Thursday 6 October 2011

Cameron is frit!

As most readers are aware, Don’t Call Me Dave is not the biggest fan of LibDem Prime Minister David Cameron. However, in a speech which Mr Cameron was due to give to the Conservative Party conference, DCMD is in full agreement. What a pity that the Prime Minister chickened out and changed it.

In what is now being described by spin doctors as a misinterpretation, the original speech called for householders to pay off store and credit cards because “the only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills.”

Unfortunately, Mr Cameron gave in to pressure from the retail lobby and dropped this section from his speech. As Margaret Thatcher would have said: he’s frit!
The simple and undeniable truth is that we are all spending beyond our means, individually and collectively.

It is very easy to place the blame for the current economic crisis on greedy bankers, but they are not the only culprits. Gordon Brown is partly to blame for his irresponsible and inflationary expansion of the monetary supply which reduced the cost of borrowing, creating an artificial boom. But we, the people, must accept our share of the blame also. Nobody put a gun to our heads and forced us to borrow more money than we could afford to pay back.

The banks were utterly reckless in issuing credit cards like confetti, but consumers were equally reckless for accepting them. It was insane for banks to grant mortgages of 125%, but we were insane for borrowing more than the asset was worth. You did not need a degree in finance to realise that this could only ever end in tears.

House builders now sell their new homes with fitted carpets and kitchens and all the so called mod-cons. If buyers think about what they are doing, they will come to realise that they are taking out 20 year mortgages to pay for a washing machine. They will still be paying for it long after it has gone to the great laundry in the sky!

The public are not alone in this cavalier attitude to credit. In the People’s Republic of Barnet, the council has borrowed money to resurface the roads with repayments spread over 20 - 40 years. But the roads will require resurfacing again in about 10 years time. Future generations will be left paying the bill for something they never had. Government PFI contracts are nothing more than credit time bombs providing short term gains for politicians, to be paid back by future generations.

Our forefathers did not rush out to buy the latest consumer goods on tick. They knew very well that you only bought what you needed and what you could afford. The latest flat screen TV might look very nice on your wall, but if you haven’t got the money to buy it, then you will just have to make do with last year’s model.

This explosion of cheap credit has resulted in massive over consumption by the West. The planet is being systematically raped of its natural resources to fuel our insatiable appetite for the latest gadgets and gizmos. We are not only risking economic collapse by our financial profligacy, but an ecological disaster as we consume precious resources at a faster rate than nature can replace them.

The Bank of England has today announced another round of quantitative easing - or printing fake money as it should be properly known - to the tune of £75 billion, in an attempt to stimulate the economy. This is on top of the £200 billion ‘created’ by Labour. The Chancellor of the Exchequer, Boy George Osborne, is supposed to be a history graduate. Did he not learn about German hyperinflation in the 1930s caused by printing more money? Or post war Hungary where prices doubled daily? Or Zimbabwe, where just 3 years ago, inflation rose to more than 2 million per cent?

The politicians and bankers would have us believe that the solution to the economic crisis is to spend money that we don’t have to buy goods that we don’t need. This might help retailers in the short term and make the government popular, but the long term consequences will be catastrophic. Of course, Cameron and his cronies won’t care about that. By the time the shit really hits the fan, they will have long since left office and the next generation will be left to pick up the pieces.

Mr Cameron was correct when he said that we can’t borrow our way out of a debt crisis. The swivel-eyed Trots who think otherwise should heed the succinct advice from the gentleman in the video below.


baarnett said...

I agree with much of what you say - but the two sides of the main argument are not contradictory.

We are where we are.

Personal debt is much too high, but to reduce it quickly would be an economic disaster. Demand would collapse even faster than it is doing already. That is why the original position of the Cameron speech writer had to be changed. I doubt if the retail industry needed to say anything.

I also doubt if kitchen appliances make much difference to house prices, but agreed, assets must not be paid for beyond their life-span. Actually, that is a good reason for the state to order new roads or railways right now, since the benefit to the economy keeps going for decades. That's a bit too Keynesian for you, perhaps?

