I.O.UK

The USA has been sent a fiscal wake up call – I.O.U.S.A. It chronicles the rapid escalation of the public debt and warns America of the dangers.

We need to make the research here on the huge stock of debt and other public liabilities more accessible for all, and to warn more strongly about the rapid build up of debt now the government is moving into its irresponsible phase. In Phase one of this government we were happily married to Prudence, in Phase two there were some loosely observed fiscal rules which provided some modest protection from excess debt , and in the latest Phase three there is only one rule – spend and borrow as much as possible. Even in Phase One we only stayed married thanks to a huge tax hit on the pension funds and the raid on the telephone companies. Throughout the whole eleven years there has been massive public sector recruitment of administrators and regulators and large bills for consultants, ad agencies and other advisers.

A stock of debt and pension liabilities of £1800 billion is now increasing with borrowing likely to be north of £120 billion this year alone.

Labour’s new lie to anyone who questions so much money being spent on bank shares is the say that they want the banks to go bust. This will doubtless become the new BBC standard line to take, but it is a further attempt to stop all rational debate about an important subject. There are so many other ways of adding capital and improving banking ratios than the taxpayer having to stand treat. John Mc Fall parroted this nonsense against me on Newsnight last night.

In the debate on the economy yesterday I asked Ministers two important questions. Firstly, when will they do some due diligence on all the assets and liabilites of the banks they are taking over? If Lloyds can renegotiate its HBOS deal, why can’t the taxpayer? Are they sure there will be no further losses on the loan books that have not already been provided for? Do they realise how much taxpayers might lose if they get it wrong? I was told they did not have time to do any proper analysis! They just want to spend £37 billion without asking what they are getting for it.

I asked now much private sector debt reduction they wanted?Their regulators have raised the amount of capital any bank needs for a given volume of loans. That implies they want banks to lend less. It is a simple calculation – I reckon its around £200 billion of debt reduction or substantial capital increases to offset. Did they bother to do the figures when they raised the stakes by regulatory action? Did they understand that banks could make the adjustment by lending less rather than by raising mroe money? Is that what they wanted? It appears it is, as their own wholly owned Northern Rock is in the mortgage reduction business, lending £14 billion less than last year.

Ministers simply could not answer that. It appeared it had never occurred to them that requiring a better capital ratio might result in less lending!

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13 Comments

  1. Lola
    Posted November 11, 2008 at 11:27 am | Permalink

    Mr R, your article contains the following phrase – "…now the government is moving into its irresponsible phase". Erm? What! It has been irresponsible from day 1.

  2. Kit
    Posted November 11, 2008 at 12:08 pm | Permalink

    To quote John Varley, Barclays' CEO:

    "the UK Financial Services Authority made its decision, during the weekend of 11/12 October, to increase (significantly) the amount of capital which it required UK banks to hold, we had an immediate choice to make. Would we take capital from the UK Government or would we raise the money ourselves?"

    Which looks like a blatant attempt to force the banks to nationalise without any care for the consequences.

    http://www.spectator.co.uk/business/coffeehouse/2

    • Lola
      Posted November 11, 2008 at 10:25 pm | Permalink

      I work with the FSA every day – well when I can be arsed to read their stupid emails – "please cascade this through your organisation" We haven't got the time you plonkers! – and they are useless, absolutely and totally useless, as is the whole of the Brownian FSMA 2000 struycture.

  3. Adam
    Posted November 11, 2008 at 3:09 pm | Permalink

    John Mcfall was pathetic on Newsnight last night and his inability to honestly say what the current level of debt was typical of a Labour politician. I couldn't believe he was talking of a 37% figure when the ONS is using 43.3% without using the PFI, pensions and bank bail out figures. And his attempts to portray you as someone who would let the banks fall was embarrasing. We really are in trouble when these kinds of lies are being peddled blatantly on tv!

  4. mikestallard
    Posted November 11, 2008 at 6:34 pm | Permalink

    Adam is so right! The most dangerous time for politicians is when they come to believe their own propaganda to be true. And John McFall, along with many, many other Labour politicians, is falling into that trap.
    Angry, yes. Not very good on the figures either: he appeared to have learned just two sets of them – from the hymn sheet. Even his figure of 3 million unemployed is false – as the programme on supplementary benefits last night on Radio 4 showed.
    Meanwhile Vince Cable is still the darling of the BBC. He looks the part – round, sensible, commonsense.
    The reason why the ministers won't look into done deals is this: why should they? It isn't their money, after all. Are there any votes in it? If they were actually running a proper bank, of course, it would be very different.

