Gordon Clown .Com

The newspapers today are reporting that Gordon has admitted his mistakes in an aim to make a clean break with the Blair years.  These mistakes he has specifically admitted to are as follows:

• Some mistakes made in Iraq
• Some mistakes over ID Cards
• The culture of celebrity

Cunningly, none of these mistakes could be directly pinned on Gordon and for most of them, Blair is more to blame.  Although quite who can take the blame for the “culture of celebrity” is anyones guess.  Gordon, of course, failed to admit his more numerous and gross errors as Chancellor, preffering to brush the following under the carpet:

• Inflating enormous debt bubble
• Destroying pension schemes
• Massive PFI off-balance-sheet debts
• Massively increasing tax burden through fiscal drag
• Selling Gold reserves just before Gold tripled in value
• Creating the biggest trade defecit in 10 years
• Pricing hundreds of thousands of people out of owning their own home
• Nose picking
• etc

Conveniently the above mistakes were not mentioned.  Over the coming months and years, as the long term effects of these blunders become progressively clearer.

As we draw closer to the local elections, a group of prominent economists have today put forward their argument for higher interest rates in an open letter to the Bank of England in which they state that inflation risks could surge out of control if the Bank does not raise rates soon and quickly.

Tim Congdon, Gordon Pepper and others have said that broad money (known as M4, and currently rising at 12.8% per annum) points to much higher inflation next year.  Congdon told the Telegraph:

“Inflation is back and it’s going to get to 4pc by the middle of the next year, even though I expect the CPI to fall back a little over coming months first.

“You can’t get away with money supply growth of 12pc or 13pc like this. It’s not as bad as earlier cycles, but it is nevertheless bad and it’s going to end the usual way. Rates will have to go to 6pc to 6.5pc, and may have to reach 7.5pc,”

Mervyn King is also concerned about M4, in opposition to other MPC members such as David Blanchflower who believe monetarism is dead and buried.

Mervyn King told the Commons Treasury Select Committee last month that he was watching the money supply closely. “I’m more concerned with monetary aggregates than some of my colleagues. To ignore it as a potential influence could lead into tricky territory.

“My concern about the money numbers is whether they are telling us something about the inflation numbers not in two years but in maybe three to five years,” he said.

Mr King’s comments were a veiled criticism of the doveish faction on the MPC, many of them political appointees picked by Chancellor Gordon Brown. Insiders at the Bank are said to be particularly scathing about the choice of David Blanchflower, best known for his academic opus Money, Sex and Happiness, an area of research viewed as frivolous by monetarists.

It remains to be seen whether the CPI measure will fall back to target later this year as the MPC has forecast, but they will be looking further ahead than that in making their rate decisions, and if the opinions of these economists are anything to go by, rates could have to go quite a bit higher than Gordon wants.  They are already paying the price for failing to raise rates quick enough in 2006, and now rates will have to go higher for longer.  With the “low inflation” pillar of his potemkin economy crumbling and about ready to collapse, how long will Gordon last in number ten?

Peter Spencer of the Ernst and Young ITEM Club economic think-tank has characterised the UK consumer as being addicted to credit, according to the latest ITEM club report.  The report says that while the outlook for growth remains reasonably good, most of that growth is likely to be based on borrowing, as consumers follow Gordon’s lead and steal from their future to pay for current consumption.  That has created a country that is complacent about risk, and an economy that is skating on thin ice.

“Many people are following the Chancellor’s lead and are borrowing to finance consumption.”

“Both as individuals and as a country we have borrowed a huge amount to support this growth,” Mr Spencer said.

“The bottom line is that we are all living beyond our means. In the short term, Mr Brown has resorted to borrowing for consumption. If the Chancellor is forced to borrow so much when the economy’s so sweet, what will happen when it turns sour?”

The report highlights the fact that the current account deficit has ballooned, despite a healthy economy and robust tax revenues. Government borrowing is higher than forecast, with overall public sector net borrowing now expected to be £34bn in 2007 to 2008, up from the £31bn projected in the pre-Budget report.

