Useless summit

So there we have it. After millions of pounds, after endless drafting by spin doctors, after a good lunch and thousands of airmiles, the Finance Ministers conclude they will “do whatever it takes” to end the recession.

When will that be then?

And could we know “What does it take”?

I suppose it is a kind of wisdom that the UK government has now twigged that each of the G20 countries is in in a different position, and maybe needs to take different action. They have certainly worked out now that there are very different views of what might help, ranging from the absurd Franco-German idea that more regulation will end the slump to the risky US idea that the way out of a borrowing crisis is to borrow more. Some wiser heads in the UK government team have worked out that the rest of the G20 do not see themselves as a Gordon Brown fan club, prepared to let him star in his own drama for political advantage at home.

What a pity there were no practical moves to start working through the bad and doubtful debts and the over extended leverage of the broken banks, without saddling taxpayers with the bills. And what a pity there was no break through on rising protectionism,and no mention of the present wish by many of those present to devalue their currencies at the expense of their fellow Finance Ministers.

What a pity as well, that no-one there was prepared to question the wisdom of the huge build up in government debt we are witnessing worldwide. Do none of them stand up for taxpayers, and for future generations now being born into collosal debt?

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22 Comments

  1. Posted March 15, 2009 at 8:32 am | Permalink

    So, if they did not sing “Auld Lang Syne” at the end, what did they sing? Was it that old Army ballad, “We’re here because we’re here because we’re here”? Or was it “Hanging On The Old Barbed Wire?” I am Mr. Grumpy today.

  2. Posted March 15, 2009 at 8:40 am | Permalink

    JR wrote:
    > Do none of them stand up for taxpayers, and for future
    > generations now being born into collosal debt?

    I could be wrong, but I do not believe it is a case that they *do not* get it, it is the case that they *cannot* get it.

    The incentives placed upon people in their position are such that over time they will become inured to spending what is taken from others.

    You might well be careful at first, but then sooner or later you’ll spend more than you could have, or make a mistake, or you’ll see others do that; and it will make absolutely no difference at all.

    What’s more, no matter how careful you are, part of *being human* is that you simply cannot care about other peoples money with the care you have for your own.

    Furthermore, more powerfully, there are political incentives placed upon people to spend other peoples money; the broad mass of people won’t notice a tiny bit taken from them all, but the tiny mass of people that money is spent on will most certainly notice.

    Of course, all of this is assuming we have the best of characters, a man incorrupt, honest and who believes in not spending what belongs to others.

    What happens when you get a man who *believes* in spending what belongs to others?

    *The system fundamentally cannot work*.

    And this is why the Government has now reached the point where it spends more than 50% of GDP, about 600,000 million pounds, a year, of money simply taken from other people.

    Is there any surprise the response to the crisis – to ANY crisis – is to spend more? Government is, I think, fundamentally unable to respond to anything in any other way.

    • Posted March 16, 2009 at 12:02 pm | Permalink

      Margaret Thatcher inherited a real mess in 1979 – and the policies of her first administration laid the foundations to get us out of it. Then we were hamstrung by inefficient industries and out of date working practices.

      Now we are hamstrung by a massive public sector and the slow but steady failure of investment in industries that will create real growth.

      The stock market is lower now than it was 12 years ago. People who took out endowment policies in the 1980s that will be maturing in the next few years will find they pay out half of what they were expecting. Money put into pensions over the last 12 years is worth less now than it was then. The solution of the last 12 years was that ever increasing house prices would allow us all to fund out lifestyles by withdrawing equity from our homes – and that there would still be a half million or so left over to downsize and retire on.

      My belief is that the conservatives – as well as dismissing the ‘we just need more debt’ desperation of New Labour – need to develop a clear message that the salvation of this country lies in investment in new technologies – and a gradual shrinkage of the size of the public sector.

