All 11 entries tagged Economy
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January 28, 2009
Writing about web page http://www.washingtonpost.com/wp-dyn/content/article/2009/01/27/AR2009012700457.html
This article in the Washington Post (signup required) might provide some rare good news for Gordon Brown.
The U.S. Treasury is planning to help America’s banks in much the same way as Gordon Brown has in the UK.
On the table are several approaches, which officials have begun to experiment with on a smaller scale. One would give the firms a federal guarantee protecting them against losses on assets that are backed by failing mortgages and other troubled loans. Another would set up new government institutions to buy these toxic assets. A third would inject more money into financial firms in exchange for ownership stakes, perhaps ending with nationalization in all but name.
Pretty much entirely the British plan then, and the piece also goes on to say how the whole project will rely on ‘trial and error’ and ‘a combination of initiatives’.
For the ‘Saviour of the World’ (© All Media Outlets) to be considering exactly what Gordon Brown has been often criticised for will surely give the PM something to smile about.
He might be under fire for having caused the problem, but if Obama’s economic team is in complete agreement about how to fix it, Gordon Brown might just come out of this with his head held high.
Either that or the UK and US are both doomed.
December 12, 2008
Thomas Friedman, one of America’s best op-ed writers, has written the first decent summary I’ve seen of why the U.S. government shouldn’t bail out the Detroit car companies.
...our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet.
Read it to find out why.
December 11, 2008
Peer Steinbrück is the German finance minister, and a Social Democratic member of the country’s governing coalition.
Can we adopt him or find some distant relative of his that allows us to claim him as British?
The speed at which proposals are put together under pressure that don’t even pass an economic test is breathtaking and depressing. Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?
November 23, 2008
I thought Barack Obama was supposed to be The West Wing v.2? I mean, he even appointed Josh Lyman as his Chief of Staff.
Now he’s got elected, the script’s got jumbled up.
His weekly radio address yesterday was headlined:
Come on, neither Jed Bartlet nor Matthew Santos were centrists, but they knew full well the adage that governments don’t create jobs, businesses do.
Has the U.S. gone socialist overnight?
November 22, 2008
Tomorrow’s Sunday Times leads on details of Alistair Darling’s planned spending cuts to boost the economy. From the article:
Cuts in Vat are to form a key plank of Gordon Brown’s emergency economic rescue package to be unveiled tomorrow… A 2.5% Vat cut would cost £12.5 billion a year, making it by far the biggest element of Brown’s £15 billion-plus “fiscal stimulus”.
But it’s further down the article that the bigger story could lie.
Officials are drawing up plans for a sale of government assets including the Met Office, the Ordnance Survey and thousands of acres of Forestry Commission land.
It’s strange that this green-light for new privatisation is given no further comment in the article. Not only is it a change of tune for New Labour, but the choice of government agencies in the firing line is bizarre. The sale of all three would constitute minimal short-term gain in return for extraordinary long-term pain.
Firstly, with the Met Office. Selling off this public service (for never was the term more apt than in predicting the country’s weather) is bound to lead to a rush to commercialise forecasting. Don’t worry about the BBC having to pay more for weather data, that’s irrelevant in the grand scheme of things. If the Met Office is put in private hands, it’s sure to lead to big price increases for farmers, fishermen and aircraft pilots, all of whom rely on weather forecasting much more detailed than you find in a TV bulletin.
Secondly, Ordnance Survey. OS already behaves like a commercial company in many ways, demanding licence fees for almost any map of Britain. They’re currently in a scrap with Google over Google Maps, and this week tried to tell the Home Secretary what she could and couldn’t do. The Register has been pushing for the government to make OS’s data more freely available. A key point they make is:
The government argues that businesses and individuals who use the data should contribute to the cost of collecting it. The counter-argument is damning: Ordnance Survey makes a profit for the Treasury, but locking down its maps suffocates a potential boom in Geographic Information Services and other businesses, that would funnel much more back into the economy.
The government should be using Ordnance Survey as a tool to unlock some new economic potential (see this brilliant idea as just one use of the data that relies on it being cheap), not as part of a short-term fire sale.
Thirdly and finally, Forestry Commission land. If this isn’t a shortsighted idea, I don’t know what is. Selling it off for commercial gain means only one thing – the environment won’t be the main concern any more. We’re unlikely to see the land stripped for palm oil but any commercial use will conflict with the current limits on what Forestry Commission land can be used for.
