The black hole gets larger

The Governor of the Bank of England feels that further fiscal stimulus is unwise in the present situation. He has said so.

Daniel Hannan in Brussels told G.Brown to his face that there is no more of our money for him to spend and debt will be ruinous.

On the next day the Treasury failed to sell all the government bonds at its weekly auction. Was this a fluke, or was it a sign of dangerous development, that international investors have less taste for further UK government debt, as Hannan would say, they too have summed up the situation.

On the same day Christ Giles, Economics Editor of the Financial Times, added more food for thought. In 2009-10 and 2010-11, on present estimates, the government will have to raise £350 billion from borrowing to fill the budget deficits. Whoever takes over as chancellor after the election next year will face a debt larger than the accumulated government debt of all UK governments from 1691 to 1997 added together.

If potential lenders to Brown & Co were hesitant yesterday, when they read this may well require a much bigger return on their lending, that is those who lend at all.

Much of this debt is the result of the "built in stabiliser" which operates towards budget deficit as soon as government tax takes fall and government out-payments rise, as the result of recession.

Surely G.Brown will take all this to heart? He may be arrogant and obstinate but he is intelligent.
He would not want his time in power to go down to posterity as one in which the UK went from wealth to penury and a bail-out from the IMF?

He has seen the danger of his position. Having called for all countries to give a fiscal boost when the G20 meets, he is now denying what he said by claiming that he was talking about past fiscal easing, as the G20 compares notes. As someone once said, "If you believe that you'll believe anything."

So where does Brown go now? Quantitative Easing seems to be ruled out, given the statement of the Governor of the Bank, or will Brown overrule him? Treasury spokesmen are talking about G.Brown having other possibilities, and will pull something out of the bag in Darling's budget in late April. We may have all sorts of magic and sleight of hand,- in this he is a wizard. Whatever he does, there is this enormous debt hanging over him and us, and he dare not spook international creditors.