give 200% or more capital allowances for such approved investments. I know that we cannot compete with the Far East in labour intensive manufacturing, but what's wrong with supporting manufacturing by machine?

  • Comment number 67.

    I have been watching this financial disaster unfolding and the belated action being taken by the Governments of the world. Its like a rollercoaster - the slow buildup to a crescendo, then the wild, runaway ride, with chancellors holding on for dear life, chucking money hither and thither in an attempt to gain a modicum of control.

    Into this all strides George Osbourne, looking like a man who's lost his nerve, and effectively says "I want to get off"
    Its far too late to push the prudence button - The Tories sold off the leavers with which some measure of control could be applied (National Utilities etc.) and deregulated the markets, New Labour have continued these policies.

    So, for George to shout "Prudence now" would lead to a greater catastrophe, as we would get caught between two stool, and on neither. The punishment handed out by the markets would be greater still, as we'd doled out the money to stabilise the financial sector, but let the rest of the economy sink without trace. Such an imbalance would leave us in a worse position and stuck in a stagflation recession without the stimulus to get us out, unlike other 'spending' economies.

  • Comment number 68.

    #62

    It's not jingoistic to be wary of being governed from elsewhere, as is inevitable with currency union. We can disagree, but should do so respectfully without resort to tarring us with unpleasant feathers.

    Secondly, why replace bad domestic government with a foreign one? We might have had better domestic government and been able to profit from this fiasco.

    Finally, I hate the idea of making policy from weakness. It smacks of panic and that never makes for good decisions. Failing to address fundamentals got us into this, ignoring other fundamentals - such as the ability to make domestic policy remains valuable whatever the situation - could compound the situation.

    Don't be so certain that Europe has a better long term (>20 years) future than Britain. It ain't necessarily so.

  • Comment number 69.

    G20 said about fiscal stimulus...

    "Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability."

    One sentence in a 3,000 word document.

    Well done Gordon, you really pushed the point home.

    FISCAL SUSTAINABILITY.

    Also, UK Govt debt as a percentage of GDP is not 37%

    That excludes Northern Rock.

    If includes is 43%

    Next, add Network Rail, PFI repayments and the bank bail-outs.

    All debts that government has to repay.

    It tops over 100%

    Now, a tax break of say 1% GDP minimum, 2% to have a more pronounced effect.

    WHERE IS THE MONEY GOING TO COME FROM?

    MORE BORROWING IS NOT THE ANSWER, SEE G20 QUOTE ABOVE.

    BORROW NOW, PAY MORE LATER.

    Cut government spending, cut taxes.

    No borrowing, taxes will stay cut for longer and stimulate the economy more.

    Basically, more bang for your pound.

  • Comment number 70.

    The difference in opinion about national debt is farcical.

    As so much depends on accounting rules perhaps we should ask potential lenders rather than our warring politicians.

    Is it really lower than most developed nations (Brown and Darling) or is it dangerously high (Osborne and Cameron)?

    You can't have a debate when there is such a fundamental uncertainty about the starting point.

    How can you put Northern Rock, unfunded state pensions, railtrack and PFI projects to one side...? No lender would allow you to discount these so why should politicians pretend they are not part of the equation.

  • Comment number 71.

    At last, the true status of the UK economy - known to some of us for some time - is slowly emerging into the glare of everyday news reporting. And, of course, the true status of the UK economy is pretty much in the basket case category.

    The government has been spinning for all its worth over the past 6 - 9 months as it's become ever clearer to interested parties that UK economic management over the past decade or so has been little short of criminally negligent.

    Gordon's master plan to borrow, tax, spend and waste money on a suicidal scale, shifting the UK economy's main effort from wealth creation and productivity to a welfare dependent, unproductive client-state beholden to Labour remaining in power has been a spectacular success.

    The problem is that Brown's theory of economic and social nirvana is a politically-centred construct whose end is simply to keep a political party - the Labour Party - in power. The other problem is that it relies on endlessly milking banks and taxpayers of their cash to keep the edifice upright.

    We've now reached the end of the road and run out of cash. Gordon's answer at this time? Er, borrow more cash and keep spending. And the Tories' answer? Hello? And the Tories' answer? Hello? Is anybody there?

  • Comment number 72.

    Comment 44 : Friendlycard

    I think you make the mistake of believing that it is possible for elected government to carry out "best policy". For them to be able to do this, they have to be powerful enough to be able to override the irrational short-term self-interest that is the motivation of vast numbers of the general public.

