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!