Gordon Clown .Com

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…

Unsurprisingly this weekend we were greeted with the news that the National Debt has now passed the £500bn mark. In a “miracle” economy whose foundations are built entirely upon debt, debt and more debt, the news that the country owes more money than ever before can hardly come as a shock to anyone. Gordon has slowly but surely sunk us further and further into the mire, and it’s now anyone’s guess as to whether the house of cards can be supported long enough for him to make the switch nextdoor.

One of the gigantic pits in which our money appears to be gathering is the coffers of various Private Finance Initiative companies, who are seeing profits beyond their wildest dreams, just so Gordon can keep a bit of the countries mammoth debts off his balance-sheet.

One of the more recent symptoms of the whole spiral of debt beginning to unravel seems to have been the fact that even the grossly fudged CPI measure of inflation is hitting new heights, with the Office for National Statistics unable to tweak it any further to cover up the truth. This amazingly seems to have also taken people by surprise, but it appears the cat is firmly out of the bag on inflation now as traders in the City are betting that two more rate hikes will be needed to follow January’s “shock” rise, both likely to be before the summer. But for rates to hit 5.75% could yet prove relatively benign in comparison to the starker alternatives that the Bank of England may be forced into.

The Telegraph continues to admirably stick the knife into Gordon, their Sunday economics editor commenting that “Britain is heading for trouble - and it’s all Mr Brown’s fault”:

Could Britain get caught in a “wage-price spiral? Could our high-performance economy, “the most successful in the Western world” as Gordon Brown likes to tell us, get sucked into the kind of inflationary problems that did so much harm in the 1970s?

It is a horrifying prospect and, in the wake of last week’s price data showing the most important inflation index at a 15-year high, increasing numbers of analysts think such a disaster could happen.

So, in the coming months, as the interest rate rises bite and debt-soaked shoppers scream, the mood in the country will turn against Mr Brown. Of most immediate concern is last week’s news on inflation, and the related danger of a wage-price tailspin. But that is only the latest sign that Britain’s strong economy could soon go into reverse.

Were that to happen, millions of households and businesses would see a swing in their financial fortunes, just as Mr Brown moves into Number 10. His reputation for sound economic management, the centrepiece of his claim to the premiership, would be flushed away for good.

The supreme irony is that come early summer, just at the moment when he achieves his ultimate ambition, the fates have decreed that a toxic combination of rising interest rates, rising inflation, rising taxes and rising industrial discontent will rain on his coronation parade.

While he desperately scrabbles around attempting to draw our attention elsewhere, a few home truths seem to be dawning on the general public about the true state of the british economy. The fact that a 0.25% rise in interest rates comes as a shock to people while inflation is way over it’s 2.0% target at 2.7% (and likely to climb even higher when figures are released on Tuesday), gives some picture of how foggy the general public conciousness continues to be on the subject of the economy.

This news, however, appears to be making at least some sit up and take notice, not least the Daily Telegraph, where we are reminded that any oncoming hardship is most likely to be all Gordon’s fault:

With typical dishonesty, Gordon Brown’s apologists were quick to say that he would support the Bank of England’s aggressive (and, in my view, entirely correct) monetary policy in the interests of sound money. But this is a man whose borrowing addiction and spendaholic cravings are causing the broad supply of money in this country to rise by a whopping 14 per cent a year, way ahead of the combined rate of inflation plus growth. If Mr Brown were as clever as he thinks he is, he would remember the true definition of inflation as too much money chasing too few goods. That is exactly what we have now, and it is his fault.

He has been doing exactly what the disastrous Tory chancellor Tony Barber did during the oil price boom of 1973. He has pumped money into the economy, trying by interventionist means to keep everything buoyant: in effect, trying to rig the markets. Therefore, we have inflation rising towards a level that is dangerous for our economic equilibrium. In fact, it has probably already gone well past that point.

There is a threat of further interest rate rises next month. Whenever they come, there will certainly be more. Thursday’s rises will already add to a growing trend of house repossessions. Subsequent increases may cause an avalanche. The effects of Mr Brown’s mismanagement could be ghastly over the next few months. It won’t just be that some people will no longer be able to afford to pay their mortgages. Property prices will fall, in some areas quite precipitately. Retailing, which claims already to be feeling the pinch, will have a torrid time. Our exporters, such as they are, will suffer from their goods becoming dearer in overseas markets, as high interest rates drive up the value of sterling against other currencies. People will lose their jobs. The take from taxes will be squeezed. In order for Mr Brown to maintain his programme of social engineering, he will have to tax those in work even more, and find new ways of stealthily taxing all of us.