    It's just not possible. Really the best that government can achieve is to filter out the worst of the catastrophic short-term stupidities that result from the public's inability to multi-consequentialise.

    Our politicians are not drawn from the brightest and best in society, but that is because we, the democratic public, have rejected the leadership of the best. We have insisted that our politicians are drawn from those who embraced mainstream thought-patterns, and we choose the skills of the TV presenter rather than the intellect of a statesman.

    As the whole of our national culture becomes more and more dumbed down and adolescent, this weakness in our ability to govern ourselves effectively can only get worse.

  • Comment number 73.

    In addition to some of the erudite posts above, we need to add the following:

    Fall in tax revenue (not counting proposed tax cuts)
    Massive increase in welfare payments (2-3 million unemployed)

    A truly depressing situation, I might have some faith in a bold fiscal stimulus package if I thought our economy had even half the dynamism of the United States'. The only possible way we can start to get out of this hole is to massively reduce public spending very soon... does'n't look like that is going to happen.

    Our politicians are beyond contempt!

  • Comment number 74.

    £1-2 trillion in debt (dosnt include the latest bank bailouts) and Darling proposes to borrow hundreds of billions more, which apparently he is going to pay back in the 'medium term' when the economy gets back on track!

    Well call me stupid but arnt we supposed to have just had 11 years of growth yet still have a budget deficit of £100 billion

    Is it me or do the sums simply not add up?

    Im anticipating paying a Zimbabwe style £11,982, 512 for a loaf of bread in 2011 if GB and his gang of chancers win the next election

  • Comment number 75.

    Never forget Brown is borrrowing vastly many more billions with our own money and when you borrow you will be asked to pay that money back and we will be asked to pay that money back with higher taxes.

    So lets face it he is going to give us tax cuts this year in order to try and win the election next year. He will then present us with the bill for his wonderful work in the form of tax increases. Up till now even you were Robert were bing fooled by this.

    See his answer when asked if this was true some rubbish about not being time to play politics ie: the same line he uses to try and cover up when he has been found out!

  • Comment number 76.

    Any direct fiscal stimulus via tax cuts must be backed up with a stated objective to cut government spending in the future, and not through higher taxes. At the moment I do not trust the fools running this country, so all the savings I am achieving through interest rate cuts I'm putting aside to pay off the mortage. Otherwise two to three years from now I am going to be hit with massive tax rises, leaving me with a huge debt to pay off.

    To cut spending in the future the government desperately needs to gain control over unfunded public sector pensions, otherwise we are literally will not be able to afford to pay a basic pension in the future. Example: We paid off the two senior met police officers in the last few weeks, both in their fifties, and on a combined pension payout of over 200K per year, index linked. These guys could live until their 100 and we will be liable for over 10m pounds at todays money. Did they ever add 10million pounds to the GDP of this country? Answer: No. They did not even get sacked for the mess they made, but instead they were paid off with a lump sum.

  • Comment number 77.

    guycroft at 19

    I agree with most of what you have posted but you keep going on about a moritorium on legal action to recover loans etc.
    Sorry mate but I disagree withyou on this.
    I have no loans or any debt - so why should I be punished by low interest rates and all the idiots who overstretched themselves be let off? They should have calculated the risk before signing on the dotted.

    No, a different solution is needed.
    The government should step in and lend these people money direct - using similiar stake gaining options as they are applying to the banks.

  • Comment number 78.

    What a good cover for a pre-election bonanza!

    If Gordon is bothered about how we pay it back he could start by not replacing Trident and cancelling the two Aircraft carriers we do not need.

    My 21 year old student son has a high propensity to spend - convert loans to student grants.

    Meanwhile in the real world my part nationalised bank is offering me 10 months free of interest credit card if only I get myself into debt. When do we start learning?

    in answer to 47 it was Jim Callaghan of crisis what crisis repute.

  • Comment number 79.

    Shall we, shant we? All irrelevant when the banks have not gone pop yet as many surely will.

    Vatman & Robbing will have to print and print more cash. Its a riddle instgated by the joker.






  • Comment number 80.

    Labour was hoping to issue fixed term debt to fund the bailouts, but after last week when the German government debt auction failed and some US debt auctions have failed then they must know the game is up on rising sovereign debt. Even the US is now struggling with debt and the rise in the US dollars can be seen as a short term affect linked to US investors pulling money from emerging markets and bringing it home. All it would take is some negative sentiment like GM going bankrupt and suddenly the US dollar may not be so attractive as US investors change heart.

