The politicians are obsessed in getting more power into their own hands by setting up a global New World Order where entrepreneurs and and risk-takers are frozen out and the world becomes a static unenterprising stagnant pool with no progress for anybody. Thus the state of the British economy is a touchstone for the possibility of making the world a dynamic market again.
One should never forget that although the transactions which caused the crisis were carried out by bankers the were made possible by politicians. Indeed the chief culprit was Bill Clinton who when president, ordered the two giant federal mortgage groups to relax their conditions for lending so that the poor, unable to afford to buy their homes should get loans nevertheless. So they lent with a vengeance and that’s where and how the whole sub-prime mortgages started. Back home it was Gordon Brown as chancellor who allowed credit restrictions and rules to lapse and produced here much the same result as Clinton had done. The banks were reckless to go along with such lunacies but when your government is urging you to lend - lend - lend the temptation was too much.
Now the politicians are fully in the driving seat and are taking revenge on the wealth creators blaming them for the mistakes they, the politicians, made. So regulations and restrictions are pouring out in an avalanche and instead of liberating the wealth creators to put our economies right they are trying to stifle them.
Brown appointed Lord Turner (of a clear left-wing bias) to be head of the Financial Services Authority which body failed to do its job. Lord Turner was a disastrous head of the CBI before that. He is still in position as head of the FSA whose role would be changed under a Tory government. He probably sees the end of his career in prospect and is using the dog-days of his office to poison the atmosphere in the City.
He wildly alleges that “the financial crisis was “cooked up” by City dealers”. The Telegraph reports him as referring to bankers’ role in “triggering a recession that had led to hundreds of thousands of Britons losing their jobs and tens of thousands losing their homes, Taxes would rise or public services would be cut because of the crisis”. Lord Turner should reflect on his failure to supervise the activities of these bankers which made excessive risk-taking possible . Indeed he should remember Gordon Brown’s Mansion House speeches praising the self-same bankers for their great success in building London to the worlds greatest financial centre. He also makes the fatuous suggestion that “ bankers [should] ignore their normal instincts and walk away voluntarily from doing business that, although profitable, had no social benefit.” Of course they should not engage in socially destructive activities but this crazy suggestion is that they should be surrogate social manipulators !
The attack immediately brought a damning response from some in the City. Lord Levene, chairman of the Lloyd’s insurance market, said: “This is not helpful. Do we really want the rest of the world questioning whether the City really wants to be top of the tree in financial services?” Lord Levene had already attacked Lord Turner’s previous comments, as had Richard Lambert, Lord Turner’s successor as CBI director-general.
The crisis is too grave to have this rogue peer indulging in socialist propaganda.
Christina
TELEGRAPH 23.9.09
1. Britain "within a whisker of losing its triple A credit rating"
By Jeremy Warner
Can Britain afford the massive increase in sovereign debt it is clocking up in paying for the structural deficit and the recession? Only just, assumptions used by the Treasury in drawing up its forecasts for the public finances reveal. It could swing either way.
One of the most striking features of confidential Treasury papers leaked last week to the Tories was the projected growth in the numbers for debt interest. This is assumed to rise from “just” £27.2bn this financial year to a staggering £63.7bn by 2013/14, or from 5.4 per cent of government receipts to 9.6 per cent. Put another way, nearly 10 per cent of everything the Government receives in taxes and other forms of income will soon be consumed servicing the national debt, which means less money for everything else.
In itself this might seem bad enough, but the reason it is of more than purely shock significance is that 10 per cent is one of the key trigger points used by Moody’s, the credit rating agency, for assessing whether triple A rated countries are vulnerable to a downgrade .
Anything between 10 and 12.5 per cent is regarded as the danger zone. Once through that, you are at the point of no return. Even the UK Treasury’s own internal assumptions place Britain just shy of the vulnerability threshold. Admittedly, most long term assumptions on income and expenditure in the public finances need to be taken with a pinch of salt. Forecasting beyond the immediate future is a largely futile business. Some assumptions are going to prove hopelessly optimistic, others far too pessimistic.
