Debt is how Brown governed. It was his dope. It’s the key to understanding the UK economy in the last decade and the reckless nature of Brown’s short-termist policies. Debts are steroids to unscrupulous policymakers as debt-fuelled asset bubbles give a fake feeling of prosperity, which usually translates into votes for the ruling party. That’s why Britain started this credit crunch with the largest household debt ever seen in any G7 country. Brown gambled the UK economy on a hunch that interest rates would stay low. It has failed, and now the UK public finances are going to hell in a handcart. We’re being led by a Prime Minister who ran up a 3% deficit in the boom years and we’re now looking a deficit hitting 7% by the 2010 general election – territory not seen since the IMF bailout. There is a serious prospect that Brown will try and inflate his way out of this debt problem, a prospect which terrifies currency dealers. I have heard serious people talking about parity with the dollar. I would love to hear Brown explain why sterling’s crash is a problem that started in America. It’s a problem that started in 11 Downing Street – when he decided to conceal debt, leverage up the British economy and personally design a banking regulatory structure that allowed UK banks to be literally the most leveraged out of any outside Reykjavik. Britain is, in many ways, becoming the new Iceland. So the fall in the pound will have some time to run yet. Click here for this week's magazine Blogs: Americano | Trading Floor | Clive Davis | Melanie Phillips | Stephen Pollard Actions: Email to a friend | Permalink | Comments (27) Post this entry to: del.icio.us | Digg | Newsvine | NowPublic | RedditFriday, 24th October 2008
Sterling plummets on the back of Brown's debt-fuelled economy
FRASER NELSON 3:11pm
The sterling crash has now begun in earnest. The pound has today (today!) fallen 9% against the Yen and is off 4% against the dollar to a lowly $1.56 with forecasts of $1.40 or lower next year. Against any other currency you may mention, it’s now plunging. The proximate cause is news that the UK economy is shrinking far faster than expected, and there's talk about a 0.75-point interest rate cut - sooner rather than later. But on a wider prospective, this is the markets commenting more articulately than the Tories on Gordon Brown’s “scorched earth” economic policy. It is becoming clearer that Britain is perhaps in the worst position of any developed economy in this crisis. Markets are not fooled by Brown’s mendacious claims to have reduced the national debt to 37% of GDP, and will be alarmed to see a Prime Minister use debt concealment methods that would shame the most spivvy merchant bank. Official national debt was 43% before the bank bailouts of two weeks ago, and will be well over 100% if one counts PFI, B&B and the pension liabilities.
Friday, 24 October 2008
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Fraser
October 24th, 2008 3:51pmI can't believe the last 17 years of toil have amounted to nothing more than a much higher fixed cost for running the state. The national wealth has been undermined by Brown. Private sector wealth was essentially an illusion of asset and equity prices dissipated by the reckless blundering of a one eyed thief.
kinglear
October 24th, 2008 3:57pmWhat I cannot understand is why noone appears to be holding Brown to account. The only chance is the lectorate in w wee while - but until then we are swamped with his lies and spin.
Neil
October 24th, 2008 3:57pmBrilliant assessment - as you say "explain( lie) yourself out of this Gordon"!!
Dirty Euro
October 24th, 2008 4:00pmThey must be worried at the thought of the tories getting in.
And with Obama about to be elected no wonder they are re investing in the USA
Dirty Euro
October 24th, 2008 4:03pmI am backing Britain Maybe you tories aren't.
oldtimer
October 24th, 2008 4:07pmThe present is bad enough. The outlook is bleaker. And be wary of all that talk about exports leading us out of this mess. Today, Volvo Trucks said it had taken orders for just 115 new truck in the past quarter - the year before it took in orders for 41,000 trucks! (information from the FT Alphaville site). This is astonishing - as bad as, if not worse than, the early 1980s when orders fell of a cliff. A business I knew then had annual sales of big ticket items drop from c1000 to just 63. It closed shortly thereafter.
Silent Hunter
October 24th, 2008 4:08pmWhat has happened?
I thought Brown was supposed to have single-handedly saved the financial markets of Europe?
Well, finally the hubristic chickens are coming home to roost at Labours door.
