Wednesday, March 25, 2009

Tip of the iceberg

I doubt whether there are very many people on this earth who truly recognise the sheer scale of the economic crisis that is slowly unfolding before us - I know I don't. I have my suspicions, of course and those suspicions are being enforced on a virtual daily basis.

There are some people, obviously, in each national government who have an inkling of just how bad it could be based on what they know about the state of our economy - and they know far more than they are letting on to you and I. One of those would be the governor of the Bank Of England.

In a highly unusual intervention, the Bank’s Governor, Mervyn King, said that the Government must be “cautious” as Britain faces “very large fiscal deficits”.

This is a civil servants way of saying "we're up the creek without a paddle and there is one bloody great waterfall coming up". The Telegraph says that this is likely to "anger" the PM as he tries to get other nations to put up some cash in the "the biggest financial stimulus the world has ever seen". Actually, I think we've already done that - and it hasn't worked.

Mr King’s warning undermines not only Mr Brown’s plans but also the foundations of the G20 summit that the Prime Minister is hosting in London next week, since the meeting is broadly regarded as a platform for world leaders to agree to spend extra billions on averting a global depression.

Seeing as those "foundations" were built on rapidly shifting sands, it wouldn't take much to undermine them. Spending billions - or even trillions - won't help because the solution to debt is never more debt.

It is rare for any leading public official — let alone the Governor of the Bank of England — to deliver such a public warning over the country’s finances in the run-up to the Budget. However, appearing before the Treasury select committee yesterday, Mr King gave warning of the dangers of borrowing any more.

“I’m sure the Government will want to be cautious in this respect,” Mr King said. “There is no doubt we are facing very large fiscal deficits over the next two to three years"

Two to three years? Make that two to three decades and you'll be a bit closer to the truth.

“Given how big those deficits are ...."

And they are very large, but the government is keeping quiet about just how bad the situation really is.

"..... I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits."

For God's sake, stop spending money we haven't got!!!!!

“The level of the fiscal position in the UK is not one that would say: 'Well, why don’t we just engage in another significant round of fiscal expansion?’ ”

In other words - either someone else has to bail us out or we're fucked. Which, of course, is why Brown wants the rest of the world to spend big. For some reason, they don't seem too keen to cripple their own economies just to save Gordon's arse. People can by fickle.

Make no mistake, if the governor of the Bank Of England is saying these things then the situation is far, far worse than the government are letting on. Civil servants like this just don't do this sort of thing unless things are very dire indeed.

And they are. All we have seen so far is the merest tip of the iceberg. There is a whole lot more to be revealed yet.

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