Britannia Radio

It's still not dawned on some that things have not yet reached 
bottom.    I would certainly urge the Tories to listen to Heffer when 
he backs John Redwood.  

He's been dynamic in all he's advised in  recent months and right most of the time.  

He's got a 'sort of' job  with the Tories but he ought to be in charge of economic policy.  

And  Fallon - also tipped by Heffer - is totally 'on the ball too.  By 
sheer chance Politics Home picked him up today  on the 'Today" 
programme. [see last item,]   He is the first politician to deal with 
the question of 'toxic assets' [we'd call them dodgy debts" ]  It is 
lack of knowledge over these that stops banks from giving credit to 
one another.  That's on e thing the government could do - force the 
banks to disclose the 'dodginess' of their published balance 
sheets.    The disclosure need not be published but the government 
would know the scale of the problem and could formulate a number of 
policies to unblock the system.  (In America a number of remedies 
have been suggested but action is needed)

A point to ponder when your council tax bills come in.  The 
government is making an increase almost inevitable,  Councils get in 
the tax and leave it on deposit with the banks.  The interest they 
get has been slashed so the Councils lose money. A letter to today's 
Telegraph puts it well -- "Councils rely on income from savings. As 
for all savers, this has been severely eroded. There will be no 
escaping further misery when the necessary council cuts or council 
tax increases are announced later in the year."    It is hard to find 
anybody who IS going to benefit from the Bank Rate change.  Mortgages 
might go down a bit but they'll be harder to get.

xxxxxxxxxx cs
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CONSERVATIVE HOME Blog     9.1.09

The economy: more horrible truths

The macroeconomic event of the week, in terms of media coverage, was 
undoubtedly the Bank of England's cut in official interest rates of 
0.5%. But other economic developments, which had much less media 
coverage, caught my eye. And they were very disturbing indeed. 
Firstly, the Chancellor conceded that his Pre Budget Report forecast 
for the economy was way over-optimistic - he conceded that perhaps 
the economy would not recover in the second half of this year after 
all. I didn't know of anyone in November who thought it would. 
Reflecting this, it is inevitable that public borrowing will balloon 
even more than was expected to balloon in the PBR.

The PBR expectations were horrendous enough. Borrowing this financial 
year would be £78bn, followed by £118bn next year and £105bn the year 
after. The Treasury estimated at the time that it would need to sell 
about £350bn worth of gilts over the next three years. I dread to 
think what the Treasury actually believes the borrowing figures will 
be and the amount of gilts they estimate they will need to sell.

Secondly, there were worrying signs that there is faltering 
enthusiasm for government bonds in investor markets, even though 
government bonds are currently seen as a "safe haven" investment. 
Indeed there has been a "boom" in government bonds. Prices have risen 
and returns have fallen back. But this week an auction of German 
government bonds partially failed. Not all the bonds on offer (at the 
specified price and with given returns) found buyers. And "booms" 
have a horrible habit of being followed by "busts".

The amount of government bonds on offer around the globe is set to 
explode. If these bonds are to be sold to investors, investors will 
probably require significantly higher returns than is currently the 
case. And that will apply to the returns on gilts. "Debt interest" 
will become an ever-greater burden on future generations of 
taxpayers. The truth is that the government has lost control of the 
public finances and it is only to be hoped that international 
investors will be prepared to buy gilts in the quantities coming on 
stream. Otherwise it will be back to 1970s, complete with an IMF bail-
out. I remember this humiliating incident only too well as I was 
working in the Treasury around that time.

But is the government trimming back wasteful spending in the public 
sector? Of course, not. Our Prime Minister has always been a spending 
junky, blinded by millions, billions and now trillions of pounds.

As people in the private sector lose their jobs, the public sector 
continues to expand.   Indeed it is government policy that it should 
continue to do so - even though the public borrowing figures are 
appalling and the productivity record in the public sector is frankly 
disgraceful, thus dragging down the overall performance of the 
economy. Let me quote the latest official numbers. In the third 
quarter of 2008 public sector employment rose by 14,000, compared 
with a fall of 128,000 in the private sector. Given the substantial 
increase in public sector employment since 1997 (it was 5.2 million 
in 1997 and is currently nearly 5.8 million), there should surely be 
room for cost savings and belt-tightening, which could help finance 
tax cuts and stimulate the wealth-producing private sector. But our 
Prime Minister doesn't see it that way
----------------------------------------------------------------------
. Ruth Lea is director and economic adviser at the Arbuthnot Banking 
Group and a governor of the London School of Economics.
========================
TELEGRAPH   10.1.09
Interest rates and the economy: Does anyone in charge have a clue 
what to do?
I have yet to read a satisfactory explanation of the cut in interest 
rates this week.

Simon Heffer


It is no consolation that the Bank, by cutting just 50 basis points 
rather than 100, has allegedly signalled that this will be the last. 
The pointlessness of what can best be described as Thursday's 
diversionary tactic was already a bridge too far. If you want to 
encourage banks to lend, then why give them less incentive by cutting 
their rate of return? What is the point of an interest rate cut that 
many lenders choose not to pass on, because they risk going out of 
business if they earn so little for their money?

But then, more than six weeks later, I still cannot fathom the point 
of the cut in VAT from 17.5 per cent to 15 per cent.

