For the Coalition, it is a sprint – not a marathon.
“An’ Cleggy needs double one hunnered an’ seventy to win now….”
I hear that Slick Nick is newly keen to establish himself as a thinking machine on a par with the Tory Team led by Oliver ‘Polite’ Letwin. This is going to be a tough call for Clegg, a man who thinks as much with his feet as on them. The pace of politics and the demands of the omnivorous media being what they are today, thus far the Deputy Prime Minister has just about got away with living on stuff like “It will take time for people to adapt to coalition politics” and his most tedious one to date, “This is a marathon, not a sprint”.
So here’s one short-term thing for Nick Clegg to think about as he delves back into his collection of didactic sociology tripe this evening: now it’s turning into a sprint not a marathon, what should the Coalition do? (Denying the reality of the question will be marked down).
I’m not a statistician, but I am blessed with an odd sagesse when it comes to processing where numbers lead; it’s probably a form of savantism. Either way, it is clear to all of us who are good at sums that the Coalition is losing the race between cuts and stimulus on the one hand, and outgoings on the other. They only ever had a slim chance of winning it anyway, but now that things are under way, without a huge glucose injection to accelerate the sprint towards a smaller State, they are doomed to f ailure.
Here are some real and very disturbing facts. Another reminder (he sighed) that I don’t make this stuff up.
By the end of 2012, the National Debt will be around 79% of UK GDP – even if the economic forecasts are right. The early signs in 2011 are that they are hopelessly optimistic. 2010 was the worst fiscal situation Britain has endured since 1945.
In the next four years alone we will need to borrow £620 billion. If there is more bank trouble or bond rates go up or we lose our Triple A rating, that figure will increase as will the cost of servicing the debt. The current cost is around £40 billion; relatively small changes to the three factors above could take that up to £60 billion. Being in the EU alone costs us £118 billion per annum.
Net – since the Coalition came to power – both debt and deficit have got worse, not better.
All these projections are predicated on growth in the UK economy. But our biggest trading partner is bankrupt, China is on the verge of a slowdown, and the US has a deficit the size of our debt. Who wants to buy our goods in that environment? Why would they want financial services? Where are the plans to diversify the economy?
The growth simply isn’t going to happen, and the running costs of being Britain Ltd – overcrowded welfare State and EU member – aren’t going down. This morning, Markit concluded that the economy – especially the services sector – is in ‘near stagnation’.
Take the projections on welfare costs, for example. The first ONS data on that this week blew a hole in all of them. Another assumption is continued output uninterrupted by strikes. I wonder, what are the chances of that happening?
A senior Cabinet Minister I was talking to before Christmas called all these ‘imponderables’. In the absence of miracles, they now need some pondering.
The sole – and I mean sole – silver lining on this cloudy horizon is that pretty much all the developed nations are going to be in the same boat. Furthermore, as everyone’s debts get out of control and those bank ‘assets’ head towards zero, the banking system will be in another (much bigger) mess at some point over the next three years.
“I thought you said recently the wealth was transferring to the banks from government and taxpayers?” I hear you saying.
Well, it is. But to fewer and fewer, richer and richer banks. The ones, to be precise, who didn’t go quite so leverage-crazy after 2001. The ones who were able to pick up the pieces for a song. Only the nice pieces, mind: we picked up all the smelly stuff. That’s why we’re getting poorer and they’re getting richer.
Even if the public were willing to bail out some of the Masters again, certainly in Britain there isn’t the money to do it. There might be in the EU, but Germany will resist paying up until it’s too late.
“Why is all of us in the same overcrowded lifeboat with no food or Verey lights a good thing?” I sense you thinking. I often think this too, but all told it should be.
It’s a good thing because a few important folks will say “Enough”. It’s the word that Alan Greenspan should’ve uttered in 2004, but a stammer is a terrible affliction and it’s too late for hindsight now.
Key among those folks will be Beijing’s Politburo. A broke West is no good to them. They’ll be distracted part of the time with stopping their own roaring inflation getting worse. But trust me: they will already have a dossier on every disaster scenario you can imagine – and quite a few that you can’t.
There’s also a chance that the Washington Establishment will be rattled enough by the Tea Party to think things through as well. And ultimately, even the men in Brussels will ask the right question. They’ll do so because every political leader will have rioting strikers with which to contend.
That question will be: “Why are we doing any of this?”
And some time after that, the big Write-Off will begin. The strong banks will (natch) lobby furiously against it, because such a move will remove the grip they have on governments.
But the simple truth is that most debtor countries (Japan being the big exception) owe money to the Chinese, the Arabs, the banks – and combinations thereof. It will be a question of Who Blinks First. But my hunch is that, on being told they can’t have the money, the creditors will be the ones to relent.
On the result of that poker game depends the future of the world. That is no exaggeration: those three creditor groups will wind up running the show, or the power will be redistributed. The likelihood is that some kind of halfway house will emerge. And for me, the best result for both ‘sides’ would be winding most of the debt back to nought….while once and for all putting the bankers and speculators back where they belong: serving the business and citizen communities, rather than the other way round.