The article has the whiff of being leaked by a naive junior government minister who hasn’t thought any of these things through yet.
Let’s hope the rest of Monday’s pre-budget report isn’t so half-baked.
November 19, 2008
Dizzy has found some great quotes from recent budgets.
“borrowing for this year and future years is therefore £27 billion (2003), £24 billion (2004), £23 billion (2005), £22 billion (2006) and £22 billion (2007).” - Budget 2003
“borrowing for this year will fall to £34 billions (2004) and in future years fall further to £33 billions (2005), falling again to £29 billions (2006), then falling to £28 billions (2007), £24 billions (2008) and £22 billions (2009). - Budget 2004
“[it] will be £34bn (2005) this year falling to £32bn (2006) next year, then falling again to £29bn (2007), falling to £27bn (2008), then to £24bn (2009) and then £22bn (2010).” - Budget 2005
“[borrowing] will be £37bn this year, £36bn next year, then £30bn, falling to £25bn, £24bn and £23bn in 2010-11” - Budget 2006
“the figure for [borrowing] this and future years will be £35 billion (2007) – over 1 billion less than forecast at the Pre Budget Report – then 34 (2008), 30 (2009), 28 (2009), 26 (2010) and 24 billion (2011)” - Budget 2007
If Gordon Brown were a normal person, would he need a) advice from the Citizens Advice Bureau, or b) sectioning?
November 15, 2008
I sometimes wonder if George Osborne is making calculated decisions to try and put himself out of a job.
Whether it’s because he doesn’t really want to be Chancellor, or because he knows someone else could do the job better and he doesn’t want to admit it, the Shadow Chancellor seems to be digging his own grave as fast as he can.
After accusations that he’s been too soft on the government’s handling of the economic crisis, he comes out with this:
You bet it is when the Shadow Chancellor predicts it. Just watch the price of Sterling collapse on Monday morning. I’ve always thought Osborne came across as incredibly naive – this is the best example so far.
There are a million ways to tackle Brown and Darling on the economy. The Tories’ chosen ones haven’t been working. Labour is gaining on them in the polls, and the Lib Dems have been making the running on the issue for months.
Opinion is split on Conservative Home, between those who want Osborne gone (probably in favour of David Davis) and those who defend him mainly because he’s a Conservative. The Telegraph’s opinion of Osborne is pretty rock-bottom, with countless critical pieces written about him this week.
There’s no way that David Cameron can win an election and then keep Osborne in the second-most important job in the government. He might as well make the switch sooner rather than later.
March 21, 2007
Last year, your prudent Chancellor unveiled his measures to make Britain economically strong and ethically sound. This year, he shall repeat the exercise bearing in mind the strong likelihood that he will take over the reins of the sinking ship from Tony Blair in the coming months.
Last year, I began with a shameless attack upon the poor. That’s right. “Multi Stamp Duty”. The more houses you own, the more you pay in tax when you buy another one. Anyone buying a second home would pay 5% stamp duty, while anyone buying a third home (greedy buggeers) would pay 10%. Well this year Chancellor Doidge will scrap stamp duty altogether for people buying their first home (down from 1%). This undoubtedly popular move will come into effect as soon as possible, pissing off the rich no-end.
Talking of which, 4×4s. Last year I linked car tax to your MOT test. The more miles you do, the more you pay. If your car is a ‘big-emitter’, you currently pay (in Doidgeland) £100 if you do over 2,500 miles per year. Well I’m going to add a top-rate of £250 per year if you do over 10,000 miles per year. That’ll catch the estate agents in their Mondeos. Because no-one likes them anyway.
I’m not planning to tinker much with my simple tax rates that I imposed last year:
People earning between £15k – £30k pay 25% tax
People earning between £30k – £50k pay 35% tax and
People earning over £50k tax pay 45% tax.
But I’m going to launch a consultation on charging an extra 5% on anyone earning over £1m per year (in City bonuses presumably). We rely on the City of London for a huge amount of our income, but I don’t think charging the highest earners will really result in an exodus of executives to Luxembourg. And even if it does, at least house prices will fall.