    There is an alternative, which is to just print money to cover the debt. For a short period and perhaps specifically the US may be able to get away with this, but the consequences for the UK will most likely be bad. I expect Labour to try this next and the will probably be surprised when sterling’s value drops even faster as a result. Thus lies the road to hyperinflation Zimbabwe style if we are not careful.

    We can pretty much guarantee that politicians will have taken their eyes off the ball. They will not have picked up problems with letters of credit, supplier credit insurance, inventory run downs leading to production destruction, commodity price hedging failures, US protectionism of US owned manufacturers.

    As for the Euro then it is only as strong as its weakest member and you might want to look more closely at credit insurers attitudes to Ireland. There were an awful lot of car loans and unsecured loans arranged through Ireland and the full impact of that has probably not come home to roost just yet. You could also look at Greece and its exposure to shipping or Austria and it banking exposure to eastern Europe. I think we are not the only ones who will be enjoying a rollercoaster ride.

  • Comment number 81.

    #34

    well said that man!

    I did rather similar, I now have no debts and cash in the bank.

    So if dumb@sses like us could see it why couldn't the people in charge.

  • Comment number 82.

    After weeks of watching all this on the TV and watching Robert entertainingly giving us the blow by blow account each day, I would welcome the opportunity to speak about the elephant in the room which no-one mentions: the banks never had the money which they are crying about losing.

    95% of the money in the UK has been generated by the banks through debt. It never existed and it never will. And unbelievably, when they lend it they lend it at interest. It gets worse. If you cannot pay them back this money which they never had then they will sell your debt to professional heavies who will intimidate you. By allowing banks to generate a nation's currency through debt mechanism means that the money lenders now "own" most of world's assets.
    Both the Uk and USA should take a lead with this and begin to withdraw the banks' ability to generate credit at interest, which is after all a tax, and to restore one of the main functions of government: to issue enough currency to enable a sound economy. We should not be continuing with the model of allowing banks to issue a money supply as credit with interest from which only they benefit. The USA has a precedent for this when it established its independence from UK banking system over 200 years ago.

    Counting imaginary money which has been created through debt mechanisms as an asset has to stop- its madness. Give us our curency back!

  • Comment number 83.

    Another incisive and informative piece. Contrary to one or two other comments, I am ever grateful for a steer through the maze within a conundrum that is the current financial mess. Thanks Mr P.

  • Comment number 84.

    Is the typo in the update paragraph about another typo meant to be a joke, or does RP know something about UltraTron's weight, calling him UltraTon? lol

  • Comment number 85.

    "There will be significant costs to the UK over the next three to five years - and perhaps longer - of putting the financial economy on a sounder, more stable footing". Too optimistic I'm afraid Mr Peston. In the same period that many commentators are now referring to as the time it will take to dig ourselves out of Gordon's masterly crafted economic pit, we shall start to experience the full effects of the world's looming energy crisis. Just when we could be thinking it's safe to come out, we shall be hit square-on by a steam train carrying the name "Peak Oil" emblazoned on the front. If you want to know what things are REALLY going to look like over the next 5 - 10 years, read this: [Unsuitable/Broken URL removed by Moderator] As usual, our politicians barely know this problem lurks around the corner, let alone having the faintest idea how to prepare for it or deal with it. Just like the global financial crisis really; where did that come from all of a sudden?

  • Comment number 86.

    Dear Robert,
    Citigroup are cutting 75,000 jobs, the rot is moving, the bankers have got the jitters, and this will be the first of many

  • Comment number 87.

    #72

    Superb point. The flipside of the death of deference has been the celebration of ignorance, and so we get politicians who earn credit for being "young" or "in touch". I've not heard society being described as adolescent before and I like that, it sums it up perfectly.

    I would rather have as PM someone who I feel has the intellectual strength to know better than I what should be done, and to whom I would feel confident to entrust my fate, but such people are driven to make billions in industry rather than lose out to empathic nobodies like Blair and Cameron.

    I left out Brown because in addition to being useless he's also got no charisma. He's made it because in the political world of the intellectually blind, the one-eyed man looks smart.

  • Comment number 88.

    82. At 1:28pm on 17 Nov 2008, Aristotleson wrote:

    95% of the money in the UK has been generated by the banks through debt. It never existed and it never will. And unbelievably, when they lend it they lend it at interest.

