Tomorrow, Wednesday the 24th day of March 2010, should be a date of national portent. A day that marks the start of a hard and long journey on the road to economic recovery. Will Chancellor Darling be his own man and bravely take the decision to put the Country before his Party? He is between a rock and a hard place. He must chart a course to a safe haven without ruthlessly flogging the weakest of the crew and squeezing the life out of them. In other words, we do not want a copy of the Ireland experience as advocated by the European Commission.
On the other hand, we do not want a continuation of the delusional policy pursued since the fall from grace of Northern Rock in 2007. Darling’s Pre-Budget report of that year totally ignored the unfolding chaos and his subsequent budget presentations have failed to address the core issues, turning a financial crisis in to an economic disaster. Continued and additional spending and borrowing has moved us to first place in the world’s debt league. We are following the same course as Japan and their failed policies have resulted in nearly twenty years of stagnation for them. A country that was famed for personal prudence and saving has been reduced to personal and national debt on a massive scale. Japan’s debt to Gross Domestic Product ratio is 458%, compared to the USA rate of 300%. We believe that we are on a par with the USA, but in fact the UK’s ratio of debt to GDP is 469%. We are world leaders in debt.
Resurgence identified DEBT as the major problem in 2007 and our Party Programme promotes the need for a National Debt Reduction Plan and balanced annual government Budgets. Debt is going to hinder any economic recovery and be a drag for years to come. One pundit recently estimated that it would be 2030 before our National debt was brought under control but not eliminated. The Government continues to borrow so that the problem is getting worse. They have engendered in the public the belief that we can borrow and spend our way to recovery without service cuts and by targeting tax increases only on the bankers and financiers. This is New Labour spin and deceit. It is dishonest and it is a lie.
Any personal debt adviser would advise a client that they must first cut up their credit cards before they can start to pay back their debts. So it is with nation states and sovereign debt. Will Chancellor Darling wield the scissors tomorrow? He must, but probably will not as the plan appears to be – inflate the debt away while continuing to borrow. The result will be that no one will lend to the government or buy bonds that are giltless. In real terms that means the government running out of money and unable to pay the bills of its suppliers or the wages of its employees. The only recourse will be tax increases and pay cuts with a 1920s scenario. Civil disorder will follow which goes far beyond what we can now see in the PIGS economies.
Factor in the next cyclical world-wide economic downturn when the BRICK economies over extend themselves and their bubbles burst. You have a situation that will make the 1929 crash seem mild. If the right decisions are not taken now we will have to deal with this mega-crash with the millstone of debt still around our neck. There is a prophecy that this disaster will happen in 2026. Should we have any regard to that prophecy? No, if you only believe in prophecies after they happen. Yes, if you believe the G20 is intent on maintaining the current global economic systems. The prophecy said that the 2026 economic disaster will dwarf the financial crisis of 2008. We now know that the financial crisis of 2008 happened. The disaster of 2026 is not inevitable, but we should plan for a worst case scenario. Even if other countries want to act like lemmings, we can insure ourselves. Gather in during the seven years of plenty ready for the seven lean years.
It all hinges on tomorrow and the New Labour track record is not good. Their budgets have been like an illusionists trick – all smoke and mirrors. Nothing is what it seems. On Budget day the Chancellor bows and takes the applause, but over the following few days the reality becomes clear. Brown’s last Budget cut standard rate income tax and it then became clear that he had increased the 10p rate to 20p. Despite his blunt attempts to compensate people there are still a million people suffering this tax increase. In Brown’s first Budgets he introduced tax credits but abolished the married mans tax allowance. During this transition there was a year when there were no credits and no allowance. In between those first and last Budgets there has been a stream of stealth taxes and removal of allowances. The most damaging has been the raid on pension funds. Tomorrow’s Budget should start the process of tax reform to create a fair, simple and transparent tax regime. The Resurgence Party Programme sets out the foundation for such a regime.
There are some other key issues that must be addressed. Quantitative easing of the money supply is in reality the debasement of our currency. The lower exchange rate of the Pound against the main trading currencies is a devaluation of our currency. Our imports are costing more and will stoke up inflation in the future. Unnaturally low interest rates not only affect the exchange rate of the Pound. They also rob savers when the inflation rate is higher than their savings rates. This engenders a culture of spending instead of saving. When there is no private investment in building societies, there are no funds for borrowers and young newly married couples can not get on the housing ladder. It is a vicious circle.
There is a virtuous circle. We need reasonable and realistic interest rates, together with a strong Pound. Brown built his reputation on courting Prudence. His reputation is in tatters and Prudence has long since bolted. By contrast, while Brown and Darling have been profligate, the personal debt of the people has been reduced. Frugal is the new reality.