What has been the cost of the Credit Crunch so far?


             I was asked to come a preliminary assessment of this question.  The Uk economy has lost around 6% of output. This will cost us £90 billion or  £1500 per person  every year for the forseeable future. Taxpayers so far have lost £40 billion on their RBS and Lloyds shares, or £670 per person. I suspect in the aftermath of the Credit Crunch growth will be around 1% per annum lower, which will cost us £15 billion or £250 per person per year.

                  We then need to guess at how much taxpayers will ultimately lose on all the bad and dodgy debts which the state took on or guaranteed. If the losses are a modest £50 billion then that is just £800 each,  but if they were £100 billion you can double that.

               At friday’s prices taxpayers have forgone gains of £15.4 billion on all the gold holdings Mr Brown sold. We would be £250 better off each person if he had kept his fingers off the gold. The rising gold price is part of the response to the continuing distress of the Credit Crunch. Some of our losses from inflation also stem from the Crunch, and from the money printing policies the US and Uk pursued to combat it.

                 It was never going to be easy moving from a position where the country was living more than 10% beyond its means every year, to a position where we lived within our means, or had brought our collective borrowing down to sensible and sustainable levels. Gordon Brown tried to defer the problem, by switching the borrowing from the private sector to the public sector. This decision made areas like private sector manufacturing take a large hit, with lots of lost jobs, factory closures and lower incomes, whilst continuing to boost incomes and employment in the public sector.He subsidised jobs and activity in several large banks, transferring them to the growing  public sector. This  delayed sorting out the over capacity and weak balance sheets in part of the banking industry.

The Coalition government so far has sought to cut the deficit by taxing the whole private sector more. They decided to do this whilst seeking a private sector led recovery to limit the pain of adjustment to lower borrowing. The politics of austerity are  about seeking a pace and impact of less borrowing which the public at large will accept and thinks is fair. If the government  can achieve a higher growth rate overall, it makes the adjustment much less painful.

Unfortunately, all this is now taking place against the background of a nasty and self inflicted crisis on the continent, courtesy of the Euro. The Euromantics, by refusing to implement either solution to their crisis, are delaying the recovery of their zone. Splitting up the zone would be the quickest and least painful solution. The richer countries helping pay the debts of the poorer would work economically, but seems to be fraught with political difficulty. Worse still they are underming banks in the zone, which in turn undermines confidence in banks elsewhere who do business with banks in their zone.

                 Mrs Merkel is coming under more pressure to give up her opposition to Euro guranteed bonds. It is asking a lot of German taxpayers to take on responsibility for the debts and deficits of southern Europe. You can end up with long periods of underperformance and the need for large amounts of subsidy, where places join a single currency area that does not work well for them. Southern Italy and Eastern Germany are  cases  of this. If you do this where people do not feel they belong to the same country, where they do not accept the moral need to help, the politics could prove unworkable.

                  Some in the week-end press dismissed the Eurosceptic critique, because it said we have different views on how you could break up the Eurozone. I do not see it is our job to have a single unified view. It is only the views of those in the zone and controlling the zone that matter. They could withdraw Germany to set up its DM. They could create a northern and southern Euro. They could withdraw the weaker countries. It does not really matter which of these they do. All of them could work. All of them entail fast and decisive action to redenominate bank accounts, handle the issue of paper currency and regain the confidence of the markets. They all have similar risks to them, but all offer a faster way out of the inevitable pain of lost jobs and weak banks.


  1. Martin Cole
    August 22, 2011

    Costs of the credit crunch and the excesses which led up to it?

    The money matters little in the longer run!

    More serious by far, in my view, are the loss of belief in the probity of the Civil Service and the word and motives of any politician sitting within the Palace of Westminster, in either of its two legislative chambers, would you not also agree?

    1. Mike Stallard
      August 22, 2011

      This is far too strong. Our local MP is straight, obedient to the Whips and he does silly things with people in their fetes and summer fairs. He has a superb track record too. The last one (apart perhaps from a divorce) was excellent too. The only politician I know works seriously hard – far too hard I think.
      Mr Redwood strikes me (we have never met) as straight and very generous with his time.
      The expenses scandal was a case of gadarene swine, I think. If everyone does it, then everyone will do it. Like the riots, yes, but also like scrumping in August.

      1. foundavoice
        August 22, 2011

        Obedient to the Whips!? That’s a lot of the problem. If an MP slavishly follows the Whip, then either he’s so wet that his opinion doesn’t matter or he’s so career focused that he’ll do anything not to rock the boat in order to progress his career.

        No, what we need are more MPs that are willing to stand up to their Whips and make it harder for the Cabinet to ride roughshod over Parliamentary scrutiny.

        So more Redwoods, Carswells and Hannans (yes, I know he’s an MEP) please.

        1. Nick
          August 22, 2011

          One interesting feature of the whips.

          If I induced an MP to vote a certain way, with the hint that a promotion (with an increase in salary) was on offer, I would be committing a crime.

          Likewise if I threatened an MP, it would also be a crime.

          Perhaps its time to submit an FOI request for the whips little black books. After all we pay the whips to produce them.

          1. APL
            August 22, 2011

            Nick: “Perhaps its time to submit an FOI request for the whips little black books.”

