The formula was breathtakingly simple:
The underlying health of the economy remained, at best, ropey. Real income growth was distinctly unimpressive, while productivity growth was weak.
Her Majesty's government also played its part. During the boom years, Brown borrowed to pay for a surge in public expenditure, running up some impressive fiscal deficits along the way. The excesses all ended up in the external deficit. Both the consumption boom and the government spendfest pulled in imports.
House prices are now falling, and everything goes into reverse. Home equity is declining and therefore banks can not issue any new home equity loans. Consumption is now contracting, tax revenues are declining and the economy is in recession.
Brown still thinks he can spend his way out of trouble. In reality, he will have a hard time covering existing expenditure plans as the tax base shrinks and unemployment rises.
If only the house prices could again start to rise, then everything would be alright. If only.......