Moody's down grades our economy..

[MooseBreath]

While I am personally pretty angry with Gordon Brown's government for allowing a structural deficit to arise in the first place, the people actually to blame for the Credit Crunch are the people who made huge amounts of money gambling with ordinary people's savings and mortgages.

How grotesquely ironic that the political party which represents these people were allowed to seize the moral high ground and win the election in 2010. (With a little help from their friends)

It has been proven time and again that cutting spending during a period of negative or slow growth only deepens the problem. The Tories continue to pursue a policy of savage cuts not because it might solve the problem, but because they are ideologically led to do it, regardless of the consequences!

And also because is is only people lower down the social scale who will suffer.

I'm not sure spending your way to growth is any more credible than cutting your way out of debt. Neither way is fail safe. A combination of both is probably best - cut the unnecessary low-productivity spending and divert it into large infrastructure projects. Unfortunately these kind of projects are incredibly slow to get going due to all the regulations and left wing pressure groups keen to preserve a patch of grass they've never been on at the expense of everything else. I think the tories have done well in making cuts, now they just need to (literally) bulldoze their way through the hippy and PC bullshit to get major investments up and running.

[johnny the fox]

The fact is, it was in the Tory manifesto at the last election, "judge the success or failure of the next administration on keeping our 5 star credit rating.. They said it.

[act smiley]

left wing pressure groups keen to preserve a patch of grass they've never been on at the expense of everything else.

While there are a few groups who can be described in those terms, you just have to look at the makeup of the anti-HS2 groups to see that its rarely as simple as left/right for those sort of things. Its a general British attitude really - "oh why don't we have a X?" "but it can't possibly be HERE!" etc.

[21st Century Fox]

HS2....

The final route will be confirmed this afternoon and has sparked controversy because it would carve through many Conservative constituencies.

[Alf Bentley]

More people are working part time. Whether that is good or bad I am not sure really. Also no doubt some of the employed are on these work schemes.

Indeed, a lot more people are working part-time. Also, more people already in work have kept their jobs but are working shorter hours. There has also been a massive surge in the numbers going self-employed.

But what are all these extra people doing, if output and consumption are both stagnant, at best (often falling)?

- P/T work: I don't imagine there's been a surge in the number of P/T brain surgeons, sales managers or architects; maybe I'm wrong, but I assume most of the new P/T employees are doing unskilled/semi-skilled jobs. Doubtless many want F/T work, but scrape by with the support of family & tax credits, while it gives some employers a less expensive, more compliant workforce, allowing them to remain viable at reduced output... hardly a long-term solution for a developed economy, though....

- Self-employed: A big boom in the self-employed, yet the economy is flat; again, are a lot of people who couldn't get a job simply going self-employed out of desperation and eking out a basic income lower than when they were on the company payroll? Maybe some are still working for their old employer in this new status - again, cheaper, more flexible labour, allowing the firm to stay viable, albeit at a lower level of output - while the ex-employees have less to spend and are less able to consume.

- Reduced hours: Again, some who might have lost their jobs in a previous recession have been kept on by employers, but working reduced hours. The hope is that the economy will pick up at some point, so that hours and output can be increased again....but is this necessarily going to happen?

I'd be interested to see some figures as to what jobs and which sectors are seeing the increase in P/T and self-employed work.

Where is the impetus for growth (increased production and consumption) going to come from? What goods and services are going to suddenly experience a boom, and who will be buying them? As we've seen, in various ways, most British workers/ consumers are skint; the public sector is facing drastic cuts (which also affects private contractors); no sane private firm will invest without the prospect of a consumer market for their goods/services; meanwhile, our main export market (EU) is in a mess and unlikely to provide the stimulus....even the USA and China are only marginally better.

Without an unexpected stimulus, economic stagnation and lower living standards could be around a long time!

[Alf Bentley]

Without any doubt. How conveniently the Labour supporters forget the enduring irresponsibility of their administration.

Here are some good links for anyone who wants to challenge their thinking and consider who is to blame for the crisis, rather than just repeating their own prejudices:

Labour were irresponsible in various ways. They shouldn't have encouraged the deregulation of the financial sector (though the Tories would've done the same). They shouldn't have run a small deficit during a boom, even if the big deficit was only created by the financial crash - as a non-Labour leftie, I think they should have taxed more, though a rightie would prefer lower spending (though major investment in health, education & child poverty was needed - and back then Cameron said he'd maintain Labour spending plans before the crash changed everything). Above all, Labour shouldn't have used PFI schemes to fund current investment by effectively stealing from future generations (though the Tories have maintained this policy).

It's a dilemma for politicians of every party, though: the electorate demands low taxation AND high-quality public services....at a time when growth is slowing (even before the crisis) and the population is ageing. Should they tell the truth (you can have low tax OR good public services, not both) and risk not getting elected? Or should they use dodges like budget deficits or PFI schemes to invest in public services but keep taxes low, and hope that it doesn't all go pear-shaped on their watch?

