Politicians in denial

The government continues in its blinkered approach to the seriousness of our economic situation. This is now manifest in the greatest folly: Gordon Brown telling the Governor of the Bank of England to stop his team being so pessimistic. Gordon, try telling that to Standard & Poor’s as well.

Sure the UK has not yet lost its triple A rating for credit but it has being downgraded to negative and (this is far more important) the analysts are saying that without changes to the way the public finances are going, it is likely to fall further.

At least this story was nor ignored by the mainstream media, though it did not get the prominence it was worthy of, probably on the surmise by news editors that the bulk of their consumers wouldn’t understand or care that much – far better to report MP expense claims for duck welfare.

The hints are also there that we may not have finished with supporting our banks and billions more will be needed from the empty purse.

So how will this affect us? As many commentators have pointed out, to borrow money with your credit rating plummeting, you have to pay more interest, and that means you have to borrow to pay the interest, or indulge in runaway inflation or simply print more money (except they like to call it quantative easing in a smoke and mirrors way). Have a look at this comment on money printing.

Interest rates are going to have to rise: the government has to try and raise money so it has to offer better deals to those who buy treasury stock and other finacial institutions will have to offer savers more than the pittance they do at the moment in order to compete for capital.

How will that affect every person in the UK? A second credit crunch that the Chancellor won’t be able to be able to blame on the US sub prime market. Just look at the UK’s level of personal debt to judge the level of exposure and then ask yourself how many people will default or delay payments if interest rates rise.

Who owns big slabs of our debt and that of the US? The Japanese and Chinese for a start. Have a look at some of the statistics quoted in this article by Ambrose Evans-Pritchard and while it talks about the US/Asia situation it affects us as well.

The eventual tax hikes and spending cuts and rising interest rates to sort this mess out grow more immense with every day.

If you want to fall asleep to something other than counting sheep, keep a tally of how many times the Global Credit Crunch and the US sub-prime collapse is cited as the root of all our troubles (particularly by the Chancellor). No sir, the malady is far greater.

It would be nice if this were a little blip and optimism from the Governor of the Bank of England brought the sunshine out but this is another example of denial.

At least there is one glimmer of political reality and that comes from Lord Mandleson. Forgive me but another link to the Daily Telegraph, a paper I do not incidentally subscribe to, but Google has been most helpful in finding for me.