And so to house prices. They’re clearly not starting to fall, and they’re not about to crash either. So along with the Department for Communities and Local Government, I can announce that by 2010, 20% of all new homes in Britain must be three storeys tall. In theory, this will mean less land is used, and we can build the millions of homes we need without encroaching too much on the green belt. I’m also sending every house a brick to put in their toilet. Less water used, you see.
Another thing about new homes that disappoints me is the small amount of garden space. True, this is slightly contradictory with what I just said, but I want to make sure there are plenty of green spaces in residential areas. Many local councils have a policy of ‘filling-in’ spaces between homes rather than building new housing estates. I think those spaces are a commodity in themselves and am launching a new national ‘green spaces’ fund to buy them from private landowners and turn them into community spaces, rather than squash more houses into them. Also, any new housing estate will have to have some arbitrary amount of shared green space per dwelling. Let’s say 20m2 per house.
Last year I scrapped BBC Three. The BBC ignored me, and put Anthea Turner on, just to inflame my bowels even more. In revenge, I’m taking BBC Two Wales off them as well. They’re filling it with programmes about Welshness – see here. BBC Two Wales will be replaced on Satellite (and moved onto Freeview too) with a sports channel. I’m still working on BBC Three, and fully intend for it to become a channel full of quality U.S. imports. I’m still planning to use the analogue TV signals for free-to-air High Definition, too.
In the world of journalism (for which I have what you might call a soft-spot), I intend to ban the Daily Mail and Daily Express. Democracy? Pah. They’d both rather have a monarch run the country on a daily basis, especially if they could get Diana back to do it. Fox News is also getting kicked off Sky. There are already rules about impartiality in the UK. It applies to Fox just as it does to Sky News, and yet we’ve done nothing about it.
I’ll sweeten the blow of losing BBC Wales by building a railway from north to south Wales. It takes ages to get there at the moment, and it’s silly. I’ll also build a decent railway from Cardiff to its airport, which is miles away and useless.
Last year I promised you I would introduce two things in 2007. I lied. I’m still going to give you free childcare by paying nurseries directly, but I’m not going to put Fathers 4 Justice into community service. Instead I’m sending them to Afghanistan. They can breach security like no-one else, so hopefully they can infiltrate Al-Qaeda too, and find Bin Laden for me.
As I’m about to take over the government, I thought I’d announce a few things I’m planning to do when Tony goes on his lecture tour. Firstly, I’m going to revoke his passport. Secondly I’m going to take out a banning order on his – and Alastair Campbell’s – memoirs. And finally I’m going to rent out his expensive new homes (incl. flats in Bristol) to poor people. It’s all for his own good. I saw that Channel 4 drama about ‘The Trial of Tony Blair’ and I reckon if he leaves the country we’ll forget about him pretty quickly.
I’m going to pull troops out of Iraq. Sorry, George. They’d be of more use in Zimbabwe, but we can’t do that because we’re not black and we’d look like the imperial aggressors that we, er… are. I’ll send half of them to Afghanistan because that’s a war worth winning, even just to kill the opium trade once and for all. And the rest I’ll retrain as rapid-response peacekeepers, like the S.A.S., but with incense sticks rather than AK-47s.
And finally I’m planning to invade Australia. I like the Aussies, I really do. But they’ve got a lot of unused land. And we have a lot of asylum seekers. I don’t think we should send them back to where they came from, because there’s usually a good reason they left. But with a few water pipes and a few traps for the snakes, I think we can make the bush hospitable. And with a few years’ climate change, we might even be able to grow strawberries out there!
And so, I present my final budget. It’s full of holes, but I don’t care. Someone else can come into the Treasury and clear it up. I’m moving on to new pastures. Well, next door, at least. It’s been an exciting ten years. I’ve cured world poverty, kept Blair and Bono in jobs, and only screwed up the universities, trains, hospitals and schools. Not bad. Now I can move to Number 10, fix it all, and say 1997 – 2007 was all his fault.
September 08, 2006
Maglev. About twenty years ago it was “the future”. Today, it remains a figment of our imagination unless you happen to visit Singapore or one of the ‘toy train’ test tracks in Germany and Japan. The world’s first commercial Maglev train was – believe it or not – in Birmingham, linking the NEC and the Airport. It was replaced a few years ago with a chain-based train.
But since the 2005 election, politicians are starting to take the proposition seriously again. Labour’s 2005 manifesto pledged a high-speed rail link between London and Scotland (presumably something Gordon Brown will eagerly approve if given the chance) and the government’s report into the various options (basically either Maglev or something like France’s TGV) will – hopefully – come out soon.
