Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

U.K. General Election That Cannot Be Won

ElectionOracle / UK General Election May 04, 2010 - 07:20 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleMartin Hutchinson writes: The British general election campaign reaches its climax on Thursday, and at this point appears to be anybody's game. The most likely outcome is a "hung parliament" in which no party has a majority and a government is formed through backroom haggling.

However, after looking yet again at the state of the economy in my native Britain, I'm forced to ask a simple question: Why would anybody want the job?

Great Britain: 2008 BC (Before Crisis)
Until 2008, the British economy looked to be in decent shape. It suffered badly in World War II, and then failed to enjoy the same postwar growth as France and Germany because its taxes and government spending were way too high. The simultaneous financing of a free National Health Service and a vast-and-rebellious imperial overhang during the 1950s and 1960s was impossible.

As the British Empire was abandoned and cutbacks made there, the National Health Service and the expansion of university education ate up all the savings. After 1979, however, under Prime Minister Margaret Thatcher, significant free-market reforms in labor law and privatization, together with fairly minor cutbacks in the state sector, produced a much-healthier economic picture.

The early 1990s were painful years for Britain, partly because the attempt to link the pound to the German mark in 1990 made the economy very uncompetitive for two years and required interest rates of 15% to sustain it (as a London homeowner during that period, I still bear the scars - British mortgages are floating-rate!).

Once the pound was allowed to float (downward) in 1992, however, the economy never looked back: From 1992-2007, Britain had the best-sustained growth in Europe.

Two problems remained.

First, even in the 1990s, Britain had again become sloppy about public spending. Spending was allowed to increase, and the increase accelerated after 2000 as the Labour government elected in 1997 settled in and started implementing its wish list.

British public spending - which had bottomed out at around 38% of gross domestic product (GDP) in 1989, Thatcher's last full year - would actually exceed 50% of GDP by 2009. What's more, tax revenue was allowed to fall behind, so that in 2007-2008, a boom year, Britain still ran a budget deficit of 5.3% of GDP.

The other problem was that the economy became increasingly dependent on revenue from the City of London financial district, which developed into a kind of offshore island with very little connection to the rest of the economy. This was partly because London housing prices had zoomed into the stratosphere (the London house that I sold in 1994 for three times what I had paid in 1984 was worth four times that sales price by 2007).

Needless to say, with inflation fairly modest, incomes in 2007 were not 12 times what they had been in 1982. Except in the City. There, even more than on Wall Street (because they started much lower), incomes had gone through the roof. Unfortunately, only Brits earned a modest proportion of those incomes.

In the aftermath of a poorly designed deregulatory push in the middle 1980s, the British merchant banks had been bought out or had gone bust and almost all London banking was controlled from either Wall Street or continental Europe.

Naturally, most of the bankers - like "Fabulous Fab" of Goldman Sachs Group Inc. (NYSE: GS) - weren't British, either. Even more annoyingly, they didn't have to pay British tax, because they could pretend to earn their income outside the country. Add in a sprinkling of Russian mafia and Arab oil sheiks also attracted by the tax benefits - and a mass of impoverished immigrants attracted by generous social benefits - and you had a society in which there was huge inequality and very little in the way of domestically generated productive endeavor.

Needless to say, that's why there's a problem now.

A Tough Road
The British budget deficit is considerably larger than that of its U.S. counterpart. In fact, at about 12% of GDP, Britain's budgetary shortfall is now nearing Greek territory. The City of London looks much less likely to sustain the entire economy going forward - the financial-services business itself may get smaller, and there is now little reason why it should not move elsewhere.

House prices in Britain haven't fallen as far as they have in the United States, which could well mean that there are more huge losses to come in the housing-finance sector.

Various social pathologies have been encouraged by the last 13 years of politically correct public spending, so the forces that should produce an entrepreneurial revival here in the United States may prove too weak to prevail in Great Britain.

There's a second difference whose impact is worth noting. In the United States, a mere year of government expansion has produced a huge political backlash. In Britain, the expansion of government was twice rewarded with thumping election victories - one in 2001 and the other in 2005. Only now, when disaster has occurred, is there any possibility of change - and even now there's no certainty of it.

Bank of England (BOE) Governor Mervyn A. King recently said that the party that wins this election would become so unpopular because of the policies it was forced to introduce that it would be out of power for a generation.

I tend to agree. As a young lad, I wanted to become prime minister (until my student electoral record of zero for 32 (0-32) told me that I'd better shift my career aspirations into banking...). However, even if I were guaranteed the chance to achieve my dream, I wouldn't want to take over right now: They could offer me full dictatorial powers and a guaranteed 10-year term, and I'd still turn it down.

Prime Minister Thatcher turned the British economy around in the 1980s. But today's problems are much worse, and the solutions far more painful - so painful, in fact, that any reformer would get tossed out of office after one term, after which all the "reforms" would get reversed.

That brings us to the eventual outcome of this long and painful story. The probability of an eventual British default on debt must be quite high - and since Britain is not a member of the euro, there would be no bailout.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules