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

Tuesday 2 December 2008

A welcome splash of cold hard economic reality

John Redwood may not be my absolute favourite politician (his views on Europe don't sit well with me), but he is consistently on the button when it comes to talking about desirable economic outcomes and how to get there. His latest post Sterling is Warning the Government and the MPC is a welcome and long-overdue splash of reality - to summarise his message, real living standards will have to decline in both the UK and the US (and some other western countries, too), because we have been living beyond our means, on borrowed money, for far too long. And the lending countries over the past few years, and much more overtly in recent times, have begun to call a halt. How does the Government/Bank of England expect to get its debt sales away successfully, to support yet more expenditure on bloated social policies, with the prospect of further interest rate cuts looming? The markets are answering that question by sending Sterling lower.

The present Labour government has successfully squandered the pretty good financial situation it inherited from an unpopular Conservative government in 1997 over the past 11 years, and caused a balloon of public and private debt. Unfortunately, when there is too much pressure, balloons have tendency to burst. That's where we are now. It's not pretty and its not comfortable to live through, but unless politicians (both Labour and Conservative, not to mention the Republican and incoming Democratic administrations in the US) begin to lay out the facts for their electorates in stark terms, then there is no way forward. Potentially electorally disastrous of course, but pretending that we can somehow borrow yet more to get ourselves out of the present economic pit we are in is not going to help anyone in the long run. Electorates need to face up to where their profligacy has led - if they (we) continue to elect politicians who won't tell us the truth, then we deserve all that will likely follow.

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