Gordon Clown .Com

Seems dear old Gordon has been caught out fiddling the figures once again, this time it’s unemployment statistics that’s the area of deceit-du-jour. Notwithstanding the creation of countless non-jobs within the civil service as a result of his “record investment” in public services, the masking of official unemployment statistics using various forms of incapacity benefit, single parents etc etc etc seems to be running out of control giving this country a figure of 5.29 million true unemployed, or 16% of the working-age population. Gordon currently doesn’t count single parents or those caring for family members as unemployed, despite the fact that they are of working age and do not have jobs. These conveniently excluded millions (over 4 million to be precise) very nicely spin the unemployment rates down and make it look like Gordon and Tony are doing a far better job than they actually are. They often love to remind us of the 3 million unemployed under the last tory government in 1986, which at the time amounted to 10.6% of the workforce, whereas today their figure for unemployment is running at around 3%, a remarkable achievement if you ignore the facts that have now been brought to our attention. Anything to keep confidence up in the economy and keep consumers spending, it would seem.

The reported July budget surplus of £8.4bn appears to be another area where the figures are not telling the full story at the moment, although these numbers could probably be placed under the category of spin as opposed to outright lying. Seems like the press are becoming more careful when reporting figures that come from Gordon, at long last.

More stories in the press have appeared this weekend about the true rates of inflation being far removed from official government figures, with the Telegraph and the Daily Mail among others running a story stating that CPI is “meaningless” and true inflation for the British middle class is around 10%, which incidentally is 4 times the official CPI figures. A university professor, this time, has joined ever increasing numbers of other independant statistical sources, the E&Y item club etc, and worked out that Gordon’s measure of inflation is meaningless for most people because it excludes increases in council tax, household insurance and more alarmingly school fees and domestic help. Though whether private schools and nannies are exactly essential items for middle class Britain is open for debate. A pensioner near Cambridge has also referred to the CPI calculation as “beyond a joke”.

As if the above dodgy dealings were not pain enough for Gordon it seems that the housing market, which has played a large part in recent times in keeping spending in the economy afloat by way of large amounts of mortgage equity withdrawal on the back of high inflation in house prices, is suffering a small blip. In fact the front page of Rightmove is currently bearing the headline “housing market runs out of steam”, after a fall in their ever-noteworthy asking price index of 1.6% last month. Not exactly headline news in reality (although the Guardian seemed to think so), but sentiment is key, and any sustained downturn could make Gordon’s stay in Number 10 a very short one indeed.

“Drifting to Disaster” by Angus Hanton is a must-read article. Within it explains very clearly the risks that face this country due to the mass sell-off of assets that has been occuring over the past few years. A bleak outlook is portrayed, and quantified with facts and figures. The article explains how Britain’s balance of trade with the rest of the world is way out of kilter, and that the present British lifestyle financed by more and more borrowing is doomed to end in tears before long. The men at the top, Brown and Blair, the architects of the demise of the British economy in recent years, get the following treatment:

It seems that most politicians simply don’t realise what is happening and have little concern for the UK’s balance of payments position. They will only react either in the event of a crisis or when they are put under pressure. If a crisis is indeed inevitable, it will be better for the problems to be generally recognised sooner rather than later – as has been said, “the better the party the worse the hangover�?. Perhaps it is time to stop the party.

The following stark conclusions are drawn:

If the arguments presented above are correct then the UK economy is drifting towards a sterling devaluation and a recession at some point. Such a recession would be characterised by increased prices of goods, falling wages and probably higher interest rates. The government might still be able to avoid this by acting to make UK companies less attractive to foreign buyers and by adopting policies to make foreign goods less attractive to UK consumers.

At first glance it would appear that the August MPC minutes, published today, show that the voting for a 0.25% interest rate increase went with a landslide win for the hawks, the votes being 6-1 in favour. However it seems that some news organisations have taken the wording of the minutes to mean that further rises are all but ruled out in the near future, the FT choosing to predict that “the last Bank of England monetary policy meeting revealed little possibility of another rate increase in the near term.” The sagely newspaper with the crystal ball obviously will have further scope to report that the next rate rise is a “huge shock” based on these obvious dovish noises coming out of the Bank. They have of course chosen to ignore last weeks inflation report, in which the Bank virtually spelled out its plans on interest rates, indicating that future rises were inevitable. Bloomberg chose a slightly more sensible line, their chosen interviewee commenting that “we’re going to have to see a lot softer data to dissuade the monetary policy committee from raising again”. Interestingly the only MPC member to vote against the August hike was David Blanchflower, the most recent member to have been recruited by Gordon Brown, and therefore obviously the member most keen to impress his new boss (Brown, not Mervyn King).

