First we have a realistic warning of the nature of a post-election world. It will not be pretty and the middle class lefties who are at the very heart of our quangos will turn nasty as Charles Moore in today’s Telegraph warns - - -
"At present, the huge power of public-sector Leftists – in quangos, pressure groups, unions, the judiciary, green organisations, local councils and the BBC – directs disappointed anger on to Labour.
After a Tory victory, all that will change.
Like enraged addicts undergoing cold turkey, without their huge doses of public spending, they will trash the public space. Will the Tories have the tough foot-soldiers needed to fight this culture war? Will they have enough officers leading from the front? If voters spot this weakness in advance, will they support them?”
But a new concern for me is the future of the Telegraph’s Business News which until now has been an oasis of sense in an otherwise flawed and dumbed-down paper.
The economics editor, Edmund Conway, has led this, though who precisely is in overall charge of the section is not clear.
He has been supported by a team including Ambrose Evans-Pritchard, Damian Reece and others with rigourous and robust thinking.
Now the paper has imported the City Editor of the Independent - Jeremy Warner - who is writing frequently but without apparently engaging his brain first.
What his place is in the pecking order remains to be seen. I trust we are not weitnessing the destruction and dumbing down of this last bastion of intelligent writing. I give a heavily annotated version of his column today.
Christina
GUARDIAN 25.7.09
I'll be nation's hate figure, says top Tory Philip Hammond
Prepare for rapid post-election budget and deep spending cuts – Hammond
• Patrick Wintour and Nicholas Watt
David Cameron may be forced to stage a rapid post-election budget to calm the markets and prevent a drop in Britain's credit rating in the first days of a Tory government, Philip Hammond, the shadow Treasury chief secretary, warns in a Guardian interview today.
Anticipating an era of deep short-term cuts in public spending, Hammond urges voters to give the Conservatives a big majority so a new government can act boldly to cut the public debt, warning that the public finances are in such a state "the worst outcome for Britain would be an unclear political result at the election".
Hammond, destined to be the man to rein in public spending if the Tories gain power, also concedes he is "likely to become a great figure to pin up on the dartboard, and throw darts at. I am sure there will be short-term pain and brickbats."
But he argues: "It is absolutely not the case that people in the public services are dreading this, or saying 'oh my God, what is going to happen?' " He claims civil servants are preparing to make cuts without waiting for instructions from on high. "There is a sense of liberation that we are going to empower public sector professionals to undertake the reform."
Setting out Tory ideas, Hammond discloses there will have to be a budget either soon after a spring election, or in the autumn, so the Conservatives can start to rein in public spending next year.
He warns that Britain's credit-worthiness could be downgraded, pushing the economy into crisis. Such a move, which has been threatened by the international credit rating agency Standard and Poor's, would make it much more expensive to pay back the national debt, which this week reached a record £799bn.
He said: "We have got this Damocles' sword of Standard and Poor's hanging over us, with the commitment they have made to review Britain's credit rating in the summer of 2010 after the general election. Everybody in Britain has a vital interest in ensuring that the triple A credit rating agency is maintained."
"It is absolutely essential that we send a signal to the markets that we have a credible plan to resolve the fiscal crisis and the debt crisis over a sensible period time," he says.
He warns that it would be dangerous to assume the government could do whatever it likes without getting a market reaction. Implying that the Tories will regard it as necessary to hold an emergency budget, he says: "I think the markets will expect to see early action because we have made it clear that we will start the process in 2010 whereas Labour has said it won't start the process until 2011-12. Early action adds credibility."
Hammond was speaking as the latest economic figures publishedtoday showed worse than expected second quarter growth figures, with a fall of 0.8%, worse than the consensus forecast of a 0.3% fall.
His remarks come after analysis for the Guardian, carried out by the Institute for Fiscal Studies, showed that Britain would face spending cuts of more than 16% to key public services if Labour and the Tories live up to their pledge of protecting schools, hospitals and defence.
He said one of the first tasks of an incoming Treasury team, in examining when to hold the special budget will be the reaction of the markets, and whether the economy is "going to get anywhere near" the government's forecast of 3.5 % growth in 2011.
Hammond also discloses that the Conservatives may try to speed up the Labour timetable to reduce the deficit, and intends to place most of the burden for that deficit reduction on spending cuts, because the current level of projected debt in relation to GDP – about 56% – is unsustainable. He also says he is worried that there are not enough civil servants in Whitehall with experience of cutting services. "There are a lot of civil servants in key posts who have never had to deal with the spending restraint … likely to be required now," he says.
He also rejects growing right wing calls to drop David Cameron's pledge that the NHS budget will be protected from cuts and rise at least in line with inflation.
He admits that he had come to the issue of ring-fencing the NHS budget as a sceptic on the basis that a lot of money had gone in and productivity had fallen. But he said:"The pressure of demography is so inexorable that the NHS is going to struggle to deliver the kind of service people expect even with modest real terms increases in budgets."
[I am so concerned about this type of facile thinking that my comments are frequent. But the main concern is that the author seems to think that it’s all over when the first growth figures appear. This growth will have been bought on the back of unparallelled borrowing on a national scale just as the original crisis was caused by borrowing by individuals and companies. The real problems start when we have to pay back those borrowings to avert a total collapse of the economy! -cs]
TELEGRAPH 25.7.09
Britain is tiptoeing away from the abyss
If there is one thing we have learned from the financial and economic crisis of the past two years, it is that most economic forecasting is complete bunkum. Nobody can predict the future, which by definition is uncertain, and I'm not about to try.