Mr Spencer said: “The UK’s current deficit has reached 3.5pc of GDP which suggests that as a country we are close to the edge. Ultimately, we are all skating - not to say wobbling - on thin ice. There’s a danger that we are slithering into complacency.”

“The current benign macroeconomic environment has made both individuals and corporates overly relaxed about risk, inflating asset values and transactions and boosting borrowing and spending,” it reads.

“Homeowners have been under pressure from rising tax and utility bills but all the indications are that they have kept spending as if it was going out of fashion. The saving ratio [the proportion of income people save] has fallen back to just 3.7pc meaning that many households are borrowing to finance current spending.

“Lenders have relaxed their criteria and we have been gearing up accordingly.

“The US sub-prime market, which now threatens to contaminate the rest of the mortgage market, provides a clear warning of what can happen when lending criteria become too lax.”

Growth in the UK economy was driven by the business and financial services sector. The report said the strength of the business sector was reflected in industrial confidence, mergers and acquisitions, fixed investment and employment.

“It also underpins the high value of the stock market and low level of corporate yield spreads, lowering the cost of capital and providing further impetus to M&A and business investment.”

However, the ITEM Club expresses grave concerns over long-term risks to the economy: “A major threat is building up in financial market gearing, asset valuations and overconfidence.

” These markets can turn on a sixpence. The relentless upward march of prices leaves them prone to relatively minor shocks, as we saw in February. Moreover, the burgeoning current account deficit leaves the UK prone to currency weakness.

“The problem is that if asset prices do not stabilise this will leave the UK, with its heavy dependence upon financial markets, vulnerable to a crash.”

The Daily Express has the pick of the bad news stories for Gordon today, with its frontpage headline suggesting that inflation could lead to base rate rises up to 6%, and consequently larger mortgage bills for homedebtors.  They also include a rather telling comment about Gordon’s handwriting, based on the signature in his letter to Mervyn King.

CRIPPLING rises in mortgage bills were forecast as “certain” last night after a shock leap in inflation.

Economists tipped the base rate to rocket over the 6 per cent mark, leading to eye-watering hikes in repayments for millions of home owners.

And the mortgage misery spelled humiliation for Chancellor Gordon Brown as the Bank of England took the unprecedented step of formally warning him that prices are running out of control.

Households now face punishing interest rate rises on top of spiralling costs for fuel and consumer goods as well as the biggest tax burden in history.

A quarter-point jump to 5.5 per cent will see payments on a £100,000 mortgage rise from £722.80 to £738.99.

But if interest rates peak at six per cent as predicted by some economists, the monthly payment will soar to £771.82 – an increase of almost £50 a month. Owners paying off a £200,000 home loan – the average price of a three-bedroom semi – will have to find an extra £1,176 a year.

At the same time there is the prospect of a summer of discontent, with huge pay de­mands by unions expected to keep wages in line with rising prices. Eco­nomist Phil Shaw, of international banking group Investec Securities, said: “The inflation figures make an interest rate rise a certainty, along with the possibility of another rate rise
bey­ond that.”

Figures due to be released today from the Office of National Statis­tics showed that inflation hit 3.1 per cent last month, way above the Treas­ury’s 2 per cent target.

The rise in the Consumer Prices Index – which does not include home loans – was up from 2.8 per cent in February.

The news sent shockwaves through global money markets, with the pound briefly passing over the two-dollar mark.

In exceeding the target by a full percentage point, the inflation rise reached the level where Bank of England Governor Mervyn King is obliged to provide the Chancellor with a written explanation.

It was the first time Mr Brown has faced such a letter. In it, Mr King warned that the Bank will almost certainly hike interest rates next month from 5.25 per cent.

He said: “The Monetary Policy Committee remains determined to set interest rates at the level required to bring inflation back to the two per cent target.” This was likely to have that effect on inflation “within a matter of months”.

He blamed an “unexpectedly sharp increase in energy prices” which had offset a fall in petrol prices, and he highlighted rises in food prices caused by global weather conditions hitting production.

