Britannia Radio

First we have Liam Halligan debunking the 'deflation' bogey which is 
what he calls it in effect.  This a serious criticism since the 
threat of deflation underpins the whole rationale - such as it is - 
for Gordon Brown's attempt to ride out the recession on a tide of 
borrowing.

The further the pound falls the greater the imported inflation and if 
'core' inflation is already zooming ahead any further devaluation 
caused by excessive borrowing could be terminal.

Then ambrose Evans Pritchard puts our problems into a global 
perspective.

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SUNDAY TELEGRAPH     21.12.08
1. We'll trip over the skin of our banana republic policies
In the UK, too, our policymakers warn about deflation under every 
rock and just around every corner.

By Liam Halligan

Last week we learnt CPI inflation was 4.1pc during the year to 
November, down from 4.5pc the month before. No matter that's still 
more than double the Bank of England's 2pc target. Or that CPI - 
which has long underplayed true inflationary pressures - is anyway 
deeply discredited. Or that core inflation - minus fuel and food 
costs - actually rose last month.

Forget all that. It doesn't matter. Because even though inflation 
remains sky-high, November's CPI number was presented as "evidence" 
that deflation is on its way.

I think not. Just as in the US, deflationary fears are too convenient 
in my book - the perfect excuse for our politicians to throw off the 
shackles of restraint and print money in a desperate bid to buy votes.

The UK's panicked political elite - like their American counterparts 
- have ditched economic orthodoxy. Our leaders are now making classic 
mistakes - pursuing policies befitting a banana republic, rather than 
a leading economic power.

Having upended our monetary and fiscal regime, ministers won't be 
able to "spin" the currency markets. Sterling hit 95.5p against the 
euro last week - yet another record low. Parity against the single 
currency now looms.
Sterling's fall is gathering pace. The week before last, the pound's 
effective (trade-weighted) exchange rate dropped 1.25pc. Last week, 
it lost 4pc in just three days.

On that basis, the pound is now down almost 25pc over the last year. 
That's a steeper decline than during the 1976 crisis - when Labour's 
Denis Healey went cap in hand to the International Monetary Fund. 
It's also sharper than when sterling was forced out of the Exchange 
Rate Mechanism in 1992.

Ministers maintain - sotto voce - that depreciation is good. "Black 
Wednesday", after all, unleashed years of strong UK growth. But that 
depreciation happened when the global economy was recovering - unlike 
today.

And sterling still has a long way to drop. Thursday's public finance 
numbers were atrocious - showing that, even before the recession has 
really bitten, the UK borrowed a record £16bn during November. Annual 
borrowing of £150bn now looks likely over the next three years - 
piling more pressure on the pound.

Seeing as our exports are now much weaker than during the early 
1990s, the benefits of a weaker currency are anyway offset by more 
expensive imports. During November, import price inflation hit 10pc. 
Over the first quarter of next year, it could easily reach 15-20pc, 
as the pound falls further - yet another reason talk of deflation is 
rot.
=-=-=-=-=-=-=-=--AND--->
2. Protectionist dominoes are beginning to tumble across the world  
[condensed]
The riots have begun. Civil protest is breaking out in cities across 
Russia, China, and beyond.

By Ambrose Evans-Pritchard

Greece has been in turmoil for 11 days. The mood seems to have turned 
"pre-insurrectionary" in parts of Athens - to borrow from the Marxist 
handbook.

This is a foretaste of what the world may face as the "crisis of 
capitalism" - another Marxist phase making a comeback - starts to 
turn two hundred million lives upside down.

We are advancing to the political stage of this global train wreck. 
Regimes are being tested. Those relying on perma-boom to mask a lack 
of democratic or ancestral legitimacy may try to gain time by the 
usual methods: trade barriers, saber-rattling, and barbed wire.

Dominique Strauss-Kahn, the head of the International Monetary Fund, 
is worried enough to ditch a half-century of IMF orthodoxy, calling 
for a fiscal boost worth 2pc of world GDP to "prevent global 
depression".

"If we are not able to do that, then social unrest may happen in many 
countries, including advanced economies. We are facing an 
unprecedented decline in output. All around the planet, the people 
have reacted with feelings going from surprise to anger, and from 
anger to fear," he said.

Russia has begun to shut down trade as it adjusts to the shock of 
Urals oil below $40 a barrel. It has imposed import tariffs of 30pc 
on cars, 15pc on farm kit, and 95pc on poultry (above quota levels). 
"It is possible during the financial crisis to support domestic 
producers by raising customs duties," said Premier Vladimir Putin.

