Blood, tears,toil and sweat

Deep cuts, high taxes and an export drive
are the only things that will save us now.

Some of my closer friends having honoured me with the soubriquet ‘Doomster’ of late, it seemed like a good moment to scamper round the business internet and see what other folks are opining. This was reassuring (on the ‘Thank God it’s not just me’ dimension) and depressingly confirmatory. So until such time as the empirical outlook gets better, sorry guys n gals but there will be doom: don’t shoot the pianist, and all that.

The Wall Street Journal is now on Italy’s case – as the rest of the media should’ve been long ago: its debt is seven times that of Greece – but most important of all, as Stacy Meichtry nails with clinical accuracy in relation to the Italian situation –

‘A deeper problem is making it difficult for those kind of countries to escape their huge debts—a lack of growth’.

The lack of private economy growth – through entrepreneurialism and restructuring – is the theme of this piece. Thirteen years of public-sector friendly Labour in the UK (and a decade of bureaucrat-bloated fiscal Eurozone largesse) have produced this situation – to the point where we now need too much too quickly to avoid debt crisis on a massive scale.

“If Italy cannot refinance its debt, then it’s the end of the euro” said heavyweight Stockholm-based economist François Chauchat yesterday.

The Reuters’ news service is in my Favourites, and has been for two years now. It’s a well ordered site with minimal jargon and zero bullshit. This is what respected analyst James Saft was writing overnight:

‘The media may see the contagion to Portugal and Spain as attributable to ’speculators’ taking on a new target, but in reality, it’s about creditor concerns about the value of their loans’. (You read it here first)
‘….some shock prompts lenders to come to their senses. They withdraw credit and a cascade of asset sales takes place as both Ponzi borrowers and the rest of us try to meet loan obligations with the wasting currency…’ (See Slog post on Pimco last week)

What I call Drowning in Debt Saft calls the Debt Trap – but the principle is exactly the same:

‘A debt trap happens if there is an ongoing primary budget deficit and, crucially, countries pay a higher real interest rate on government debt than their rate of GDP growth. Meet those criteria and debt just becomes harder and harder to manage.’ (My italics)

He’s right. He must be, because he agrees with me. He also must be because this is 3rd Form maths – and this is the problem (whatever anyone else tells you) that Britain faces more than anyone else in Europe…..because we go into this crisis with a massive debt amount and a very poorly structured economy.

It’s poorly structured in two ways: first, at 83%, massively overdependent on services – which in the end, any client nation can do for itself…and is doing at a rate of knots. And second, a debt to income ratio bigger than even pertained in the 1970s.

“Ah but ah but ah but” said Will Hutton on BBCNews yesterday afternoon, “It’s only a fraction bigger now compared to 1975”.

Correct. But Will my dear old love, in 1975 production and manufacturing output was hugely bigger than it is now, and our share of export markets was nearly 40% higher. It is the simple things that very clever people so often miss: we won’t pay off the debt by selling things to ourselves. Oddly enough, you don’t make any money doing that.

Let me illustrate this by example. On Wednesday, ONS data emerged to show that UK output had risen 2% year on year. Hurrah – economic recovery. Err, if you look at the March 2009 numbers, that’s when the economy was flatlining….so no, not an economic recovery. But good news, right?

Yesterday, ONS put out another release showing that despite a Pound cheaper in real terms than it’s ever been versus other currencies, our loss on international trade just keeps on getting higher. Nobody wants what we make and grow – and they’ve lost confidence in our services. This is far, far worse than things were in 1975.

A lack of commercial perspective in fiscal and economic management since the demise of Thatcher has brought us to where we are today. But being a good old-fashioned wealth-redistributor, Mr Hutton will never grasp that. Like the Labour Party, he is stuck in an intellectual time-warp.

I’m no Thatcherite – I believe some things need to be beyond private hands, if those wandering hands just can’t keep their sticky little fingers out of the till. I believe many of capitalism’s objectives need to be changed: and in that sense, the economists of the Right are living every bit as much in the past as those of the Left.

But some things will never change, and the maths of commerce is one of them. Will was wittering on again yesterday about ‘being careful’ with the cuts. But the cuts I’ve seen are (a) still nowhere near enough and (b) far more likely to impact the public than the private sector. You can’t export civil servants. It would be nice if we could, but we can’t. For the time being, frankly, sod the public sector.

Capital and research projects that can benefit a future developing, reshaped economy should be sacrosanct. Front-line services won’t, so they must be cut.

I don’t want to do that any more than anyone else, but the moneylenders who now control our destiny don’t give a toss about Britain’s welfare State. I wish politicians would get real and face up to this: I think the sovereign lenders are reptiles too, but I can’t magic them away. Brown was very fond of being a big swinging dick in the world of global commerce, even if he didn’t have a clue what he was on about. But the old adage applies: if you don’t like the heat, stay out of the kitchen.

I’m not a doomster, I’m a bloke who tries to avoid trucks coming down the road. Being lucky enough not to be deaf, blind, thick or deluded, when there’s a truck coming (because I’m a caring, sharing sort of fellow) I try to warn others. If you’d rather stick with finding the nation’s Dorothy on Over the Rainbow, that’s your call.