Thursday, Sep 04, 2008
Cheer up #2
Times: Anatole Kaletsky: A falling pound means that the only way is up
Now for two items of good news that had nothing to do with the Brown package but will prove far more important to the British economy. First, there is more and more evidence that the housing slump will do less damage to the British economy than is expected at present. Secondly, Britain is in generally better shape to deal with a mortgage and housing crisis than any other important European economy. Consider what the US economy's strong performance may mean for Britain. First, it suggest that the impact of falling house prices and a mortgage famine on highly leveraged economies are not necessarily as crippling as widely believed. Secondly, American experience points up clearly the built-in stabilisers that exist in a well-managed market economy.
13 Comments
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1. gardeniadotnet said...
Load of twaddle.
Read the accompanying comments to the article for the real insight.
gardenidiot
2. gardeniadotnet said...
Oops. I was thinking this was a link to an earlier Kaletsky article.
That'll learn me....
From The Times
September 1, 2008
Crisis, what crisis? Alistair Darling’s just got his figures wrong
Anatole Kaletsky
When Alistair Darling said that Britain’s economic conditions were “arguably the worst they have been for 60 years”, the initial reaction from the Opposition and media was either to compliment the Chancellor for his “frankness” or to gloat about the way he had “let the cat out of the bag” and thereby embarrassed Gordon Brown.
This was understandable, because Mr Darling is indeed an unusually straightforward politician, respected and liked by journalists and politicians across the political spectrum. On closer inspection, the Chancellor’s reputation for frankness makes his political blunder worse, since it reveals a flaw more serious than deviousness: basic ignorance of economic facts and figures. This is a failing that the minister responsible for national finances can never live down.
Were there any interpretation of Mr Darling’s comments that tallied with either economic statistics or the realities of British life – or if the Treasury had rushed out a correction, explaining that he had been misquoted or hadn’t meant what he said – this episode might have been forgotten as just another stumble by an accident-prone Government. But sadly for Mr Darling, though luckily for the British economy, there is no way of massaging the facts and figures to make his statement even half-right.
The most obvious contrasts – today’s 5 per cent inflation and 5.4 per cent unemployment may feel uncomfortable, but these are just tiny ripples compared with the tidal waves of economic hardship – the 27 per cent inflation and 12 per cent unemployment – that hit Britain in the 1970s and 1980s.
A similar conclusion comes from almost any other economic indicator: gross domestic product, personal incomes, government finances, employment growth, repossessions. Only house prices are falling faster than ever before – because they were far higher when this downturn began. And despite all the headlines about a credit crunch, financial conditions are also relatively benign. Homeowners and estate agents may complain about a “mortgage crisis”, because banks charge over 6 per cent for a mortgage and require a 10 per cent deposit from first-time buyers, but in the 1970s and 1980s, mortgage rates repeatedly reached 15 per cent and borrowers typically had to save up deposits of 25 per cent or more.
Social and political conditions are now incomparably better than they were 30 years ago. This can be attested by anyone who recalls the three-day weeks and winters of discontent, the petrol rationing and power cuts, the dole queues and miners’ strikes, the credit squeezes and currency restrictions of those days. And other social indicators – child poverty, life expectancy, housing conditions, educational qualifications, pension levels, living standards relative to other countries – are almost all far better today than they were in the 1970s and 1980s, despite the understandable feeling that many of these conditions should be much better, considering the huge tax burdens successive governments have imposed.
What on earth, then, was Mr Darling talking about when he described the present economic crisis as the worst since 1948? The Treasury lamely suggested over the weekend that the Chancellor was not really referring to Britain, but to the world economy as a whole. This “clarification”, however, does not get Mr Darling off the hook. The US has not yet suffered a recession – much less the once in a lifetime depression predicted widely a few months ago – and only last Friday announced a stark upgrade in its GDP figures.
The European economy is slowing and it may well sink into a mild recession – but, this has not happened yet. Developing countries are still growing strongly and even the global banking system, despite all the hysteria, has so far suffered smaller losses in relation to its total capital than it did in the Third World debt crisis of the 1980s.
In short, it is literally impossible to tally Mr Darling’s comments with anything that has happened to the British and international economies so far. Could it be, however, that he meant to offer a forecast? Predictions are, by their nature, a matter of opinion, which means that Mr Darling’s comments, if they refer to the future, cannot be refuted by objective statistical evidence even though there is now no respectable economic model pointing to anything like the apocalyptic conditions Mr Darling described.
Suppose, then, that the Treasury decides to spin his comments not as a description of what has already happened but as a prediction that Britain will suffer its worst economic crisis since 1948 in the year or two ahead. If this was what Mr Darling meant, will anybody believe any economic forecast he presents in his next Budget if this is less than catastrophic? And if Mr Darling does present a catastrophic forecast in a preelection Budget, what will this do to Gordon Brown’s chances of survival? These questions can yield only one answer: the next Budget will be presented by a new chancellor.