Russia is not alone. India and Vietnam have imposed steel tariffs. 
Indonesia is resorting to special "licences" to choke off imports.

The Kremlin is alarmed by a 13pc fall in industrial output over the 
last five months. There have been street protests in Moscow, St 
Petersburg, Kaliningrad, Vladivostok and Barnaul. Police crushed 
"Dissent Marchers" holding copies of Russia's constitution above 
their heads in Moscow's Triumfalnaya Square.
"Russia has not seen anything like these nationwide protests before," 
said Boris Kagarlitsky from Moscow's Globalization Institute.

The Duma is widening the treason law to catch most forms of political 
dissent, and unwelcome forms of journalism. Jury trials for state 
crimes are to be abolished.

Yevgeny Kiseloyov at the Moscow Times said it feels eerily like 
December 1 1934 when Stalin unveiled his "Enemies of the People" law, 
kicking off the Great Terror.

The omens are not good in China either. Taxis are being bugged by 
state police. The great unknown is how Beijing will respond as its 
state-directed export strategy hits a brick wall, leaving exposed a 
vast eyesore of concrete and excess plant.
Exports fell 2.2pc in November. Toy, textile, footwear, and furniture 
plants are being closed across Guangdong, now the riot hub of South 
China. Some 40 million Chinese workers are expected to lose their 
jobs. Party officials have warned of "mass-scale social turmoil".

The Politburo is giving mixed signals. We don't yet know how much of 
the country's plan to boost domestic demand through a $586bn stimulus 
package is real, and how much is a wish-list sent to party bosses in 
the hinterland without funding.

Shortly after President Hu Jintao said China is "losing competitive 
edge in the world market", we saw a move towards export subsidies for 
the steel industry and a dip in the yuan peg - even though China 
already has the world's biggest reserves ($2 trillion) and the 
biggest trade surplus ($40bn a month).

So is the Communist Party mulling a 1930s "beggar-thy-neighbour" 
strategy of devaluation to export its way out of trouble? Such raw 
mercantilism can only draw a sharp retort from Washington and 
Brussels in this climate.
"During a global slowdown, you can't have countries trying to take 
advantage of others by manipulating their currencies," said Frank 
Vargo from the US National Association of Manufacturers.

It is a view shared entirely by President-elect Barack Obama. "China 
must change its currency practices. Because it pegs its currency at 
an artificially low rate, China is running massive current account 
surpluses. This is not good for American firms and workers, not good 
for the world," he said in October. The new intake of radical 
Democrats on Capitol Hill will hold him to it.

There has been much talk lately of America's Smoot-Hawley Tariff Act, 
which set off the protectionist dominoes in 1930. It is usually 
invoked by free traders to make the wrong point. The relevant message 
of Smoot-Hawley is that America was then the big exporter, playing 
the China role. By resorting to tariffs, it set off retaliation, and 
was the biggest victim of its own folly.
Britain and the Dominions retreated into Imperial Preference. Other 
countries joined. This became the "growth bloc" of the 1930s, free 
from the deflation constraints of the Gold Standard. High tariffs 
stopped the stimulus leaking out.

It was a successful strategy - given the awful alternatives - and was 
the key reason why Britain's economy contracted by just 5pc during 
the Depression, against 15pc for France, and 30pc for the US.

Could we see such a closed "growth bloc" emerging now, this time led 
by the US, entailing a massive rupture of world's trading system? 
Perhaps.
This crisis has already brought us a monetary revolution as interest 
rates approach zero across the G10. It may overturn the "New World 
Order" as well, unless we move with great care in grim months ahead. 
This is where events turn dangerous.

The last great era of globalisation peaked just before 1914. You know 
the rest of the story.
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HEADLINE NEWS   21.12.08
Sunday Telegraph  Pre-packs ready for failing retailers
Accountancy firms are believed to have at least 15 large so-called 
pre-pack administrations lined up for January as the economy 
continues to falter.

Times   Race to save Olympic firms from crash
With 4,000 companies and 15,000 jobs at stake, payment times have 
been cut to keep contractors solvent

Retreat over interest on loans to the poor
Government has backtracked on proposals to charge punitive rates on 
emergency state aid to poor families

Financial Times  UK green light for coal-fired power
Two-decade deadline will alarm environmentalists