Britain’s Sub-Prime Minister

The news is no longer news as EU Referendum blog so capably points out in yesterday’s Parallel Universes. Newspapers are becoming low grade entertainment, and no longer a source of valuable and useful information. So where do people go to find out what’s really going on – for an overview, for a reference point so they can orientate themselves, make decisions as to how to live their lives, decide when to buy assets, or when to sell, when and how to build businesses, who or what to vote for, or where to live?

The Business pages are said to be more help by EU Referendum, which they are, but these usually deal with one topic at a time, and focus on events from the last 24 hours, and ascribe them too much significance – to help make a news story. An article is either about commodities, or currencies or equities but rarely about all of them together, explaining how they are connected up to each other, and what the longer term trends are.

That was always the role of the editorial section, to find the key to understanding the myriad of events and market movements, to boil things down, to get to the heart of the matter. For all the communications technology at our fingertips, there is a growing ‘communications’ gap – that is, communications in the sense of thinking, leaving a gaping hole in the intellectual atmosphere. With all the political pressures placed upon them the MSM cannot orientate themselves, let alone assist others to do so. That is why there is growing demand for blogs like EU Referendum, Conservativehome,, Dale and many others, to guide the news consumer to where they can find meaning in the all the mass of detail.

Take the economy. If you look at the information relevant to Britain from all of the separate headings over the last month, it is clear that in just one month, the country’s economy is shrinking, and shrinking very quickly.

Shares have tumbled back down to 6000 from 6650. This is the FTSE – the main index of the big companies. Smaller shares have been tumbling even faster, as investors have been rushing to get into cash. It would be a brave man who would forecast that shares will recoup the lost ground easily or quickly. Financial stocks in particular, have been tumbling since the autumn, and these are now starting to drag down the other sectors – as you would expect.

With confidence fragile and banks not willing to lend to each other, house prices sliding, the consumer market slipping backwards, and with a government that seems incapable of realising the severity of the threat and take the right actions (in many cases it cannot as our rights to control our affairs have been subcontracted to the Brussels bureaucracy), shares are more likely to be heading further south.

It will probably take a change of government to rebuild confidence, whether that be here or Stateside, as the Republican administration under Bush is also floundering, rightly taking the blame for not having acted to contain reckless lending there. The new faces could be Barack Obama in the USA, and David Cameron in Britain. But while the USA can look forward to a fresh start this November, Britain is unlikely to get rid of Brown until 2010. We are in for a long haul.

The Pound too has been tumbling out of bed. In late November it touched $2.11. It is now $1.96. But that’s against the dollar, which itself has been taking a pasting. Against most currencies in the world the Pound, like the stockmarket is also down over 10% in a month.

If you take the combination of shares falling 10%, and the Pound falling 10%, Britain’s capital formation has been dented by a staggering 20% in just a month. Have you read that anywhere in the MSM?

Many forecasters (see ‘incompetence’ link below) are suggesting the Pound will be nearer $1.60/70 within a few more months against the dollar, and shares could see 5000 or lower if the credit crunch continues to bite. In capital terms, the currency and share price effects combined could perhaps even halve the values of Britain’s capital, in international terms. I doubt that that will be mentioned anywhere by anyone who one day hopes to get an interview with Gordon Brown.

There is one commodity that is shooting the other way, and heading north, and that is gold. In times of financial stress and crisis when credit markets dry up, gold has a habit of rallying. It can rise a staggering amount. Between 1970 and 1981 it rose from $30 an ounce to $850 an ounce. It then drifted down for the next 20 years and finally touched $300, at which point Gordon Brown decided to sell half of Britain’s gold reserves. Gold has since shot up again from $300 an ounce in 2002, and is today at $900.

In Shanghai where the gold market opened this month, gold is actually 5% higher, and is quoted at $945 today. The Chinese are rushing to buy gold as they are allowed to do so for the first time this January, and the effects are only just beginning to be felt. India has already grown into such a big gold market that it alone is consuming half the world’s gold mine production each year.

Forecasters are giving prices of $1500 an ounce for two years time, and maybe $3000 an ounce in 3-4 years time.

Of course in the end the world will settle down to a new stability somewhere. Supply and demand will equalise and prices will fall back again. But right now Britain is in exactly the wrong place, after ten years of financial incompetence, high taxes, high borrowing, large government and trading deficits, strategically stupid actions being taken by Gordon Brown like selling off gold reserves, and we face a highly uncertain period.

Inasmuch as Britain grew under Thatcher, and established a worldwide reputation for competence, under Gordon Brown, we are fast becoming a minnow. At one time, they called Brown the ‘Enron’ Chancellor for his tendency to off-balance sheet financing. Bloomberg recently capped that saying that, after ten years run by Brown, Britain now has ‘a sub-prime minister in charge of a sub-prime economy’. The phrase sums up the situation very well.

The problem is that the person who created the mess as Chancellor, is now the Prime Minister, and no one could be less qualified to deal with the situation. You won’t be reading any of that in the British Business News, of course, given the political pressures that the MSM face. Maybe an allusion here and there to Brown’s and Darling’s incompetence, but only in US channels will the truth of Brown’s almost total incapacity to see the economy as anything other than a device for his own political service, which he endlessly and wastefully messes with, be clearly explained.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

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