by Alex Porter
Since it was invented adults have always told their kids that 'money doesn't grows on trees' however somehow the bairns grew up believing in the credit fairy. The result is that debt is destroying families, companies, municipal governments, soveriegn states and may soon kill off the European Union.
A few years ago I taught a Spanish banker who told me that in his little nook of the banking sector the volume of money swishing around was like something out of a "science fiction movie". He was invincible just like the new Spain - a country which now does not boast 50% youth unemployment.
In today's autumn statement chancellor George Osborne has announced that the challenge of cutting Britain's deficit is bigger than previously thought. By this he means his promises to get that deficit under control are less believable than previously thought.
The chancellor now tells us that Britain is heading into recession after a weak recovery. However there really is no evidence that any recovery ever happened at all. What we did have was quantative easing meaning printing money and that can look like a recovery, briefly. There's another batch of QE coming on 8th December - just in time for christmas. No doubt the headlines will tell of how retailers reported strong Christmas sales and so newspaper headlines will talk of a confident consumer and a robust recovery. The increased debt load will not feature in those stories.
Mr Osborne has told us that growth next year is expected to be just 0.7% as opposed to the 2.5% which was forecast by the supposedly independent Office of Budget Responsibility (OBS). Let's not forget that QE is included in that 0.7% and so the reality is that there isn't going to be any growth in the UK economy next year, only ‘nominal’ growth. The chancellor's statement follows on from the Bank of England's lowered UK growth forecast for the remainder of this year and next to no more than 1 per cent.
You see we need large growth forecasts to make people believe that the UK's enormous deficit can be fixed. Parties don't get elected by admitting pointlessness. One side-effect of being economical with the economic truth is that growth forecasts are used by companies who invest in that expected growth and so malinvestments burn precious capital further. These forecasts are also used by the Scottish Government which is led to believe it can bring forward spending programmes to today in the expectation that growth will fill the consequent spending shortfall tomorrow. The spin does damage.
Adjustments to forecasts tend to be low profile and each growth forecast is now adjusted downwards several times. Are forecasts any more dependable than our debt-driven economic system?
And if you didn't feel lost enough in the spin, Mr Osborne tells us that this 0.7% growth figure is dependent upon growth in the Eurozone. How likely is Eurozone growth? Rumours abound that France's AAA rating is about to be downgraded by S&P and on top of that Germany's bond auction failed last Wednesday showing that international investors are now seriously concerned about the potential complete collapse of the Eurozone. Investment is fleeing to US treasuries and precious metals (a record $6.2 Billion in the third-quarter according to the World Gold Council). I confidently forecast a forecast adjustment.
So, why if investors are shunning Europe does the chancellor base UK growth assumptions on European economic growth? He doesn't believe his own forecast, and is just getting the excuses in early: "If the rest of Europe heads into recession it may prove hard to avoid one here in the UK," So, it's going to be figures which show recession then and the reason there's a recession is because of Europe - nothing to do with low interest rates, quantative easing and the general destruction of capital which passes for UK monetary policy these days.
Given that there was no recovery the truth, which people need to hear, is simply that UK economic decline continues.
George Osborne seeks to offer reassurances: "..We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth." Britain is in a debt storm but more importantly is standing in its own quicksand of debt. In October this year the government borrowed £6.5 billion pounds according to the Office of National Statistics and the overall deficit is nearing £1 trillion (not including financial interventions).
The shadow chancellor Ed Balls makes an excellent observation in his response to Osborne's statement: "Plan A has failed and it's failed colossally,". That's because the mess of Labour's legacy was colossal and it was dishonest of both parties to pretend they knew how to fix it. They didn't and still don't.
It should be clear to anyone now who is not involved in the spin machine that both stimulus and austerity have failed. Neither were suited to fixing the real problem which is debt saturation. And a combination of the two is all that is on offer from parties which are clearly out of their depth in an age where international financiers run the show.
The price of the bank bailouts is now being paid - financial, monetary and economic meltdown. In Westminster they fiddle while Rome burns.
Thanks for your comments.
Not sure economic management in an independent Scotland will be any better. Swinney is definitely good at running efficient government but would Swinney be any less inept at monetary policy than Brown or Osborne? If Swinney were arguing for an increase in interest rates I’d believe he does have a clue about how to fix our economy however talk of recovery and bringing forward capital spending suggests to me he doesn’t get it either.
Sure, having the oil wealth will put Scotland in a better position financially but it could easily be wasted in the same way the UK has wasted it over the decades..
the UK economy is in a black hole of debt; the UK economy is 70% service based rather than manufacturing industry based – dependent on the whims of other countries and the needs of other countries;
the idiot Osborne has decided Ã la Thatcher to cut, cut, cut and not invest in manufacturing industry (even to manufacture for the UK market/European market) until now – too little to late as Swinney said and as Salmond the economist had already advised him to do in 2010.
Osborne is a failure because the economic house is built on shifting sands.
Scotland is being dragged under unnecessarily – when attached at the hip, the only solution is surgical removal to save the patient.