Elsewhere the doom and gloom for Brown’s miracle economy seems to continue on a daily basis, with the news that Gordon’s fiddled unemployment figures (which have widened the definition of “unable to work” to encompass more people than ever before) have hit a new high of 5.5%, the highest in six years. Previously the remedy to this situation would have been to add more civil service jobs to absorb the rise in genuine unemployment, but unfortunately the cash to support this tactic is fast running out, so Gordon will have to sweat a little more on his coronation instead.

It is also starting to look like recent news that CPI has actually fallen by a miniscule amount may be about to backfire on Gordon, as the Telegraph questioned how this could ever be possible given the rampant way in which energy prices continue to rise and rise. The article spells out the blatant inconsistencies in the clearest possible way without pulling any punches whatsoever:

But despite the increase in the cost of energy, the weighting given over to gas and electricity bills in the CPI have not risen by the same degree. The breakdown of the official “basket” of goods in the inflation measure shows what we spend on gas bills is up by 17pc and our spending on electricity is up by 7pc since 2003. But, the ONS’s own numbers show the cost of these bills has risen by 64pc and 45pc respectively in the same period.

Hmmm .. surely some mistake Gordon?

Against all odds, the various corners of the press continue to come out of the woodwork with various comments and views on the 0.25% rate rise. Surely this is old news by now? A week after his deputy suggested that the bank’s rate rises could continue further than expected, and are designed to shock the markets, David Smith (economics editor of the Murdoch-owned Times newspaper) has come out with soothing comforting talk that rates will never go over 5%. Incidentally this is the same David Smith who has been predicting for the past year that the next move in interest rates will definitely definitely be down, so it’s probably best to take his predictions of a 5% absolute cap with a pinch of salt. Elsewhere, the Independent takes a more precautionary and sensible approach, warning borrowers that the August rise will probably not be the last, given the recent rumblings from Mervyn and Co. Interestingly they point out that a 0.25% rise is not the only option available to the Bank, something many commentators appear to have forgotten recently.

Roger Bootle in the Telegraph suggests that the US economy is in for a tough 2007, due to the US housing market (the “leading support for consumer spending”) hitting the rocks, but of course the same situation replicated over here would not apply to Britain in the same way would it? Apparently a couple more interest rate rises could see Britain following the US where housing is concerned, but I’m sure Gordon must have thought of this.

The Sunday Herald add an interesting wrinkle to the whole interest rates debate by correctly pointing out that around half of consumer and business debt is actually lent out on a fixed-rate deal basis at the moment. Presumably this means that the Bank will need to raise IR even higher before it starts to have the desired effect? The Telegraph asks numerous “city experts” to comment on whether interest rates have peaked at 4.75% and comes to the conclusion that they almost definitely have not.
Perhaps most surprisingly of all, the BBC have reported today that even though CPI has just fallen by 0.1 whole percent, to 2.4%, this may not save us from more IR rises. Shocking really, as the BBC would usually use such news to persuade us all into thinking that rates must be about to go down again!

On a separate issue, Channel 4’s Dispatches programme have shown themselves to once again be the true masters of stating the bleeding obvious by revealing that apparently the various Private Finance Initiative projects that have been dreamt up by Brown and Blair since 1997 have all been huge rip-offs and terrible value for the taxpayer. Given that the Government effectively has the ability to borrow as much money as it likes at the lowest interest rates known to man, it seems flabbergasting that so much of the running of the country has been handed over to the private sector, at many many times the overall cost as in the pre PFI days. Brown’s famous promise that he would “only borrow to invest over the economic cycle”, despite a couple of tweaks by redefining the length of said cycle, redefining the definition of “invest” and the definition of “borrow”, would still be met even if the PFI deals had been done entirely within the public sector, as surely these works would have come under the “invest” column. Then again, borrowing all the extra money may have rung alarm bells in some areas, and the Government already obviously need plenty of it to pay for all their wars etc. Once Brown and Blair dream up the idea of using PFI to pay for wars, then maybe they will really be onto something.

On a lighter note, aside from all the doom and gloom of impending rate rises that is floating around at the moment, the Telegraph gives us a fascinating glimpse into the psyche and inner frustrations of the Iron Chancellor by revealing that he has decorated the treasury with, amongst other paintings, Graham Sutherland’s “Expulsion and Killing of an Enemy”. Something for Tony to ponder, perhaps?

