Friday, July 18, 2008

My Gaff, My Rules


Never worth the paper it was printed on

I don't know if I've mentioned this before, but here's a piece of advice - never ever trust politicians. And especially never trust them with your money.

Last night we learned that Gordo is plotting to dump his famous fiscal rules. Despite a decade of preening about prudence and sustainability, it turns out they're actually only fair weather rules, and their gold is the same stuff Gerald Ratner used to coat his prawn sandwich earrings.

The whole point about fiscal rules is that they stop politicos spending our money willy-nilly. They impose the discipline politicians lack when the going gets tough. They are there to bite, not to be junked in the face of electoral melt-down.

Regular BOM readers will know we're big fans of fiscal rules - indeed, we want to add that third rule limiting government spending directly (eg see this blog). As the OECD's research confirms, when it comes to containing fiscal excess, clear upfront rules trump unfettered political discretion every time.

And Labour governments really do always end like this. Vast overspending, taxes pushed beyond the limits of acceptability, borrowing maxxed, and economic problems left ungripped. But at least last time they were constrained by that humiliating IMF bailout to rescue the Pound: the IMF loan conditions provided Callaghan with the backbone necessary to resist pressure from his Bennite colleagues for even more spending (eg see Goodbye Great Britain: The 1976 IMF Crisis).

This time there is no such constraint. Gordo's rules are no more than what he says they are. They have no substance or authority beyond that. Nobody is going to impose sanctions if he fails to deliver.

Well, nobody that is, except the financial markets. And they've already taken the message firmly on board. In the last year, the Pound has taken a whack (eg down 15% against the Euro, and even down against the beleaguered dollar) as confidence has slumped. We hear about the collapsing equity market every night in gleeful BBC reports, and before long, rising inflation will likely start to push up the government's own cost of borrowing (right now gilts are still benefiting from "safe haven" status as the equity roof falls in - hence the return of a yield gap between the dividend yield on equities and the yield on gilts).

So there will be a price. Which we will pay in the higher cost of imported goods, and probably higher interest rates. Not forgetting of course, the further mountain of debt Gordo will run up when he boosts borrowing. As he's clearly going to.

Who voted for these lying pillocks again?

PS There is an even scarier scenario out there: the one in which Gordo not only abandons his fiscal rules, but also changes the Bank of England's monetary policy mandate to include economic growth. We blogged this possibility last month after Tyler's lunch on the Hill with Huggy (who just knows about these things). Making the Bank take account of sagging growth in setting interest rates would take us straight back to the 70s. Higher inflation would become embedded and we'd be off on that traditional wage-price spiral. Higher inflation, soggy growth, ballooning government debt, monetary melt-down, collapsing pound, even higher inflation, even soggier growth, even more ballooning... arrggh!

2 comments:

  1. Bạn đang tìm nơi giao hang nhanh. Bạn là chủ shop online và đang cần nơi có dịch vụ giao hàng tận nhà cho shop online. Để bạn có thể nhờ gửi hàng cho khách của bạn.
    Ngoài ra bạn còn có thể cần đến dịch vụ giao hàng thu tiền hộ. Vì có 1 số khách củ bạn thích lựa chọn dịch vụ giao hàng tận nơi rồi thu tiền. Vì khách hàng theo thói quen thấy hàng mới trả tiền.
    Nên đây chính là dịch vụ được rất nhiều khách hàng sử dụng. Ngoài ra chúng tôi còn tìm đối tác vận chuyển để phát triển trở thành liên minh vận chuyển lớn mạnh nhất Việt Nam.

    ReplyDelete
  2. Các sản phẩm collagen tốt nhất trên thị trường hiện nay. Chúng tôi, muathuoctot chuyên cung cấp những sản phẩm collagen tốt nhất, giá thành cạnh tranh nhất, đảm bảo 100% hàng thật chất lượng.
    Những sản phẩm bán chạy nhất của chúng tôi collagen trà xanh, collagen fish, collagen de happy 10000, collagen enriched, collagen nitta gelatin, collagen maihada

    ReplyDelete