* Have your say
I love it when Kaletsky makes statements that I totally dissagree with. Now even more confident that I am right. The central banking system is running out of liquidity to lubricate the system. This was in your own paper yesterday.
Be afraid..be very affraid.
Brian Anderson, Edinburgh,
Has it occurred to Mr Kaletsky that the Chancellor might have access to more data than he does?
Sterence, Oxford,
On the day Kaletsky's article appeared in The Times suggesting things werent so bad and inflation is only 5%, the paper put its price up by about 15%. Who are we to believe?
Daniel Austin, London,
If you suddenly remove a huge amount of the money circulating in a economy it is bound to result in large unemployment. Do not forget that other countries are having similar problem so competition for exports is greater. The fall in the pound will help ex[porters. How far it will fall is a worry
Chris Stuart, Carentan, France
Don't worry. Evenwithout manufacturing, tangible exports and high levels of welfare claimants we'd be ok. Don't forget that we have the City of London, the world's financial centre.God knows what they export but they have served us well enabling us to borrow loads from theworld and that can't be bad
Shaun, Kingston,
The chancellor is right. We have a major crisis. A generation has has it too easy with cheap borrowing, large debts, throw-away products and too much leisure but not learned to save, make do or use its initiative to find a job or create new business. We cannot blame him or Gordon Brown but ourselves
Bill, Cockermouth, UK
So! all you optimists will of course be able to inform us of where the 'growth' is going to materialise from in the future now the ATM in the back garden is flashing out of use,and credit is a dirty word.
Your upbeat assumptions are nothing more than wishfull thinking I'm afraid.
antony Graham, southport, England
Journalists positively spinning the figures whilst the chancellor fesses up. Something's not right...
Tim, Brighton,
You forgot that the first priority of politicians is themselves. What Darling sees is no profits in the building industry, non in high street sales and no chance of extra taxes on the power companies. The "gloom" is that he will have no tax income. So it is the worst scene FOR HIM in 60 years - see?
Colin Davison, Leeds, UK
"5.4 per cent unemployment "?......where did that figure come from? Double it and add some and you may be getting there. 26% of the population of Iverpool alone live on benefits and benefits in my book equals unemployment by any other name.
judy, Liverpool, England
Anatole we are in fact as badly off as 60 years ago when we were forced to go cap in hand to the US and ask for the biggest loan in our history. Ironically we only just finished paying it back and 'Hey Ho' we are right back where we started but now owe even more. What a useless government.
D Case, Newquay,
Real unemployment, including those who want to work but who do not qualify for and are not receiving Jobseeker's Allowance, is well in excess of 20%. Brown achieves 5.6% unemployment through these means and the creation of millions of poorly paid part-time jobs. His gift for stealth knows no bounds.
Melchet, Edinburgh, UK
Why do we have a Solicitor running our Treasury? surely there must be some member of the Cabinet with financial training. Each Government departmeny should be lead by an expert who knows what they are doing. You wouldn't have a Butcher operating in a hospital would you?
Stone, Enger, Germany
It's funny to read Mr. Kaletsky's take on "basic ignorance of economic facts and figures." and its consequences when he overlooks the question Are any of the economic facts and figures actually calculated the same way they were 60 years ago? if not what are the results when you do?
Steve Elkins, Raleigh, USA
"Social and political conditions are now incomparably better than they were 30 years ago."
Absolutely disagree. I can remember the 70s as well as you K and with all the bad points you list life was still better then than now. Space restricts mentioning the good things and as for education. Really??
Steve, Chester,
I have long believed that most MP's are idiots and that includes all the present Government ministers. Darling's recent comments and Kaletsky's excellent article just confirms that. God help us all!
David Bennington, Ruislip, UK
Perhaps he meant to say we had the worst Chancellor for 60 years and now we have the worst PM for 60 years
SH, Leeds,
Mr. Kaletsky should know better than to trust pure statistics! Britain is an empire built out of credit, out of borrowing & buy-now-pay-later...our lives are hurried harrassment, goods cheaper, made in China, free time gone, mortgages ubiquitous - jobs are service work. Where is life quality?
Chris. Fulker, Jiji Township, Nantou County, Taiwan
You ain't seen nothing yet!
R James, Clifton, UK
The public services pension timebomb coupled with the average indebtedness of the general population will gradually strangle any feeling of euphoria over ensuing years!
This problem may be difficult to bear in mind but will gradually grind away at our feeling of well being and security.
