Fascinating argument by Ambrose Evans-Pritchard in the Daily Telegraph as to why the economy of the UK has been mismanaged during the last five years
One: the UK current account deficit reached 5.7pc of GDP in the third quarter of last year, the worst of any major country in the world, bar Spain. "This is approaching Banana Republic status," said Albert Edwards from Société Générale. "Years of macro-mismanagement have dragged the UK economy to the edge of a precipice. The household sector is borrowing at a cyclically unprecedented 4pc of GDP. Basing economic growth on unsustainable asset price bubbles was always a recipe for disaster," he said.
Two: we are a budget basket case as well, with a deficit of 3pc of GDP at the top the cycle. We enter slump without a fiscal shield. Even America is doing better. This deficit is beyond the legal limit of the Maastricht Treaty, not that Downing Street cares. Gordon Brown may have to care more about the bond vigilantes and currency traders who have sharper claws.
They may yet force him to raise taxes into a downturn, as Labour's Philip Snowden had to do in 1931, or as Latin America's big spenders have had to do with an IMF gun to their head. A hard landing will have a "catastrophic impact on UK public finances" as tax revenues dry up and dole costs soar, says Capital Economics. "A recession as deep as that in the early 1990s could push borrowing up to £150bn per annum," it said. In the ERM smash-up, Britain swung from a 2pc surplus to an 8pc deficit. That was the result of subcontracting monetary policy to the Bundesbank. This time we have our own bank, bruised though it may be. It can cut interest rates a long way.
They may yet force him to raise taxes into a downturn, as Labour's Philip Snowden had to do in 1931, or as Latin America's big spenders have had to do with an IMF gun to their head. A hard landing will have a "catastrophic impact on UK public finances" as tax revenues dry up and dole costs soar, says Capital Economics. "A recession as deep as that in the early 1990s could push borrowing up to £150bn per annum," it said. In the ERM smash-up, Britain swung from a 2pc surplus to an 8pc deficit. That was the result of subcontracting monetary policy to the Bundesbank. This time we have our own bank, bruised though it may be. It can cut interest rates a long way.
Three: the state share of the economy has risen from 37pc to 45pc in eight years, on OECD figures. We have risen above Germany for the first time since the Schmidt-Callaghan era. Berlin has been trimming as we bloat fatter. So have the Swedes, Danes, Dutch, Belgians, Austrians, Italians, Spanish and Eastern Europeans. It is a matter of political taste whether you think Brown's largesse on doctors, nurses, schools, and roads has been well used, but there is no denying that we are now one of the most socialist/collectivist states in the world.
Four: household debt has reached 103pc of GDP, pushing the frontiers of irresponsibility into uncharted terrain. The Americans buckled at around 85pc. UK home equity withdrawals have reached £50bn a year. We are spending unrealised paper profits at a rate of 4pc of GDP per annum. Some 58pc of all home loans issued in Britain in 2006 were either sub-prime, buy-to-let, or other forms of "specialist lending". The effective cash and liquid assets ratio of the banks has fallen to zero.
It would be an understatment to say that this does not look good and serious measures are needed to deal with these issues quickly. The Budget announcement in March could therefore be the most important in recent times.
In particular, confidence is that most elusive of political factors that take years to gain and a moment to lose and it may actually be too late for this Government to recover any economic credibility.