Firms were also raising prices of consumer goods in response to “robust” spending by shoppers. “Furniture and furnishings rose by almost 10 per cent in March, a record rise,” his letter said.

Both the Chancellor and Tony Blair tried to shrug off the inflation nightmare yesterday. In his reply to Mr King, Mr Brown wrote: “Inflationary pressures have been a feature of the major industrial countries in recent times.”

Effectively backing further interest rate rises, he added: “I agree that the Monetary Policy Committee’s approach is appropriate to the Government’s monetary policy objectives, namely to maintain price stability.” Meanwhile, Mr Blair told his monthly Downing Street press conference: “There’s tremendous pressure on families all the time. I think it’s a feature of today’s world that people are stretched.” And he risked ridicule by claiming that Mr Brown was “the best Chancellor since the Second World War”.

Shadow Chancellor George Osborne said: “Gordon Brown’s reputation for economic competence is unravelling before our eyes.” Lib Dem Treasury spokesman Vince Cable said interest rate rises “will cause misery for thousands of people in severe debt who have borrowed up to the hilt to secure a mortgage. Debt servicing problems will only get worse.”

Howard Archer, economist at Global Insight, said: “This is a thoroughly nasty set of data that essentially guarantees that the Bank of England will raise interest rates.”

Graeme Leach, chief economist at the Institute of Directors, said: “The case for a further quarter-point rise cannot be in doubt. It looks like a done deal.” Louise Cuming, head of mortgages at moneysupermarket.com, said the increase had taken the City by surprise.

It threatened those trying to get on the property ladder. “If we don’t get new buyers into the market, the market will stagnate,” she added.

Tony Woodley, general secretary of the Transport and General Workers Union, said: “Employers had better get used to the idea that our pay claims this year are aimed at winning workplace victories on pay so that workers can afford to meet their rising living costs.”

Mr Brown’s reply to the Bank of England interested handwriting experts. Erik Rees, of the British Institute of Graphologists, said: “This is the handwriting of a man whose statements you have to check and check again. The fact the word sincerely is virtually illegible is very apt.”

Eddie George, former Bank of England governor, today admitted that he and Gordon hatched a plan a few years ago to deliberately inflate the economy by keeping interest rates artificially low in an attempt to boost consumer spending.  In order to sustain demand in the flagging economy after the .com crash of 2000, Gordon and Eddie fiddled inflation figures and cut interest rates, desperate to keep the only remaining glimmer of hope alive - high street spending.  The side effects of this have been rampant inflation and an unsustainable boom in house prices, which now it seems can only end in tears for Gordon and the country.

“But we knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn’t possibly be sustained into the medium and long term.“But for the time being, if we had not done that the UK economy would have gone into recession just as has the United States.

“That pushed up house prices, it increased household debt … my legacy to the MPC if you like has been ’sort that out’.”

He told the Treasury Select Committee - investigating the record of the first decade of the MPC: “We had to take action that on the whole we would prefer not to: stimulating consumer demand because all the other elements of demand had fallen away.

“And we were very conscious of the fact that that could give rise to problems in the future.

“We tried very hard not to do more than we needed to to keep within the inflation target limits but we knew that that was going to cause problems later on which are still with us.”

Gordon and the MPC have left us in a desperate situation of spiralling inflation and massive consumer and business debt.  There is only one way this can all end, and it won’t be pretty.

With less than a week to go now until Gordon’s last ever budget speech (hopefully at least), nobody can have failed to notice the sharp slide in share prices that has reverberated around the trading floors of the world this week. Traders in London today particularly noticed, as over 150 points were wiped off the FTSE 100 leaving it teetering on the brink of the key psychological 6000 barrier.

The cause of these upsets, it seems, is a crisis of confidence in the sub-prime mortgage lender sector of the US economy, and the wider economy in general. One of the biggest sub-prime lenders, New Century, is now effectively out of business, and a whole bunch of others are lining up to follow suit. Obligingly, one enterprising blogger and former New Century employee has decided to post up his inside story of the company, and that will doubtless be worth watching over the next few days and weeks as more is revealed.