None the less, the numbers give obvious cause for concern. It needs only something to go slightly awry for Britain to enter the Moody’s danger zone, for a downgrade to be enforced, for the cost of debt to become consequently more expensive, and for the problem of compounding interest to become a reality.
Again, I should emphasise, that this is not yet judged by anyone to be a likely outcome, but it does underline the urgency of addressing the road crash in the public finances. Gordon Brown, the British prime minister, wants a global “compact” from G20 leaders at next weekend’s Pittsburgh summit not to withdraw their fiscal stimulus for at least the next two years. Small wonder. In staying beneath the 10 per cent debt affordability ceiling, the Treasury assumes a considerable rebound in economic growth the year after next. But what if it doesn’t happen? You can argue it both ways. Growth may be the best solution to the burgeoning budget deficit. But even with persistent fiscal stimulus, that growth is by no means assured, and if it doesn’t come, the sovereign debt problem will be that much worse.
For the time being, Britain’s triple A rating looks secure, but then credit rating agencies are often a long way behind the curve on these matters. A triple A rating was maintained on many “collateralised debt obligations” right up to the moment they became junk. Standard & Poor’s has already warned of the possibility of moving to negative outlook if more isn’t done immediately after the election in the way of fiscal consolidation. The other two main agencies, Moody’s and Fitch, have proved more accommodating, but the lights are flashing amber even from them.
Moody’s recently reaffirmed Britain’s triple A credit rating, but with a twist. Countries with such ratings were divided into three categories – the “resistant”, the “resilient” and the “vulnerable”, which I shall rechristen the good, the bad and the ugly. Britain was placed firmly in the middle category - not as good as the first, which includes Germany, France and Canada, but better than the third, an example of which was Ireland just before it lost its triple A rating.
The resilient category is defined as countries where the public finances are deteriorating rapidly and may therefore test the boundaries of debt affordability, but which are capable of rising to the challenge and rebounding.
The rhetoric of the G20 will say one thing, but the reality instructs quite another. Notwithstanding Mr Brown’s insistence that the coming fiscal squeeze needs to be delayed until the recovery is established, the markets and the rating agencies will demand swifter action. Perhaps oddly, the evidence of the opinion polls shows that the public is more reconciled to the coming austerity of public expenditure cuts than the Prime Minister.
2. Devaluation remains the Bank's secret weapon in times of turmoil
It is déjà vu all over again. The pound has fallen by 5pc since the start of August, and despite a slight recovery, currency analysts are predicting that it will soon hit parity against the euro.
By Edmund Conway
They did so towards the end of last year when the euro came within two pence of this landmark. Are they any more right this time around?
The rationale for expecting the pound to fall is quite clear: the UK has been almost uniquely vulnerable to the financial and economic crisis, with its twin reliance on the housing market and financial sector for a large chunk of GDP. The fiscal position is horrific.
Moreover, the Bank of England has been carrying out quantitative easing, creating money and pumping it directly into the economy, with a relish unmatched by the rest of the Western world.
As a result, the amount of cash banks hold in their reserve accounts in Threadneedle Street has climbed to almost 10pc of gross domestic product, compared with 5pc in the US, 3pc in Europe and just over 3pc in Japan.
Both of these factors could easily be construed as negative for the currency, since they smack of an effort to generate inflation. The sense of sterling bearishness is reinforced by the fact that the UK has been far more sluggish than Germany, France or Japan in its recovery from recession.
Were Britain alone in facing these issues, the fall in sterling would make sense. But it is not. Most economies will emerge from this crisis with debt levels that are higher than they have been since wartime. Most economies are both fighting deflation and attempting to rebalance their economies to make them less dependent on borrowing.
In such circumstances, depreciation is precisely what a country like the UK needs to rebalance and recover. Indeed, as Goldman Sachs economist Ben Broadbent has pointed out, this is exactly what happened in the early 1990s. It seems likely that such a scenario helps explain why the Bank, and its Governor Mervyn King, appear so keen to see sterling drop further. Indeed, there may be an extra push in that direction from today's Bank minutes.
Devaluation may not be comfortable, but it is Britain's secret weapon in times of crisis. Unless this becomes a full-scale exodus of investors, it is far
too early to start worrying about the pound.
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