Blogging from the Highlands of Scotland
'From fanaticism to barbarism is only one step' - Diderot

Monday 10 November 2008

Interest rates cut. Tax to be cut? Borrowing to go up?

Has our incompetent government finally lost the plot completely? The fantasy-land that our Prime Minister inhabits is quite possibly going to lead to further increases in government borrowing to fund the tax cuts which it is rumoured are to be announced. The 'spin' of the past few weeks that 'deflation' is what we must all fear for next year, as the currently higher rate of 'inflation' is somehow a temporary phenomenon, is one I simply do not believe. These tax cuts are supposedly designed to encourage 'consumers', well to consume more - this in a country where average personal unsecured debt is already sky-high! The idea that the government might fund a decrease in tax by cutting government expenditure is seemingly a 'no no', as is any notion that it might encourage people benefitting from a reduced tax-take by the government to save a little [more].

The currency of this country, the Pound, has already lost a substantial part of its value in the past few months against major trading currencies (notably the US Dollar and the Euro) and remember that a large part of the imports which this country purchases from abroad are denominated in US Dollars - quite how we are to avoid a major dose of inflation here is beyond my simple understanding. Mind you, it's also a mystery to me quite why the US Dollar seems to have strengthened so substantially recently when that country's external borrowing is so huge; in fact it's not really a mystery at all, their debt is so huge that there really is no hope of the lenders getting their money back, ever really, and even if they could get it back there is no place else for them to lend it to in sufficient quantity or with much better security, so they are stuck with the situation they (the lending countries) are in. I think the answer to all these questions is that we are all playing a huge game of musical chairs - furiously playing the game, but I think the music is going to stop pretty soon and many of us are going to be left without chairs. Debt is now so huge in many 'advanced' countries that I think that the sub-text of this whole catastrophe is to 'solve' the problem by trashing the currency and those who have saved (and until now funded) the whole show by leaving their assets effectively worthless (and by 'their' I mean 'our', because I'm one of the world's savers). The harsh reality is that those who are badly-indebted in this country (and in many others) have more votes than the savers - and that is what the bottom-line is so far as our politicians are concerned. Mark my words.

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