            A couple of years back I wrote to Speaker Boothroyd and asked a similar question. No such records are kept or no complaints received by the Speakers office.

          2. Nick
            August 22, 2011

            Boothroyd wasn’t a whip when she was speaker. So she is correct that she doesn’t have the information.

        2. Acorn
          August 22, 2011

          Or, we could have Primary elections like Washington State Top 2 Primary for instance?

          The candidate chooses the Party – or not – rather than the Party choosing the candidate. The concept of partisan and non-partisan elected offices will not apply in the UK, as we do not directly elect but appoint most public office holders.


  2. lojolondon
    August 22, 2011

    I agree with the vast majority of what you say, but you have been too kind to our most disastrous PM ever.
    “Gordon Brown tried to defer the problem, by switching the borrowing from the private sector to the public sector.”
    Actually, Crash Gordon tried to ensure he would be voted into power again by ensuring as many people as possible were employed by him, via the public sector. Many of these people knew they would lose their jobs after the election, and it is a travesty that government employment has gone up, not down since Labour.

    One more thing, charities, by definition, depend on public support to stay afloat. It is gross misuse of public funds for taxpayers money to be used to fund charities, it was done purely for political and control reasons, and this should stop forthwith.

    1. alan jutson
      August 22, 2011


      Agreed on both counts.

    2. foundavoice
      August 22, 2011

      The other two advantages for Brown for his strategy was that he then delayed the effects of the recession to when the Tories took over (therefore making them deal with the pain) and because of that (plus your point of making people slaves to Labour with their public sector jobs) reduced the margin of his defeat.

      1. Nick
        August 22, 2011

        So what the Tories should do is publish a list of all the debts, not just the borrowing, and send a bill with the pro rata share to every tax payer.

        When they get the 225,000 pound debt, and 9K a year interest as a ‘demand’ from the state for the state’s cock ups, expect there to be slight number of angry constituents phoning their MPs to demand action.

        The longer Cameron delays, the more of the blame accrues to him.

        1. alan jutson
          August 22, 2011


          Its been suggested on this site by many of us before.

          Publish the true figures and expose the disaster of Brown Blair for what it was.

          If the conservatives do not do it, rest assured Labour will make gains at the next election.

          Also been suggested, keep a running total of the countries debt on a very large digital display screen outside parliament, so Mps and the public can see it every second of every day, just to remind them that its getting worse not better.

          They have one in New York (for all the good it does), but one outside Parliament may just catch The MPs eyes.

          Reply: i have often published the true debt of the UK, and the government has now added the bank debt to the stated totals, and published a new figure for the pension debts.

          1. Nick
            August 22, 2011

            i have often published the true debt of the UK, and the government has now added the bank debt to the stated totals, and published a new figure for the pension debts.


            I’m interested in your figure for the pension debts. What do you have for the present value of the big 3, civil service, state pension and state second pension?

            reply: the official figure from memory is £1.1 trillion for unfunded public sector schemes and deficits on funded ones. This does not include the basic general retirement scheme for all.

            What discount rate are you using?

          2. alan jutson
            August 22, 2011

            Reply to reply

            Aware you do John and thank you, but with the greatest of respect, even your site is not as public or as open as would be a huge digital display outside Parliament, where everyone could see a second by second updated figure showing at present an escalation of our debt.

            I guarantee most MPs, if you were to ask them the question:

            “What is the true size of this countries debt, when you include all of its liabilities”. Would not have a clue.

            Most MPs seem to think that deficit and debt are the same thing when interviewed.

          3. Fred Bloggs
            August 22, 2011

            Read the book by Eamon Butler. He sets it all out.

          4. Nick
            August 23, 2011

            Thanks Fred – Ordered

    3. uanime5
      August 22, 2011

      Would you rather these people were unemployed, rather than employed by the public sector? If the private sector can’t provide enough jobs then the only choice is work in the public sector or go on the dole.

      1. alan jutson
        August 22, 2011


        Perhaps if we could control immigration, the jobs that are being created may go to benefit claimants, rather than new immigrants.

        They have (he Government) all been told enough times, 90% of new jobs created is going to immigrant labour. We need to ask ourselves why.

        Are those who are unempoyed unemployable, or is the benefit culture to blame.

        1. Bazman
          August 22, 2011

          Or do unemployed people become unemployable and then become dependant on benefits? Thought of that one?

          1. alan jutson
            August 22, 2011


            Certainly, and it is true that the longer you are without a job, the more potential employers are likely to choose someone else who has a better and more recent record.

            No one is immune from redundancy, I have suffered it 3 times in the past, my wife has suffered it 4 times in the past, and my daughter recently.

            The answer:
            I became self employed for 10 years and then started my own business, trading for 25 years until I recently retired.

            My wife did temporary work for 2 years until she found a perminent job from one of the temporary positions.

            My Daughter did temporary work (she has no car, so used public transport and walked everywhere) until one of the temporary jobs turned perminent.

            Benefits would not pay for the lifestyle we wanted to enjoy, so we all made an effort, fortunately it worked out.

            The government could learn a lesson here, temporary work should be encouraged, but the benefit system works against you if you cannot find consecutive temporary positions without a break, as you have to sign on, sign off, sign on, sign off, and it causes chaos and an extensive delay in payments.