The headache for Gordon is that the bad news can’t realistically be contained just to the US. New Century’s biggest investor was none other than Barclays Bank, a name best known as one of the big four retail banks in the UK, who have been buying up Mortgage Backed Securities from other banks in an effort to increase their asset base for Basel II. One supplier of those securities it seems was New Century, and it now looks like Barclays is about to lose a whole heap of cash as the deal has turned sour. This news follows pretty soon after HSBC, another big bank in the UK, ran into trouble with its US subprime lending unit as well.

When the US economy hits trouble, and it starts costing UK banks money and threatens to hit the UK economy as a whole, you can expect the lending industry over here to sit up and take notice. Those 110%, 35 year, 5 times salary mortgages may not look quite so appealing to Abbey and the rest just now, as it becomes clear they fall right into the sub-prime category that is beset with so many difficulties in the US. And when those deals gradually dry up, the overall credit environment tightens, robbing Gordon of the “economic growth” by debt based inflation that he has been so proud of over the last 10 years. It may be too early to say that a Credit Crunch has arrived in Britain, but risks seem to be growing by the day that we’ll get one, and day by day Gordon looks ever more worried.

The media over the past few years, in reporting inflation and rumours about it’s true levels, has worked on the general principle that rises in the prices of essential commodities are a bad thing, and that the government and Gordon Brown are cleverly trying to hide them from us by sleight of hand.  There is one basic necessity commodity, however, that has always escaped this consensus, that commodity of course is housing.  As evidenced by various sensationalist headlines, like the one seen on Friday in the Daily Express shown here, it seems that  continuing inflation in the price of homes is news to be “toasted” and “celebrated” by Britons, and this can only be a good thing for the country.  It certainly helps Gordon appear to be doing a bang up job anyway.  Or does it?

A similar headline appeared in the Telegraph on Friday stating that rises in house prices are now outstripping earned income from regular jobs for many people.  Why work hard at your 9-5 when you are “earning” more money every day due to the inflated value of your home?  However it would seem from some of the comments left by Telegraph readers on the online edition of the newspaper, that sentiment amongst the great British public is not as clear cut as that.  Here are some edited highlights:

I’m afraid Gorden Brown is ‘guilty’ in making it appear to lucky home owners that they are quids in, when actually rising house prices makes everyone poorer (unless you sell up and move somewhere much cheaper). The government is raking it in with stamp duty and death duty and the more you have to borrow the less disposable income you have.I live in London -I know no one under 40 who owns their own home borrowing for the average home here requires 8 - 10 times the average income.  Society will eventually see mass homelessness of whole families.  Listen to Nick R, Elizabeth his comments say it all.  I am praying for a crash for the sake of my kids and my elderly mum who is worried sick about the amount of tax we will have to pay on her over inflated valued home when she dies.  A house is a home, a basic need not an investment.  When there are NO first time buyers left and that is almost so now in London, will we feel so well governed by the chancellor I doubt it!

That from Rose Konstam.  And this, from Helena Holtom:

The boom in house prices doesn’t “create wealth which is spread across a broad cross-section of our society”. It reduces average disposable income by massively increasing the proportion of income that people spend on mortgages. The fact that an individual’s home is worth more doesn’t improve their living standards, and the equity can only be released if they don’t want to own a house any more. Yes, ‘ordinary’ people can now become property investors through buy-to-let, but every person making money out of a second property has reduced supply, and hence pushed up prices, for the ‘have-nots’, ie first-time buyers.

And from Toby Barnett:

I can’t believe someone thinks Gordon Brown should be congratulated. He is certainly responsible for the ridiculous house prices - huge stamp duty costs mean people only move when they absolutely have to, cutting supply and fuelling price rises - and he should never have allowed the multiples of income that lenders are offering. What could possibly be more iinflationary than that?

I live in a dull London suburb where prices for a 30s semi are now topping £500,000. It can only be a matter of time before essential workers are forced out of the capital. Armageddon awaits.

