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5 "Tells" that the Stock Markets Are About to Reverse

UK Pre-General Election Pre-Budget Report

Politics / UK General Election Dec 10, 2009 - 01:10 AM GMT

By: Nadeem_Walayat

Politics

Best Financial Markets Analysis ArticleThe pre-budget report (PBR) was pretty much inline with my earlier expectations as I highlighted in the article (Alistair Darling's UK Election Give Away Budget Crippled by Debt and Liabilities ) :


  • The poor and working class will be bought off and relieved.
  • The higher rate tax payers will be fuming and thinking of emigrating.
  • The Bankster's will think of new ways to dodge paying their fair share of tax with representatives of the British Bankers Association doing the rounds on TV news channels with hankies out crying poverty.

The PBR in a nutshell has delayed the pain for voters until AFTER the next general election so as to ensure the Labour Party maximises the number of votes. The Chancellor did nothing to cut spending and pay down the huge and unsustainable deficit, it is only after the next general election that we will find out how and to what extent the next government will attempt to cut the horrendous budget deficit that currently stands at 15% of GDP and 13% for next year which remains on target to accumulate an additional £510 billion over the next 5 years as discussed earlier in the earlier in depth analysis Britain's Inflationary Debt Spiral as Bank of England Keeps Expanding Quantitative Easing.

The Labour party intends to carrying on boosting public spending by an additional £31 billion coupled with tax rises which sets the opening scene of the inflationary mega-trend to unfold as the Labour government's actions are the complete opposite to what it should be being implemented i.e. Labour is boosting the size of the unproductive black hole public sector whilst at the same time crippling the private sector with huge tax rises whilst at the same time FAILING to cut the budget deficit.

This now sets the scene for Britain to start entering a stagflationary environment during the second half of 2010, with all of the consequences associated with higher inflation of a weakening economy, higher long term interest rates and eventually short-term interest rates as a consequence of foreign investors dumping sterling assets and hence sending the British Pound lower in relative terms (all fiat currencies are devaluing against hard assets).

Bankster Bonus 50% Tax Election Publicity Stunt

The big headline item in the PBR was the 50% bank bonus tax on bonus payments over £25,000. Unfortunately the tax is only proposed for 1 year and therefore leaves many loopholes for bankster's to once more escape paying their fair share in taxes, as any of the profits generated by the bailed out bankrupt banks is as a consequence of government interventions i.e. money printing and low interest rates for the purpose of bankrupt banks to rebuild their balance sheets and not to pay the artificially engineered profits out as bonuses. Loopholes include bringing forward bonuses or delaying bonus payments until the next tax year, which therefore means very little will be actually raised by this tax.

The bankster's representatives much as expected reacted with anger and were doing the rounds on British TV and write ups for the gullible mainstream press that lapped up their scare mongering of an exodus of thousands of bankster's from the city of London, though they failed to say where to ?

The facts are clear and irrefutable in that the bankster's have saddled tax payers with liabilities of £850 billion according to the National Audit office, which is near double the total tax receipts from the banking sector during the life time of the Labour Government. So in effect for every pound the bankster publically paid in taxes, they have saddled tax payers with twice as much during the bank bust.

The chancellor also raised his budget deficit target for the Financial year from £175 billion to £177.6 billion. Which might not sound like much of an increase, however also slipped in on the quiet during the day was news out of the Debt Management Office that Government would actually borrow £225 billion this financial year thus putting an even greater strain on the Gilts and Interest rate market then the headline budget deficit figure implies.

Alistair Darling Cloud Cuckoo Land Growth Forecasts

Alistair Darling also basically admitted that he is clueless at making forecasts given the contraction of 4.75% for 2009 against his forecast of -3%, though the rest of the mainstream academic economists were similarly way off the mark in terms of making economic forecasts. The growth forecasts for the coming years are equally optimistic as they do not even take into account the sharp drop in tax revenues that followed April 2009. Alistair Darling is forecasting 2010 growth of 1.5%, 2011 of 3.5% and 2012 of 3.5%. Whilst 2010 growth of 1.5% is achievable, however 3.5% for 2011 and 2012 is completely ridiculous which has no fundamental supporting basis as accumulated debt will force the next government to CUT public spending by as much as 10% per annum or more than £60 billion. Especially as the government is going hit companies hard by a series of tax rises over the coming years.

The immediate impact of the pre-election pre-budget will be / is being felt in the financial markets as sterling assets are marked down i.e. the British pound fell followed closely by stocks and government bonds. The key longer-term impact of which will continue to be on sterling and government bonds as the spread is expected to widen further between Gilts and foreign 'safer' bonds such as German Bund's.

Therefore the UK economy remains on target towards drifting towards a double dip economic depression triggered by necessary public sector spending as originally projected in February 2009 (17 Feb 2009 - UK Recession Watch- Britain's Great Depression?) with the key difference this time being that the second leg will be coupled with the inflationary consequences than that at the start of the first leg of the Britians Great Depression during 2008-09 primarily due to the wide gap between government spending and revenues that will trigger much more quantitative easing aka money printing to monetize debt.

You can read the full text of Alistair Darlings Pre-budget report here.

For more on my inflationary mega-trend ensure your subscribed to my always free newsletter, especially as I converge towards including major forecasts for all key markets for 2010. I.e. what will become of the stocks stealth bull market that has soared during 2009 ? What about the debt fuelled UK housing market and economic bounce.

Source:http://www.marketoracle.co.uk/Article15696.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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