The good ship HMS UK - Parliament no longer at the helm?

lukekelly_2

kabayiri wrote: »

Luke, I stand corrected. I grant you may see a return on these investments. But it is also a risk.

But, it is important to describe our financial commitment in terms people can understand, isnt it?

Absolutely. Clear communication is vital. The problem is that what you wrote was clear, but it led to the wrong understanding, which is arguably worse than no understanding at all. My favourite way to explain it is through houses. Someone wants to buy a house for £200,000 but doesn't want the risk that when they have to sell in 2 years they'll make a big loss. So they pay you £10,000 on the condition that if the house drops in value by more than £10,000 you will pay them all the extra loss. You expose yourself to a possible loss of £180,000 but it's unlikely.

Another house related way to look at the general ideas involved is to suppose that you have a house and you have a mortgage. That gives you a large debt but also a large asset. When you look at your position you shouldn't just look at the debt -- which is what you did by looking at an extremely unlikely worst-case scenario -- but at the value of the house as well. Now the value of your house will change, it might go up or down. There is even a chance that a meteorite will strike it and you'll be left with all that mortgage and no house. But if you explain that scenario alone you won't give any understanding of the actual position.

I do agree though that the UK government has taken a risk of enormous proportions. Of course not doing anything would have carried its own huge risks too, you can judge for yourself which would have been the best course of action. Using language people understand is important, but doing that by removing any discussion of risk and instead pretending that the worst-case scenario is the only one worth discussing is a bad way to go about it. I actually think that people and the media underestimate people's ability to understand the concepts involved here. They're not very difficult and people face them regularly in their own lives when they buy a house or make an investment. The problem as I see it is that discussions in the media are either impenetrable to those not accustomed to business-speak or so basic as to convey no understanding at all. Sometimes the broadsheets and broadcast media bridge the gap. Much of the time the desire for a snappy headline triumphs.

kabayiri

lukekelly wrote: »

I do agree though that the UK government has taken a risk of enormous proportions. Of course not doing anything would have carried its own huge risks too, you can judge for yourself which would have been the best course of action.

I understand why they took action. I also follow the description you give as to how they are not giving blindly.

I guess my worry is the sheer scale of borrowing which is taking place, not only by UK but by the U.S. You could argue that each 1bn invested in a bank today, is 1bn less for the government to use to support other industries, which may be export led.

Correct me if I'm wrong, but all this money being provided has to be raised, either off the international markets or by printing money (in essence). Is there a third way? At what point do the international markets lose confidence in the stewardship of the UK economy?

If Labour announced an aggressive plan to close the spending gap in future years, I suspect this would reassure people.

lukekelly_2

They are borrowing a lot, but currently it is not at historically abnormal levels and is certainly not at the levels that several other countries have sustained for long periods of time. It's a lot of money but not an unprecedented amount of money. The debt will cost us a lot of course and will have to be paid for by slower growth/higher taxation when the recession ends. It may or may not turn out to be more costly than having lower borrowing and a deeper recession. But the UK is extremely unlikely to find itself unable to finance its debt in the near future. There are no shortage of problems at the moment but I am not convinced that the current borrowing level is likely to turn into a catastrophic problem.

beaujolais-nouveau

lukekelly wrote: »

I don't find it strange that a research tax credit benefits companies doing research ... It would have been a worse bill, and even more prone to absurd pork-barrel spending, if it had subsided research at only a select list of companies.

It was only a select list of companies - read the bill yourself, if you don't believe me. Including Microsoft, who do not need any help. A million other companies won't get research tax credit help because they happen not to be represented by an unpatriotic Republican?

lukekelly wrote: »

The larger the bill, the more pork there is.

Well, I was able to give you several instances of identifiable recipients of "pork" in the Paulson bail-out; and all you can do is quote something that says that many projects are "open to get [pork] money" from Obama's bail-out. Perhaps. Perhaps not.

Rochdale_Pioneers

kabayiri wrote: »

Correct me if I'm wrong, but all this money being provided has to be raised, either off the international markets or by printing money (in essence). Is there a third way? At what point do the international markets lose confidence in the stewardship of the UK economy?

If Labour announced an aggressive plan to close the spending gap in future years, I suspect this would reassure people.

No, I think that would create suspicion and panic in the markets - if the UK needs to aggressively pay down debt by slashing public spending when its borrowing isn't seen as a problem on any international scale, then there really must be something wrong that they're not telling us.

I know our newspapers like to scream about our level of borrowing, but in reality its still far less than the likes of germany or Italy or America have sustained for long periods. And our credit rating is still excellent, unlike other countries who have either already been downgraded or threatened with being downgraded.

beaujolais-nouveau

lukekelly wrote: »

But the UK is extremely unlikely to find itself unable to finance its debt in the near future. There are no shortage of problems at the moment but I am not convinced that the current borrowing level is likely to turn into a catastrophic problem.

I don't share your optimism. I am one of those to whom all this saving the banks at any cost does not make sense; there must be something that we are not being told. As of last month, February, every child born in the UK was starting life with a debt of £17,000 that is increasing by the day. It will be more, month on month, for the children born hereon in.

kabayiri

Rochdale_Pioneers wrote: »

I know our newspapers like to scream about our level of borrowing, but in reality its still far less than the likes of germany or Italy or America have sustained for long periods. And our credit rating is still excellent, unlike other countries who have either already been downgraded or threatened with being downgraded.

It's interesting with press/media. You are likely to find every answer you could possibly want, just by selectively reading different commentators/publications. I confess, it's a bit confusing, and my worry is aligned with an inate desire to be cautious.

You make a good point though. We should watch the progress of specific economies like Austria and maybe some of the eastern European states with interest, if as you say they are closer to the edge.

Rochdale_Pioneers

kabayiri wrote: »

You make a good point though. We should watch the progress of specific economies like Austria and maybe some of the eastern European states with interest, if as you say they are closer to the edge.

Its not what I say, it just is. Austria allowed its banks to borrow multiples of GDP on the wholesale market which it then loaned to deals of flaky security in Eastern Europe. Now it finds itself owing said multiples of GDP all in foreign currency. How it will play out is the same as in Iceland, whose banks did the same there to buy UK retailers. At least those banks have some assets they can sell - the Austria thing not only leaves Austria effectively insolvent, but swathes of Eastern Europe with no money and no chance of being able to borrow it themselves. To put numbers in context the $62bn lost by AIG in 3 months is equivalent to Bulgaria's annual GDP.

To read our press its only a UK recession, its only UK banks in trouble, its only UK regulation that failed. I'm certain that we did things wrong here and Brown should say so. But this event crashed economies across the world all at the same time regardless of what kind of regulation they had in placed. Either Brown controlled the whole world, or we have been swept away by a global cataclysm. I've heard someone talk about Spain as a model for what we should have done because it hasn't had any banks needing a bailout. True, and yet its economy is in a deep recession and is facing 19% unemployment (double our level) - its hardly immune.