This from Urel:

Greed is the driver of the market along with the fear of missing out on the gravy train by first time buyers,and the estate agents & lenders gorging themselves on easy money,from the naive speculators.  If any other consumer goods rose at the rate of houses there would be an out cry.  Greed has a blinding effect.

This from Matt O’Donnell:

Gordon Brown has allowed a whole generation of people to be effectively priced-out of ever owning their own home. Luckily, the massive resentment this is causing, and will continue to cause, will result in him being voted out of government at the next available opportunity. Good.

And finally that of John Sanderson:

What a revolting cesspit confronts the avergage Briton. Like some obese child fed on a diet of greasy chips and cheap icecream Gordon Brown has shovelled his cheap credit at a lemming like nation for the past ten years.

He has bought our votes with our own money - or own debt I should say (or our childrens debt). Shame on us for being such mugs.

And faster and faster the train goes. Past the lessons from Lawsons boom, past the lesson from the japanese economy, past the crash in Sydney house prices, past the crash in American House prices and only just past the USA ’sub-prime’ loans catching up with the British banks!

What is prime about a loan on 5 times earnings for a house on the edge of manchester we may well ask ourselves?

They see all this and yet still keep stoking the fire. We are being led by reckless madmen and jelly like civil servants.

Before they slip away as the inevitable sickening thud happens could somebody please electronically tag them. Surely they must be held to account for the misery they are going to cause - its just so wrong what they have been allowed to do.

They really have no excuses - we have only just been there before re 1992.

Utterly disgusted, thats me.

Not everyone is a delighted beneficiary of Brown’s booming Britain, it would seem.

Newspapers are reporting today that the International Monetary Fund has sent a severe warning to the “Iron Chancellor”, that taxation is at breaking point and public spending must be slashed to avoid disaster for Britain’s public finances. The news will come as a blow to tax-and-spend Gordon Brown, who has in the past 10 years shown his love for all things civil service by pumping cash into the public sector.

The IMF also warned that there is a “significant chance” of a fall in house prices, an event that - if it were to happen - would surely spell disaster for an economy built on debt, perpetual house price inflation, and consumer spending funded by second mortgages. The IMF also urged the Bank of England that interest rates must be upped to 5.5%, and soon, to avoid sending the economy into an inflationary spiral.

The IMF calculated the tax burden, based on the ratio of taxation to Gross Domestic Product, is now at 38%, a level last seen in the mid 1980s. Their calculation, of course, does not take account of the fact that official government statistics consistently underestimate the level of inflation, although this is not so much taxation as institutionalised systematic confiscation of an individual’s wealth.

The Telegraph gives this news front page billing, as shown above, not a very pleasing sight for Gordon. The summary below the headline even includes the dreaded bullet point: “Property prices headed for a sharp fall”, doubtless striking fear into many of the great British public. What a mess Gordon has got us into. The treasury, of course, chose to focus on past performance, stating that “the economy has seen continuing economic growth, for a record 58 consecutive quarters”, failing to mention the obvious flaw in that argument, that Britain has been the only major economy without a recession in that time, thanks to an ever inflating debt bubble that is inevitably set to burst. The IMF had this to say about the housing market:

“In the short term, forward-looking indicators of housing market activity suggest that house price growth is likely to remain elevated.

“In light of estimates that house prices are already overvalued, this would increase the subsequent risk of an abrupt downward adjustment.”

In other bad news for Brown, the Times led with the frontpage headline “Record Tory poll lead, and it’s likely to grow”. Seems that the polls are continuing to show that Labour are well behind the Tories, and that were Brown to replace Blair, the Tory lead would be extended even further. Gordon had better enjoy the 3 or so years he is likely to get as Prime Minister, because it doesn’t look like it’s going to last much longer than that…

It seems that Gordon’s plans to help first time buyers onto the housing “ladder” have been met with total and abject failure, after the Telegraph revealed today that only 100 buyers have taken up the offer of the key workers scheme. The Government had targeted 6,500 completions a year, and yet has managed only a fraction of that since the scheme was launched over a year ago, in late 2005. Seems as though Gordon may be planning a rescue strategy in his Budget speech due on March 21st, although with the failure already there for all to see it’s hard to believe he can do much good to rescue the situation now. The article has more:

Just 100 first-time buyers have taken out mortgages under the Government’s pioneering shared-equity home ownership scheme with the private sector.

