Recovery talk is meaningless to the man with his P45 in the post
Unemployment is the only indicator that counts when it comes to confidence, says Jeff Randall.
For those with a vested interest in talking up recovery – and there are plenty of them – this has been a good week. As if performing the hit song from Gold Diggers of Broadway, they have been painting the clouds with sunshine.
Profligate ministers, ineffective regulators and reckless bankers who conspired, albeit unwittingly, to create this humdinger of a financial crisis are delighted to identify salvation's early arrival: property prices are up, the jobs market is improving, and the stock market seems more like a playground than a graveyard.
Yippee! There is no need to adjust our sets, normal service has been resumed. The world has been saved; the recession is over. Load up the charabanc with fizzy pop, we're off to the races.
Nice theory, shame about the facts. What has really happened is that a seriously sick British economy has been pumped full of anaesthetic in the form of unprecedented monetary expansion and debt-funded government largesse.
Not surprisingly, with the narcotics of fantasy money and unaffordable public spending rushing through its veins, the patient suddenly looks a little perkier. But these are tranquillisers, not a panacea. They do not eliminate the illness, they merely mask it.
"The patient is still in need of major surgery, and will eventually have to be weaned off the painkillers," says Professor Andrew Clare of Cass Business School. "Debt burdens [private and public] will have to be addressed eventually."
Yes they will. As annual state borrowing approaches £200 billion, about 13 per cent of gross domestic product, the United Kingdom's credit card is all but maxed out.
So what kind of essential surgery does Professor Clare envisage? "Savage cuts in public spending, painful increases in taxation and increases in household saving rates." The side effect of the unavoidable operation, he says, "will be a very muted growth environment".
As any addict knows, what begins as a gentle dose of ibuprofen can turn into a dependency on ever bigger intakes. The British economy, I'm afraid, is beginning to resemble a raging junkie, craving regular fixes of quantitative easing and fiscal stimulus. No sooner do Mervyn King and Alistair Darling administer the drugs than the patient screams for more.
Just like painkillers, when policy medication is dished out too generously, it transmutes from pacifier to problem. At a recent high of $1,000 an ounce, the gold price is telling us what this problem might be – inflation.
Faced with three options for eliminating excessive debt – defaulting on it, repaying it through higher taxes or debauching the currency through inflation – governments, on the whole, prefer the latter. Gold buyers, especially the Chinese, fear that this is where Britain and America are heading.
http://www.telegraph.co.uk/finance/...less-to-the-man-with-his-P45-in-the-post.html