          2. APL
            August 23, 2011

            Bazman: “Or do unemployed people become unemployable ”

            There is ample evidence that the state education system specializes in producing unemployable young people. Thought of that ?

          3. lifelogic
            August 23, 2011

            Indeed they often do – which is why they should not be allowed to be unemployed for long – they should be trained or do other work of some sort in return for benefits.

      2. Tedgo
        August 22, 2011

        Yes it is cheaper employing people continuously on the dole rather than doing a non job in the public sector, and before you say it, yes I have been on the dole and down to the last £20.

        I say continuously as this would stop claimants wasting Doctors time.

      3. Winston Smith
        August 22, 2011

        Yes, the State cannot afford to keep people employed in its bloated bearucracy for the sake of it. The cost of paying unemployment benefit is much lower than a salary, pension, healthcare, plus overheads. The State needs to encourage private sector enterprise and re-training to omev such people into employment. Its not a difficult concept to grasp, even for socialists.

      4. lifelogic
        August 22, 2011

        Much better for them to be on the dole: firstly it is far cheaper, secondly they can look for a real jobs in the productive sector and thirdly it stops them inconveniencing the private sector as so many state employees clearly do.

        The number of private sector job is not fixed it will rise (if the state stops handicapping it so much with tax and regulation).

  3. APL
    August 22, 2011

    JR: “What has been the cost of the Credit Crunch so far?”

    Perhaps this is the wrong question. The right question is, what is the cost of unbridled credit expansion over the decade or two until 2008?

    The ledger should include the gross mis-allocation of resources across the board. this distortion will all have to ‘come out’ of the economy. While the worst offender has been the public sector, we also have a hugely engorged financial sector and a stunted industrial sector.

    1. Nick
      August 22, 2011

      Notice how even John is blaming the banks, and by and large absolving parliament from its sins.

      1,300 billion on civil service pensions with no assets. That is the extent of the black hole there, if you don’t use the fantasy government accounting method where debts get transformed into income so you can spend it. It’s a straightforward fraud. A Ponzi scheme.

      On top there is 2,400 billion for accrued state pension rights. Note that this doesn’t include bailing out those who haven’t saved enough. Even the state pension alone isn’t enough to live on. Anyone with just the state pension will be topped up with MIG income, housing benefit etc. That’s another 7K a year tax free on top of the 5K. No fund put aside for this.

      State second pension? Your guess is as good as mine, but its not going to be cheap.

      So what’s 100 bn lost on the credit crunch when the government debts are pushing 7,000 billion?

    2. A different Simon
      August 22, 2011

      Great post .

      Whilst there is some merit in J.R.’s attempt to quantify it on an average per person basis , there is an awful lot of destruction which has been spread very unevenly .

      I don’t suppose these average figures will matter to someone who has lost their job or a youngster who has never even had one .

      Take the recent award of a rail contract to Siemens over Bombardier . The civil servants and govt talked about “best value for the taxpayer” . What they really meant is those taxpayers who are in 100% secure jobs like themselves .

      So much of our countries malaise has been caused by our eagerness to sacrifice the well being of our fellow British Citizens for supposed lower costs .
      – encouraging Eastern Europeans in to drive down the wages of skilled tradesman
      – subsidising companies with public money to bring in cheap I.T. developers from abroad under ICT “visa” schemes .
      – driving down quality and dumbing down education . Replacing proper Cities and Guilds apprenticeships with NVQ’s .

      1. Nick
        August 22, 2011

        Take the recent award of a rail contract to Siemens over Bombardier . The civil servants and govt talked about “best value for the taxpayer” . What they really meant is those taxpayers who are in 100% secure jobs like themselves .


        This is one reason to axe future civil service pension liabilities. Expose them to the stock market, and they are more likely to act in a way that is beneficial to the country.

      2. Bazman
        August 22, 2011

        Good points. Does anyone expect low paid and unemployed young people who face continuous attacks on their living standards by this lowering of costs to be even remotely interested in these average figures?

        1. Nick
          August 23, 2011

          Not unless they get a personal bill, in their name.

          I can see two reactions.

          1. Anger.
          2. Resignation to the inevitable.

          We need the anger, in order to get politicians under control and to cut spending like mad.

          1. Bazman
            August 23, 2011

            Cutting their benefits first. Are you sure they will understand?

  4. Mike Stallard
    August 22, 2011

    Where there is money, people flock. I do not notice anyone making excuses for their huge pay checks from local councils. I do not see bankers complaining about their bonuses. I do not see top judges, doctors and artists complaining about their lot in life. Down at this level everyone is scrambling to get to Uni so that they can get a job like that.

    If only they were scrambling to start up a business or a factory or make money in mining or going abroad to get seriously rich!

  5. lifelogic
    August 22, 2011

    “Fast and decisive action” looks rather unlikely from the EU on past performance but clearly a solution will not arrive spontaneously. Most worrying of all is the direction and weakness of Cameron. His failure to address the Brown mess, with any sense of urgency or determination and with the LibDems pulling him under where ever they can.

    1. lifelogic
      August 22, 2011

      Even now the bank are not lending sensibly – it is far better to borrow directly from people as the banks are just a pointless expensive middle man at the moment between good borrowers and savers.

      If, how ever, the government ever did make a move on employment and other counter productive regulation, a serious move on pointless government expenditure and attack the absurdly high tax rates. Then perhaps confidence and lending might finally start to recover.

