Thursday, 5 March 2009

Rudderless and adrift

So, interest rates are down to 0.5 percent, and the Bank of England are about to print ₤75 billion of new money. There is no doubt about it; today’s MPC was a historically important one.

However, what will history actually say about MPC's decisions? For that matter, how will it judge Brown, Darling and the rest of the New Labour crew? How will it assess their handling of the financial crisis?

History is unlikely to offer a favourable opinion. Over the last 18 months, the crisis has torn apart New Labour’s previously carefully constructed macroeconomic framework. That framework depended on four principles; central bank independence, the golden fiscal rule, “light touch” regulation, and financial services as the engine of economic growth.

Whatever the law might say, the Bank of England is now little more than a department of Her Majesty’s treasury. It meekly complied with every dubious policy initiative concocted by Brown and Darling. The government wants to central bank to prop up the financial system with limitless amounts of credit. It also wants the Bank of England to help finance the government growing fiscal deficit. It has lost its claim to be an independent central bank.

Likewise, Brown's once trumpeted fiscal rules have been abandoned and forgotten. Previously, Brown promised that the government would borrow only in order to finance public investment. He called this committment, his "golden" rule. Today, the government borrows in a doomed attempt to keep Brown as Prime Minister. The fiscal deficit next year will be at least 8 percent of GDP, and the government is now borrowing heavily to finance current expenditures.

As for the “light touch” regulation of the FSA, that policy is seen as one of the major contributing factors behind the financial crisis. The FSA is a fatally compromised institution. It failed utterly to regulate the financial services industry. The FSA has become the most expensive policy failure in the history of this fair Island. No other institution has generated such huge costs to economy.

The FSA’s disastrous regulatory failure also led to the collapse of our flagship industry – financial services. The sector is in terminal decline; it has become the coal industry of the early 21st century, doomed to contract remorselessly, creating an army of unemployed loan officers.

Although today marks final destruction of New Labour's discredited policy framework, it also marks the beginning of new period; one where there is no framework. The UK no longer has a coherent monetary and fiscal policies. There is no exit strategy from massive fiscal deficits, uncontrolled monetary growth and a collapsing real economy. In economic terms, we are rudderless; adrift on a sea of trouble.


Stevie b. said...

Re Crash Gordon's Golden Rule - dumped just as he did with gold itself, where he saw what he thought was a golden opportunity & dumped it unceremoniously. To rescue some, he's going to ruin us all in a deluded attempt to get re-elected.

Anonymous said...

Gordon Brown will go down as the worst chancellor and prime minister in UK history. As for chump Darling, he isn't worth talking about because the guy is just an empty cipher for Brown. And anyone who says Brown was great because 'he created ten years of economic growth and stability', is going to really regret that statement.

John Pickworth said...

Its a Labour (Socialist; for our American readers) Government! What did you expect?

As each day passes I become ever more convinced that they have no intention of even trying to win the next election. This is all about stretching out the good times (for themselves and their wage packets) for as long as it lasts while torching everything else in their wake. Within 4 years they'll be back promising a return to the good times and offering a respite from the awful Tories who have presided over a bankrupt country. Forgetting of course who put us in that state... but you know how weak willed the British voter is!

I can see myself quietly slipping away one night on a French fishing boat before too much longer.

Peter said...

Correct - the worst government in my lifetime, and I remember them all over the past 50 years. Blair/Brown were always hot air from the start. But why have the opposition complied since day 1 with the financial services fiasco? Conservatives created "Big Bang" in 1986 which is the starting line for the present troubles - deregulating the banks and making spivs of them all. Who on earth can we vote for? I am developing some contempt for my fellow citizens, who tolerate this abominable deceit. Help!

dearieme said...

Peter - you have to vote to throw the rascals out. If that means voting Tory, so be it.

mike said...

It's a sad day that I never thought would happen. This is 75billion that does not belong to the government. Effectively stolen from savers and investors. A more visible protest is due soon as I am sure not everyone will remain quiet.

There should be accountability over what is bought with this money and with clear information made public as to how they think it will directly help the economy.

Mick said...

Lions led by donkeys: to what have we descended. I could weep for my lost country.

Today will go down in the history books as the beginning of the end.