This a central syndrome of self-inflicting harm . Because we have no means of getting rid of a discredited government we seem condemned to another 7 months of inertia when no policy of any kind is emerging from government. We can’t get rid of the government because the House of Commons is overwhelmingly Labour and the Commons is itself under a cloud. The Labour members won’t bring down a prime minister they know to be an electoral disaster for them because they would be wiped out in the ensuing disaster.
But we need an election and we need it NOW Our economy li,mps along the bottom of a depression but is just kept afloat by investors believing that the Tories will take the right steps. The moment they stop believing that the real crash would follow sas interest rates on our borrowings would soar. .
Christina
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31.10.09
Britain's recovery is on hold until the election
Only when a new government is formed will the economy win the friends it needs, says Jeremy Warner.
Let's, for the moment, rise above the politics of Britain's late exit from recession, and instead focus on what's going on in the world economy and its potential – or otherwise – for getting us out of our present mess. The UK has specific problems that will limit future growth, yet if there is a sustainable recovery elsewhere, even Britain will eventually get hauled along in its wake.
All the major nations, bar the UK, have now returned to growth. The big emerging-market economies are skipping along as if the recession never happened. Unfortunately, it is not enough. As President Obama said this week in welcoming America's third-quarter bounce, nobody is going to declare the downturn over until advanced economies are creating jobs again.
That point is still some way off. We may have withdrawn from the precipice, but there is little sense of victory. If the policy stimulus is withdrawn too quickly, the recovery will wither and die. Yet if it is withdrawn too slowly, it risks bankrupting our public finances and recreating the bubble conditions that caused the crisis in the first place.
One thing is for sure. Few can afford to fight a second crisis. The fiscal cannon is close to exhausted. That makes the recovery's dependence on unprecedented levels of state support a major cause for concern. America's return to growth is largely down to its fiscal stimulus, and particularly its "cash for clunkers" programme. What happens when the cash runs out?
The lesson of the Great Depression is that a crisis of this magnitude has to be fought with the same poison that caused it in the first place. As Liaquat Ahamed observes in his book, Lords of Finance, the mistake policy-makers made in the 1930s was to believe that the cure lay in the barbaric 18th-century practice of blood-letting. So they raised taxes and interest rates. Today's policy of life support is a more promising treatment.
The key question now is at what point the global recovery becomes self-sustaining, so that the underpinning of loose fiscal and monetary policy can be gradually removed. Already this is happening in emerging market nations, and some smaller advanced economies that have come through the crisis relatively unscathed. These moves are encouraging a resumption of private capital flows from West to East, which is in turn putting upward pressure on the currencies of developing nations. In time, the effect will be to lift their real purchasing power, helping producers in mature, Western countries.
Yet it is not going to happen overnight. For the time being, the Chinese economy remains an export-focused machine, with the exchange rate held deliberately low. Looking ahead 15 to 20 years, China and India will dwarf the West in terms of purchasing power. Asian demand should replace American as the locomotive of growth. Unfortunately, that's a long way off. For now, developed nations must continue to rely mainly on domestic demand for recovery.
Normally, that would not be a problem: the private sector would respond to the sort of fiscal and monetary boost it has received fairly quickly. But the implosion in credit makes it more problematic. In Britain, the position is made worse by political uncertainty. To invest, business leaders need to know what they are dealing with. There can therefore be no general recovery in confidence until the next Government is formed, and there is greater certainty about the scale and speed of the fiscal consolidation that awaits.
Every nation wants to export its way out of trouble – but for that to work, there has to be someone willing to do the importing. In developed nations, credit conditions remain deeply impaired, while the economic contraction has created a yawning gulf between the real level of activity in the economy and what it is potentially capable of. This so-called "output gap" of unused capacity is a powerful disincentive to invest, although it also means monetary conditions can be kept loose for longer, which supports consumption.
Countries less fiscally constrained than Britain might be able to persist for longer with loose fiscal policies. Germany has announced tax cuts worth 24 billion euros, while France and the US, in oblivious disregard for their deficits, declare that the fiscal taps will be kept on until employment starts to recover.
In Britain, however, we must rely on loose money alone to keep the wolf from the door. And even when private demand does pick up, it will struggle to compensate completely for the scale of the downsizing that needs to be done in the public sector.
All this leads to the conclusion that growth will be weak for some time – and that as the nations of the developing world rush to become more like us, we may be becoming more like them. This will be reflected not just in our relative wealth, but in our social and economic mores, too.
State-funded social security, health and retirement benefits will become less generous – not necessarily a bad thing if it makes Britons more self-reliant. We may also re-learn the importance of the family as a unit of mutual economic support. But it is not going to be a comfortable adjustment.
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