I do hope that the bizarre run of 'positive to Labour polls' are finally shown for what they are...........SPIN !
Did anyone else hear Lord Mandy of Fol De Rol saying how times were going to get tough?
Rather sick; coming from someone who has just received a pension in excess of £1 MILLION for lining his pockets with money from Russian Oligarchs who are thankful for the aluminium tariffs (set by Mandy) being halved for them.
No conflict of interest there then ! Pass the sick bag.
TrevorsDen
October 24th, 2008 4:09pmMaybe it only the markets that are listening to what the tories say - certainly the media have been deaf for a long time.
I have been commenting for ages that we are likely to face a sterling crisis once Britain debt, spending and recession prospects became clear.
interest rates are now in no-mans land. lower and we get a Sterling crisis and import inflation leave em and we get a deeper recession.
let us all sit at the masters feet and see how Lord Mandy talks his way out of this.
euro
October 24th, 2008 4:22pmCassius points out (http://www.cassiuswrites.com) that Brown now claims to be leading us OUT of recession!!!
William Norton
October 24th, 2008 4:30pm"I would love to hear Brown explain why sterling’s crash is a problem that started in America."
Tush tush, Fraser. Have you no faith?
As the Great Helmsman will tell you, once he's finished his swim in the Thames, you've missed the point. Sterling isn't crashing. What is happening - obviously - is that every other currency in the world is suffering a dangerous and destabilising hike in value, which only Britain has managed to avoid thanks to our prudent long-term totally debt-free leadership.
It's all part of the Supreme Leader's cunning plan for Britain to export or die. Well, die at any rate.
Top tip: the next phrase we'll all be hearing until we're sick of it will be something like "British industry now has a once-in-a-lifetime opportunity to undercut our competitors and boost exports".
And the first thing whose export we can expect to be boosted will be People.
Pentlands
October 24th, 2008 4:42pmThe pound has its biggest one day fall in 37 years - but no mention of that fact on the biased BBC website...............
kinglear
October 24th, 2008 4:44pmDirty Euro - how exactly are you doing this backing? Only buying British made goods? Only holidaying in Britain? Or what?
Gareth Sutcliffe
October 24th, 2008 4:50pmSmall point - Govt deficit figures are generally quoted against GDP. The obvious reason for this is that GDP gives an idea of the ability to service the debt.
But if we are discussing the extent of overspending, it makes more sense(to me anyway) to give the ratio of deficit to tax revenue. In that case, you can see that the UK govt has been spending 7.5% more than its income, every year, even in the good times.
That is extremely profligate. And for the most part this 'investment' does not appear to have been in those items most worthy of public funds such as flood defences. Its all been on the client state.
The Laughing Cavalier
October 24th, 2008 5:03pmThe commentators who are telling us how bad Brown is were, for the most part, those who sang his praises while he was getting us into this mess. Those of us who warned that this Potemkin Chancellor would lead us to disaster were ignored, derided even. When sterling gets close to parity with the Euro Brown will take us into it, thus completing the destruction of savings and pensions that he began in 1997.
TGF UKIP
October 24th, 2008 5:03pm"This is the market commenting more articulately than the Tories on Brown's "scorched earth" economic policy." Exactly so Fraser.
Sterling's decline should THEORETICALLY give the Tories an open goal for them to spell out -
a) That this is the international judgement on Brown level of debt and
b) what this decline in sterling will mean for everyone in terms of rocketing petrol and food prices and forget holidays, folks, you won't be able to afford the exchange rates.
One thing, though, that both you hacks, Fraser, and your precious mates can do to get the message home is to stop talking in these %ages of GDP terms. Absolutley meaningless to Joe Public. He will though understand real figures though i.e. £351 bn debt in May 1997 and now at £700 and more when everything is included and £700bn equates to indebtedness, which their taxes will have to pay for, amounting to £28,000 for every UK household.
Of course if your two best mates hadn't so loudly and stupidly supported and embraced the Labour spending that's incurred all this debt and talked and behaved like conservatives they would be in a much stronger poition to take Gordon to task.
As it is there's more chance of Gordon and Mandy stopping lying and apologizing to the British people than there is of your precious pair landing any meaningful blows.