The Telegraph has an early christmas present for Gordon, reminding us all of how hopelessly debt-ridden his economic miracle has become. Highlights include the following:

The truth is that the “Iron Chancellor” has long shown a cavalier attitude towards fiscal management. Year after year, his borrowing has turned out to be much higher than his forecasts. Last week’s PBR – less an economic statement than the latest staging post in a remorseless political campaign – was a classic Brown performance. Drunk on ambition, he did nothing to acknowledge the true scale of his liabilities, or the fact that his fiscal rules lie in tatters. Yet the man who presents himself as our next prime minister is living in a never-never land of debt.

It has become painfully clear just how wrong Gordon’s predictions on debt have actually been:

In his budget five years ago, the Chancellor said he would borrow a total of £28bn between 2001 and 2006. He has, so far, taken on debts of £129bn during that period. His prediction was a jaw-dropping £100bn astray. Since 2002, borrowing has exceeded £30bn – more than Brown’s five-year total – every single year. That’s why “prudence”, Brown’s former mantra, wasn’t mentioned once in either his March budget or this latest PBR.

Last week we learnt that the Chancellor intends to borrow another £182bn on our behalf between now and 2012. So he will be taking on extra debts annually, amounting to one and a half times the UK’s total council tax receipts. And, on past form, even this vast amount could be an underestimate.

This borrowing binge has shattered the Chancellor’s much-vaunted “golden” rule, which requires government spending to be balanced over the course of the economic cycle. But Brown keeps moving the goalposts in an absurd bid to convince us it remains intact.

And when reality does strike, the results are likely to be surefire election-winners:

In fact, careful reading of the PBR suggests government departments may be in for a shock next June when Brown unveils his spending plans. Instead of 4-5 per cent, spending will rise in real terms by more like 2 per cent a year – which will feel like a serious cut. Expect the salaries of teachers and nurses to be frozen. Expect public sector strikes.

After years of high borrowing, this Chancellor simply lacks the political grit and judgment to exercise restraint. So he will be forced to raise tax even more. Brown has already raised the tax burden sharply since 1997, while our competitors have been moving in the opposite direction.

As others have said, the sooner this lunatic is removed from his position by whatever means, the better.

The outlook for our friends across the pond appears to be looking bleaker by the day, as an economy fed by rampant house price inflation on a scale never seen before, and subsequent mortgage equity withdrawl, looks to be heading into reverse at a very rapid pace. What is surprising is not that the US housing market has popped after 17 consecutive rate rises by the Federal Reserve, but that the rapid U-turn in sentiment has been so widely reported by the British press, who have been well known to keep any bearish housing market stories under wraps in their bid to sell papers. Some commentators are drawing sinister conclusions as to what may be in store for the American people in general, should their recession prove particularly bad. Still, I suppose just because it is happening in America, that shouldn’t affect Britain in any way, should it?

Gordon is certainly hoping so. Against all the odds, perhaps the oft-used proverb that when “America sneezes, the world catches a cold” will not apply to us this time. This is clearly highly unlikely. The prospect of a deep recession in America is highly likely to send the economies of various overheated debt-laden nations, not least Britain, into sharp reverse as well. It does seem, based on this recent statistic-laden article, that debt in Brown’s Britain continues to rampantly charge onward and upward, making the recent 0.25% interest rate rise look rather woeful and pathetic, with surely more to follow. The press, of course, not wishing to be the bearer of bad news, will likely seek to deny this fact as long as possible, and instead continue with the time honoured tradition of only reporting certain economic downturns well after the story is already old. Can Gordon reach Number 10 before Britain begins to show the symptoms of America’s economic strife? If not, surely Blair will lay the blame firmly at Number 11, and it will be goodbye Gordon.

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.

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?

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.

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.

In July 1998, when Gordon Brown announced his plans for a Comprehensive Spending Review, to take place every three years, he promised that this would bring an end to the traditional economic cycle of boom and bust. This unprecedented change to the mechanics of the British economy would be achieved, claimed Brown, by planning government expenditure on areas such as health, education, law and order and defence on a three-year basis. One year later in his 1999 party conference speech, Brown gleefully espoused on the achievements that his policies had already created.

