2005 revisited

Yesterday’s budget sounded a note of optimism.  The economy is growing, the deficit is shrinking, and …

… hang on …

… the deficit?  We’re running a still-huge deficit when we’re in the cyclical boom?   Right, straight back to the bubble-economics that got us into trouble in the first place!

2005 was kind-of the opposite.  The economy was slowing, the credit bubble had grown beyond sustainable, house prices were stumbling, and we were staring at recession.  The government of the day spent its way out with a huge dose of Ballsian stimulus: add fuel to the fire, buy a couple more years feelgood at the price of turning that recession into the biggest slump for 30 years.

The chancellor of the day rationalised breaking his own rules by explaining that when he had talked of a balanced budget, he meant over the economic cycle.  So at the bottom of the cycle in 2005 he would spend more, and make it up when the economy recovered.  Ed Balls said much the same even as his idea collapsed in flames.  And now … today’s chancellor has made clear his own commitment to Osbrownomics: run a huge structural deficit and – currently – claim the credit when a cyclical boom takes a few quid off the headline figure.

Hmmm … not really so different to 2005 after all …

On the plus side, the mood music about savings is a real change, and a welcome one.  It will probably work for some time, propped up by “safe haven” status for the global super-rich.  But that of course is another bubble involving prostituting our economy most wantonly!  One day sentiment towards Sterling will change, and then what can survive a round of Weimar inflation in commodities including food and energy?

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Posted on March 20, 2014, in economy, uk. Bookmark the permalink. 3 Comments.

  1. I hope the state’s attitude towards savers really does change. For too long those of us who pay our way and provide for ourselves have been systematically impoverished through excessive taxation, inflation and, more recently, low interest rates and money printing. The stealthy transfer of wealth from the prudent to the indebted over the last six or seven years has been nothing short of scandalous, and continues with ridiculous schemes to prop up the housing market and the like. As you say, all the main political parties are up to the same game.

    The proposed pension changes were a surprise and very welcome indeed. I hope Osborne & co have the guts to see them through and they don’t get reversed next time Labour gets in. But already I detect the vested interests are closing in to try to restrict these sensible reforms (which are out to “consultation” so are by no means a done deal).

    We have an unholy alliance of the costly, inefficient and exploitative annuity industry and socialist politicians, both saying in rather condescending terms that private pension savers are too stupid to be trusted with their own money. Apparently, when we retire we’ll blow all our dosh in one go and become welfare junkies (mind you, that might not be such a bad idea if your Weimar scenario comes to pass!). Of course the former vultures have their eyes on their profits and bonuses, and the latter have never trusted individual endeavour anyway.

    Now, shall I top up my SIPP or spend the money on tins of beans and a shotgun?

  2. Speaking as a private pension saver… I really don’t have much confidence in my savings.

    The trouble with “pension schemes” as implemented in the UK is, they all require you to put your faith in some entity that’s bigger than you, but not “too big to fail”. A bank, an employer, an insurance company, the government – in fact, most often you have to trust a combination of these entities not to screw you, while in practice all of them have a very strong track record of screwing their dependents, both individually and in combination.

    Where I currently live, the most widely touted means of providing yourself a pension is called “rental properties”. And much as I am repulsed by the idea of becoming an elitist bloodsucking tick on the crotch of the working poor, I’ve come to see merit in the idea. Because if there’s one class of people who can be guaranteed to come out ahead in any kind of economic shakeup short of full-blooded revolution, it’s landowners. That’s not so much putting your faith in the government, as in the very concept of a continuous legal system.

    And speaking politically, I’d like to plug my own ‘basic income’ idea once again: the gov’t should take 20% of national income, and distribute it evenly between all citizens over the age of 16 – regardless of age, health, residence, marital status, legal status (e.g. in prison), other income or wealth – in lieu of absolutely any other financial benefit or selective tax allowance.

  3. Your antipodean compatriots are not alone, Vet. Here in Devon a good friend of mine owns two and a half rental properties in lieu of a pension fund as she doesn’t trust banks or other financial institutions (in fact she lives in a rented house herself, so I think it’s fair not to see her as an elitist bloodsucking tick!).

    In my own case I trust my luck to a SIPP – that way I make my own investment decisions (and I have a wide range of assets classes) but I have to trust the legal and financial safeguards (use of nominee/client accounts to hold my assets separately from the manager). At least I know my manager is a debt-free company too (and I hold a few shares in them). In fact they’ve done rather well since the budget as their clients are self-investors and they’re not an insurance company, so they stand to gain from the reforms.

    As far as your final suggestion is concerned, I seem to recall the UK Liberal Party came up with something similar in the late 1970s. Like most rational ideas, no one among the political classes took it seriously which was a shame.

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