Jim Golightly, Prudhoe, England
It just amazes me to think that columnists after columnists think Darling has overstated the case. 2 years back columnists compared UK economy to the one in 1990 and concluded that scenarios are different and house price fall if it happens will be shallow. In hindsight they were all completely wrong
vishal, Ilford,
It is true that mortgage rates once reached 15%, briefly I think during the ERM crisis, but we all had tax relief up to our highest rate. For example, for most people this reduced a 12% mortgage to a little over 8% - not much higher than today's average.
clive mills, Bromley, Kent
Darling has got it really wrong ,even the year( 60 years ) 1948 just after the 2nd World war when the whole world was living in poverty because of the war destruction. Mr Darling has to go , he seems to be a good solicitor but in economics he scores zero. He has caused so much damage HE MUST GO.
Nicholas, LARNACA, CYPRUS
think he got his cue-cards mixed up... he was supposed to save that comment for the discussion about the english national football team later in the day
vic, london,
Oddly, the collapse in the FTSI, Gordon Brown's cancelling of tax relief on pension dividends (current cost to the market £100 Billions and growing) and the public sector pensions' deficit of £1 Trillion (that's £1000,000,000,000) seem to have been conveniently ignored by Mr. Kaletsky.
Stephen Kenny, Heswall, England
Far from overstating the doomsday scenario for the UK economy, I think the chancellor has got it right, although it would have been better to keep stum. We as a nation have gorged ourselves on foreign goods on borrowed money. We have not created wealth to pay for them. Mr Micawber springs to mind.
dudley holley, Thorpe Bay, UK
As people refer to the dodgy dealings of the banks: the subprime loan crisis came about because lenders were forced by the US government to lend to people they wouldn't normally lend to. The only reaction was to repackage that debt to spread the eventual misery. The banks cheated each other.
James Gradisher, Worthing, England
I agree with Martin of Sheffield. My immediate first reaction was that Darling was overstating the scale of the problem so that the government could then claim the credit when things did not turn out as black as forecast. ;Thank you for confirming that; Mr Kaletsky.
Sheona Hutcheson, Chesham,
Since when did a ministers lack of qualified in an area of cabinet responsibility prevent them getting the position?
Daz, Basingstoke, England
Thanks Mr Koletsky.
Praise also to The Times for printing Land Registry figures showing house prices only fell 2% in the last year. Please now challenge equally overhyped tabloids and analysts who have forgotten their statistical training in citing unrepresentative Halifax & Nationwide indices
terry, harrogate,
M Wadhurst raises an important point about pensions. Let's not forget that there was a "baby boom" in 1946. Female pensioners born then have already hit retirement age, but the big bang will come in 2011. What is HM Government doing to prepare for the foreseeable and impending pensions crisis?
Edmund Burke, Kingston upon Thames, England
Whatever form of recession we are having, it is surely self-inflicted.
Blair/Browns lack of strategic thinking, coupled with the greed of a wunch of City Bankers and supine regulators have caused the damage. Loose credit, toxic financial instruments, commodity speculation and shorting stock.
Tim Black, Southampton, UK
Perhaps he meant we have the worst government for 60 years
bob holmes, axbridge , England
You have forgotten to mention the enormous burden of the the state and the fact that the state pension obligation is not on the goverment's books. Factor that in and things begin too look dire.
M, Wadhurst, UK
If,in the recent past, valuations had been honest,banks has insisted on a minimum 10/15% deposit and interest rates had been at 6 % the present housing situation would have been largely avoided.
The obvious is never spelled out,and I have never read this coming from a banker.
jackie, paphos, cyprus
What a lengthy article which shows only that comparisons such are these are both odious and, like this article, otiose.
Mike, Huntingdon,
The doomsday scenario would mean a return to the early 90s , the unemployment , the level of repossessions , the interest rates , the level of government borrowing , the crime levels of that time.
Hey bring the Tories back
stephen herlihy, Dursley,
I think he was trying to say "potentially" the largest threat. Who will be right in the end you or he? I seem to recall a recent article by you, suggesting that the present situation is not of grave proportions? Perhaps neither.
George Townsend, Elk Grove, USA
This is the first article in this newspaper which gives an intelligent and balanced view of our economic reality. Perhaps this was Darling's intention. If we can move onto a rational discussion of the economy then this apocolyptic outlook from the chancellor may be worth the hit.
M.Paton, Crowthorne,
In due course, when this period of economic upheaval can be viewed with more detachment, it will be recognised that the bulk of the 'crisis' was caused by the banks' avaricious, sleight-of-hand, dodgy dealing in re-packaged and suspect sub-prime loans. And little else, not even the oil price rise.
Ambatzi-Crecy, London, England
High comedy indeed. A country and media which has refused to believe a word this government has uttered in the last decade or so, has seized upon this gaff as 'ultimate truth', if only because feeds their own twisted conviction of Britain's economic and social inferiority and decline.