      But as Osbourne is clearly doing so little, but conduct pointless reviews until the next election, then we have perhaps 9+ years of decline to look forwards to.

      1. Nick
        August 22, 2011

        If, how ever, the government ever did make a move on employment and other counter productive regulation, a serious move on pointless government expenditure and attack the absurdly high tax rates. Then perhaps confidence and lending might finally start to recover.


        The only one I see addressing these issues is Pickles.

        However, you won’t get tax cuts because the beast is ravenous.

        We need 30% off government spending just to break even and stop the debt from rising. Even the Tories aren’t planning to run a balanced budget. It’s still spend spend spend.

        We need all government spending published down to the penny. Every single drop. Names addresses, company names company numbers plus what the spending is for.

        Next we need to prosecute those using cards for shopping trips to Harrods – I kid you not – London Borough of Bexley – Tory. It’s endemic. Don’t think for a second its a Labour issue. They are all at it.

        We also need Gus O’Donell’s credit card spending published and if he can’t account for it properly, he should be (disciplined or prosecuted-ed). We also need to revisit the 52% of MPs who fiddled their expenses and at a bare minimum force them to abide by the MPs code of conduct and pay the interest. Better still jail them.(most committed no offence, other than making legal claims under a scheme which all now agree was too generous. -ed)

        We can then start on the MPs, British and European, and do the same.

        1. Tedgo
          August 22, 2011

          I think the whole government credit card business needs investigating by independent auditors and possibly the police. I see local councils are also reluctant to disclose information.

          HMRC has strict rules about payment in kind, both for the employee and employer. If goods have been bought for personal consumption then the money should be repaid to the government and a P45 given to the employee.

          If there are no receipts to backup expenditure then it should be assumed that the goods were for personal use.

          I think there is a big scandal simmering away.

          1. Nick
            August 23, 2011

            Of course there is a scandal.

            There is an even bigger one in the Lords.

            Over 300 peers have claimed for, and been paid, for more days than they have used their passes.

            Reply: I thought under the old system the issue was the designation of their home, with peers claiming living costs in London overnight when they had London properties. The new system plans to pay them so much a day, where they will presumably have to clock in for duty.

          2. lifelogic
            August 23, 2011

            I would not expect much action over it though unless a big file is leaked to the Telegraph or similar.

    2. lifelogic
      August 22, 2011

      You rightly state that:

      “Gordon Brown tried to defer the problem, by switching the borrowing from the private sector to the public sector. This decision made areas like private sector manufacturing take a large hit, with lots of lost jobs, factory closures and lower incomes, whilst continuing to boost incomes and employment in the public sector.”

      Can anything be done perhaps to prevent a labour government (largely funded by state sector unions) from repeating this vandalism? The electoral cycle seems to actually encourage Labour to create and leave as big a mess as possible, so any incoming Tories gets the blame and does not stay in office for long. Mind you on performance so far Cameron certainly deserves considerable blame, for his failure even to start putting things right.

      Reply: One government cnanot b ind a successor. However, a debt ceiling act would make it a bit more difficult for a future government which wanted to overspend. Enforcement of EU rules would also make it difficult!

      1. APL
        August 22, 2011

        JR: “One government cnanot b ind a successor. ”

        Good to hear that tenet of English law still stands.

        Now abrogate the Lisbon treaty. Cameron’s only reason for not delivering the treaty was that it had already been signed.

        So lets have a referendum and revoke the treaty. Treaties have been broken in the past, there is no reason why such things won’t happen in the future.

      2. Nick
        August 22, 2011

        There are three things, debt, spending and taxation. You can’t control government by controlling just debt. They then go and raise taxation to the level it screws the country.

        You need to give the electorate control over 2 out of 3. I suggest they are debt and taxataion. A referenda on any borrowing, once a year, combined with a referenda on any changes in taxation (up and down).

        Spending has to follow.

      3. lifelogic
        August 23, 2011

        “One government cannot bind a successor”

        So why then no cast iron referendum or real referendum lock as initially promised? Everything Cameron wants, but is politically unpopular is blamed on Labour having already agreed to it. But clearly Cameron wanted it too – but wishes to blame it on Labour yet pretend he did not – just for political reasons.

        Are these the actions of someone one wishes to have as Prime Minister?

  6. Peter Campbell
    August 22, 2011

    We’re now at the point that it really doesn’t matter what losses on banks or credit crunch are because the currency is pretty much doomed. The real debt will never be repaid, it’s far too big. Economic growth in industrialised countries is over. The last 10 years have been sustained by credit, you can’t pay that back without growth. Increasing scarcity of oil and decreasing returns on capital will make sure there’s no real growth. We are in a depression, government currency printing is preventing it taking it’s course but you can only put things off for so long and the day of reckoning is approaching. It may be set off by the euro collapse or dollar collapse or any one of a hundred other things but deflation and/or massive inflation are just around the corner.

  7. alan jutson
    August 22, 2011

    “Police spend £5,000,000 on trade union jobs”
    Daily telegraph this morning reporter Holly Watt.

    Answer to a series of Freeom of Information requests.

    John, Why does the taxpayer fund these full time union jobs in the public sector.

    NHS has a similar problem (Ms Pilgrim), so I believe do other organisations.

