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Triumph or disaster?

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It’s time to bring the hero worship to an end.

In recent weeks my analysis of the banking and credit crisis has revolved around the rather simplistic notion that a poorly controlled economic boom must inevitably lead to a bust, and that the economies of the USA and to a greater extent Britain, have grown, prospered, and been fed with the toxic fuel of debt, personal, corporate, and public. Huge budget deficits have necessarily made governments the biggest lenders in the market as spending plans became ambitious on the false belief that the economy would continue to grow and the debts would be paid by future taxation. As we all know, to our cost, none of the arrogant politicians runninig our affairs were remotely concerned about the possible end to this economic growth and how the bubble might burst.

Having spent ten years creating the current crisis our Prime Minister, Gordon Brown now basks in the glory of his own rescue plan, laughing and beaming before the world’s cameras enjoying the kudos and feeling that all is well. All the while, since making the strategic error of supporting the government through this crisis, the Conservatives have been made to look lightweight, because they simply cannot be seen to be criticising after they’d offered their support in getting measures through Parliament. They had sat round the table at the Treasury with Gordon Brown and Alistair Darling, offered their plans and analysis (probably based around David Cameron’s thoughts back in March) and retired into the background knowing that it was bordering on the impossible to make any front page news headlines. So best let Gordon bask in his Indian summer glory.

However, as most will realise, in a few short months we will all have forgotten about the banking crisis, despite the world (USA and Britain mainly) throwing £2 trillion at it. We will be more concerned at the job losses and how the inflation rate of 5.2% will add further to government borrowing as welfare payments rise based on this September’s figures. The Treasury by then will be more concerned at how it will cut spending, as it must, and somehow sell us bigger tax rises to pay for the welfare needs brought on by the recession. The “real economy” will once again be the centre of attention.

For the past couple of years Gordon Brown has proudly been proclaiming that Britain is best placed to face the effects of an economic turndown, however, fears are now growing that although the financial crisis may be in its final phase, the impact on the so-called “real economy” is only just beginning. Financial experts predict that Britain will “lead the way” into the widely-forecast global recession. But fears are growing that the initial relief of apparently averting the banking collapse may be quickly overshadowed by wider problems in the economy.Britain’s high exposure to debt means that consumers are ill-prepared for an economic slowdown, say experts. The head of the City regulator warned yesterday that credit would not be as easily available in future despite the Government’s unprecedented intervention.

Michael Saunders, the chief UK economist at Citigroup, the world’s biggest bank, said:

“In the UK, some might say that the country is leading the way in terms of the appropriate policy responses to the crisis. But, any sense of self-congratulation among UK policymakers must be tempered by acknowledgement that the UK is more vulnerable than most countries to the financial crisis, as the result of the massive debt-fuelled boom of recent years. The UK is among those leading the way into recession, housing collapse and soaring unemployment.”

Simon Jenkins, more often than not a government supporter argues in his Guardian column today that this current crisis is not the death of capitalism and that the underlying causes of the crash are still there waiting to be cured. He points to lax regulation and debt as the main drivers of this car crash waiting to happen and suggests that lessons have simply not been learned.

All this has nothing to do with the death of capitalism, rather with its resuscitation after a nasty accident. As every student of economics knows, capitalism depends on confidence, and confidence depends, in the final analysis, on power. Belatedly, governments are feeling their way to honouring this responsibility.

But we should repeat the cause of the crash. It was British and American politicians who encouraged people to buy houses they could ill-afford. They duly acquired assets that would, in most cases, be realised not by them but by their children. In the rest of Europe these people would be renting their homes and saving in a safer and more liquid fashion.

The first round of let’s-play-banker by Brown and Vadera this week suggests that this housing madness is far from cured. We should therefore expect that its message will again be forgotten and the sickness eventually return.

Though bankers are more fun to blame, it was politicians whose laxity and craving for popularity lay at the root of the present trouble. They should at least be denied any triumph for aiding its cure.

It is this triumphalism which Danny Finkelstein attacks in The Times too, with a coruscating attack on Gordon Brown’s lies over his “boom and bust” statements following his encounter with the journalist Allison Pearson where Brown stated;

“I actually said: ‘No more Tory boom and bust”

Finkelstein adds:

“how on earth does he think he can get away with such a barefaced lie, he repeatedly pledged that there would be no more boom and bust without mentioning the Tories. He did it all the time. And so did his mates.”

