The false god of the OBR

I really don't get George Osborne. He is lauded nowadays as the great political genius and strategist, as well as a canny Chancellor.

In reality his 'Plan A' was no mathc for the markets of 2011 and the Euro crisis, he quickly switched to more or less following Ed Balls' plans for the rest of the Parliament. This was a wise choice, but highlights again how little real difference there is in the managerialist approaches of our political parties.

Now, with a Tory majority and 'long-term economic plan', he is considering scrapping the Bank levy and writing into law that Budgets must be balanced in times of plenty.

I am vehemently against the reduction in the Bank Levy, this has done a good job of concentrating bankers minds on not over-stretching their balance sheets - the single main cause of woe in 2007/9. Also how stupid to cut taxes for Bankers as a priority, poor politics on the lines of the 2012 budget omnishambles. If corrupted HSBC would rather be in China then good riddance to it, let's see how the execs due against the firing squads when the Politicians turn against them there. You only have to read my post of Monday this week to understand how dangerous the business environment is in China.

The worst call of all though is this 'fix the roof whilst the sun is shining.' On one level I agree with it strongly - the national debt is unsustainable and a multi-decade effort of restraint is called for, we are nearly 10 years into the first one and the job is less than 40% done.

However, to say the OBR should be the repository of judgement as to when the economy should be balanced or not is just silly. The OBR got growth targets wrong in almost every year of the last Government. Some years over-estimating and some years under. Markets move very quickly - not at the moment heightened tension as Grexit is now 50/50 and China rapidly slows.

To accredit an independent body to regulate a Government's finances is bizarre, more so when it is one that has a brief and not very glorious history. Why not ask the Bank of England, or the IMF?

When a crisis hits all such planning goes out the window. Most economists and the Government did not see 2008 coming. They wont see 2015, 16 or 19 coming either, its the way of the market. To try bind them in such a way is illogical.

People in the UK voted, just, for more austerity. The Government can enact its will for 5 years. If the people then vote for the nutters who want to splurge, so be it. Trying to legislate in this way is anti-democratic.

Osborne retires South Sea and WW1 debt

This just goes to show how terrible Government can be, politicians have been stuffing us with debt for centuries. It makes me laugh (hysterically) to think that my great-great grandchildren will be writing something similar about the Great Recession debt - but its likely to be true, although with shorter maturities the morass of Government debt will not be so identifiable.

Which, makes me consider on a Friday perhaps it would be better for the Country is all debt raised was hypothecated, so much for defence, the NHS, for investments, for State Pensions. In the short run it would mean nothing, but after about 10yrs the data would start to look more meaningful. All those complaints about say, the Baby boomers sucking up all the money having over-spent in their day, would be much more directly attributable.

No way Governments will ever agree to this then!

Still it's Friday...

“The country is running out of money and everyone is fighting. It reminds me a lot of my childhood.” – Conan O’Brien

“Interest on debts grow without rain.” -Yiddish Proverb

“Forgetfulness. A gift of God bestowed upon debtors in compensation for their destitution of conscience.” -Ambrose Bierce

“Blessed are the young, for they shall inherit the national debt.” -Herbert Hoover

“In the long run we shall have to pay our debts at a time that may be very inconvenient for our survival.” -Norbert Wiener

Whither the taxes?

Government borrowing for May is at record levels. Instead of a drop we are seeing a big increase over last year, from £15.2 billion to 17.9 billion. Simply put, although the austerity drive is seeking to curb the growth of the Government, the weak economy is reducing tax receipts at an even faster rate.

We are running very hard to go nowhere at all it seems. The only good news is that the continuing low gilt rates means that higher borrowing can be absorbed more easily than expected; but as the Government's headline goal is to shrink the deficit, this will be seen as failure.

Not that even more spending is going to help boosts tax receipts. Hopefully this goose is cooked once and for all. More Government spending is not helping boost the short-term economy substantially and payments made to pensions and benefits are a drain. An argument should be made for more capital investment as this should stimulate the economy - but with such opposition to HS2 and Heathrow expansion the Government is scared of large infrastructure programmes.

