Friday, January 04, 2008

There May Be Trouble Ahead.....

Alex Brummer has a gloomy piece in the New Statesman today about the turbulent economic conditions ahead . His point is that we are approaching a perfect storm in which a number of problem will hit our shores simultaneously . The trade deficit with the Asian economies , the final accounting for the $300 billion of sub prime debt only $100 billion of which has thus far been written down by the banking sector , the housing market slump and our perilously high level of borrowing .
What to do ? Inflationary pressures on food and energy will make large interest cuts an “exciting “prospect and more immediately the collapse of tax revenues as the financial sector in particular takes a beating all bode ill .A Keynesian solution of increasing the size e of the government sector is constrained by the promise to hold public sector growth to 1.7% .Denied .In the first 8 months of the fiscal year we have borrowed £36.2 billion the total is certain to exceed the £38 billion borrowed in2006/7 so the largely fictional golden rule is likely to show mysterious signs of rust once again.

I like this comment :
“ Unless the Chancellor is prepared to dispense with the fiscal rules his predecessor put in place he will be weapon less in the battle to avoid recession.”

I somehow cannot see the glove puppet Darling blaming his predecessor , can you ?Brummer also predicts the first Sterling crisis since 1992 , and given the political fallout of that , still virulent today, a collective shiver must surely be running up the New Labour spine. For Conservatives we can face the music but (quietly ) dance ...


Philipa said...

but while there's moonlight and music and love and romance..

last person to leave the country please turn the lights off.

Newmania said...



It has to get bad enough to rouse the public to get rid of the stoats and weasels in Toad Hall. If only democracy didn't have to work in this way, always waiting for a crisis before we take action.

Newmania said...

the stoats and weasels in Toad Hall

Ha!...Enjoyed that S!

Anonymous said...

And in the midst of all of these recessional pressures, Broon stamps on SMEs.

Broon's unbelievably stupid 80% increase in Capital Gains tax on SMEs - from 10% to 18% - is yet another dumb move, discriminating against SMEs - and one which will lead to higher unemployment.

SMEs are the engine house and seed bed of the UK's economy.

We employ 99.9% of UK's workforce.

To keep pressurising us as you are, Broon, in favour of your giant corporate donors, is the best attempt at generating a deep recession I've seen for many a year.

Is Broon off his rocker or is he just so damn ignorant of the real economic facts of life outside his privledged, overpaid parliamentary bubble that he cannot see where the £billions of our money he throws around like confetti and the jobs he claims to want are created?

Auntie Flo'

Newmania said...

Broon's unbelievably stupid 80% increase in Capital Gains tax on SMEs - from 10% to 18% - is yet another dumb move, discriminating against SMEs - and one which will lead to higher unemployment.

Yes I just don`t get that,I almost thought he might have forgotten them in worrying about Private Equity.

tory boys never grow up said...

Not that I want to discourage your reading of the New Statesman but Alex Brummer is the City Editor of the Daily Mail so he does write from a certain perspective - and in fact it looks that he may have got lazy and just copied one of his Mail articles.

On a couple of specifics - providing $100bn against $300bn of sub prime debt is quite a lot - given that a lot of it is secured on property. And I would I guess that most sensible banks will be trying to provide for everything that they can up front, rather than taking hits over several years (yes even banks do a bit of news management), though I daesay there will be a few stupid banks as well.

On the housing market - it is worth looking at the aricles on this in the New Statesman as well - but I tend to favour the less gloomy view - there are still a lot of supply constraints in the UK Housing Market and low interest rates (i.e not 14.75% for nearly two years as in the dark ages) should stop a repeat of the last housing price recession.

But no Labour hasn't been able to abolish the economic cycle so there will always be storms to test the economy and the doomsayers will always be among us. However, it is worth pointing out that all the reputable economic forecasters are still forecasting that there will be economic growth in 2008 (no still no recession like the bad old Tory days) - and I think that you will find that the Treasury/Bank of England has got a lot better in managing economic slow downs than was the case in the past (some of this can of course be attributed to the Government - but actually a large proportion can be attributed to better techniques being used for macroeconoic management).