    The money does exist, it is just used over and over and over...

    If you don't want a bank to make money on your deposits then you can't expect to be paid any interest yourself, can you? In which case you can always put notes under your matress (or in a safe-deposit box).

    Or, if you are happy doing your own debt collecting, you could invest your spare cash directly in new businesses.


    Or if your name is mandleson or blair you don't need your own money, you just borrow from rich friends and keep any profits. By the way Robert - any update on Mandlesons eu tariff discussions with Oleg?

  • Comment number 89.

    I've been watching my revenue dropping since Q3. I don't give a four X for all this economic jargon because I run a firm and all that matters is making the books balance. I am not sure I can much longer. I've been hoping for some socio-economic miracle of some kind that will either make things better or so catastrophically bad that nothing will matter.

    I've just realised that what many of us are feeling is what people must have felt during the Great Depression. Or how, for example, the victims of the Final Solution must have felt in the early days (before they knew what was coming) when they were herded into Ghettos. That you are totally powerless now and completely at the mercy of other people.

    I explained to my wife last night was bankrupcy was and she burst into tears and there was nothing at all I could do or say to console her because if it happens to us I do not have the power to stop it. She has always depended on me to fix things. That is a really terrible gut-wrenching feeling, especially for a man, absolutely nothing you can do or say that can fix anything now.


    GC

  • Comment number 90.

    Re: #55 laughingblacksheep

    I guess when you are brazenly lying to public you don't want someone shining a ray of light on your BS, I mean it's not like the media is doing it's job and pointing out the idiocy of Crash Brown's policies.


    Except, of course, for the most excellent Bremner, Bird & Fortune. Despite having been all too aware for the last 5 years of the coming car-crash which is the UK economy, I found last night's episode of B, B & F (Silly Money - part 3) extremely scary. Perhaps it was just the fact that someone else had come out and verbalised my fears over the state of the nation's finances.

    I strongly recommend that anyone who missed it catch it when it is repeated this week.

  • Comment number 91.

    Sorry to be a spoilsport, but who is going to lend us and the USA and anyone else that asks, the money they want?? Where has it all gone? Was I correct in feeling that all the Banks had been dealing with for so long was 'mythical' rather actual money??

  • Comment number 92.

    Re: #68 bogbrush

    Here, here.

  • Comment number 93.

    Re: #91 passininterest

    Sorry to be a spoilsport, but who is going to lend us and the USA and anyone else that asks, the money they want??


    Or, to re-phrase your question slightly, "who is going to lend us the money we want at an interest rate of 3% (or considerably lower, as Mervyn King heavily hinted last week)?"

  • Comment number 94.

    Surely any amount spent by GB in a fiscal stimulus is minute compared to the 700,000,000,000 spent (rightly) rescuing the banks.

    If we have a run on the pound this will be the cause of the run and not the few billions (or even tens) of billions spent trying to avoid deflation.

    The pound was way overvalued anyway. In 2007 GDP per head in dollar terms for the UK was higher than Japan, Germany or the USA. Have a reality check, we are not richer than Japan, the US or Germany. The high pound may make you feel richer on holiday, but it destroys jobs in any company that has to sell abroad.

    This devaluation is long overdue. We may even avoid the inflation you would normally expect.

  • Comment number 95.

    90 Yummy:

    Agreed, very funny and disturbing ... PFI = pure financial incompetence?

  • Comment number 96.

    Re: #90

    I too watched Bremner, Bird & Fortune last night. Even accepting the fact that a little bit of hyperbole helps with the humour - seriously scary

  • Comment number 97.

    Apparently, we all just about to get £75 rebates, a reduction in certain VAT items and winter fuel allowances.

    Costed at £15billion and being used as a sweetner before a Spring election.

    I hope they dont mind me leaking this before Monday?

  • Comment number 98.

    I am very sorry to hear that Mr Croft. Genuinely.

    I like many otherssaw the writing back in 07 and sold and got out. My job and status now sucks big time but I have more security here in the east and no debts.

    Good luck with all.

  • Comment number 99.

    Sorry moderators, forgot that I'm not allowed to leak

  • Comment number 100.

    72 Excellencefirst:

    Agree entirely. In my earlier post, I was wondering whether a really bad economic crisis (which I now regard as inevitable) might be sufficient to jolt the UK public out of their short-term and stupid attitudes, in the way that really big shocks have done at various points in history. I am not particularly optimistic on this point, however!

 

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