Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Brown Breaks Another Golden Rule, Real UK Debt Above 40% of GDP

Economics / UK Economy Jul 18, 2008 - 07:10 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleFollowing abandoning of the rule for a balanced budget over an economic cycle, which was broken more than two years ago and followed by repeat manipulation of the start date of the economic cycle and has since been quietly forgotten from Treasury statements. Now the next golden unbreakable rule for economic competence that Gordon's Darling is busy reconstructing for the electorate to swallow is that Government debt must remain below 40% of Gross Domestic Product (GDP).


Britain will probably pass above the 40% barrier later this year on official data release, so the government is laying the groundwork for a pre-emptive measure of damage limitation than planning to cope with the recession that the UK looks set on entering during 2009, which will see the gap widen much further between growing government expenditure on public services and shortfalls on tax receipts that have already been added to by the £3 billion tax give away to try and win votes during the May elections. However the real amount of government debt is far higher than the official data as the data does not include the bailout of Northern Rock bank running at over £30 billion and nor the estimated £100 billion swap of UK government bonds for junk illiquid mortgage backed securities that despite the rhetoric of being temporary may turn out to become a near permanent debt. If both of these were included then UK debt as a percentage of GDP would already be running at over 48%, add perhaps another £100 billion of financing to the banks over the next 12 months and next years estimated additional government debt of £60 billion (optimistic), then that would put UK government debt at nearer 60% of GDP by the end of 2009.

Therefore it is increasingly likely that the government will seek to further manipulate the official debt levels by even more off the book accounting practices to try and mask the true level of UK government debt. However this will be reflected in the foreign exchange markets as the British Pound will continue to weaken relative to the stronger currencies and result in higher interest rates as the Treasury seeks to attract investors to the flood of newly issued government bonds that could see the number of bonds outstanding explode by more than 50% as none of the official estimates and data take into account the consequences of the ballooning budget deficits and hence government borrowing that would occur during a recession.

Whilst we are on the subject of ' golden rules', another truly busted golden barrier is the Bank of England's 3% CPI inflation upper limit, with inflation trundling along on an upward curve presently at 3.8% and destined to smash through 4% rate which will lift inflation to more than twice the banks target. It is a wonder on what basis the Bank of England conducts monetary policy where the forecast is ALWAYS that the inflation rate will be 2% in 2 years time? So what happened 2 years ago? When the Bank of England was busy slashing interest rates and pumping the money supply in the midst of a housing bull market and strong economic growth.

Exactly on what basis is the BoE making its decisions that arrive at inflation of 2% in 2 years time, which lends me to believe that the problem at the heart of the BoE is that theory rules over basic commonsense i.e. In a series of articles at the Market Oracle during late 2006 the commonsense view was clear that the Bank of England would have to do battle with inflation and raise interest rates towards a target of 5.75%, following which the forecast as of August 2007 and September 2007 has been for a cut in UK interest rates to 5% by September 2008 as a consequence of the UK Housing bust and credit crisis which had just begun to unfold at that time.

Meanwhile the IMF is giving Britain a slightly better economic report by lifting 2008 forecasts to 1.8% and prospects for 2009 to 1.7%. Though one has to wonder perhaps what the IMF theoreticians are still smoking given that the IMF forecast for Britain's GDP growth for 2008 was 2.3% in late 2007, which the IMF has continually revised so as to converge with the actual growth rate for 2008 by the end of the year, which basically defeats the whole purpose of making forecasts. Whilst at the same time the Market Oracle forecast has stood fast for a forecast GDP growth rate for 2008 of between 1% and 1.3% as of December 2007. The current range of 2009 consensus forecasts at between 1.4% and 2.25% which seem overly optimistic as the UK will flirt and possibly enter into recession during 2009, therefore any recovery into 2009 year end may not be able to lift overall growth to much above 0.6% for the year as a whole.

Summary of UK GDP Growth Forecasts for 2008 made during 2007.

  • Market Oracle 1% to 1.3% (Dec 07)
  • CBI 2% (Dec 07)
  • UK Treasury 2.15%, 2.5% for 2009 (Dec 07)
  • European Commission 2.2% for 2008 and 2.5% for 2009 (Dec 07)
  • Oxford Economics 2.3% (Dec 07)
  • OECD 2% (Dec 07)
  • International Monetary Fund 2.3% (Oct 07)
  • Capital Economics 2% (Dec 07)

As recent articles have warned, the current inflationary run is expected to peak by mid 2009 as the deflationary impact of economic contraction and the housing market price deflation diminishes inflationary pressures, thus creating an atmosphere for cutting UK interest rates. However, in the meantime the problem that the Government and the Bank of England faces is the risk of igniting a domestic wage price spiral which would push the UK into a prolonged period of stagflation during 2009 and into 2010.

Recent Analysis of the UK Economy

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

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 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.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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