Its your fault stupid

As if there is not enough going on we now have to teach the Chancellor of the Election how the economy works.

Having spent recklessly over the last 12 years to make sure that they held onto power the current Chancellor and Prime Minister are now trying to avoid reaping the whirlwind of their own mistakes by blaming everyone else. This morning its the banks those nasty naughty institiutions that we could not live without, neccesitating the expenditure of large sums of money to prop them up, but who have turned all ungrateful and are not throwing money away on small business simple because the Government asks them to. This is the Government who have shown how to lose money propping up well nothing really other than the employment rates in the civil service, these boys know how to buy votes if nothing else.

The reason we have low base rates, 0.5%, but high lending rates, 5 to 15 percent is really quite simple. The people with money to lend are looking down the road to see what returns they will need in the future. Because the Government has for the last 14 years, yes the Torys were not the best at the end either, spent like there was no reason for repayment to ever be considered.

Now comes the problem, with the economy in collapse, and the reasons are various but generally cyclical in nature though not helped by some devastating greed, the money needed to simple stay in place is simple not there, as revenues from Tax and Customs collapse but the costs, in terms of social payments to the unemployed plus the money so recklessly spent on attempts at stimulation added to a war that is going to keep on costing more, are rising steeply.

The IMF, the World Bank and the ratings agencies have seen through the problem and are warning that the perfect storm is about to descend on the economy and the smart money has already read the script.

The only way out now is inflation and the inexorable rise in interest rates that accompanies it. If the spread at this point is between 4.5 and 14.5 percent you can see where we are going. Risk money over a longer period is costing over 15% meaning that we can expect interest rates to climb as Government borrowing increases but the Governments ability to repay the borrowings is severely constrained as the economy is severely weakened and unable to sustain the borrowings.

And we are not out of the woods yet, I am willing to bet that the Prime Minister will attempt a short term stimulation and increase further the number of civil servants reminding them at the same time that the opposition will reduce payrolls without adnitting that he will have to do so as well.

These are the times I fear for the country.