The Tories (who have now been in office for nearly 3 years, remember) have chosen a different option: the "razed earth" policy - slash public spending/investment (in turn affecting private contractors and consumers, not just a load of "lazy civil servants/council workers") and hope that the private sector will be stupid enough to ride to the rescue, despite there being a severely depressed consumer market both nationally and internationally. So far, all that has achieved is a stagnant economy (probably long-term), widespread poverty and "getting-by"....and a slightly higher deficit, by shifting government spending from stimulus/investment to benefits/tax credits - and higher debt interest, once these ratings agencies deem us less creditworthy...

[Deucalion]

I'm not sure spending your way to growth is any more credible than cutting your way out of debt. Neither way is fail safe. A combination of both is probably best - cut the unnecessary low-productivity spending and divert it into large infrastructure projects. Unfortunately these kind of projects are incredibly slow to get going due to all the regulations and left wing pressure groups keen to preserve a patch of grass they've never been on at the expense of everything else. I think the tories have done well in making cuts, now they just need to (literally) bulldoze their way through the hippy and PC bullshit to get major investments up and running.

Even though it seems counter-intuitive, there are many, many examples of governments spending their way out of debt. I will not insult anybody by listing them because they are pretty obvious.

On the other hand, there is only one example of a government cutting itself out of a recession, and this is Canada in the 90s. This is the example the Tories cling to but in my humble opinion, they ignore a key fact, being, the world was in a period of growth during that time. Therefore, demand lost through cuts domestically could be countered by international growth creating demand.*

I hate waste in any form and I would not be in favour of government spending for the sake of it. However squeezing the public sector as this government is just kills any kind of demand from the economy. It is very similar to the mistakes made by the Thatcher government in their first term. These mistakes were obscured by the Falklands War and a global recovery. The global recovery isn't happening this time, so the Tory government's extremist monetary policy cannot come out of this smelling of roses.

Long term infrastructure projects are, as you say, long term. Efforts need to be made NOW to get people into long term, proper jobs so people are not living in fear and protecting every penny.

However...despite my excellent socialist credentials, I would not like to see us return to growth based on another structural deficit. It requires a determined but balanced response, and balance is something this government is sorely lacking.

* Cameron's recent grovelling to India indicates he probably hopes demand can be found externally. But...is any Asian company going to turn to Britain and ignore the much closer and more efficient economies arising closer to home?

[Alf Bentley]

* Cameron's recent grovelling to India indicates he probably hopes demand can be found externally. But...is any Asian company going to turn to Britain and ignore the much closer and more efficient economies arising closer to home?

Excellent post, generally, Deucalion, but I've gassed on enough about that.

On this particular point re. India, though, I heard an astonishing statistic on the BBC the other day...

Apparently, Belgium does more trade with India than the UK does. If so, given the historical ties, that represents a terrible failure of trade policy by successive governments.

[Deucalion]

Excellent post, generally, .

On this particular point re. India, though, I heard an astonishing statistic on the BBC the other day...

Apparently, Belgium does more trade with India than the UK does. If so, given the historical ties, that represents a terrible failure of trade policy by successive governments.

An uncomfortable truth for the Tories must be that the private sector in this country does not deserve the exhalted status they attach to it. As you say above, Belgian businessmen have succeeded in trading in India where British businessmen have failed. Germany, Spain, France, Italy and the Czeck Republic manage to have a domestic car industry where British businessman have failed to maintain one. *

Looking at the shenanigans at MG Rover makes me shudder when you consider that the Tories want self serving and immoral individuals like those who drove this company into the ground involved in all sorts of occupations for which they are sorely lacking in necessary skills and temperament.

So much for the cult of the businessman!

* I'm talking about mass production, not small scale production of high-end products.

[Webbo]

Looking at the shenanigans at MG Rover makes me shudder when you consider that the Tories want self serving and immoral individuals like those who drove this company into the ground involved in all sorts of occupations for which they are sorely lacking in necessary skills and temperament.

.

You do know that that all happened under Labour?

[Guest BlueBrett]

Didn't really affect borrowing costs for the French or Americans so shouldn't affect ours. Osbourne was stupid to attach so much rhetorical significance to it though. Gives Balls something to go at

[Zingari]

All this palaver over battery sizes !

[Deucalion]

You do know that that all happened under Labour?

I didn't consider which government was in power because it isn't relevant to the point I was making.

The Tories like to demonise some groups while putting others on pedestals. Personally I find being expected to respect anyone because of the job they do quite distasteful. For instance, I have due respect for a soldier who chooses to do a job which is dangerous, but I certainly will not celebrate every individual in uniform as a 'hero'.

The Tories are always banging on about businessmen and the private sector. The Tories think the answer to everything is to get a businessman involved. My point was, would we want the likes of those who ran MG Rover into the ground running the country?

The sad truth is...we probably already have.

[Webbo]

I didn't consider which government was in power because it isn't relevant to the point I was making.

The Tories like to demonise some groups while putting others on pedestals. Personally I find being expected to respect anyone because of the job they do quite distasteful. For instance, I have due respect for a soldier who chooses to do a job which is dangerous, but I certainly will not celebrate every individual in uniform as a 'hero'.

The Tories are always banging on about businessmen and the private sector. The Tories think the answer to everything is to get a businessman involved. My point was, would we want the likes of those who ran MG Rover into the ground running the country?