It’ll revolutionise British transport. According to pressure group 500km/h you’ll be able to travel up and down the spine of the country at 311mph, which means London to Manchester will take 45 minutes. That’s forty-five minutes. Liverpool to Newcastle (perhaps a more vital link than London-Edinburgh) would take under an hour. Linford Christie couldn’t even come close.
There’s a tonne of economic reasons why we should do it, but I’m not sure they’re the real reason we should start building now.
The real reason is that public transport in Britain is a shambles. Why would most people want to take a train from London to Manchester when driving there takes only a little bit longer (if you ignore the traffic within the M25) and costs considerably less (a London-Manchester return for tomorrow is a minimum of £60 and more like £200 if you want to go in peak-time).
The premise that many people would choose to travel by train is a nonsense. If you enjoy driving even a bit, it’s just not worth waiting at stations and missing connections. And don’t even mention luggage. The reason people do it is that they’re often going somewhere where parking their car is impossible. Or they don’t have a car. Today’s train system is geared towards the business traveller, and a huge proportion of its potential customer base is put off by the sheer stupidity of the way it works and the amount it costs.
For sure, Maglev isn’t going to be cheap. In Shanghai though, it’s about £3 for a single fare. Bear in mind that the length of track there is pretty short and that it was built with what we would probably characterise as slave labour (at British prices anyway). But it is the most reliable railway in the world, and from the video (see below) looks incredible. And the environmental cost is a fraction of aeroplane use.
There’s a danger that the North-South line in Britain will be scrapped because rail bosses think they can just squeeze more intercity trains on to the existing tracks. But this would be a disaster. The fares would still be extortionately high considering the lack of utility gained by travelling on a train (over a car journey).
This line shouldn’t be about increasing capacity. It should be about making the railway attractive again. Per mile, it’ll be half the cost of the Channel Tunnel Rail Link, which has been built on time and nearly to budget.
George Osborne, the shadow chancellor, favours Maglev. But apparently Gordon Brown’s allies say it’s too expensive and impractical. Brown needs to look above the parapet of Westminster bureaucracy and see the benefits of the Tories’ blue sky thinking. He has a simple choice between a revolutionary railway system or congested roads, environmental disaster and a growing North-South divide.
A final thought for you…
Cost of replacing the Trident nuclear deterrent: £15bn
Cost of building a Maglev line between London and Edinburgh: £16bn
Which would you prefer?
March 25, 2006
It's a bit like fantasy football, only it's useful and everyone can understand it. I was crap at fantasy football. Anyway….
The 2006 Budget, by Chancellor of the Exchequer, Chris Doidge
Ho, Ho, Ho… Merry Christmas. Unless you're rich, vote Tory, are about to die, have private health insurance, send your kids to public school, drive a 4×4 for 'leisure purposes', or buy stocks and shares.
Here's my budget, and I commend it to your house.
Talking of which, houses. I'm going to tax you for them. In fact, I'm going to tax you if you have more than one. If you go and buy a 'crash pad' as they do so often on Relocation Relocation on Channel 4, thereby taking a perfectly good cheap house away from some poor bugger, then I won't just charge you Stamp Duty. Oh no. I'll charge you Multi Stamp Duty! On your first house, you'll have to pay 1% in duty. But on your second house, you'll have to pay 5% in duty. And then 10%. Bad luck. Except if you're a first-time buyer and then you won't have to pay stamp duty at all. Ooh, what a socialist I am. Naughty me.
Next up, cars. Big changes here I'm afraid. Car tax will be directly related to your MOT test, which will now have to happen every 18 months. At the test, you'll have your mile-o-meter read, and if you've done over 2,500 miles in your car over those 18 months then bad luck! You're paying for them! A £100 flat fee, in fact, except if you've got a 'green' car. And £25 if you haven't hit the magic 2,500. To be 'green', it has to be on my specially-approved list. Any car that Jeremy Clarkson detests goes on there. Pretty much anyway. The good news is that if you own a Chelsea tractor, you only pay £100 if you use the bugger! So light weekend use will mean you might end up paying naff all for it.
