TUC Conference: Mr. Wrong meet Mr. Deluded

At the TUC conference today there is yet another example of why the UK is going to be a difficult place to live in the next few years. The Union bosses like Brendan Barber are itching to have a go at their guest, Mervyn King.

The TUC see him as representing the Bankers and the City and therefore, with willful ignorance, hold him responsible for the recession. Mr. King for his part seems to wants to take his punishment by turning up - perhaps from his Ivory tower he thinks he can subdue the masses. Or more likely, Mr Osborne has told him that if the Bank of England is to become a super-regulator with all power to him, then a few small favours such as this must come out.

The funny thing is, the Unions are right about Mr King, just for the wrong reasons. The Bank of England was too slow to raise rates in the boom years, fatally slow to drop them as the economy car crashed after Northern Wreck (they had a year to drop rates and did next to nothing) and then now are sat with failed models predicting decreasing inflation which is remaining stubbornly above target. The Bank of England have nothing to crow about in their response to the crisis, it has been very poor.

Which all in all leaves us in a fine state. Mr King, wibbling about how he is going to turn the economy around without understanding what we really need (higher interest rates and more QE), whose default position is to not do much (see notes of the MPC meetings for the whole of this year, rabbit-in-the-headlights-paralysis). And the Unions, railing against reality  - the coverage of the absurdities of public sector pay are laid bare across the media today.

With such a lack of quality amongst these kinds of leaders in the Country, we are in for a bumpy ride.

When will the IMF ask for the keys to the Treasury?

You might think this is an incendiary headline, but really it only reflects the growing consensus among neutral observers of the UK's fiscal position.

Even Guido is reporting what Mervyn King said yesterday to the House of Commons Select Committee. Effectively, the UK is on an unsustainable spending spree. Worse, it was on one before the crisis started.

The OECD predicts the UK will have the worst fiscal deficit next year in the Western world, worse that Iceland and Ireland. Iceland has already been bailed out by the IMF and Ireland by the EU (under the radar). yet the UK is worse set to spend more.
Mervyn suggests that printing money and huge guilt sales are being accepted by the markets now as the price of avoiding total financial meltdown. but the time will come soon when they demand an end by forcing up interest rates.

The major ratings agencies too have the UK on watch for downgrade, which really seems inevitable and will push our debt burden up further.

All eyes are actually on the election next year. Outside observers expect the Tories to win and implement massive spending cuts. Only this will avoid an IMF bailout (unless there is some huge recovery turn around in the meantime, which is unlikely to say the least).

If Labour are re-elected then the IMF will storm the treasury immediately, via a collapse in the Gilts bond market - this is nailed on now with Gordon Brown going on about spending ever more money in a make-believe utopian socialist fantasy.

The reality is now that the 'money' being 'spent' now is mainly printed:

Extra Government debt estimated to be taken on this year - £170 billion
Money to be printed by the Bank of England - £150 billion

What a mess.

I think the saddest thing, is just like personal debt, everything can seem fine until the end, when the bailiff's come round and you lose your house and all your possessions. Until then the mirage can be maintained. I think this macro level shock it is going to come as a big surprise in 2010 to most people in the UK.

Mervyn King: Vote Tory for sane policies

This is the gist of his aggressive speech at mansion house last night. After Alistair Darlings' soporific musings on nothing in particular, Mr King came the fore in saying:

1. Government spending is out of control (and implicitly we will have our debt rating downgraded without some concrete policies); this is an attack on both main parties.

2. A plan is needed to REDUCE the deficit; this is in direct contrast to Brown/Darling who have said spending will increase.

3. The Bank of England needs more powers; again this is the Tory policy and the opposite of Labour, who said everything is fine really.

4. The big banks are too big and ways must be found to control them, this is partly an extension of point 3, but again is the idea being floated by Richard Spring of the Tories to separate Investment banking and Retail banking.

On reading the reviews of this speech, there is no other way to see it. it is a huge criticism of the current Government and a vote of confidence in the opposition. I don't think the Bank of England Guvnor has set himself into such a position, certainly not since independence in 1997.

No doubt, Mr. Brown will come up with some new ideas to restrict the independence of the Bank in short order. The FSA is much more compliant with his views after all...