    I would have thought dues from its members would pay for the union officials wages and overheads. ?
    Now £5,000,000 may not be a lot in the whole scheme of things (Countries debt)but this is surely just madness, paying and employing for full time union officials out of taxpayers money.

    I also see also reported in the press that Mr Millibnd would like Labour Councillors to pay the Labour Party 7% out of their claimed expenses from Local Councils into the Labour Party coffers, as the Party is short of funds.

    Surely if you are claiming expenses there is no 7% to be had, as you are simply claiming what you have spent (no more, no less) on fullfilling your duties.

    Are expenses nowadays some form of additional income, that bears no relation to real costs incurred.

    Labour Party, Lib Dem, Conservatives, BNP or whoever, it does not matter, this is wrong, wrong, wrong.

    This really does show the mindset and thinking of some of our Politicians.

    No wonder we are in the Brown stuff.

    Reply: Councillors get payments on top of expenses.
    The Trade Union issue is part of a negotiated settlement from a past government.

  8. alan jutson
    August 22, 2011

    I can understand why Mrs Merkel does not want Germany to underwrite the Eurozone debt, if I was a German citizen I would support that decision.

    I do not want us in the UK to underwrite another Nations debt either.

    The only real solution, is for each country to sort out its own problems in its own way.

    Reported in todays press that Greece has a black market economy of 33% of GDP, and Italy has a black market economy of 27% of GDP.

    Do not know how they get/estimate these figures, as the black part of an ecomony by its very nature is surely to a degree secret, so I guess, its an educated guess, but if even near accurate why hould these countries be bailed out by hard working taxpayers in another country.

    If Countries do want to band together Monetary union), then they have to accept that they rise and fall together, this may be what the politicians want, but I suggest it would be wise to put it to the people in a referendum first, as they will be the ones who pay.

    Governments have no money, it all belongs to the taxpayer, the Government is simply a custodian of the money for the people, and the quicker a few politicians realise this, the better.

    1. Nick
      August 22, 2011


      Greece 10.5%
      UK 10.4%

      GDP to debt

      Greece 155%
      UK 160% (ONS just found a large debt down the back of the sofa)

      All the Greeks have to do is stop spending and deal with their black market. Tax that and they are solved.

      The UK doesn’t have a huge black market – yet. It already taxes hugely and is up the proverbial creek.

      1. uanime5
        August 22, 2011

        According to ONS in 2010 GDP to debt for the UK was 76.1%. Where did the extra trillion of debt come from?

        Reply: There is more than £1 trillilon of pension debt, and more than £1trillion of bank debt owned by the state.

        1. Winston Smith
          August 22, 2011

          Plus off balance sheet, PFI debt.

          1. Nick
            August 22, 2011

            PFI is actually quite small. With PFI there are two elements. One is a capital related spending. The bit that goes to building the hospital. The second part relates to keeping it running.

            The first is debt, the second is spending. Still relatively small compared to the big debts. What’s a hundred billion when you in debt to thousands of billions?


            “The ONS should include these liabilities in their calculations. It is shocking enough to see official figures revealing a jump in national debt over the last year from the equivalent of 48pc of GDP to 56pc, but the grave reality is that our real national debt stands at 333pc of GDP.”
            Nick Silver, an IEA research fellow, said the full figure, including the £1.2 trillion public sector pension liability and £2.7 trillion state pension liability, should be published either monthly or annually alongside the net debt data for reasons of transparency.
            The ONS has already begun to assemble the data, publishing the full list of Britain’s debts and liabilities for the first time in July, which came to a total of between £3.68 trillion and £4.84 trillion.
            Aileen Simkins, ONS director of operations on economic statistics, said the figures would be updated in September and that the ONS plans to compile and release them on an annual basis “to begin with”.

            Government income is 600 bn.

            How many times income is it reasonable for the government to gear itself up to?

            What about all the other forced spending things should be treated as liabilities?

            For example, if half the population has no savings for their retirement, is that a liability?

  9. barnacle bill
    August 22, 2011

    Mr. Redwood your title should read – “What has been the cost of NuLabor’s disastrous policies?”
    At every opportunity the electorate must be educated as to where the responsibility for this mess lays, otherwise they’re going to pin the donkey on your Tory-led Coalition!

    1. lifelogic
      August 22, 2011

      The blame indeed lies clearly with Brown, Blair and before them Major and Heath but the baton has been passed to Cameron over a year ago. So far he shows no sign of doing anything whatever to carry it forwards. Given the dire position and the national mood his response is totally pathetic.

  10. Frank Salmon
    August 22, 2011

    Your best post yet John.
    The world is in an economic mess, but each country or ‘zone’ is in a mess for different reasons. Britain had the chance to run itself prudently in those Brown years, and yes a world crisis still, but one where we would have looked more like Australia, Sweden, Norway, Canada, or, dare I say it, Germany. Now we are one of the PUGIES… Portugal, UK, Greece, Italy, Eire, Spain…..

  11. Denis Cooper
    August 22, 2011

    The designers of the euro convinced themselves and many others that its existence would lead to convergence of the national economies of the participating countries.

    Because the relevant parts of the treaties were written on the assumption that the euro would inevitably succeed, an assumption which was almost an article of faith, little thought was given to incorporating contingency plans in case it failed, let alone to ensure that if it failed it would fail safely.