Next up, time to make sure you don't go and get pissed before driving your Chelsea tractor. Anyone found guilty of drink-driving won't just get a fine. Oh no. We'll have your car! If it's any good, we'll give it to the police to speed around in. And if it's not, we'll recycle it and turn it into something useful. Like a slide in a children's playground.
Meanwhile, a radical new approach to taxes on drink and ciggies. Unlike that bozo Brown, tax on booze will relate to the likelihood of anti-social behaviour being brought on by it. So lager and spirits? Up you go. 5p a pint or shot and 20p a bottle of vodka etc. But real ale gets a cut. Apart from the Real Ale festival in the Cooler, how often do you see loutish behaviour as a result of drinking good old British beer? Exactly.
Red wine gets a rate freeze, while white goes up a bit. Just cos it tastes like vinegar. But British wine gets a cut – 20p off per bottle.
That champagne muck? Well yeah, great for celebrating with, but go and find some British sparkling wine. It's bloody good apparently and you should be supporting your own. Champers goes up 50p per bottle. So there.
Next up, ID cards. That imbecile Blair thinks they're a good idea, but then this is the same buffoon that thought that invading Iraq was clever. From today, I can announce that (in conjunction with Microsoft, Visa, Mastercard and the number 7) ID Cards will be free! That's right. And they'll also double up as your passport, debit card, UCAS card, library card, European E111 card, birthday card and any other card you can think of. They'll be paid for by taking 0.1% of your debit card spending from the retailer (Visa and Mastercard can carry on having the rest of their 1%). We'll install some nice RFID tags inside them (no, you can't play with them Capita) and you can go round with a nice empty wallet. We'll automatically work out how much tax you owe, and what credits we owe you, and we'll upload them to your card. But we won't allow you to go into debt on them, cos there's quite enough of that to go round. This budget's probably just created a hell of a lot more of it! Oh and just as a bonus, we'll bring in legislation that means that nightclubs have to accept your ID card as proof of age, and if they don't, you can wave your RFID-enabled card at their genitals and it'll send a 25,000 volt burst of electricity to their upper groin. And then they'll let you in.
Moving on, and time to look at income tax. Oh yes. Fun for all the family. Unless you're under 16 and then we won't even bother assessing you for tax. So you won't have to claim it back later. And we'll give you a one-year break from paying income tax at any time in your life, so if you're saving up for something you can do so for 12 months without having to worry about how much of your money we'll grab. Just 12 months, mind. Once it's gone, it's gone. Power to the stupids.
Income tax brackets will change. I'll be a lot more honest with you, and the brackets will go up by earnings each year, not RPI. I won't play around with them, and where necessary I'll just change the headline XXp per pound.
So first up, you won't have to pay income tax until you hit £15,000. Let's face it, you're going to give my most of that back in VAT anyway, so I might as well give you a break while you're so far below the average wage in the UK.
People earning between £15k – £30k pay 25% tax
People earning between £30k – £50k pay 35% tax and
People earning over £50k tax pay 45% tax.
Fair's fair I think. I'm not sure if that will blow my budget, but I'll get some bright young spark like Miliband or Balls to work it out.
Oh, and did I forget to mention that income now includes council tax? That's right. I'll collect your council tax and give it to your local council. Or councils if you're a rich bugger. Because if you've got two houses, I'll give equal amounts of money to both local councils you live in. Let's face it, you'll be paying me more in income tax, so I can afford it.
Pensioners don't tend to pay income tax, so they won't have to pay council tax any more either. I think they've deserved it.
It also means that students can live with non-students, without all being eligible for council tax. Because only the earner will have to pay anything, through income tax. If they earn more than £15k that is.
Now I know what you're thinking. Anyone earning under £15k will be able to scrounge off the state cos they won't be paying any tax. Well, you're wrong hotshot. VAT applies to everyone (even poor little kids), and those scroungers will probably be paying more in excise duty on beer, fags (up 10p per pack of 20) and spirits. Oh, and did I forget to mention? You'll have to pay satellite tax. I'll charge 30% VAT on all subscriptions to television services. So there, rich guys.
That doesn't include the television licence, by the way, which I'll scrap. Sorry BBC, but it's not working any more. I mean, I listen to Radio 4 far more than I watch EastEnders, and yet I'm not paying for that. And from next year, any television I do watch will be through my Windows Media Center-enabled PC with broadband connection. So instead, I'll pay for it out of that 30% VAT on Sky subscriptions, and the rest out of income tax. What's more, I'll bring in legislation which means I can't increase the licence fee by anything less than in inflation. So if they go and accuse me of exaggerating how good I am in bed (45 minutes, by the way) then I can't really do anything about it. Might come to regret that one.