    • Lola
      Posted November 11, 2008 at 10:32 pm | Permalink

      McFall is another useless sided new labourite. Being as how my business is financial services I watch what he says and how he performs and what he knows and he is entirely clueless – everything he does and says is politicking in its worst sense, as in a disdain for democracy and a determination to pursue his 'agenda'.

  5. david
    Posted November 11, 2008 at 7:35 pm | Permalink

    Andrew Lilico believes that Cameron's Conservatives are now fully fledged Socialists: do you?

    Six months ago, if the Labour government had proposed to respond to what was already then the impending economic downturn by introducing a subsidy of £2,500 for any company taking on someone unemployed for more than three months, and claimed that this measure would not cost the Exchequer money – indeed, would be more likely to save a bit of money – what would you, Dear Readers have said? What would right-wing bloggers have said? What would the Telegraph, Times, Daily Mail etc. have said?

    I'll tell you. We'd all have said that this was the Labour Party reverting to socialist type. We'd have said that such a measure would introduce distortions – encouraging firms not to hire people unemployed for less than three months and not to renew the contracts of staff on short-term (say, six month) contracts. We'd have said that the claim that such a measure would "pay for itself" was exactly the sort of thing Socialists always claim for government interventions, but that the reality is that in the medium term, as with the New Deal, few real jobs would be created whilst there would be large deadweight costs of the measure by subsidising lots of jobs that would be created anyway. We'd have said that it should be for private businesses to work out for themselves which are the best staff for them to employ, not for the government. We'd have said that this was further evidence of the trashing of Blairism, and designed to appeal to Gordon Brown's backbenchers and his heartland voters.

    Post-bank-bailouts, however, we live in a new age, and having supported the bank bailouts that ushered in the new socialist settlement the Conservative leadership is being flexible, adaptable in responding to this new age. Having said that this new Socialist settlement (though it could and should have been avoided by opposing the banking bailouts) was now inevitable, and recommended some principles by which the Conservative Party could operate in this new paradigm, I suppose I can hardly complain when our policy proposals are nakedly socialist. Fair enough. A socialist solution for a socialist age. But in twenty years' time (if I'm spared) I'm going to be campaigning against these sorts of policies. Until then, I hope we rule competently, even if ruling well is, perhaps, infeasible…

  6. Rob Atkins
    Posted November 11, 2008 at 8:17 pm | Permalink

    John – I confess I'm confused about what the Conservatives currently stand for. We broadly know what New Labour was, until Brown took over, since when it has been in disarray.

    My problem is that there doesn't seem to be an alternative strategic direction currently being offered by the Conservatives, which can be seen to be a powerful counterpoint to the ducking and diving that Brown and his confederates are currently engaged in. It is to the Conservatives' detriment that an equivalent to the Blair list of 'pledges' does not appear to exist, or indeed immediately come to mind.

    Would you be able to summarise in a paragraph (or even in a brief article !) what Cameron's Conservatives stand for, so that we can all assess the (hopefully obvious) benefits of a Conservative Government.

    REPLY:
    A referendum on the EU Constitutional treaty
    Power back from the EU
    Return of civil liberties wrongly taken away by this government
    Less unelected regional government
    Lower taxes
    More freedom and delegated power for schools and hospitals
    more choice in public services
    welfare reform to promote work

  7. Acorn
    Posted November 11, 2008 at 10:51 pm | Permalink

    John, if anyone is going to make the movie – I.O.UK – it is you. You have sixteen months to make it; assuming we have an election in 2010.

    We do not have the equivalent of a Warren Buffet; a David Walker; a Peter G Peterson or a Bill Novelli. We do have a population under the age of fifty, that knows nothing about its government or the damage it is doing to our nation's future.

    We do have a large government client state that is so thick that it believes only what comes out of a television, particularly its major spin machine, the BBC. Dumbing down the education system and turning the populace into welfare junkies has been the greatest success of NuLabour in the last eleven years.

    I despair at the lack of intelligent opposition in this country. Where are the likes of the Cato Institute; the Heritage Foundation and AARP in the UK, they don't exist. Whatever our government does, we just keep taking it up the rectum and paying for the privilege.