    More thought was given to how the governments and parliaments of all twelve countries could be inveigled into accepting it, hence the inclusion of the “no bail-out” clauses to reassure the Germans in particular.

    In fact quite soon after the introduction of the euro it was noted that the eurozone economies seemed to be diverging, rather than converging, but nobody of any rank within the EU reacted by insisting that the treaties should be amended to reflect that emerging reality.

    Instead attention shifted to amending the treaties in other ways to push forward “ever closer union”, with eight years spent devising and forcing through the EU Constitution aka the Lisbon Treaty.

    That is why in October 2009, just before the Irish voted again on the Lisbon Treaty, the euro-federalist FT journalist Wolfgang Munchau described it as “a pre-crisis treaty for a post-crisis world”.


    “Bearing in mind the EU’s main defects at present, such as its inability to co-ordinate during a crisis, its failure to enact policies to strengthen its potential growth, and its failure to project itself effectively at a global level, the treaty’s institutional and legal changes will offer little comfort.”

    “It is not that easy to explain why this particular treaty is necessary when the real problems of the EU lie so obviously outside its scope.”

    Long before December 2010 when the then French Finance Minister Christine Lagarde cheerfully admitted to the WSJ that she knew that the eurozone bail-outs were totally illegal under the present EU treaties, her colleague Pierre Lellouche, the Minister for Europe, had said much the same thing to the FT in late May 2010, albeit less directly:


    “French minister says bail-out alters EU treaty”

    “The eurozone’s €440bn debt guarantee scheme is tantamount to the adoption of a Nato-style mutual defence clause and marks an “unprecedented” change to the bloc’s treaties, according to France’s Europe minister.

    In an interview with the Financial Times, Pierre Lellouche laid bare the French government’s conviction that the emergency stabilisation scheme agreed earlier this month amounted to a fundamental revision of the European Union’s rules and a leap towards an economic government for the bloc.

    “It is an enormous change,” Mr Lellouche said. “It explains some of the reticence. It is expressly forbidden in the treaties by the famous no bail-out clause. De facto, we have changed the treaty,” he added.

    Mr Lellouche’s comments are likely to go down badly in Germany, where the government has insisted the debt guarantee scheme to help beleaguered eurozone members is a temporary mechanism, set up on an intergovernmental basis where Berlin retains a veto, and in no way implies a breach of the EU’s treaties.”

    The problem being, of course, that the EU heads of state and government had no lawful authority to make that “de facto” change to the treaty.

    In the absence of agreed contingency plans to deal with this kind of crisis EU leaders have been forced to improvise, and with 27 sovereign states involved and at least some “reticence” about breaking their existing treaties it would have been surprising if they had managed to act promptly, decisively and consistently.

  12. Slim Jim
    August 22, 2011

    I read an interesting comment on the Telegraph website last week. It was about an American economist (I think) who equated government spending with household finances. Apparently, the US government earns the equivalent of $58000, spends about $75000 and has a credit card maxed out to around $325000! Perhaps you could make a similar comparison to our government’s spending (and borrowing). It helps to keep the narrative simple, especially when most people fail to understand the diffference between deficit and debt. How about it John?

    reply: I did do something like that sometime ago, and do often express UK figures as so much a head. The Uk governemnt currently spends £11,600 a year for every man, woman and child, and borrows £2400 a year extra for every man woman and child.

    1. Nick
      August 22, 2011

      And so what, would be most people’s reaction.

      Send them the bill, personally, and its a tad different.

  13. gyges
    August 22, 2011

    A better question would be, “What has been the cost of the Credit Crunch so far […]” and has it fallen fairly?

  14. sm
    August 22, 2011

    The Bank of England estimated that this subsidy was worth some £100 billion to the major UK banks in 2009 alone. (http://www.publications.parliament.uk/pa/cm201011/cmselect/cmpubacc/793/79305.htm)

    Also consider
    1) the measuring rod the £? its hardly the same. (Consider CHF or Gold).
    2) the ensuing stagnation, the extra direct unemployment possibly for rest of life in some cases, extra taxes.
    3) the misallocation of capital

    The extent of the difficulty calculating it just illustrates the problem.

    The alleged revolving door of politics,conflicts of interest,power and money and the EU.

    I worry it costs us our democracy and freedom.

    1. Gary
      August 22, 2011

      From your link, you have to laugh at the much repeated myth that the “bank bailout was to protect depositors”

      If they had instead spent the money the govt paid, and that from QE , and paid out the depositors and let the banks go bust, we would now no longer still be throwing unlimited amounts of money down the banking black hole and we would have protected those deposits from further erosion through the inflation that has been stoked by the now interminable bank bailouts.

      We are sacrificing entire nations to save the banks from their own $600 trillion nightmare. Enough!

    2. Nick
      August 22, 2011

      The Bank of England estimated that this subsidy was worth some £100 billion to the major UK banks in 2009 alone.


      That’s a load of codswallop I’m afraid.

      From whom is the money coming?

      Think about mortgages for starters. 1,000 bn in the UK of mortgages. I don’t see savers getting nothing and mortgagees being charged 10%.

      Now think of the bailout. Do you think that the cost of bailing out banks in direct subsidy is 100 bn a year? Even 3 years after the crash its just hit 40 bn in direct subsidy.