      David Cameron used to talk about ‘sharing the proceeds of growth’ – so as not to terrify everyone into thinking the public sector was about to be beheaded. The message now should be that resources must be gradually transfered to the private sector – so that more people have jobs in the productive sector – creating real growth whilst maintaining high quality public services that benefit from investment – without the creation of ‘non jobs’.

      • Posted March 16, 2009 at 4:04 pm | Permalink

        Cut the cost of government and cut corporate taxes and let the market do the rest.

        Cutting the cost of public spending will not be enough. Cutting the overall size of government will provided the conservatives are not afraid of redundancies.

        If this nettle is not grasped we will be in a mess in twenty years time.

        Whatever we do we must not entrust poiticians of any shade to pick winning and losing sectors to get us out of the recession.

        • Posted March 16, 2009 at 11:18 pm | Permalink

          But, New Labour have rigged things. 20% of the population depend directly on the government for a job. Turkeys won’t vote for Christmas. And the movement of jobs to specific regions of the country has meant a large number of constituencies can never be won by any party that talks about cutting the public sector.

          Indeed, I think there is a good argument for keeping people in work. I have never been convinced that paying someone to stay on the dole is good for them – or anyone else. If you pay someone 20k to do an admin job in the public sector – they’ll pay tax and create employment by spending their wages. Stick them on the dole for long enough and some people (and I wouldn’t blame them) will turn to crime.

          Surely the message that will go down with the electorate is – the public sector is too large and we need to move some jobs from the public sector to new industries in the private sector – but through natural wastage and the market … i.e. people leaving the public sector to work in the private sector through choice – better wages etc.

          Something that someone is going to have to face up to, soon, is public sector pensions. But probably best not to mention it before an election.

          I was surprised at David Cameron telling the BBC he’ll freeze the licence for a year – they are already New Labour apparatchiks – now they will be even more so. I would have waited until I was in power and then halved their licence at a stroke. Tell them to get one person to read the news instead of two and to cut the number of correspondents by half.

          We have business correspondents, banking correspondents, industry correspondents, finance correspondents, economics editors etc. etc. etc.

        • Posted March 17, 2009 at 8:29 am | Permalink

          Mike Wilson
          Courage and timing, nothing more. Would you have expected Margaret to talk about tailoring her views to suit what she perceived to be public opinion?

          More likely Heath or Wilson.

  3. Posted March 15, 2009 at 9:48 am | Permalink

    “Wiser heads in the government!!” This is an oxymoron if ever I’ve heard one.

  4. Posted March 15, 2009 at 10:11 am | Permalink

    I have to agree, it was inane stuff, even by the standards of political conferences.

  5. Posted March 15, 2009 at 11:56 am | Permalink

    I noticed in the early years of this government that Labour MPs liked to say “the money’s there”, to support their argument that some of it should be spent on this or that.

    And at that time the money was there, because the government had inherited an expanding economy and a budget which was either in, or quickly heading towards, a surplus.

    Once it became apparent that the money would no longer be there, they were stumped; until this novel funding mechanism based on “Quantitative Easing” was devised.

    Maybe it hasn’t yet been perfected, as the Treasury is still borrowing more from investors through its sales of new gilts, than the Bank of England is refunding to investors through its purchases of existing gilts.

    But that ratio could easily be reversed: for example, Treasury sells £2 billion of new gilts, Bank buys £3 billion of existing gilts, rather than the other way round.

    Eventually the Bank would own almost all of the gilts issued by the Treasury, and after using the greatly expanded supplies of money to buy their way back into office at the next election – “the money’s there” – the Labour government could then have ownership of the entire portfolio transferred to the Treasury, where it would all be cancelled – massively cutting public debt at a stroke, another triumph for Gordon Brown.

    Meanwhile, the opposition Treasury team seems to be asleep most of the time, and when they’re awake they’re preoccupied with trivia like Sir Fred Goodwin’s pension.

  6. Posted March 15, 2009 at 12:21 pm | Permalink

    Sooner or later goverments will realise that the people will no longer pay for large inefective, obtrusive and down right tyranical goverments.
    when they do eventualy realise this they will cut the state back, they will by act of parliment/congress etc restrict goverment spending.
    that is when the people will once again be free.
    until then, these meetings of the oligarchs will produce nothing but more of the same, more screw ups, more insane restrictions on peoples lives and more taxes.

  7. Posted March 15, 2009 at 1:01 pm | Permalink

    So we have their word that if cutting back the size of government & of taxes; cutting regulations; letting electricity generators build inexpensive & reliable nuclear generators; letting people use GM foods & develop other new more productive systems; or the resignation of the present government & its replacement by somebody more competent were going to help then they would, without hesitation do it?

    There may be an argument against some of these but I doubt if there is an economist with a track record of successful prediction who would say that none of these are part of “what it takes”.

    Perhaps you might ask them if they would guarantee to do so if such economists would give such a verdict.

  8. Posted March 15, 2009 at 2:21 pm | Permalink

    I feel sorry for the staff at the summit because they were exposed to all that smoke as I am told the government put through an emergency piece of legislation to make the smoking ban not apply at the talks….How very New Labour; Don’t do as we do, do as we say!!

  9. Posted March 15, 2009 at 2:45 pm | Permalink

    So how about the G20 considering lifting or parking the accounting requirement to mark assets to market, which is delivering the enormous black holes in banks’ balance sheets?

    Since there is no present market in the banks’ toxic assets (much of which is property), rather than pricing them at zero it would be more realistic to price them at original cost price, perhaps minus an averaged cost of repayment defaults.

    This would substantially rebuild banks’ balance sheets – in appearance anyway – until property prices eventually bottom out and a functioning market starts again. Much of these assets will return value in time.

    In the interim, banks could refocus on making profits – through prudent lending – without the fear that all profits would simply disappear into their balance sheet black hole.

    The other benefit would be that the UK taxpayer wouldn’t need to supply the present £100s billions just to fill in the current missing figures in the banks’ balance sheets.

    • Posted March 15, 2009 at 7:20 pm | Permalink

      Oh, but as I understand those £100s billions are only “contingent liabilities”.

      http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/03/the_international_monetary_fun.html

      “No-one thinks they will cost the government the full headline amount being insured (£585bn so far, for RBS and Lloyds). But you wouldn’t expect them to cost nothing, either. Since they are “contingent liabilities”, zero might well be the figure that appears in the national accounts.”

      So provided Alistair Darling has judged it correctly, the assets will turn out to be sufficiently valuable to avoid any claims being made against his insurance, and we won’t actually have to pay anything.

      On the other hand …

      http://www.publications.parliament.uk/pa/cm200809/cmhansrd/cm090226/debtext/90226-0004.htm

      “To complement that, RBS will include £325 billion-worth of assets in the asset protection scheme.

      That will include a range of assets in the UK and abroad, most of them including mortgages and business loans that are currently hard to value.

      The Treasury, with the help of external advisers, has assessed the assets held by RBS …”

      and based on the Treasury’s valuation of these currently hard-to-value assets, we will start to pay if they eventually turn out to be worth less than £283 billion – 87 pence in the pound on their original book value – and then we’ll give RBS 90 per cent of the shortfall to compensate them for the consequencs of their own past stupidity.

      So if their value turned out to be only 50 pence in the pound, they’d be worth £163 billion, so the shortfall below £283 billion would be £120 billion, so then the “contingent liability” would be become a real liability, with the government giving RBS £108 billion of taxpayers’ money.

      Minus the £6.5 billion “insurance premium”, net cost to taxpayer would be £101 billion.

      That’s just for the first tranche of “toxic assets” held by RBS – they still have some more, and then there’s Lloyds.

  10. Posted March 15, 2009 at 6:45 pm | Permalink

    John
    Did you really think they would agree on anything !!!!
    They are already looking after number one.
    Protectionism has already started.