Seems like the popular pastime of piss-taking isn’t restricted to blogs and forums any longer as far as Gordon Brown is concerned. Mark Gilbert of Bloomberg has an amusing parody of what the possible letter from Mervyn King to Gordon concerning spiralling inflation might look like. Here are a few edited highlights:

Frankly, it’s your own fault. If you’d let ME pick all of the economists for the Monetary Policy Committee, the external members wouldn’t have been able to gang up on us in 2005 and get their way with that ridiculous interest-rate cut. Heaven knows how they persuaded Charlie Bean to agree; we’re still making him sit alone in the canteen as punishment.

“Merv” later moves onto more fighting talk:

I have to warn you though, Gordon, there’s more to come from me. I’m looking at a 5 percent interest rate by the end of the year. The banks won’t like it. Barclays Bank Plc raised its bad- debt provisions by 50 percent in the first half of the year, and the others all saw problems in their loan books. Hopefully they’ll learn to be a bit more prudent in future.

But alas the order of seniority is affirmed at the end, in what is probably likely to prove the most authentic paragraph:

Finally, might I take this opportunity to broach the subject of my salary? As you know, the tradition for several years now has been for the governor’s pay to increase by 2.5 percent per year. Now that inflation has exceeded 3 percent, I wonder if we might review this arrangement.

Can Merv win the war? Next week we have the delights of the MPC meeting minutes to look forward to, an administrative anomaly which still only serves to confuse people, and spread the “shock” out over an even longer period.

Looks like more bad news is coming Gordon’s way in the not too distant future, as the so-called miracle economy continues to unravel. Mervyn King (governor of the Bank of England, and chair of the Monetary Policy Committee) has come out warning that inflation could go up above 3% in the next 6 months - 50% over the target set by Gordon Brown for the Bank of England of 2%! Apparently this shocking turn of events, should it occur, would trigger King into the action of writing a letter to Gordon, explaining himself and his team and why they had failed to control inflation. A bit like writing a letter to Tescos to apologize that you’ve let the food you bought go past its sell by date, and how surprised you are that this caused the food to go mouldy. The reality is that Gordon already knows why CPI is going up up and away, and the desperate measures taken to cover up wider inflation have really started to bite back.

For a message such as this to come out of the Bank of England signals a certain sense of inevitability that the teeth shown by the MPC one week ago will be bared a few times more in the near future - if inflation is about to hit 3% surely more base rate hikes are on the way, and King and co. are doing their best to prepare us for this highly likely scenario. Still, Brown has a few months to sort out this little toothache with similar tactics that have been employed in the past and have been detailed in earlier articles. Spookily, the list of these tactics from the Wikipedia article on Hyperinflation does seem to line up in some ways with what we have become used to under the present incumbent of Number 11:

• Outright lying as to official statistics such as money supply, inflation or reserves.
• Suppression of publication of money supply statistics, or inflation indices.
• Price and wage controls.
• Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
• Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.

The question is, will that be enough? We have the apparent spectres of items such as university top-up fees on the horizon, although it seems that their weighting within the CPI may be yet to be determined, that may add another 0.25% to inflation. All rather worrying for the man upstairs, who had no doubt hoped that the perception of economic stability and healthy growth could have been perpetuated a while longer, just long enough to make the switch nextdoor. It may be that the truth behind the myth will become apparent a little sooner than expected.

Not been the best week for Mr. Brown. Approximately 6 months after Project Gordon disasterously failed to “put a more human face on the Iron Chancellor”, Blair has come out and said that he will remain in office for “at least another year”. UBS have predicted that CPI is about to hit 2.8%, which means more rate hikes are on the way, which is unlikely to impress Britain’s over-indebted population of Labour Voters, as they see their mortgage repayments hit heights they never expected. The economics editor of the Guardian summed up the situation nicely today, reiterating the fears that people appear to be facing, after one tiny measly 0.25% rate rise:

We will see in the coming months just how many individuals in Britain are living on the edge, with only modest increases in rates enough to tip them over the edge. My guess is that the economy is far more sensitive to a quarter-point rise in borrowing costs than it was, especially if there is a threat of further moves from the Bank. The fact that insolvencies were 66% higher in the second quarter of 2006 than in the second quarter of 2005 is a sign of just how tough many people are finding it to meet their financial commitments; add in spiralling energy costs, rising unemployment and higher interest rates and you have the recipe for extreme difficulties for many households.

So, despite being listed in Time Magazine’s 100 most influential people in the world (Blair was excluded) last year, things are not looking too good for Gordon. He may not be facing serious competition for the succession (John McDonnel notwithstanding), but the real question is: if and when Gordon hits Number Ten, how long is he expecting to remain?

