These are strong warnings of what must happen. Both implicitly assume a Tory government in charge, and let us all pray they are right, for if Brown remains with any influence at all on the economy we are finished (possible UKIP voters please note!) for it almost certainly would subject Britain to a currency crisis.
Meanwhile, back in Westminster - - -"Alistair Darling and Ed Balls and were last night embroiled in a bitter feud over public spending. The Chancellor slapped down Mr Balls after he launched an audacious bid for a budget increase of £2.6billion over the next three years." (Mail 18/11/09) . Balls is the most devious politician around and he’s on the make. He wants promotion in Labour party is this is part of his bid. He (and his toe-curling automaton of a wife - Yvette Cooper -Work & Pensions) are staunch supporters of Gordon Brown. That there are people at the top of the Labour Party who can seriously support spending increases right now shos the vital necessity of clearing out this lot here and now.
Christina
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CITY AM 18.11.09
Rise in inflation proves that QE must stop
EDITOR’S LETTER
ALLISTER HEATH
IT is wrong to argue that inflationary pressures are about to return, as many commentators said yesterday after the release of figures showing higher than expected consumer price rises. The reality is that inflationary pressures have always been with us – in past years, inflation took place in asset prices, while consumer prices rose at a more subdued rate. In recent months, there have been signs that some of the renewed asset price spikes, especially in housing, have been caused by excessive liquidity rather than a reassessment of fundamentals.
In other words, inflationary pressures have been back for months; it is hardly surprising that they are now beginning to manifest themselves in consumer prices too, as yesterday’s inflation data revealed. This is not to say that yesterday’s figures should be dismissed. The retail price index excluding mortgage payments (RPIX) grew by an annual 1.9 per cent compared to 1.3 per cent a month earlier. The government’s favourite measure – the consumer price index (CPI) – was up from 1.1 per cent to 1.5 cent. The overall retail price index (RPI) remains in deflationary territory but fell at a more muted annual rate of -0.8 per cent, against 1.4 per cent previously.
While these figures are hardly disastrous and don’t imply that prices are about to surge out of control, there will be more rises to come. Value added tax will go back up by 2.5 percentage points to 17.5 per cent on 1 January, a move which will probably take the CPI over 3 per cent and force Governor Mervyn King to write to the Chancellor of the Exchequer.
It is clear that the Bank of England’s forecasts are no longer to be trusted. The central projection in the May Inflation Report showed the CPI rate falling to just 0.4 per cent in the fourth quarter, a forecast that is turning out to be spectacularly far from the mark. Further rises in inflation in November and December are likely to result in it hitting 2 per cent or higher; analysts, investors and businesses should learn the lesson from this and stop putting too must trust in the Bank’s forecasts.
There are two main issues that everybody should bear in mind. When trying to predict inflation, the Bank’s economists pay too much attention to the output gap, the difference between what the economy would be producing if it were at full capacity and what it is producing today. But while economic slack certainly does matter, the supply of money, the rate at which it is circulating around the economy, sterling’s exchange rate and global commodity prices are even more important. We learnt in the 1970s that there is no contradiction between shrinking economies – and therefore rising output gaps – and rising inflation.
Mainstream commentators still believe “inflation” to be merely about consumer prices while in reality is about something much broader. It is about too much money chasing too few goods, services and assets. It is tricky to know what “too much money” means: you can’t simply look at an arbitrary measure of money because of changing technology and a host of other factors. But when asset prices as well as consumer goods are rising at a precipitous rate, it is clear that something is going wrong.
With the economy now growing again, however feebly, it is important that monetary policy be tightened sooner rather than later. Quantitative easing was a good idea in 2009; it could prove to be an inflationary disaster in 2010.
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TELEGRAPH 18.11.09
Next Government's sentence: tax rises, spending cuts and social unrest
The next Government will have no choice but to raise taxes alongside spending cuts, and must take a knife to the budget deficit as soon as the election is over, a new report has warned.
By Edmund Conway
The warning forms part of the most comprehensive assessment yet of spending cuts and fiscal consolidations throughout history, and will increase pressure on the Chancellor, Alistair Darling, to avoid pre-election giveaways in the pre-Budget report early next month. The report, from right-leaning think tank the Policy Exchange, said that the lesson from history is that the next Government should slash its deficit with a combination of 80pc spending cuts and 20pc tax increases.
The report, set to be published later this week, also urges the Government not to wait until the recession is over before imposing cuts. Its author, Policy Exchange's chief economist, Andrew Lilico, said that if the next occupants of Downing Street hesitate even briefly, they could subject Britain to a currency crisis.
With Standard and Poor's, the ratings agency, having issued an explicit warning over UK net debt, which is expected to rise towards 100pc of gross domestic product in the coming years, both Labour and the Conservatives have committed to reducing the Budget "more ambitiously" from next year. But neither has committed explicitly to raising taxes, or to inflicting across-the-board spending cuts.
However, the Policy Exchange study says that the lesson of history, and of every major fiscal consolidation both in the UK in the past century and recently in countries including Canada, Sweden and Germany, is that both of these measures may prove necessary. In previous episodes of fiscal consolidation, the deficit cuts promoted rather than hindered the recovery, but almost invariably created social tension as people came to terms with the resultant austerity.
More uncomfortably, the report reveals that the next government will be unlikely to avoid having to cut spending on welfare and defence and laying off public sector staff. It points out that in the 1920s, as Britain faced up to its wartime debts, it was forced to cut civil service numbers by 35pc. In the early 1930s, core public sector workers including police, doctors and those in the armed services faced significant pay cuts.
In all cases – even Canada in the 1990s – governments were forced to raise taxes as well as cutting spending in a bid to bring their deficits under control.
Mr Lilico added: "The evidence shows that reducing the deficit quickly is more likely to promote recovery than impeding it. That is more likely to be successful if you can combine the fiscal tightening with monetary loosening, in other words the Bank pausing quantitative easing so as to give it some ammunition for the coming years.
"The political consequences are less encouraging. In other countries, the public often supported a government; in the UK, apart from Thatcher, every party that cut spending dramatically found themselves out of power for more than a decade."
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