Merv 'More Uncertain Than Ever' Over Economy

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Gordon says one thing, Merv says another. Gordon thinks the best thing to do in a recession caused by cheap credit and too much debt, is to make credit cheaper, and add more debt......... to the tune of 125% of GDP by 2017.

The Bank of England boss says Labour's public spending levels were "unsustainable" going into the recession, adding he is now "more uncertain than ever" about recovery.

Speaking before the Treasury Select Committee, Mervyn King said: "The scale of the public deficit is extraordinary at 12.5% of GDP which is a reflection of the scale of the global downturn but also that when we came into the recession, we were on a fiscal policy path that wasn't sustainable."

http://news.sky.com/skynews/Home/Business/Bank-Of-England-Governor-Mervyn-King-Says-He-Is-More-Uncertain-Than-Ever-About-Economy/Article/200906415317485?lpos=Business_Carousel_Region_2&lid=ARTICLE_15317485_Bank_Of_England_Governor_Mervyn_King_Says_He_Is_More_Uncertain_Than_Ever_About_Economy

purch

He's been very 'bolshie' recently, has Merv.

Totally off message.

Gordy will not be pleased.

Graham_Devon

"but also that when we came into the recession, we were on a fiscal policy path that wasn't sustainable."

Wish I could get paid loads of money for stating the bleeding obvious.

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Graham_Devon wrote: »

Wish I could get paid loads of money for stating the bleeding obvious.

Brown was, yet still didn't see it coming, must have come at him from his blind side.;)

1echidna

Voters I guess will believe the message they want to hear, Labour will be decimated but as long as there is some continuing arrogance, bluster and defiance some will want to believe and they won't suffer as bad a defeat as they might have. Can't really blame some voters in dire straights for believing Brown is on their side I guess. That is politics for you.

Wookster

ad9898 wrote: »

Brown was, yet still didn't see it coming, must have come at him from his blind side.;)

He was too busy lecturing everyone else on how to run their economies and the end of boom and bust.

Oh the irony!

openside

He's right you know, if you or I had to borrow 12% of our outgoings each year, lets say by increasing our mortgage, while at the same time income was falling it wouldnt take long for the bailiffs to be knocking at the door

You or I by the way wouldnt be able to increase lending though as no bank looking at the state of our finances would lend to us!

1echidna

The country is mortgaging its future, but not yet anywhere near the 3.5 times annual income that is OK for a youngster buying a house. Not good I know but if we turn the corner soon not certain to be disasterous and in any event the lenders are coughing up to date.

Generali

The thing is, the mortgage and consumer borrowing analagies are imperfect if you compare borrowing to GDP as GDP is an economic tool which measures all paid-for economic activity in an economy.

The correct measurement would be to compare what proportion of GDP the Government should be taking to spend and then comparing that with what the Government is actually doing.

Over the past 30 years or so, spending seems to have fluctuated around the 40% of GDP mark. I believe this is waaaay too high. Others feel a figure of 50% would be better (the so called 'Scandinavian Model'). Taking the actual figure of 40% as what people have voted for over a number of General Elections seems reasonable to me though.

So if we accept that, the Government is proposing to borrow over 30% of its annual income this year alone. Let us not forget that much of that is for current spending rather than long-term investment (to stretch the analogy 'credit card spending' not a 'mortgage'). Also, it is important to remember that there are a lot of liabilities that will accrue this year (eg PFI, Civil Service pensions, state pension, future NHS spending) that will not be measured in that 30%.

1echidna

Why compare the borrowing with credit card debts which are only obtained on iniquitous interest rates? You talk about maintaining gov't spending at some level around 40% of GDP where it 'should' be, this surely is the crux of the argument, as to whether gov't spending and borrowing should increase as a stimulus in an unprecedently severe potential downturn. This seems to be the path most Western Gov'ts have chosen to try to mitigate the effects of the downturn.

Generali

1echidna wrote: »

Why compare the borrowing with credit card debts which are only obtained on iniquitous interest rates? You talk about maintaining gov't spending at some level around 40% of GDP where it 'should' be, this surely is the crux of the argument, as to whether gov't spending and borrowing should increase as a stimulus in an unprecedently severe potential downturn. This seems to be the path most Western Gov'ts have chosen to try to mitigate the effects of the downturn.

I use 40% of GDP as a mid-point, and I use mortgages and credit cards as analogies only.

You also use the mortgage as an analogy to say that not so much risk has been taken on. Do you really think that the UK's productive capacity should be put up by the Government as security against Government borrowing despite the Government not owning that property?

How would you feel if your house was reposessed because your local council was unable to pay its creditors?