So if there is no economic recession in 2008 can we look forward to you praising the Government's economic management. I think that you may find that this will have more of bearing on the next General Election than most of the froth going on at the moment.

A Happy (and a prosperous) New Year!

Mrs Smallprint said...

"Broon's unbelievably stupid 80% increase in Capital Gains tax on SMEs - from 10% to 18% - is yet another dumb move, discriminating against SMEs - and one which will lead to higher unemployment".

This certainly is an unforgiveable increase on SME's. Being one myself and acting for many others I know that a large part of small businesses retirement planning includes the amount they will get from the sale of their business. So stealing another 8% from those funds is both arbitary and unfair.

Where do get the link to unemployment?

Ed said...

The main problem we face is a result of deficit spending during the "boom" meaning we have no cushion for when the music stops. Debt has increased during the feast when it should have been cut as in Canada, Aus, etc. This is a result of Brown's not-so-subtle continuous re-definition of the economic cycle to avoid breaking his own Golden Rule.

There is little room for manoeuvre. I think we have to hope that the commodity price spike ends so that interest rates can fall quickly.

Newmania said...

I think that you may find that this will have more of bearing on the next General Election than most of the froth going on at the moment.

I agree with that at least.I am aware of who Brummer is. On sub prime ,it may be my fault but written down is not the same written off and the situation is not as you describe.
The goverment hasgot better at managing economic slow downs because it has learnt the lesson of the Major years when the first five years of growth started and took his B of E plan off the peg.

We have not performed especially well by any reasonable comparison but anyway you can knock that around all day. Politically the point is the retrospective re appraisal of Brown`s part in our prosperity for which a full blown recession is not required. For me its easy , high taxes and regulation may have virtues but they cannot help the economy . It must be 'depsite'

I think you are right on the housing market by the way..still I `m usually wrong

Newmania said...

Mrs . SP I hear that , same here and i have to vbte on with it now i `m afraid

Ed....debt is the key, but there are developments in China that maybe crucila as their one child only policy feeds through. A slopw down there is now almost as bad as a slow down in the US. =

Anonymous said...

Where do get the link to unemployment?

(Mrs Smallprint)

Because a greater number of SMEs will either relocate to lower tax economies overseas or establish themselves there in the first place, Mrs S. The impetus won't just be the increase in CGT, of course, however I think this will be seen as the final straw for many companies and firms.

This government have systematically increased the overheads, workload, stress and pressure of running all UK companies throughout their term of office. Increased Nat insurance, increased holiday entitlement, the cost of absorbing, responding to and complying with nulab's ever shifting mountain of of red tape and over-regulation, much of it confused, self contradictory and pointless. I waste around 10% to 15% of my productive power/time dealing with that and my business is probably fairly typical of the larger sector of SMEs.

Add to that generalised inflation, including increases in commercial rents and council tax and many SME owners feel they're peeing in the wind to continue to try to absorb all of these continual drains on our margins and the continuous stress this government generates for SMEs.

And there is also the increasing margin pressure on SMEs of our biggest clients - the corporate giants - nulab donors - whose dangerously monopolistic growth levels have not just been allowed but encouraged under this government.

The majority of the small businesses, some just small shops, in the commercial area where my office is located have had to invest £5K to £25K refurbishing their premises to make these accessible to people with disablities and increasingly demanding H&S requirements. Our refurbishment cost us over £20K.

All the while, SME owners live with the uncertainty generated by the certainty that, under nulab, these pressures on our margins and stress levels can only get worse.

Relocation overseas looks increasingly tempting.

Auntie Flo'

Newmania said...

Flo I haven`t got much to add to waht you say but I am in much the same position.Our only option has been to trade with an utter disregard of the impossible and ridiculous regulatory burden and hope for the best.


Mrs Smallprint said...

Hi Aunty Flo

Most of the small businesses I deal with don't have the option of moving overseas. So all the other factors you mention are more likely to cause unemployment than the increase in CGT, which only kicks in when the client sells up as a going concern.

I agree that this government has piled on cost after cost in the most anti business manner. They live off our backs and when the last straw comes then maybe they'll realise they're not as bright as they think they are.

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