Quantitative easing might well be inflationary, but if the ship is headed for the rocks, you have to use the only way you know to power the ship's pumps. (This analogy could be better.)

Finally, from economics to politics. Mr Cameron HAD to change the text, because many people are currently utterly unable to pay down debt - and are insulted at the suggestion they can. Yes, it is their own reckless, stupid fault, perhaps, but Mr Cameron needs their votes in 2015.

DarkKnight said...

Cameron tries to evoke the wartime sprit - without understanding what it really involves.

Perhaps the second-best wartime leader (after Churchill) was Captain Mainwaring from Walmington-on-Sea. He was for ever saying things like "Don't they know there's a war on?" and "We haven't got time for all this red-tape nonsense!"

The coalition loves red-tape.

For example - the new proposed EU directive giving women up to 3 hrs a day paid 'breastfeeding' time might sound all well and good, but how will that help the UK compete with eastern economies? And will it actually help women get jobs?

The only way to boost the economy is to cut tax and cut red tape.

Quantitative Easing is a fraud.

As George Osborne rightly said in January 2009: "Quantitative easing - printing money by another name - is the last resort of desperate governments when all other policies have failed."

baarnett said...

Dark Knight: "Quantitative easing - printing money by another name - is the last resort of desperate governments when all other policies have failed."

Couldn't agree more with you - and George. The Government IS desperate. Everything else HAS failed.

Or more accurately, all the levers were pulled in 2009 by Pa Broon, and there are no other levers left. (We could go down to one-quarter-of-one-per-cent interest rates, I suppose.)

Inflation is good for government debt reduction, anyway.

There are still good reasons to create a new bank out of the bits of the old ones the government owns, with the nearly sole aim of lending to small businesses. But that would take ages.

But where is the evidence that cutting taxes (except at the bottom end) now would improve things? Maybe rich people are actually working harder already, in order to maintain their post-50%-tax income.

It is lack of demand that is killing the economy. The quickest way to solve that is intelligent investment by the state. Build Crossrail quicker! Design High-Speed-Two up to Manchester and Leeds as stage one! Build a few by-passes and lots of council houses immediately! But don't reduce whatever the tax take is just now, because every penny will help pay for it.

DarkKnight said...


The reason cutting taxes would help boost growth is because if people can keep more of their own money, they can spend it, thereby helping the economy. As you say, lack of demand is a large part of the problem.

When the government takes money away from people, it tends to waste it - or it ends up being trousered by bankers as bonuses.

The increase in fuel tax has meant tax revenue has actually gone down as people are forced to cut back. It has been reported that the government have lost millions of pounds in fuel tax revenue due to the sky-high prices. It may seem odd, but lower taxes can actually yield greater revenue as people are encouraged to spend more. High tax just suppresses demand

Don't Call Me Dave said...


The problem with our credit and store card debts is that we are paying eye watering rates of interest. Base rate might be 0.5% but the credit card companies charge up to 25% APR - store cards even higher. In the old days, money lenders would go to jail for usury. The quicker these debts are paid off, the more money that consumers have at their disposal to spend on essentials.

Many householders transferred their credit card debts to secured loans, lured by the promise of lower interest rates with cash left over for that once in a life time holiday. The holiday that takes you a lifetime to pay for when you factor in the extended repayment terms.

The suggestion that this is a good time to pay for infrastructure projects is financially sound. It has worked in the past, but is unlikely to work now because the state no longer has the proverbial pot to piss in. Gordon Brown refused to put any money away when the times were good, and the state’s credit card is now maxed out. Borrowing more risks our AAA status which would have a disastrous effect on the cost of financing our existing debts.

Inflation is good for government deficit reduction, but is a disaster for everyone else - especially retired people who have been experiencing negative interest on their savings (once tax and inflation are taken into account) for the last 3 years. They rely on the interest to supplement their income, which means they now face capital erosion or severe hardship. If Mr Cameron thinks he can a majority without the silver vote, he is utterly deluded.