Thursday, October 25, 2007

Brown's economic miracle a sham according to a German team

Britain's economic performance is built on the twin pillars of personal debt that is based on inflated house prices and a fiscally irresponsible splurge in public spending. This is the view of a German-led team of economists writing for a think-tank. I have heard similar analysis before, that the difference between the trend growth in the British economy and the Brown boom has been funded through debt, both personal and governmental, and there is a ring of truth about it. Record government debt is a fact. Record personal debt is a fact. While there has also been a great deal of virtuous economic activity over the last ten years, the gloss has come from borrowing at levels not hitherto seen before. This is the point really as debt is not an absolute evil, and there are cases in business where a low level of debt is actually an inefficient use of assets. However, during periods of growth the government should be paying down the national debt, not ratcheting it up and the same is true of individuals, who should be saving. When there is a downturn, and there is a fair amount of evidence that we are heading into one now, then it is the savings from the good times that carry you through; but what if there are no savings? With growth slowing, real interest rates climbing and government spending being squeezed then there is a possibility that things might get a great deal worse for the economy. The political consequences that would follow are easy to predict. That at least is justice; the architects of this mess should be out on their ears.

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