So how do we raise tax receipts - the contrarian view would be to lower taxes. Less taxes means more spending which in turn stimulates the economy and also increases consumption taxes like VAT. With such as high tax burden coupled with no return on savings people are not spending but trying to save and deleverage. Lower taxes would help to speed up this process and so bring forward eventual economic recovery. We need an emergency budget to start making some radical changes and probably a new Chancellor too.

A £1,000,000,000,000 Debt for Britain



Picture of £1 trillion by the Daily Mail



For the first time in figures announced this morning the UK National Public debt has passed a trillion pounds (for pedants, this is a thousand billion, not a billion billion).

This is quite some number, when Tony Blair and his merry band of lunatics took over in 1997, the national debt for £350 billion pounds. During the past 15 year the debt has grown by nearly 200% (ah, the power of compound interest! Inflation alone at an average of 3% for that period would imply an increase of nearly 60% in the debt) - so from 1997 if we had kept UK spending flat and incurred no more debt today we would expect Public Debt to be about £560 billion.

Instead the Country has about £460 billion of extra debt that we have incurred. Sadly, I can see little evidence during my adult life that this has been spent at all well. Some schools and hospitals have had money spent on them, but there are no new airports, railways, publicly built ports. Infrastructure indeed seems to have been forgotten, true investment ignored. What is clearer when you also look at Government spending is the inexorable rise of Social Security, from less than 15% to nearer 30% of all Government spend. This is all a real terms rise, and unfortunately accounts for a huge chunk of the extra debt taken on.  

Labour have bequeathed the Country an underclass and benefits addicted population - on the plus side, getting this under control could mean a brighter future for the UK. However, there are few signs of this really happening, with the current hand-wringing lefties in the Lords decrying that families receive benefits to the same value of higher rate taxpayers who work full time - as if this is some sort of moral crime. This money is borrowed and spent, not invested for the future, it is true hand-to-mouth existing at the expense of future generations of taxpayers.

As we print our own currency, the UK cannot default, what we can do though is debase our currency. Already we have seen the fastest and deepest devaluation in 200 years since the 2008 onset of recession. At the rate our current policies are progressing, I can't see this being turned around anytime soon. Britain will be a nation getting poorer and poorer for the foreseeable future. If you do have investments, then Sterling denomination isn't for you.

Even as I write, the Pound is retreating against the Euro - yes, that benighted currency on the verge of collapse - not a very auspicious sign, that.

Deceitful Brown deficient on deficit and debt knowledge

Now there is a Sun headline you will never read. Nonetheless it is true to say that in Prime Minister's Questions today Brown kept up his meme of conflating the National Debt with the Government Spending deficit.

One is the total amount of money the UK owes, the other is the current overspend. Here is what he said, courtesy of the Guardian:

Bill Wiggin (Con) asks Brown if he regrets the fact that Britain went into the recession with one of the largest deficits of any major economy. Does Brown regret that?

No, says Brown. Britain had the second lowest debt in the G7.

You see Britiain DID go in with a large deficit, over 3%, but we also went in with a relatively low total debt, at 40%. Of course this 40% is now nearing 60% and headed for 80% or 100% in the next few years.

That is becuase of our enormous deficit. The answer Brown gives is telling though - where is his proud boast now about the 'Golden Rule.'

The truth is this is patheic, not answering a question at all but bringing up another topic which he just hopes will make the question go away and fool those watching. I notice the BBC fell for it straight away as their journalist was also economically illiterate:

1205 Mr Brown also promises aid to help the people of Haiti recover from the "devastating" earthquake. Tory MP Bill Wiggin has the first question - about the economy. Does the PM "regret" the level of debt before the recession? Mr Brown fires back with a list of countries Britain was lower than, in terms of debt.

Of course it is also quite possible that Brown does not understand the question and so it not being underhand; he is instead just an idiot. His economic track record as PM and Chancellor make it hard to discount this analysis.....