Betfair Odds for Gordon as Next Labour Leader: 1.42
Betfair Odds for Next General Election: Labour 2.1, Conservatives 1.93

It’s been an interesting couple of days since the rate rise on Thursday. The rise, it seems, has come as a surprise to almost everybody, especially the popular press, despite the fact that inflation is obviously way over target and oil prices absolutely demanded a boost for sterling. Many newspapers, including The Sun, even went as far as to call the decision a “shock rate rise” and ran with headlines of “Debt disaster for Britain”. Alongside this, the Insolvency Service reported a 66% rise in bankruptcy, which has hit levels of 100,000 bankrupts a year. Oliver Letwin quoted in The Sun identified the culprit:

An economy built on borrowed money is built on borrowed time. As the economy fails to live up to Gordon Brown’s expectations, the number of bankruptcies is rising faster. There is a personal tragedy behind each of these insolvencies. Gordon Brown does nothing to help by bringing in more stealth taxes and ever-increasing council tax.

Other headlines from the press illustrated the panic that is slowly ensuing as the reality of the situation hits home to the nation. The Times ran with “Houses at risk as rate of personal insolvency jumps”. The Daily Mail had “Britons are mortgaged to the hilt”. The London Metro, though, took the biscuit with a wonderful piece on Page 2 yesterday, providing the ultimate in humour with “Homeowners face rates rise setback”, and an inset story of “Halifax lifts price forecast”. They even went so far as to say that “campaigners complained it was unfair in a month of double-figure gas and electricity rises”, demonstrating the astounding ignorance of economic mechanics and the monetary system that probably pervades the majority of British homes. It seems that the BBC’s attempt to explain exactly why rates are rising did not reach all corners of the press.

And yet amidst all the panic, the positive effects of a rate rise have been almost entirely ignored. Sterling has risen to $1.90, which should keep petrol prices under control (for a few days at least), and savers, who apparently outnumber borrowers 7 to 1, will have 0.25% more interest hitting their savings accounts. Looking ahead further, inflation may even become slightly more controlled than at present, although more rate rises together with a great deal of patience will be needed before a real effect is felt. And you can bet the MPC will now use any excuse not to raise rates again too soon - after all, they must be fearing for their jobs after the recent press reaction.

Against all odds, and despite contrary predictions by many large news organisations, the August MPC Meeting today resolved to raise base UK interest rates by 0.25%, to 4.75%. This is the first time it has done this in 2 years, and means that rates are back to the peak reached in late 2004. Since the MPC’s decision at 12pm today, the FTSE has dipped by 1.5%, and the European Central Bank has followed suit with a 0.25% rate rise, taking their rates to 3%. The US Federal Reserve announces its decision on rates next week, after 17 back-to-back 0.25% hikes. The BBC has met the news by offering such pearls of wisdom as “there is concern that people have borrowed too much money” and “the biggest gainers from the rate increase will be savers”.

Meanwhile, Barclays have added their name alongside HSBC and Lloyd’s and become the third high street bank in as many days to announce that bad debts are skyrocketing, and that their provisioning fund has had to rise by 50% to over £1bn. Perhaps this is a problem that one 0.25% rate rise won’t quite be enough to solve on its own.

As a nation of borrowers awaits the interest rate decision announcement from the Bank of England’s Monetary Policy Committee tomorrow, not one but two of the big four high street banks in the UK have announced that they can no longer afford to wait for interest rates to curb borrowing and are about to tackle the situation themselves. First HSBC and now Lloyd’s have announced that the rocketing levels of bad debts in the form of Bankruptcies and Individual Voluntary Arrangements are costing them too much, and that they will be forced to tighten their lending criteria to control the situation.

The effect of this, similar to interest rate rises, will be to curb borrowing amongst consumers, as high street banks will begin to offer less loans and overdrafts to people, slowing the vast supply of cheap money that has fuelled consumer spending in recent times. The banks simply can no longer afford to risk their profits by lending money out so easily. Considering that HSBC in particular has seen costs due to bad debts increase by 36% in the first 6 months of 2006, it’s not hard to see why this move has been made. Effectively the banks are taking matters into their own hands and doing the MPC’s job for it.

Further evidence of high inflation has been reported today by the British Retail Consortium, who have announced that shop prices rose at their fastest rate for two years in July. Some might say that this could tip the MPC into raising rates tomorrow, although they have ignored bigger problems in the past. Odds on a rate rise briefly hit 4-1 on Betfair today, although a rate freeze is still seen as the most likely outcome. It really is anyones guess.