      It’s just the BoE trying to blame others and rent seeking more money.

      And that’s coming from someone who thinks the government is a fraudster who is in the proverbial.

  15. Robert K
    August 22, 2011

    I share many of the most bearish sentiments on this site about where UK monetary and fiscal policy has gone wrong in the past 20 years and the calamity of the eurozone (BTW, I like Euromantics moniker).
    However, there is a way out if our government can be persuaded to allow an enterprise economy to develop in the UK. It, the government, needs to do little apart from get out of the way. Cut tax rates, cut whatever regulations and red tape stand in the way of business creation, have an energy policy that makes our factories and enterprises cost competitive with emerging markets and hang out a sign that says “UK, enterprise capital of the world”.

  16. Neil Craig
    August 22, 2011

    It is an indeterminate question. We did see a decrease of 6%, however that is from zero whereas the long term trend of groewthbhas been about 2.5% annually . Thus, over 4 years we have lost another 10% of growth we could have expe4cted.

    On the other hand since the previous “boom” was artificial, based on an artificial house price boom we could say that all the losses of the recession weren’t really losses of the time but reality wiping out the apparent but false real growth.

    On the 3rd hand if we compare to world growth of 5% we have lost 21% compounded growth available to the rest of the world. And compared to China’s 10% annual growth we have lost 46% – £650 billion annually.

    Of copurse no government had any intention of allowing 10% or even 5% growth – but that does not meanm we did not lose that during the recession merely that every government preventing that growth has been guilty of comparable wealth destruction, even during “boom” times.

  17. Quietzapple
    August 22, 2011

    It would be interesting to know when you’d sell or would have sold the gold sold in the diversification of UK reserves and whether those countries who adopted the same strategy which was during the longest period of UK economic expansion I can recall likewise enjoy such wittering?

    reply: I would not have sold the gold – I have never called for us to sell gold from the reserves.

    1. Quietzapple
      August 23, 2011

      No gain then.

      Had we sold some of the gold – and we didn’t sell all of it – in the early ’80s and picked the punter’s time to sell it we might later have reinvested in gold again.

      I’ve not heard that Osborne has bought up gold at the expense of the balance of our currency portfolio before these rises. HM Treasury quite right to retain a balanced portfolio which was the objective of the sale.

  18. Gary
    August 22, 2011

    We had better keep a running total of the cost, because we are very far from the bottom of this crash. This crash won’t stop until all the excess from the credit bubble has been wrung out, and all the malinvestments liquidated. And anyone who has studied markets for more than a day knows that these things always overshoot past where the bubble started.

    And QE won’t help. It has not helped, there is no reason to believe that more of it will help. Hoover tried the same thing and failed. The only thing it may possibly do is turn a deflationary depression into an hyper-inflationary depression. But that won’t stop the central bankers(and most politicians) from trying. Printing is all they know.

    The blame for this is firmly with the banks , they issued the credit, and the lawmakers who facilitated their monopoly. The credit bubble was not caused by the sovereigns, nor the EU in of themselves, as loathsome as that is.

    1. sm
      August 23, 2011

      We probably need to control the money supply directly and control the deflation so it is felt evenly across the economy and strategic choices can be made. Banks must shrink.

      To counter the deflation in (housing assets and others), the treasury could issue debt free money to spend it on infrastructure assets the private sector won’t. Anything which reduces imports for a start. New bridges, resovoirs etc. It still wont be pretty but im not seeing any good alternatives. The gradual approach will just grind most slowly into dependence.

      Raise interest rates and increase the capital requirements to full reserve banking.

      The Hoover dam is still a fully functional US national asset. How much is it worth today and what has it achieved- by allowing the water to be utilised more efficiently.

  19. Oranjepan
    August 22, 2011

    If the country was living 10% beyond its means then the range of economic measures must be recalibrated before anyone can answer what the overall cost to the public has been.

    Nominal GDP declines of 6% since the credit crash don’t therefore reflect falls in living standards but a 4% transfer of wealth from the poor to the wealthy in the past 2 year period – a massive amount!

    Reply: I do not see how you work that out. We are still living 10% beyond our means, as well as having a 6% decline.

    1. Nick
      August 22, 2011

      I don’t think most individuals are living beyond their means.

      The government is. Hence GDP is an awful measure. A bit like getting a mortgage on the basis of your income, and adding your neighbours on to for good measure.

      Debt to tax revenues is a far better indicator of how far the government is up the swannee.

      reply: The government has no money – it is making the restofo us live beyond our means collectively, because we have to pay for the government’s debts

  20. Geoff not Hoon
    August 22, 2011

    Mr.Redwood, Would you agree that if the previous government had been prudent with our money we would not have had to enter into so many PFI contracts with whatever they are costing in millions/billions per annum in interest each year until heaven knows when.

    reply: I do agree. PFI was often a bad deal, as some of us said at the time.

  21. zorro
    August 22, 2011

    As I have mentioned previously, the Germans are starting to show their cards…..(refers to German demand that there are no bail outs unless substantial national sovereignty is surrendered-ed)

  22. Bernard Otway
    August 22, 2011

    Methinks Uanime5 is as my old history master used to say HALFPENNY SHORT OF A SHILLING,that is why as a 66 year old I am glad thinking like his/her’s which could have real influence in about 20 years,will not affect me as hopefully I will no longer be around.