By Jeremy Warner
All the same, there are a number of things that can be said about the current state of the economy, some self-evident, others a little more surprising. One thing is clear. The economy has now stabilised, with the headlong rush into the abyss checked, at least for the time being.
This might not seem apparent from the latest data. [‘stabilised’ ? Most reports use cataclysmic headlines! eg today’s “British economic collapse rivals Great Depression” in Mr Warner’s own paper! -cs] A week of broadly encouraging news was brought to a less than reassuring conclusion yesterday by the GDP statistics, which showed that the UK economy shrunk by a much bigger than expected 0.8 per cent in the second quarter. This was the fifth successive quarterly contraction, an outcome that seems to run counter to many surveys, and much anecdotal evidence of a bounce in activity. [so we’re to bury our heads in the sand are we and rely on gossip? -cs]
Yet it would be wrong to put too much store in the latest figures. Not only are they backward-looking [statistics do look back! Mr W. has said he doesn’t like forecasts! -cs] , but they may not have fully captured what was going on in the service sector, and are in any case subject to likely upward revision. [Oh, it’s ‘maybe’ time then -cs] The best evidence [which? what? where? who? -cs] suggests that the British economy has stopped contracting, and may even be growing again. Back in March, the end of the world as we knew it seemed to loom, with economic activity paralysed by plunging confidence. [Yesterday’s research showed falling confidence after a brief upward ‘blip’ -cs] That phase has passed, as has the hunt for the once-elusive green shoots. These are now all around us.
Confidence is returning, albeit in subdued form. There are any number of signs of this. My particular favourite is drawn from the Bank of England's latest Agents' Report, about business conditions. This is based on evidence from firms up and down the land, and gives the clearest picture available of sentiment in the grassroots of the British economy.
I don't want to over-egg things. Employers are still feeling utterly miserable. But the report provides further evidence of the corner being turned. In particular, there is a marked pick-up in employment intentions, the first positive one since early 2007. That doesn't mean that the jobs market will start improving, only that a growing number of employers say they have made the bulk of their headcount reductions, and that some are stepping back from contingency plans for further significant cuts. [= they’ve put it ‘on hold’ for skilled workers are too precious to dump lightly -cs]
Even so, it can now be said with reasonable certainty that economic Armageddon has been averted. So much for the obvious. The damage so far inflicted is quite bad enough, with the speed and scale of the contraction almost exactly matching that of the early 1930s. It is only possible to speculate about what would have happened without all the policy action thrown at it. That hardly bears thinking about. [There would have been greater unemployment and company and bank failures, certainly. The latter might have been ultimately beneficial and certainly cheaper as the biggest losses would have fallen - as they should have done - on the bank shareholders. On the plus side we would not be burdened for a generation with massive debts and an emasculated economy. On balance the ‘stimulus’ was needed but it has gone beyond all reason -cs]
Unfortunately, that's not where it ends. The concern is that in averting disaster, policy-makers have succeeded in creating new fault lines that will stoke inflation and prevent a return to meaningful growth for years.
What's occurred is much more than a normal cyclical downturn, so we cannot expect a normal cyclical recovery. The manuals weren't written for the violent unwinding of imbalances now taking place, and it may be that we are asking the wrong questions in terms of when and how quickly the economy will recover. The issue is rather, what sort of a world will we recover to?
As I say, nobody can yet hope to answer these imponderables convincingly. But at least two of the concerns frequently cited as potentially insurmountable barriers to recovery can be easily dismissed.
Inflation is for the moment not a problem, nor will it become one any time soon. [This is probably a year or 18 months away. But inflation will come and countering that will be as painful as the expected spending cuts. If M r Warner doesn’t understand this he is in the wrong job! -cs] It is true that the authorities have been creating huge amounts of money to stimulate the economy, but inflation is caused by an excess of demand over supply and, for the time being, there is very little chance of that occurring. Just the chance of it would be a fine thing. The present, exceptionally loose monetary conditions can therefore continue well into the future.
Nor, assuming the next Government comes up with a plausible long-term plan for fiscal consolidation, is there much danger of a buyers' strike, where investors refuse to fund our record levels of public debt except at punitive interest rates. [That’s begging a very big question. Any ‘plausible plan’ will cause grief and pain all round. If it isn’t plausible interest rates will rise -cs]
Simple arithmetic tells you that the Government will eventually run into the law of compound interest, where it has to borrow more just to service existing debt, if Budget deficits persist at anything like the present level. [Even if they stop the deficit, the debts will still be there! The law of compound interest is operating right now! -cs] There is also plainly a problem if the Government is forced to begin its fiscal squeeze before a sustained recovery is established.
Even so, there's quite a bit of leeway left yet. In fact, the problem is not that investors won't buy government debt, but that they won't buy almost anything else. The liquidity that once funded banks and private credit hasn't simply vanished into thin air; rather, it has been swapped from private to public debt. As with inflation, just the chance of this process reversing, and investors rediscovering their appetite for other, riskier assets, would be a fine thing. In the meantime, let the therapy continue. [=”Eat, drink, and be merry and let tomorrow take care of itself” That’s the attitude that has got us INTO this mess. An article like this might do for the Indie but he seems totally out of his depth. -cs]
OTHER COMMENT
25.7.09
FT: “Economic decline worse than expected”
Independent : “Hopes of early end to recession dashed”
Scotsman: “Chancellor's recovery hopes dashed as UK economy continues to shrink”
Times: “Dark clouds thicken in record economic decline”
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