    John, you must have a lot of old mates from your banking job that can supply the real facts of our nations finances. I find it much easier to get information on the state of US finances than I do the UKs, why is that? You can't believe anything that comes out of the ONS.

    I challenge you, John Redwood MP, to make the movie I.O.UK. If you want someone to carry your bags while you make it, I am available at no cost. I suspect there are a lot of other Redwoodians who will join me.

    The following links are US specific; but there is a section in this movie that shows the US as 224 worst in the list of world trade imbalances. But take a look at who is number 223; the UK. Keep in mind that the UK economy is about one seventh the size of the US economy; who has the bigger problem?
    http://www.youtube.com/watch?v=6E5X8TrqCMQ&fe
    http://www.iousathemovie.com/

  8. Alan Phillips
    Posted November 12, 2008 at 1:39 am | Permalink

    I wish when I was young, that my bank manager (remember them?) had the Gordon Brown mentality on debt.

    Whilst at the time I didn't agree with the declining of a loan that I asked for, in hindsight it was for the best.

    This goverment, really does need to place itself into a hindsight position, looking at ALL of the implications of their policies. The need to avoid the irreversable is what my bank manger described as binding one's hands, when a simple helping hand is the prefered. The point being, leaping too far with something so important requires a more structured measure, one where you can add to if need be, but non-commited until such time dictates this extra spend.

    To recover effectively, the rot needs to be stopped and the repair needs longitivity factored in, anything else is a bandage,upon a bandage, upon a bandage. Each added bandage does not do anything for the original problem, but mearly covers the latest incident. Fixing the problem means stripping back the stuff you don't need, creating a planned treatment regime and TIME. It is without doubt, a requirement that there must be time allowed to hurt, hurting because the right treatment demands that a quick fix is seldom ever that, there's always a cost to any form of indulgence.

    My bank manager was right, I appreciate the pain of yesteryears refusal, it hurt then but without doubt saved me from a far more painful (and prolonged) future repaying debt. It also taught me to look after money during good times, because when bad times come along, I'm better placed to deal with them.

  9. Span Ows
    Posted November 12, 2008 at 4:20 am | Permalink

    Lack of due diligence is of course what has led to the chaos and crisis. The only surprise is the Brown bounce – let's hope it really belongs to a dead cat.

    P.S. What ARE the Conservatives doing? Can we have some strong action against the warm glow that seems to have appeared around Gordon Brown – is it make-up or does he appear 10 years younger than 2 months ago? Is it a vampire type effect where the more blood he sucks the healthier he gets?

    P.P.S. John, please do something about the dozen-or-so typois in your post! 😉

  10. Stuart Fairney
    Posted November 12, 2008 at 9:02 am | Permalink

    As an amateur in this field, it strikes me that the foreign exchanges have already decided that we will be engaging in a Mugabe-esque money printing spree ~ apparently the pound is at its lowest level against the proverbial basket of currencies for more than a decade. Best placed indeed Mr Brown? 37% debt Mr Brown? Reality is hammering hard on your door.

  11. not an economist
    Posted November 12, 2008 at 9:52 am | Permalink

    "It appeared it had never occurred to them that requiring a better capital ratio might result in less lending"

    I do wonder who the specialists are who are advising this govt on its policies to deal with these issues. It seems to me they are relying on party loyalists (Campbell?) with an instinctive hatred of capitalism rather than people who know anything about the world of banking or economics in general.

    That said nothing seems to stick with this govt. They implement one of the laxest monetary polices ever known in this country (in peace time) causing the problems we are now suffering from and all Gordon has to do is smile that smile of his, spout rubbish that might make sense in a sixth form economics class but doesn't stand scutiny beyond that and repeat the words "'cos its the right thing to do" and everyone falls in love with them again.

    Edd Balls' wife (sorry I can't remember her name) was on PM the other week in her capacity as a Treasury Minister. She was talking about the bailout. She was asked where the money to fund it would come from. One word answer – the markets. That was it. She then just repeated the refrain "it is the right thing to do". Really – whatever question she was asked she started and finished her reply with the phrase "Its the right thing to do". I sat there in the car screaming at her – "For goodness sake grow a brain woman", But no. She didn't and hasn't done so since as far as I can tell.

    That said the interviewer didn't press the point about the borrowing and what the implications would be for the economy. Guess there aren't any then!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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