  11. Posted March 15, 2009 at 7:09 pm | Permalink

    It is times like this when the collective public sectors around the world are engaging in their usual stupidity x10, caused by an inflated self-image of their own importance, that Britain could really steal a competitive advantage. The less government we had the better we would be recovering from this recession and the better placed we would be debt wise for the future compared to other countries.
    In the old times, before socialism was invented, we would have done.

    We would have been much better in the last few years without a government at all.

  12. Posted March 15, 2009 at 8:04 pm | Permalink

    My translation of “whatever it takes” is “they have not a flipping clue;” but hey why not pour more petrol on the fire.

  13. Posted March 15, 2009 at 9:44 pm | Permalink

    By the way, talking of useless conferences, here is another one exposed

    http://sciencepolicy.colorado.edu/prometheus/what-was-the-copenhagen-climate-change-conference-really-about-5055

    Tories should be aware of it before the jump into the green sea for good. Why not host your own science conference and talk to the real scientists for yourselves, maybe invite them to annual conference. Form your own opinions on the subject.

  14. Posted March 15, 2009 at 11:49 pm | Permalink

    I’ve just heard that the Govt is selling off the Royal Mint !!!!!

  15. Posted March 16, 2009 at 8:50 am | Permalink

    John

    On the subject of the G20 (and the G8 etc), Gordon Brown is continually saying that the recession, is a global one and there’s nothing he could have done about it. Perhaps you or one of your colleagues in the Commons could point out that Britain was part of the G8 throughout Brown’s period as Chancellor and PM, doesn’t that mean he shares collective responsibility for a worldwide recession wherever it started?

  16. Posted March 16, 2009 at 11:40 am | Permalink

    Oh what a meanie you are. The boy’s only got another 12 months or so of strutting on the world stage and you want to pour cold water over his opportunity to show everyone how clever he is.

    It is far too late to do anything to stop the consequences of his actions; things are going to get far worse before they get better; Joe Public is not to be fooled by his antics, and it won’t be too long before he is made to look a complete fool by his own actions.

    He will lose the next election by a massive margin so we should let him have his hour. After the next election I imagine he will have to look for a job outside parliament because his credibility will be shot to pieces.

    And the G20 achieved nothing, wow.

  17. Posted March 16, 2009 at 11:50 am | Permalink

    I imagine it is difficult at the moment to be sure exactly what position to take (as the opposition).

    I found David Cameron’s apology the other day a little bizarre. I have posted here a couple of times last week that I thought the conservatives were guilty of failing to warn of the dangers of the huge growth in debt. You (John Redwood) said that you had warned repeatedly but, clearly, David Cameron does not think you (the Conservatives) did.

    I can’t understand why he did not take the line … ‘I’m sorry that the British people have been hoodwinked by the opaque regulatory regime put in place by Mr. Brown. For years Mr. Brown posed as the ‘all seeing, all knowing’ chancellor – having put in place a regulatory regime where the left hand (the Bank of England) did not know what the right hand (the FSA) was doing. Only Mr. Brown had the full picture and he deliberately turned a blind eye to the fact that the bankers were conjuring money out of thin air. As long as he could claim the economy was growing (all based on debt) he didn’t care about the debt being piled up for future generations to repay. Anyone who warned him, or raised queries about the so-called economic miracle, was ignored and dismissed – so great does Mr. Brown think he is.’

    He is now, truly, the Emperor with no clothes – how long before the conservatives really start to hammer this home and argue against what he is doing now.

    Of course, to get one’s message across you have to keep it simple.

    Gordon Brown has got this country into the worst mess in living memory because he allowed debt to get out of control.

    His answer is more debt, and more debt, and … even more debt. He wants children as yet unborn to live their lives in debt.

    He wants to convince us that we’re all in the same boat – that we need a global solution to a global problem. But we’re in a worse position than all the other G20 countries – because of Gordon Brown. The summit proved that there are no simple solutions – and that lots of people around the world are against the crude answers Brown has – when you’re in debt up to your neck – just borrow some more. It doesn’t work for individuals and it won’t work for countries.

  • 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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