  23. Denis Cooper
    August 22, 2011

    I wonder exactly what game Merkel is playing.

    Which consideration is uppermost in her mind?

    a) Cost to the German taxpayers.

    b) Damage to the German economy.

    c) Political opposition in Germany.

    d) The German Constitutional Court.

    e) German hegemony in Europe.

    Early in 2010 she insisted that there was no possibility of any country being bailed out, because bail-outs were forbidden by the sacred EU treaties.

    Then on May 9th 2010 she agreed that Greece should be bailed out after all, and as part of that she agreed that the EFSF should be set up even though there was no legal basis for that in the EU treaties.

    The Constitutional Court refused an application for an emergency injunction to block that aid, pending a final judgement on the cases brought before it.

    Then she agreed that the EFSF should borrow money to lend on to the governments of distressed eurozone states by issuing a form of Eurobond.

    Three bond issues so far, through which the EFSF has borrowed a total of €13 billion from international investors:


    The bonds are rated AAA because each of the eurozone states guarantees 120% of its pro rata share of the repayments due to the bondholders, a brazen contravention of the EU treaties.

    Now she says that Eurobonds are “exactly the wrong answer”, and I assume that isn’t because she’s suffering pangs of conscience about the multiple illegalities to which she has subscribed.

    So is it because of a) and/or b), or is it just c), or is d) also playing a part because the Constitutional Court is gradually moving towards a final decision?

    Or is everything she does ultimately determined by e), a long term strategic plan to establish German hegemony in Europe, and is all the rest just tactical manoeuvring towards that goal?

  24. Bazman
    August 22, 2011

    Some right wing commentators are saying that the free market all to often turns out not to be a free market at all, but a corporate racket for the few and the free market only gives freedom for a super rich mobile elite able to shift its resources at will, whilst the constraints and disciplines of the market condemn the rest of use to a hard slog in increasingly insecure circumstances as well as failing to deliver in its most fundamental promise. Equality of opportunity. Anyone disagree with this equality?

    1. StevenL
      August 22, 2011

      It’s what you call ‘Regulatory Capture’, when the regulated control the regulations/regulators. Answer? Ditch the barrier-to-entry regulations.

      1. Nick
        August 23, 2011

        If you take the existing banks, the incumbents love the regulation. It prevents rivals. They also love RBS Lloyds and other retail banks being nationalised. They have to gouge the customer, and as a result they don’t have to compete aggressively.

        See off all the bits. Wind up the remainder. Lower barriers to entry, and let people compete.

        I would implement two sorts of accounts. Those with a 100% guarantee, but no interest and charges – safe deposits. Then you have those that are at risk, but pay interest. The safe deposits are segregated, or invested in gilts.

  25. Rollo Clifford
    August 22, 2011

    Gold – and then there was the report saying the Times attributes the rise in gold prices to an increase in dental work. And, of course Gordon was right to sell the useless stuff. Is it April 1st everyday now?

  26. BobE
    August 22, 2011

    I fear that the third world war is being won using money.

  27. StevenL
    August 22, 2011

    There’s winners and losers JR. There’s the people who bought houses before that Scottish bloke abolished ‘boom and bust’ and now enjoy ZIRP and tax-free rent-a-room. Then there are the people who didn’t and the people cashing in their pensions or relying on savings that are paying to prop up the debt bubble.

  28. Manicbeancounter
    August 22, 2011


    You quite rightly show the paper losses on the banks and the profit foregone on the sale of Gold at historical low prices. However, the loss of £90bn due to the downturn is more dubious. Normally after a steep downturn there is the rebound. There is strong evidence that this is not happening like in previous recessions due to the global debt problem.

    There is an area of credit crunch cost that you omit, but is very real. That is the rising national debt caused by the massive increase in the deficit. In the UK, the last Labour Budget predicted (optimistically) that this would peak at “only” 91% of GDP or about £1500bn. Last year I calculated that at least £600bn of this, or over half the decadal debt increase to 2015, would be due to the structural deficit in place prior to the downturn. That is a deficit created by poor stewardship of the Government finances during the boom years. The figure may be now larger that this, as I assumed a strong recovery of at least four years of >3% growth. My calculations are at http://manicbeancounter.wordpress.com/2010/03/21/the-impact-of-labour-on-the-current-crisis/

  29. Fred Bloggs
    August 22, 2011

    The gold is irrelevant except for an example of Brown’s incompetence. I mean he signalled the market in advance. It is the stupidity rather than the size of the loss that staggers me.

    I also disagree with your numbers about loss of output. The country was living on credit and this fed a consumerist bubble that required a higher level of output. We were living in a fantasy world and the output was real but was not sustainable. To lose something we should not have had is not a loss but a correction.

  30. TomTom
    August 23, 2011

    Having endured Equitable Life and Endowment Disaster and destruction of Lloyds TSB and HBOS Shareholdings, I might add to the general costs of FIRE incompetence in Britain.

    For an economy built on FIRE Sector it is not particularly efficient and certainly value-destructive. Everything I have tried to do has been vitiated by the corruption and managerial incompetence of Banks Insurers and Government

  31. zorro
    August 23, 2011

    John, I posted a comment which is still showing under moderation. Any problems?


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