Wednesday, January 27, 2010

Spot the difference

Yes - the picture on the right shows the shopping centre after the economy has grown by 0.1%, and what a big difference it has made.

Today, new figures show the first signs of economic growth after 18 months of recession – the longest and deepest since the war. Of course, the end of the Great Recession is good news – even though we were one of the first big economies into recession, and the last out. Now we are coming out of recession, Labour’s Debt Crisis is the biggest threat to our recovery.
As the Director-General of the CBI says in The Times today, ‘one of the troubles with the Government’s programme [of debt reduction] is that it’s long on aspirations and short on details, and it’s stretched out over the lifetime of two whole Parliaments.’ We can’t go on like this. We need change and a Conservative government to get a grip on our debt crisis. As any family with a credit card knows, the more we spend and the longer we wait to pay off our bills, the worse it gets.

Five facts about Labour’s Debt Crisis
  • We’re borrowing money at a rate of around £6,000 every second - every five seconds, the Government borrows more than the average British person earns in a year.
  • This year, we’re expected to borrow almost 14 per cent of our GDP – almost twice as much as when we nearly went bust in the 1970s
  • We’re spending more money on the interest on our debt than on almost anything else.
  • We have the biggest budget deficit of any large economy.
  • Last week, we had the worst public borrowing figures for any December on record.
However you spin the economy, the V shaped (short, shallow dip and strong recovery) recession promised by the Government is a bad memory. What it looks like we are in is a very deep U shaped recession (steep decline, levelling off for a period of flat or zero growth followed eventually by a climb) in which case as we have had 18 months down, and we may have to have a very long period of flatness before ecomimic activity starts to climb again.

There is a third, less comfortable possibility, which I still personally believe may turn out to be the case. The Government and Bank of England actions, (0.5% interest rates, printing money, pouring cash into banks and cutting taxes) have temporarily stalled the downward slope and as soon as the patient comes of the drugs the downward slope will resume. We will have a W shaped recession, - Mr Boom and Mr Bust brought out of retirement by none other than Mssrs Brwon and Darling.

It is caused by an unbalanced economy; growth is caused not by genuine companies being successful and expanding, but by Government spending, bailing out loss making and old industry businesses to keep people in jobs, speculative booms in property and asset values, and a consumer frenzy. When the debts catch up with everyone the music stops and the country lapses into a recession. The Governent reacts by spending more and the whole cycle repeats.

In the 1950's, 60's and '70's this was called "stop-go" economics and ending it (by making radical supply-side modifications to our economy) was a driving force behind the Thatcher years.

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