Readers of this blog are aware of my loathing for the works of Gordon Brown and Tony Blair. There was a time, around the 1997 and 2001 general elections when it felt a bit lonely to have to continue slagging these charlatans, when Britain was so superficially groovy and reminiscent of the worst film ever made (Love Actually). Prof Anthony King memorably described the 1997 exit poll – enormous Labour landslide – as “an asteroid hitting the planet and destroying practically all life on Earth”. Which was about right.
Anyway, it’s always handy to have a primer as to how exactly this pair cocked up (see my last post, in fact). Of course, it was on a monumental scale in pretty much all areas of policy, but if we stick to economics, here is the shrewd and clear minded Ambrose Evans-Pritchard:
Sadly, Britain deserves to lose its AAA rating.
The Moody’s downgrade is the delayed fallout from Gordon’s Brown fiscal bubble. Whether he believed his own propaganda or was just steering state patronage to Labour voters in public services, the elemental fact is that he ran a budget deficit of 3pc of GDP at the top of the cycle.
He must have been told many times that Britain has a highly cyclical economy and tax system, leveraged to the ups and downs in the global economy. The boom flattered tax revenues. The apparent success was a sham.
Other countries ran budgets near balance or in surplus at the peak. Spain had a surplus 2pc of GDP, and Finland even higher.
This is why Britain is now in deep trouble. Brown was gunning fiscal policy at 5pc of GDP over the safe speed limit, and he did so long enough to embed an unsustainable structure into the economy.
His fiscal excesses made the household credit bubble even worse – not helped by 120pc mortgages, home equity withdrawal of 4.5pc of GDP each year, and other idiocies – leaving the economy with a deleveraging crisis that will grind onto into the 2020s.
I take little comfort from the fact that Japan and the US shrugged off their downgrades so lightly.
Japan was the world’s biggest external creditor with $2.5 trillion in net assets when it lost its AAA. The US holds the paramount reserve currency and benchmark Treasury debt, and is undergoing an energy revolution that entirely changes its future prospects.
Smaller countries with a stubborn current account deficit and no game-changer in sight have no such cushions.
A study by the IMF found that markets usually take the first cut in their stride. What worries them is if there is a second cut in rapid succession, and any fall below AA- can set off a cascade effect. So beware.
…As both the IMF and the BIS have warned, Britain has a colossal primary budget deficit (stripping out exports) and a colossal structural deficit equal to 5.4pc of GDP – ie the part that will remain even after the economy has come back from the dead.
The phrase he did so long enough to embed an unsustainable structure into the economy, is Osborne’s difficult task to fix, but in truth it’s our problem. Having already explored the option of hanging Brown for treason, words are beginning to fail me. Bizarrely, it was the crushing power of democracy that got us here, a majority of 179 is virtually a licence to kill. Which it did.