Going for bust - the Government can't afford a proper bail-out. Sterling takes a royal pounding

The economic news hardly improves, does it?

I take this opportunity to draw readers attention to the ridiculous 
clamour - the Daily Mail today is the worst - to see the price of 
petrol falling in line with the price of oil.  Consumers haven't 
noticed that as the oil price has fallen b y around 21% in dollars ,  
the pound,  with which they buy petrol , has also fallen  with the 
result that the price of the oil has only slightly decreased.  This 
is an object lesson in simple economics!

Separately - because it's important - I have just sent out "Look what 
they're doing to you" .  It's incompetence on a titanic scale.
   xxxxxxxxxxxxx cs
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TELEGRAPH   3.9.08
Going for bust - the Government can't afford a proper bail-out
By Damian Reece

The UK housing market has found a strange and rather sad equilibrium. 
When it does function, it's at levels that spiral closer to Hades 
every day.

No wonder house-builders were yesterday quick to welcome the 
Government's plans to axe stamp duty on homes worth up to £175,000. 
But the measure will be about as useful as buying a chocolate 
fireguard for your new home, in the unlikely event of you actually 
acquiring one. According to UBS, lenders will have raised £200bn from 
the Bank of England's Special Liquidity Scheme by the time it closes 
on October 20, but even that much cash will have had no appreciable 
impact on getting the mortgage market going again.

If that sort of sum can't change things, I fail to see how the 
Government's new measures, valued at a piffling £1bn, will do 
anything to alleviate the problems.

We're in a market that is forced to trade only one way - downwards. 
House prices are falling, so sellers have little incentive to put 
their property on the market while buyers can't get loans to acquire 
homes even if they wanted to.

But Government intervention is the last thing the market needs. 
Politicians dabbling in the housing market through the tax system 
have a remarkably poor record, causing damaging distortions along the 
way.

I suppose the one compensation with the latest proposals is that they 
are so irrelevant that they can't possibly have any impact on a 
market so deeply troubled as UK residential property. Instead of 
fiddling at the edges, a bold Chancellor would have abolished the tax 
altogether, at least on property deals. If he was intent on using the 
tax system to bail out property, he could have reintroduced mortgage 
interest tax relief, lowered VAT on home improvements or at least 
abolished it at a meaningful level - £175,000 is simply too low.

Alistair Darling also overlooks the fact that when people move they 
often want to trade up, but the property market above £175,000 will 
remain untouched by these measures, rendering them even more useless.

Darling's actions reveal just how impotent this Government is. He 
can't use the tax system in any meaningful way to give the property 
market an artificial boost because he simply can't afford it.

In exactly the same way, as we'll see in November with the pre-Budget 
report and with the Budget proper in March, he will be unable to use 
the tax system to bolster any part of the economy in a meaningful 
way. The Government is bust. It can't even help itself, never mind 
the economy.
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FINANCIAL TIMES - Leader   4.9.08
Sterling takes a royal pounding

Gordon Brown, UK prime minister, holidayed in the UK. Who can blame 
him? Going abroad has become expensive for British people. The 
decline in sterling, which began last year, is now turning into 
something of a rout.

The UK is exposed in three ways to the aftermath of the credit 
squeeze. It has heavily overvalued housing, the most indebted 
consumers in the world and an economy that is peculiarly reliant on 
financial services. High borrowing costs, a painful housing market 
correction and losses in the financial sector mean most of the UK's 
assets have been dramatically revalued down. Sterling has suffered.

Against the euro, it has lost a sixth of its value since last summer. 
Against the US dollar, it has lost 13 per cent of its value. This 
week has been especially brutal. After nine successive days of falls, 
the pound is now trading at levels closer to those it plumbed in the 
aftermath of Black Wednesday than to the highs of last summer. A 
downbeat medium-term assessment from Alistair Darling, chancellor of 
the exchequer, some dire economic predictions and weak domestic data 
led to a 2.5 per cent fall against the dollar since Friday afternoon 
alone.

This will cause a great deal of fretting. The pound, however, was 
overvalued last year. A shift was inevitable. Moving away from growth 
based primarily on consumer and business spending at home to an 
equilibrium that encourages more exports is a necessary correction.

Investors who worry about this new weakness should appreciate that, 
on a real trade-weighted basis, the pound is now at its historic 
average. In the long run, as the North Sea fields wind down and the 
UK imports more oil and gas, sterling is likely to fall further.

The government response should be to sit on its hands. A feeble 
package to reflate the housing market, announced this week, gave the 
impression that something needs to be done while delivering little. 
If it has had any effect, it will have reduced confidence in the 
pound. The government should put further questionable schemes, such 
as Treasury-backed mortgages, out of its mind. The big danger is that 
a weak government will resort to more of the panic measures that have 
done such damage to confidence in the UK over the past 12 months.

The authority that ought to worry about the weaker pound is the Bank 
of England, which meets on Thursday to decide on interest rates. The 
monetary policy committee must now contend with rising import costs. 
All else being equal, the weakness of sterling means the Bank will 
need tighter monetary policy than would otherwise be necessary to 
bring inflation back down to the target of 2 per cent from its August 
level of 4.4 per cent.
The slide of sterling is necessary. It may prove to be painful. It is 
not, however, a cause for panic.