And it is because we rejected not just the Tory policy but the flawed Tory values behind it - their short-termist, take-what-you-can, selfish irresponsibility - and it is because we put in their place Labour values of economic responsibility, planning for the long term, building stability from solid foundations - that we now in our country have mortgage rates around their lowest levels for twenty years, inflation at its lowest level in over thirty years, long term interest rates at their lowest levels in nearly 40 years and not just one hundred thousand additional jobs or 200,000 additional jobs but today in Britain, 648,000 more jobs, more people in work — over 27 million men and women –than ever before in our history.

One of the key factors in a stable economy, of course, is to keep a stable and low rate of inflation. This is certainly one area in which Gordon has been very successful, as the official government measure of inflation has remained around or below the target figure of 2% ever since he took up office over 9 years ago. This success has been made all the more admirable by the fact that it has been achieved in an era of rapidly increasing oil prices, rises in the cost of metals and other raw materials, increases in council tax and a seemingly never-ending property boom.

How has this been done? Has Gordon finally achieved the impossible, ensuring steady growth and an end to the booms and busts of the economic cycle? In actual fact, Brown passed on the responsibility for controlling inflation directly to the Bank of England in his very first act as chancellor in 1997. The Bank’s Monetary Policy Committee is now in full control of any alterations to the base rate of interest charged on all loans and paid on all deposits. Changes to interest rates are the tool which is used to control inflation in our economy, the Bank has the power to raise rates to control inflation, or to lower rates to stimulate the economy in periods of slow growth. The Bank has a target, set by Gordon, to keep inflation at around the 2% mark, and sets interest rates on a monthly basis with the sole aim of achieving this.

With record low inflation at around 2%, there is clearly no need for any drastic calming measures from the Bank. After all, prices are staying low, so everything is under control. But is this really the case? It is often mentioned that certain things such as Oil, Gas, Electricity, Council Tax and Accomodation costs are actually rising far quicker than inflation. How can this be the case? The answer is very simple. Another of Gordon’s clever policies to steer inflation to low levels was to replace the existing measure of inflation, namely the Retail Price Index, with a new measure in 2003. The Consumer Price Index, miraculously, does not include any of the rapidly increasing areas of cost mentioned above, seeking instead to largely concentrate
on the price of food and consumer goods, which of course has been falling in recent times due to cheap far-eastern imports and savage competition between supermarket chains.

Another important use of the inflation figures, perhaps even more so than setting interest rates, is the benchmarking of salaries. The government advises companies to target increases in the wages of their employees to fall in line with government inflation figures, i.e. CPI. This means that most people, unless they are being promoted or changing jobs, will only receive a 2% pay increase every year. The rationale behind this advice is that inflation represents any increase in the cost of living, and therefore for an individual to maintain the same effective level of renumeration, their salary has to increase in-line with inflation.

This method of benchmarking is inherently unfair, as the inflation figures produced by the government on which it is based are a very poor measure of the cost of living. Aside from the reasons already detailed, that the calculation does not include many basic necessities such as energy and housing, there are many other defects in the measure. One such example is the fact that the figures take no account whatsoever of the quality of the goods that they are measuring the cost of. For example, the average price of a loaf of bread has dropped over the past 20 years. But there are many cheaper, lower quality varieties of bread on the market than there have been in the past, and supermarkets have since introduced their own “value” set of products. While the average price is definitely lower, it is unquestionable that the average quality is also lower, and therefore the price that must be paid to obtain a product of the same quality as 20 years ago could very possibly have increased, and certainly has not decreased as much as the official inflation figures show. Another example of a problem with the calculation, perhaps related to the previous example, is that the figures do not take into consideration the rate at which money must be spent by consumers. For instance, a kettle purchased 20 years ago may have cost 50 pounds, whereas kettles can be bought today for as little as 5 pounds, but the expected longevity of such a kettle today is almost certainly far less than a kettle of 20 years ago. Your £50 kettle from 1986 may still be going strong, but it is highly doubtful that your Tesco Value kettle of £4.97 purchased earlier this year will continue to work perfectly up until 2026. In fact, if it lasts less than 2 years, then the price of kettles have in fact increased, despite the fact that the Consumer Price Index will of course show a decrease of 90% in the price. If the cost of housing were still included in the inflation measure, this would be another example. The average house price may have indeed increased significantly in the past 10 years, but in addition to this the size of an average house has in fact decreased. New houses built today are invariably smaller both in terms of bedrooms and square footage than the newbuilds of a decade ago, and yet this fact would feature nowhere in the inflation figures.

In short, inflation is a fiddle, and the value of your salary and the purchasing power of your savings are being eroded day by day far more rapidly than the government will ever admit to.