To double-dip or not?

As we all know, double dipping is a horrible social faux pas to make, one of which can really see oneself drop in the esteem of your social group.

Yet the IMF is warning today that the advanced countries of the world are facing just this prospect - a double-dip recession. He forsees a drop in Government support for the economies and this to cause a double-dip recession; oh how his words will please Gordon Brown and Ed Balls.

On the other hand, Gordon Brown and Ed Balls spent years ignoring the wise warnings of the IMF, so just be aware when you listen to the newsbites that labour will create what a total sham it is now that Labour agree with the IMF.

As it happens, there is not a very big chance of a doubel dip recession this year in the UK. the reason for this is for a dip you need to have an up, or even a flat-line. The truth is the UK economy is sclerotic and bouncing along a very low bottom. There ain't much lower it can go. Even recent good Xmas numbers from the retailers (a prediction of 6% average rise my co-writer Bill Quango nailed) are a bounce from last years epic low.

Just to prove the point, the E&Y Item club has published today a grim outlook for the UK economy. needing exports and less consumer demand, but unable to generate either. Seemingly the economy is set to bounce along the bottom.

On the plus side, with unfeasibly low interest rates and printing money, there will be a continued boost to the monetary economy that will see us avoid a double-dip. To get growth though, we are going to need to cut excess budgets and lower taxes and regulation. More enthusiasm from our Political Leaders is needed for this.

Will a failed Brown-out lead to UK blockout?

The events at Westminster yesterday make the comic The Thick of It, look quite tame in its parody. Some now quite pathetic ex-ministers hope a simple letter will be enough to get rid of a tenacious and street-fighting Prime Minister.

That the plot failed is not much of a surprise, neither the the lack of solid backing for Brown by his enemies. Brown too did not have the stomach to go for a vote and therefore renew his mandate ahead of an election and get a boost for his personal rating as he would be seen as a toughie.

But the real cost to the country is the on-going collapse of the UK credibility in the eyes of the world. Check out what has happened the past month alone:

The pound is in a falling trend agains the Dollar (and this is another QE currency to boot).

Against the euro the pound is bouncing in a range, but a very weak one with the upsides not lasting for long, suggesting a breakout will be to the downside of an already very weak exchange rate.

Above is the Gilts price over 3 months, just the last month alone has seen a steep fall to a low not seen since the height of the credit crisis.

These three indicators all show the markets being very wary of current UK economic policy. The gilts price in particular has fallen steeply since the Darling pre-budget.

The Government is running out of credibility with its lack of policies to address our growing deficit:

At this rate the question has to be asked whether the Government can really make it to a June Election without a Sovereign Crisis. Dumping delusional Brown may have been our best chance of avoiding a meltdown, but the charts show we are headed for one sooner rather than later. David Cameron is quite right today - we can't go on like this.

Economic Generals focus on the last war

There is much discussion, see here for example, of whether the FSA or Bank of England get to oversee future financial regulation. Personally, I am getting a bit tired of it all as it is a really typical Government-style piece of bureaucratic infighting.
Worse, it is clouding over the real policy failures that have been made these last few months and also ignoring the real crisis we are seeing now in the Country.

Who cares about a macro-prudential economic panel that may or may not help to avoid another bubble in 50 years time. No sane bank or borrower is going to repeat the mistakes of the past few years having learned their lessons in such a costly manner so recently. Not that we do not need new rules, but the market has enforced them much faster than any regulation can be imposed.


So this hypothetical discussion is of little interest. It also is hiding the true debate which is what on earth we can do to both try and stop doing more quantitative easing whilst not letting the economy completely die? This may be happening in any event, in which case all the bureaucratic political warfare is real deck-chairs-on-the-Titanic-stuff: As with Generals down the ages the orders and weapons put in place for a new army are those needed to fight the last war, not the next one. The next economic period is about the controlling the collapse of the fiat money system as was and the huge inflationary pressures of a 6 billion person, resource-constrained world.

The Bank of England has run out of bullets, the FSA is concerned with minutiae and the Government is busy fighting over its future in opposition. This is not the leadership we would ideally like to see us through the crisis, it is a terrible failure of the UK political system as a whole.

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.