I have yet to hear a retailer say that it (as opposed to huge sales 
discounts) has made any difference. Again, we are told that it may 
have an effect next autumn, just before VAT is due to go back up. I 
am not sure we can wait until then when, at this rate, even the 
charity shops won't be able to afford to take up all the empty spaces 
in the high street.

As I expect the next few weeks to demonstrate, the horrors we are 
experiencing will soon be felt around Europe. Our position, which is 
now relatively bad, may soon start to look relatively good. That, 
too, should be no consolation. It will not betoken that our economic 
strategists have got something right; it will show, simply, that our 
commercial rivals are at last having as much grief as we are.

It has been said that many economists backed this week's rate cut, as 
if that is supposed to reassure us. The death of Sir Alan Walters 
reminds us of his almost lone opposition to the 364 economists who 
wrote to the press in 1981 saying that the monetarism practised by 
the Thatcher government - especially the avoidance of debt and the 
desire to balance the budget - was wrong. Within six or seven years, 
Britain was experiencing unprecedented prosperity and the country had 
been transformed. We then had a similar crew of economists telling us 
how essential entry to the European monetary system was. I think we 
can all agree that a period of silence from such people would be most 
welcome.

In fact, even Mr Darling, the Chancellor, admitted this week that he 
really didn't have a clue what to do to put our economy back on the 
straight and narrow. Can we be surprised? He may have held various 
financial posts in government and in opposition, but usually in the 
shadow of Gordon Brown, and before that he was a leftie Edinburgh 
lawyer. I am not sure he can even read a balance sheet. I certainly 
wouldn't put money on many of his Cabinet colleagues being able to do 
so. Look down the list and try to gauge their hands-on business 
experience - try to gauge any real understanding about how wealth is 
created - and you pretty much draw a blank.

If you ran a public limited company, would you ask Hazel Blears to 
join the board? Would you want Jacqui Smith chairing your 
remuneration committee? Would you be happy for Lord Rumba of Rio to 
sign off your accounts, or little Miliband to mastermind your product 
development? Quite.

To make matters worse, the Treasury has been politicised since 1997, 
so officials say what they think their masters want to hear, rather 
than what they should hear. The unthinkable is never thought. 
Economists with an alternative view are ignored and marginalised. And 
of course, the Opposition hasn't a clue either, or the time to have 
one between skiing holidays.  [CHEAP! tThis last remark is why Heffer 
who writes so much good sense gets ignored by many!  Duncan - to whom 
he is referring - held the fort for the Tories over the Christmas 
period itself, and did it well too.  He is taking his break later!  
That's all -cs]

Only one thing will give us an economic revival. It is, and I 
apologise for being boring, the transfer of money from the client 
state to the productive and private sector of the economy. This means 
spending cuts and tax cuts. Everything else is simply propaganda.

Who cares about his ears when he's a genius?

Some of you may have heard the magnificent analysis John Redwood gave 
of the economic crisis on Radio 4's Today programme this week; you 
may even have read his superb blog, which has been ahead of the 
proverbial curve for months in identifying what must be done. He is 
one of only two Tory MPs who really gets what is going on - the other 
is Michael Fallon.

Yet, whenever I ask Tories why this brilliant man, who would make 
mincemeat of Alistair Darling in the House of Commons, is not in the 
shadow cabinet I am told he is not a "team player" and, more to the 
point, he supposedly looks like a character from Star Trek. The 
former criticism is merely a reflection of the discomfort the 
mediocrities of the shadow cabinet feel in the presence of those 
infinitely cleverer than they are. The second is simply obtuse. There 
is a war on. The Tories need their most effective performers. Ken 
Clarke, too, may be one of those. But he is not a patch on John 
Redwood in the present circumstances.
========================
ECONOMIC 'Shorts'   10.1.09

FINANCIAL TIMES
==Global outlook worsens for output and jobs
The outlook for the global economy looked increasingly bleak on 
Friday night after figures from the UK, the US and continental Europe 
pointed to falling output and rising unemployment.
In Britain, the latest industrial production figures led one of the 
country's most respected economic think-tanks to predict that the UK 
economy is set to record its sharpest squeeze in nearly 30 years, 
with national income falling by about 1.5 per cent in the fourth 
quarter of last year.

The National Institute for Economic and Social Research, a think-tank 
with a strong track record, made the forecast after official data 
showed on Friday that industrial production fell by 2.7 per cent in 
the three months to November, much more than economists had expected.


========================
POLITICS HOME    7.1 09
COMMENTS
++++++++++++++++
Today, Radio 4 at 08:43
Fallon: Clearly something more radical is required to start bank lending

Michael Fallon, Treasury sub-Committee Chairman (Conservative)

Mr Fallon said the government's economic policies weren't working, 
and urged them to take up the Conservative plan for a National Loan 
Guarantee Scheme.

"At the moment it clearly isn't working. Banks aren't lending, 
companies can't get capital. Clearly something more radical is required.

"Simply printing money and giving it to people is the end game - it's 
an admission that your policy has failed. There are alternatives. 
George Osborne has been arguing for weeks the National Loan Guarantee 
Scheme. Really they've got to get on with it.

"It doesn't matter that it's a Tory idea, he should just get on with it.

"We want banks to come clean on toxic assets, that's why there's not 
trust in the system."  [THIS is a new departure and is long overdue -cs]