Geoff Harrison, Beverley, England
By presenting the Doomsday scenario over two years, when the next General Eection is due, nulabor will claim that, but for nulabor, it would have been much worse, and that the brown stuff has saved the country, for which we should all thank him with our votes.
martin, sheffield, uk
3. matt_the_hat said...
4 points:
1) We have no export economy unlike the USA.
2) America is very good at hitting the reset switch, people get fired the same afternoon they mess up, the next guy comes in and clears the decks. The problem is now in the past rather than hidden underneath until some manager comes to retirement age.
3) per capita we lead the way in personal debt.
4) when the US went into recession in 2001 (as the UK should have done) we borrrowed our way through.
4. inbreda said...
3. matt_the_hat said...
1) We have no export economy unlike the USA.
Beat me to it. A fairly obvious point that someone like kaletsky should really have spotted. What a fool
5. Davros said...
This bloke is a smart arze and is generally wrong about everything. Why should he be any different this time.
6. sold 2 rent 1 said...
gardeniadotnet,
Slightly off-topic, but can you do your plant cloning with hemp?
Once the health service collapses (around 2010-2011) we will need hemp oil on a large scale; this will be the main focus for all medical treatment.
7. mountain goat said...
I partly agree with the sentiment of the article. Most of the UK's old inefficient industry is gone which makes our economy more nimble and adaptable. Not enough people get it yet, that debt, leverage, housing are doomed. Once they do and move on from damage limitation I think there is reason for optimism.
8. harold said...
"Secondly, American experience points up clearly the built-in stabilisers that exist in a well-managed market economy."
WTF?!! Where has this economic peasant been for the past 12 months? First signs of an insignificant dollar bounce and these self-appointed experts (lol) start telling us its all rosy. Jeez, the guy has absolutely no shame or no brain - take your pick.
9. hpwatcher said...
this fool simply does not understand the situation at all. the uk isn't like america, we simply have little or no industry over here
10. gardeniadotnet said...
@s2r1>can you do your plant cloning with hemp?
I don't, ( not least because my brother-in-law's a Drug Enforcement Officer!) but yes, you can.
Incidentally,I have read that salvia divinorum has bona fide medical applications, so I am currently propagating that exponentially.
11. beartil2010 said...
The american GDP figures are calculated using a 'reductor' - inflation - that thay calculate is 1.2% annualised over the last quarter, so 0.3% in the last quarter. If they actually took what we consider as our inflation figure of 5% then their economy is static, if you use other measures then it is going backwards.
This reductor has 'decreased significantly' in the last 3 months. Just as things are getting more expensive everywhere across the world. Funny that.
12. Ted said...
Where do you guys all get the idea that the UK has no manufacturing? Sure, it's not as big a sector as Germany has, say, but plenty of stuff is still made here. The UK still makes 1.5 million vehicles (Jaguar, Range Rover, BMW Mini, Toyota, Nissan, Ford Vans, LTV etc. etc. all have factories here). The defense industry is huge. We recently made a £40billion contract with the Saudis for fighter planes, whether or not you think this trade is ethical it's still got a very high export value. There's also Rolls Royce, which makes a large proportion of all the jet engines in the world, plus airbus factories in Bristol and North Wales. Then there are countless specialist manufacturers making all sorts of stuff. My dishwasher, washing machine, sofas, hifi speakers all made in the UK. Actually many large items like furniture are made locally because of the cost of transporting them from low cost bases is too high. Food processing is also a huge industry here (the largest, actually). Most of that packaged stuff in the supermarket was made in UK factories. Did you know that the UK is a leader in design and manufacture of bluetooth gizmos?
Just take a train from Birmingham to Manchester and look out the window. Mile after mile of industrial estates. Not pretty, but it's there.
Having said all that, manufacturing has definitely shrunk relative to the rest of the economy, and has probably shrunk too far for the good of the economy as we are now pretty undiversified. That's why the weak pound is good news. We're not necessarily 'worse' at making stuff that other european countries with more high profile industrial business like Germany, it's partly because the pound has been trading above where it should have been for 10 years based on productivity measures. The main reasons the pound has traded high is because of North Sea revenues, foreign direct investment (i.e. sale of biritish assets to non-sterling parties) and latterly the sale of mortgage backed securities to foreign buyrs which has kept the pound up. All three of these activities have dried up. Good, I say. Expect a slow revival of manufacturing in the next decade.
13. still renting said...
To those saying we have no exports:
In 2007, UK exports totalled £360 billion, of which £140 billion were services.
Exports of goods (excluding oil) were £198 billion. But apparently we have no manufacturing base?
Why don't you try looking beyond the Daily Mail for your economic data?