Monday 1 February 2010

Cameron announces same policy as before

Yesterday the little political news that there was focused on David Cameron saying there wouldbe no swingeing cuts in public services in the first year of a Tory Government. It is hard to know what is meant by swingeing, let's say 10% - so in deficit terms that is about £18 billion of spending.

However in terms of what the Government actually spends that is about 3% of spending. I don't regard cutting expenditure by 3% as swingeing; The only person I know in reality who thinks like this is Mrs. CU.

Instead we have Labour and the Lib Dems getting hot under the collar about this pin-head dancing.

The reality is going to hit the country hard (in terms of the market reaction) that 10% or more will be needed to just stave off disaster. How some politicians like Peter Mandelson think that the UK is OK and not near default is beyond me; A simple analysis says that if you are forced to print £200 billion then there must be some rather large holes in the income statement.

It still feels to me like the Politicians of all 3 main parties are leading us don a very dangerous path, much like the 1970's. We have tried this attempting to spur growth through deficit spending before, both Labour an Tory; it led to the IMF crisis of that time. Due to electioneering UK voters want are not being told the truth, so instead it will be a bigger shock when reality hits.

The way to play it for oneself is to short gilts in the run up to the budget and for the rest of the year after that. worst case that will be a 10-20% play; if there is a debt crisis then the return may make up for some fo the currency value loss we will all suffer.


Steven_L said...

Yep, I've just opened a spread betting account with Paddy Power to do just that!

Just a shame all the contracts are so short-dated.

Nick Drew said...

beeb running with a disgraceful headline - Cameron's Nixon Moment - doubtless taken down shorthand from Mandelson

(actually the rest of the article is more balanced)

Cameron will be wishing he'd taken our advice on Osborne 2 years ago ... oh these bloody 'clever tacticians' ... too late now

Bill Quango MP said...

They had to ditch that huge cuts on day one line.
Caused a lot of panic among low income families with thoughts they would axe tax credits and free school meals and so on.

Doesn't play well in a recession.

Anonymous said...

BQ - I've been reading you blog for quite some time but recently "came out" in the comments as a complete dullard when it comes to finance. So, I have another simple question, which may take some time, I know.

I was born in '79, and many people have said we were in a right pickle then too. Is where we are now comparable to where we were then, and what did Thatcher do (don't mention the miner's, I'm from Wakefield! Ooh err!) and did it take 'til the mid-nineties to get back to a surplus?

Diplodocus Rex said...

For the uninitiated but learning fast category of your readers, how would one actually go about "Shorting Gilts"? A layman's explanation would be much appreciated.

Tuscan Tony said...

I get the feeling they're all suffering from "fear of being the messenger" syndrome, assuming the first to acknowledge the seriousness of the situation will for ever be associated with it.

Marchamont Needham said...

Could Dave be deliberately trying to create a run on sterling??

Electro-Kevin said...

"I don't regard cutting expenditure by 3% as swingeing; The only person I know in reality who thinks like this is Mrs. CU."

I hear ya. I hear ya !

I know I lark about on the blogs - but I'm fucking shitting myself in reality.

Electro-Kevin said...

Scan - C@W chaps, if I may speak to one of your visitors.

No, Scan. This is not the same situation as Mrs Thatcher inherited.

When our labour costs eventually get lowered to that of rural China we will be able to start extracting and exporting coal for profit again.

CityUnslicker said...

To short gilts at the moment you have to open a spreadbetting account with IG Index or some such.

There are some ETF's being developed that you could buy into and these are nearly ready for market. However, how ETF's track the market is a bit opaque and I don't use them as much as I did.

As for is this worse than 1979 - in fiscal terms yes, because the debt is higher in real terms. On the other hand the poluace is more interested in Jordan these days rather than the trades unions so this may make Government's job eaiser - unless people wake up and there is not much sign of that with Labour stil getting 30% in the polls.

CityUnslicker said...

Diplo - Once you have opened an account, you put the cash int o fund your 'position.' this will be a bet on the price of gilts fallling and may well be time limited - up to you. You then buy gilts a this price and if they fall you accrue profit and vice versa. you should also put stop positions so that if the position goes wrong you don't lose more than you put in.

Demetrius said...

Scan - In '76 to '79 I was in one of the hot seats with a large budget, a lot of staff, and having to defend it. It was not pretty in fact often very nasty and a lot of damage was done all round. My opinion and I remember '45 to '51 as well, is that this time round is going to be one of the worst. Look at 1815-1820 and the late 1840's.

Anonymous said...

Demetrius - "This time round is going to be one of the worst. Look at 1815-1820 and the late 1840's."

Wowzers! You do have a long memory!

Budgie said...

CU said: "... attempting to spur growth through deficit spending before ..."

Yep, that's what the insane one is trying. The reality is Brown is stealing from our children to make his figures look goo ... slightly less bad.

Anonymous said...

@Marchamont Needham: That is most certainly the line that our dear friend Robert Peston is taking in his BBC writings.

CityUnslicker said...

Yokel - Peston, like hte BBC as a whole, is becoming more political as we near the election. Cameron has even said he won't scrap the licence fee to placate them!

Anonymous said...

nice post. thanks.