Oh, by the way. I'll scrap BBC Three. I realise it'll leave a gap between 2 and 4, but it really is shit and More4's better. Sorry.
Also related to broadcasting, I'll scrap this silly idea of auctioning off the bandwidth created by shutting down analogue TV. I'll give half of it to small, community-based radio stations who can broadcast on it using a free licence, and the other half to the Freeview consortium so I can watch snow leopards and Wayne Rooney in high-definition. Fantastic.
Next up, one of my more controversial moves. I'll privatise the Royal Mail. Sorry. Well, sorry to the Lib Dems at least, for stealing their idea. But I'll sell it to someone who can actually do the job without making postmen use their own cars to shift post about. And they can set postal charges at any price they like. Let's face it, even old people can use e-mail nowadays and the market will just price them out if they charge too much.
But I won't be selling off post offices. I'm keeping them because they're cosy and smell a bit like libraries. Talking of which, I'm combining the two. I'll spend £3bn over the next five years, merging the two operations. Libraries will have post offices in them (not bloody tai-chi clinics), and post offices will have libraries in them. And I'll spend another £3bn on books. Apparently stocks have depleted by 20m over the last decade. Also, I'll start digitally scanning in books at the British Library and then start redistributing them to smaller places. What use are they all in one London building with a reading room the size of my thumb? Get them out to the people where they can be read, and the British Library can keep hold of the electronic copies.
Next, there's a big problem with our pensions. They've got more holes in than a slice of Emmental. I'm more of a solid Cheddar man myself, so I intend to give pension funds a special tax credit so that they don't have to pay any of those silly taxes that individual savers do.
But individual savers will be able to benefit from a bigger ISA. I'll allow you to put up to £10,000 a year in there, tax-free. And I'll give kids £1,000 at birth, which I'll invest into an ISA on their behalf. How nice of me. The money will come from inheritance tax, by the way, which I'm afraid is where I'm going to be a bugger.
IHT is good and bad in equal measure. But if I ring-fence the proceeds from it, then I think I can justify taking 40% of your savings when you go to heaven/hell/house of lords. 35% will go directly into those child savings accounts that I just mentioned. And I'll keep the other 5% so I can afford to make those savings accounts tax-free.
It's not a redistribution from rich to poor, but from old to young. From past to future. Because I'm not an analogue politician. I'm a 64-bit, quad-core, liquid-cooled politician. And if you don't think so, you can go and live in the UK's one-and-only tax haven. That's right, there's no other good use for it, so I'm turning the Isle of Wight into a free-for-all, for anyone stupid enough to want to live on that godforesaken hole.
P.S. Next year I'll be scrapping tax credits for kids and just giving you free childcare (not vouchers… I'll just pay nurseries directly). And if you're one of those Spiderman-dressing dads who don't pay your kids' maintenance then I'll set you to work making Coventry look nice. You should be done by 2050.
February 11, 2006
In today's Guardian:
Imagine you are an investor who has bought financial assets in a country that's running a trade deficit of 5.8% of its national output. Imagine, also, that the size of that deficit grew by 17.5% last year…The country we are talking about is not Mexico or Thailand but the United States, which yesterday announced a record trade deficit of $726bn (£415bn) for 2005…Clearly, trade deficits of 6% of GDP are unsustainable. Clearly, the dollar has to fall. Simple game theory suggests that there is a real advantage in being the first central bank to move.
So the American economy looks set to do a Peter Kay-esque running bomb and surely we're all going to get soaked?
Well, yes and no. Stock markets will take a big hit if economies – especially Asian ones – start selling dollars. But in reality, this is surely just going to be a blip. Won't there be a certain amount of relief in the City and other institutions if the inevitable finally happens and the dollar finally comes down to a more sustainable position? Won't it reel in President Bush's unrealistic low-tax, high-spend philosophy? Won't investors realise that not a huge amount of our trade takes place with the US, and that as long as we have strong trading links with the EU, everything will be alright? And won't it be seen as a boost to our economy, as investment here might suddently appear more attractive?
Or am I being a hopeless optimist?