The sad truth is...we probably already have.

You didn't consider which govt was in power but it's still the Tories fault?

There were plenty of people, business people, at the time that said the rescue plan couldn't work, that the sums didn't add up. An alternative plan was on the table that might have worked but the Labour govt rejected it as there would have been large job loses and it was the run up to the 2005 election. Perhaps if all those evil business men had been listened to we'd still have a ,albeit smaller, car industry.

[johnny the fox]

Labour and Tories are two bald men fighting over a comb, the Libs have terminal alopicia, and Ukip are a one haired mohican. The bankers have been running the country for 30 years, if Labour had had the guts to regulate them years ago ,you would have never heard the end of it from the Tories, they would of played hell up about state interference in the "free market"..hypocrites.. between the lot of them they have really fook us all over.. but then again Their pensions are cast iron..

[act smiley]

You didn't consider which govt was in power but it's still the Tories fault?

There were plenty of people, business people, at the time that said the rescue plan couldn't work, that the sums didn't add up. An alternative plan was on the table that might have worked but the Labour govt rejected it as there would have been large job loses and it was the run up to the 2005 election. Perhaps if all those evil business men had been listened to we'd still have a ,albeit smaller, car industry.

The "alternative" was doing what happened anyway with the Chinese 5 years later, so can't really blame them with going for the optimistic plan. The main problems they ran into were the result of the '60s, '70s and '80s problems lingering along with underinvestment by BAe in the early '90s & marketing meaning that the only near-premium brand that's allowed these days is VW destroying their BAe-era strategy.

[Webbo]

IIrc the alternative was selling the stock that BMW threw in when they got rid of the company and the money that the govt were giving and concentrate on making sports cars in the MG brand. Making less cars with less workers but a viable business.

[act smiley]

If you look at the details that the Alchemy venture capitalist option had behind it, it wasn't any better really and they were the ones who convinced BMW to sell Land Rover seperately to Ford rather than trying to do an all-in-one deal which BMW had been planning. Maybe it would have simply meant that they'd have got shut down when Ford sold their Premier Auto Group to Tata and Geely, or maybe they'd have been kept by Tata in some form. Who knows?

You can see that they had no intent to run the company as a solid long-term business as their deal actually included none of the development work being undertaken and didn't even include the engine manufacturing division. If you read the government report there's a quote from them that they'd done their numbers

"based on ‘fag packets’ from the [6 March] meeting at Munich airport" and they didn't even have the cash to finish the deal, it fell apart because they tried to get BMW to cover some financial arrangements with dealerships they couldn't afford.

The plan that Pheonix group tried with hindsight actually looks pretty reasonable; they just executed it very badly.

If you want to blame Labour for MGR dying, blame them for their moronic handling of them during '60s and '70s, or for not giving BMW the money they wanted.

[ADK]

Its bad in theory because it is liable to mean higher interest on our debts which means a bigger budget defecit.

[Jon the Hat]

Its bad in theory because it is liable to mean higher interest on our debts which means a bigger budget defecit.

That assumes the debt markets are discovering something through the change in rating. They are not, they already know all about our economy.

[Deucalion]

You didn't consider which govt was in power but it's still the Tories fault?

There were plenty of people, business people, at the time that said the rescue plan couldn't work, that the sums didn't add up. An alternative plan was on the table that might have worked but the Labour govt rejected it as there would have been large job loses and it was the run up to the 2005 election. Perhaps if all those evil business men had been listened to we'd still have a ,albeit smaller, car industry.

Although uncharacteristic, I am not blaming the Tories for the Rover thing.

I am blaming the Tories for their misguided and conceited belief that people involved in business have the answers to everything because they work in business. I also did not say people who work in business are evil, although some most definitely are not nice characters.

There are probably very effective people in business, there are probably incompetent people in business, and there is the vast majority who are competent enough to do their jobs. There are a multitude of skills which business people must have to match the multitude of different businesses in our complex economy.

If there are many examples of governments alleviating recession by stimulating the economy, there are also many examples of business people messing up public services because they do not understand the business they find themselves overseeing or because they are not motivated by providing a good service but by profit and dividends for shareholders.

I'm not restating this point again. If anyone does not understand it then it's not the end of the world is it.

[MooseBreath]

If the tories are so influenced by these "businessmen" then why did they go for austerity? People having no money is not much good for business.

[davieG]

BBC

The value of sterling has fallen as financial markets reacted to the loss of Britain's top AAA credit rating.

The pound fell to a two-and-a-half year low against the dollar and a 16-month low against the euro on Monday

On Friday ratings agency Moody's cut the UK's credit rating, the first cut since the 1970s.

However, the FTSE 100 share index opened up 30 points at 6,366, with some analysts saying that a ratings downgrade came as no surprise.

The value of sterling has been edging down for several weeks following concerns about the worsening outlook for the UK economy and speculation that the AAA rating was under threat.

The rest - http://www.bbc.co.uk/news/business-21570578

[1964FOX]

Don't panic everbody, most politicians are still millionaires with great pensions so it's all ok.

[Rincewind]

Most? I don't think any of them are in danger of losing their second homes.