The Chancellor unveiled “Open Market Homebuy” with much fanfare in late 2005, setting a target of using the partnership to lift 20,000 key workers onto the housing ladder by 2010. It was officially launched five months ago, on October 1, with building societies Nationwide and Yorkshire as well as investment bank Morgan Stanley, under the Advantage brand. Halifax, the UK’s largest mortgage provider, has still to join despite being hailed as a flagship member. Even so, Gordon Brown wants more private sector involvement and is expected to launch “a new competition” in the Budget on March 21.

…

A spokesman for the Communities and Local Government department said the scheme has had an “encouraging start” with 6,400 keyworkers qualifying for Open Market Homebuy. He added that a further 700 home purchases should be completed shortly.

For the Government to hit its target, however, it needs 6,500 completions a year and it is already raising its goals.

A couple of nasties for Gordon have hit the front pages this week. The Times and the Telegraph brought us these headlines:

First of all, the Daily Telegraph gave us the frontpage seen on the right here, with the headline Brown losing his touch on the economy, say voters. The Telegraph/YouGov poll is the second bad result in two days for Gordon, following on from the Guardian/ICM poll the day before that said he is currently completely failing to convince the country that he would make a better prime minister than David Cameron. The Telegraph gave these results in their article, also highlighting some of the problems that Gordon has run into lately:

Gordon Brown is losing his reputation for economic competence and failing to convince voters he would make a better prime minister than David Cameron, a Daily Telegraph-YouGov poll shows today.

The Conservatives are now seen as more likely than Labour to run the economy well — the most significant turnaround in the public’s view of the Tories since they were swept from power by New Labour a decade ago.

The poll is a big blow for Mr Brown on the day that:

• Michael Meacher, the veteran Left-winger, threw his hat into the ring for the leadership race;

• one of Britain’s leading businessmen said the delayed handover of power at the head of Labour was slowing efforts to cut costs and improve efficiency in the public sector;

• he announced his 11th, and almost certainly final, Budget will be delivered on Wednesday March 21.

When voters were asked which party was likely to run the economy well, 30 per cent said the Conservatives and 27 per cent Labour.

At the 2005 election, Labour had a commanding 22-point lead, with 49 per cent regarding them as economically competent compared to 27 per cent for the Tories.

While the regular survey of voting intentions gives the Conservatives a five-point lead over Labour, this jumps to nine points when voters are asked whether they would prefer a Cameron or a Brown-led government.

This last result is particularly damaging for Gordon, showing that he is even less popular than Blair even now, while Blair is being accused of dodgy dealings in the cash for honours scandal, plus all the sour tastes associated with Iraq and Afghanistan.

The Times also had this to offer on its Saturday front page: Consumers hit by credit squeeze as debt spirals. While not directly mentioning Brown, the Times article shows the ridiculousness of the situation that Gordon and his Miracle Economy have left the country in, with debt soaring and consequently bad debt costs for banks hitting unprecedented levels. Of course the next phase of the debt bubble is likely to be somewhat more painful than previous phases, as the inevitable credit crunch threatens to bring Gordon’s house of cards collapsing around his ears sooner rather than later.

Personal insolvency levels rocketed to a record 107,000 cases last year. The Financial Services Authority said last month that Britain’s huge personal debt levels — now more than £1.3 trillion including mortgages — were one of the biggest risks to financial stability.

It added that, although most people were managing, a rise in unemployment or interest rates could tip many households into real difficulty.

Up to 2 million households are estimated to be “permanently indebted” — able to meet minimum interest payments but with no real prospect of ever paying off their debts. Total unsecured borrowing by households in Britain has doubled to £212 billion in the past nine years.

It won’t be much fun when the music stops.