Brown is gambling on a continued economic ‘recovery’. He’s been fortunate so far in that no country has been hit with insolvency. Dubai is wobbling, but Abu Dhabi will pick up the tab in all probability.
If there’s a Hung Parliament in Britain, the resulting political impotence might trigger the very financial crisis Brown’s striving to avoid.
From there, any government would fall, and there would be a second election to follow on fairly quickly.
By then the popular mood would be much uglier and Cameron could beef up his pitch on Europe, and get the promised landslide. The fade to EUKIP would be over. Money will inform voters better than any words. The hole in government in Britain will need fixing and fixing urgently. Until the crisis comes, phoney politics will play on. Once this period’s gone, it will be quickly forgotten, the quiet before the storm.
FROM The FT, a wise word of caution about the Quantitative Easing programme from Charles Goodhart –
If QE has been such a success, and the prospective recovery still looks anaemic, why not continue it? Partly because the money multiplier has been defunct, QE has operated primarily via a restoration of prices, confidence and capital gains in financial markets rather than impinging directly on the access to credit and expenditure decisions of small and medium enterprises and households, where the real problems remain.
If the authorities go on blowing up financial markets too much, at some point yet another bubble will develop.
The last time the financial bubble burst, the taxpayers got soaked.
There will not be a next time for this support mechanism, since the taxpayer neither can, nor will, repeat it.
Central banks need to check their proclivity for generating a further bubble to overcome the effects of the previous bust.
Certainly, we can never get the timing exactly right, but now does seem the moment to declare victory for QE and withdraw..
Charles Goodhart is Senior Economic Consultant at Morgan Stanley and a former member of the Bank of England’s monetary policy committee from 1997 to 2000.
Of course Gordon Brown won’t be easing off his lending this side of an election, and Goodhart’s words will be falling on deaf ears in that department. The next crash, which might be a lot worse than the last, is being created by this act of negligence.
If the public cannot read the truth about the economy while it’s on a relative up phase, they will certainly recognise failure when the next down-wave impacts. That might well coincide with the first few months of the next Parliament. Any weakness on the part of any assembled ‘Hung Government’ would be blown sky high. There will be an economic roller-coaster to ride, which will throw off anyone not possessed of the strongest political stomach.