Dirty Euro
October 24th, 2008 5:04pmIt is those bloody bankers.
Sterling crisis my elbow
October 24th, 2008 5:09pmEh? It's higher now against the Euro than it was six months ago.
In any case can someone please tell me why this is a prioblem? Usually Tories are telling us that we face the danger of a slump so therefore they should be applauding this market-driven correction which carries minimal inflationary risk and prices us into export markets while stimulating demand for domestic produced manufactures to substitute for imports at home at a time of economic downturn.
Sounds like a win-win to me: which is why so many Tories cheered just this when it happened after the pound's ejection from the ERM in September 1992.
Get your story straight please.
Gareth Sutcliffe
October 24th, 2008 5:17pmPentlands - in fairness, neither has sky, at least not in the headlines where it should be.
everyone is more interested in the GDP figures and Alan Greenspan's mea culpa
mac
October 24th, 2008 5:20pmkinglear - "or what?"
A pound to a pinch of proverbial he's a beneficiary of NewLabour's benevolent benefits society.
Up the workers, DES eh? Daytime telly and a packet of Rizla ciggy papers. Contentment, and all made possible by that nice Mr Brown.
Henry Rogers
October 24th, 2008 5:23pmBut wait awhile, the wind is still rising. When the storm is at its wildest, Tony Blair will come to us, walking across the water, to save us all from shipwreck.
Toby
October 24th, 2008 5:39pmThe sterling crash makes a nice headline, but doesn't really reflect what's happening in the markets. I commend the following chart to Coffee Housers:
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/13/11/twelve_month.stm
It shows that Sterling hasn't budged against the Euro since April. What we've seen over the past few days is the strengthening of the US$ against European currencies. This says much more aboutrelative perceptions of Europe and the US than it does about Britain's economic standing. Or put another way, we may be going down, but we've got good company...
ArmyBoy
October 24th, 2008 5:47pmI am a public sector worker (Army) and am truly terrified buy the current state of affairs. Not only have the Labour party pretty much bankrupted the UK economy but they want to borrow even more money. They are not just skuttling a sinking ship they are torpedoing it just to make sure. Even if the UK electorate see the light and kick Labour out of office, the Tories will have a nightmare job of getting Britain back on track, and due to this are probably not going to stay in office too long. Could this be the longer term goals of the Labour party??
John Miller
October 24th, 2008 5:47pmWell, Pentlands, lil'Bobby does mention sterling's fall on his blog. But it isn't really sterling falling y'kmow, its all those other pesky currencies rising.
Of course, when you explain to a drowning man that he isn't really sinking - it's just the sea rising, he may not appreciate the subtle difference...
William Norton
October 24th, 2008 5:53pm"which is why so many Tories cheered just this when it happened after the pound's ejection from the ERM in September 1992."
Mr Elbow, you have overlooked two critical differences between now and 1992:
(1) There was a Tory Govmt in 1992, and there is a Labour Govmt now. Clearly the '92 crash was an example of unparalleled statesmanship, whereas today it is patent evidence of incompetent bungling, as eny fule kno.
(2) Many of us at the time thought the '92 crash was the final knife in the ERM, Maastricht and the whole European brouhaha panjandrum. That prediction turned out to be not as accurate as we had hoped....
John Miller
October 24th, 2008 5:55pmHmm, shall I explain this slowly to elbow?
When you go to the sweetie shop to buy your Smartie, the man behind the counter says "Today I have decided that the price is no longer one of your pennies, because I now think that they are nasty, smelly things and henceforth it shall be 2 pennies."
Where do you get the other penny?
Oh, and if you say you just make another one out of milk bottle lids, Germany tried that in 1945. But if you want to know what's so bad about inflation, ask somebody else - I can't be dong economic lessons all day.
JONNY
October 24th, 2008 6:14pmOnly drawback to all this is: when they cut the interest rate the Pound will go subterranean.
JimBob
October 24th, 2008 6:18pmI read earlier this week that UK has lower national debt:GDP than other rich countries.
Out of interest, does anyone know whether this compares like with like? ie are other rich countries excluding public pensions, or anything else, from their debt figures?