Here are some examples

“I will not allow house prices to get out of control and put at risk the sustainability of the recovery.”
Gordon Brown’s 1997 Budget Statement

“Under this Government, Britain will not return to the boom and bust of the past.”
Pre-Budget Report, 9th November 1999

“Britain does not want a return to boom and bust.”
Budget Statement, 21 March 2000

“So our approach is to reject the old vicious circle of the…the old boom and bust.”
Pre-Budget Report, 8 November 2000

“Mr Deputy Speaker we will not return to boom and bust.”
Budget Statement, 7 March 2001

“As I have said before Mr Deputy Speaker: No return to boom and bust.”
Budget Statement, 22 March 2006

“And we will never return to the old boom and bust.”
Budget Statement, 21 March 2007

See, no mention of a Tory boom or bust.

However Finkelstein decides to take Brown seriously:

“Because I think that when you do that, the real truth of the events of the last month becomes clear. This has not been a triumph for Mr Brown, it has been a catastrophe. It is said that he is having a good war. I think this success is confined to the fluency of his signature on the surrender documents. He is having a good war, in the same way that the Kaiser had a good war. Some of his supporters argue that the last week has been his Falklands. True. And he is General Galtieri.”

And like Galtieri Brown will be overtaken by events as the recession sweeps over him with a vaste wave of unpaid debts and rampant unemployment.

“The stability was a trick of the light, the lengthy period of growth was fuelled by house prices and debt, the low interest rates (of which Brown is still, amazingly, boasting) were an error. The length of the good years is being paid for by the severity of the crisis we now face.”

Yet another journalist now beginning to see that the growth was based on debt, a house with it’s foundations built on sand.

DaFink concludes:

“There is room for plenty of argument about whether the crisis could have been averted by better management. But this is almost beside the point. What matters is not whether the bust was avoidable. It is that the preceding boom was illusory.

The idea that boom and bust had been abolished was not a small claim among many. It was the central claim of this Government. It was the boast of boasts – the boast upon which all other boasts were built. And now it has been revealed as totally empty. Not triumph, then. Disaster. Not victory. Total, utter, dreadful defeat.”

Without the illusion of great economic strength created by a growing economy built on a bloated budget deficit (to pay for the spending plans of Brown), without the massive debt and the demands placed upon money markets by the government’s fiscal needs, without the ability to raise much more from tax payers who are groaning under the strain, the excesses in our economy could only find one way to be released, and that was by bursting Brown’s bubble!

Brown is a gambler, but a lucky one in that he can gamble with other people’s cash, but like in any other game of poker there are many more hands to be dealt yet before some of the players leave the table, and Brown is likely to be one of them! He has gambled too that the good news will last, but it will only last as long as some journalists in the UK and abroad continue to tug their forelocks and bow down in front of him, it really is time for this hero worship to come to an end! In the longer term people will publish more truths about Gordon Brown, the architect of the boom who put nothing aside in the good years to help in the poor ones. His brokered and borrowed deals with our money will be seen as a very hollow short term victory, which  preceded a devastating and very expensive defeat.

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Written by curly

October 15, 2008 at 12:52 pm

2 Responses

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  1. I cannot describe how angry it has made me, to witness the architect of our own ‘boom and bust’ strutting his stuff on the world stage as if he were some guru and financial saviour. It was his policies and lack of foresight that caused most, albeit not all, of our problems. When it came down to it, he did not come up with the plan, this was put together by officials of Swiss bank UBS and added to by advisers from JP Morgan Cazenov. No doubt at great cost to the tax payer.

    Gordon Brown was in charge for 10 years, he spent £billions on advisors, therefore it stretches the bounds of credibility that he had not received warning about the credit fueled boom. He had the tools to curtail this credit and did not take any action. Yet, we must all be a bit daft, because he has now seen a surge in opinion poll ratings, although that may be partly Cameron’s fault for not driving home the responsibility that Brown must take.

    Brown reminds me of the guy that threw a non-swimmer into the sea, then jumped in, saved him and expected a life-saving medal. What he needs is our boot!

    UK Voter

    October 15, 2008 at 1:16 pm

  2. […] Original post by curly […]

    Curly’s Corner Shop

    October 15, 2008 at 1:26 pm

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