Monday, 25 April 2005

The Gathering Storm

The other day Stuart asked why I thought that the UK was facing a financial crisis. There's a rather good article on this in today's Telegraph:
What we do share with the United States is a big fiscal deficit of more than three per cent of GDP. This is much more serious. For the government is the biggest participant in markets. Governments have large financing needs, both in terms of taxation and borrowing. They therefore set the tone. And a panic over the government's ability to finance itself can pretty soon erupt into a generalised loss of confidence.

Mr Volcker (former Chairman of the Fed) says: "America cannot go on spending more than it earns for ever. I don't know whether the change will come with a bang or with a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force change."

Unfortunately, no participants in the General Election are talking about the excessive size of the UK state, although:
Behind the scenes, many Conservatives are angry at the timidity of the party's approach to economic reform, which they believe has neutered the election strategy. They are right about that.
I just don't understand the Conservative election strategy unless they really do want ZaNu-Labour to be in power when the crunch comes. As George Trefgarne puts it:
The Tories may lose this election, but, if the Volcker view is correct, a fiscal crisis will propel them into office next time.

1 comment:

David Farrer said...

Comments made on previous template:

David Farrer
"ZaNu Labour": very fine. 
Unfortunately not mine. I read it somewhere over the last day or two, but how fitting.

25 April 2005, 20:59:26 GMT+01:00
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Neil Craig
I don't believe politicians deliberately loss UK elections - 5 years is a lot of your career to invest on such a chance. Howard will be 68 in 5 years. 
I think Howard was working on the assumption that oppositions don't win elections, governments lose them so it is best for him to shut up. On the other hand calling Blair a liar is daring & while true, not a strong position for a supporter of the war. Maybe he had just been waiting for Charlie to say it first.

25 April 2005, 19:54:18 GMT+01:00
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Andrew Duffin
It's worth considering the possibility that the Tories meant to lose the '92 election for the same reason. Let Kinnock take the rap for the Euro etc etc, then swat him and get back in '97. 
Sadly Kinnock proved unexpectedly incompetent, and Major found himself saddled with Maastricht and EMU. The rest, as they say, is history.

25 April 2005, 12:19:37 GMT+01:00
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"ZaNu Labour": very fine. A pity that "Moogreedie" fits the PM's wife better than him.

25 April 2005, 10:16:40 GMT+01:00
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Paul Lewis
Mr Volcker says: "America cannot go on spending more than it earns for ever..." 
They can, so long as the Japanese, Koreans and Chinese carry on buying US government debt. And the Asians probably will, so long as the OPEC agrees to exchange Oil for dollars. 
China, also likes having the ability to destroy the US economy should if feel the need. 
The two questions are, I suppose, how long will OPEC agree to sell Oil for a depreciating return. And will the Asians want to take the *HUGE* loss they would have to face when the world stopped using dollars as the medium of exchange for Oil. 
That, of course is not the case with the UK. The slightest sniff of a problem with the UK government finance and everybody would jump ship in the blink of an eye. You won't be able to give sterling away. At least the US have the opportuntiy to manage their crisis, the UK won't. 
Whenever I think of this scenario, I believe I see more and more of the real reasons behind the governments Civil contingency Act.

25 April 2005, 10:12:45 GMT+01:00