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September 17, 2007


Bob B

C'mon. New Labour keeps claiming that Gordon Brown, unlike the wicked Tories, has abolished Boom 'n' Bust so I figure that we are entitled to probe why are seeing all this turmoil in the financial markets and ask about just who presided over the unsustainable House-price Bubble, about how personal debt grew to over £1 trillion and about whether the magnitude of personal debt is now a looming threat to the stability of the economy.

Seems to me that GB can hardly claim due credit for the continuing growth of the British economy ever since we dropped out of the European Exchange Rate Mechanism in September 1992 but repudiate all responsibiliy for the emerging downsides.


"An American crisis that could harm an awful lot of reputations here — including Gordon’s"


I'd argue that GB shouldn't take credit for what's gone right either, eg this:
Politicians over-rate their impact upon the macroeconomy, for both good and ill.


As long as foreign indebtedness hasn't changed much then any rise in borrowing will mean a rise in savings. But I suppose its the distribution that matters, no? If there are 'savers' and 'borrowers' in two very distinct camps, then that might be a problem (it might not, it could be the 'old' and the 'young' which would make sense).

I agree about Cameron though, and Osborne, one would imagine.

Mark Wadsworth

Bob B "we are entitled to probe why are seeing all this turmoil in the financial markets and ask about just who presided over the unsustainable House-price Bubble"

It's two sides of the same coin.

You can only regulate banks up to a point, they will always be one step ahead. So given that you can't stop people lending and borrowing, what a government can do is to have a land value tax that increases when land values increase (and using proceeds to replace Council Tax/IHT/SDLT/CGT and to fund e.g. local authority spending).

Thus dampening house price bubble (that causes all sorts of grief) and redirecting cheap borrowing into either productive activity (good) or share price bubbles (in which case, not so good, but who cares? You don't have to buy shares do you? You are better off paying off your mortgage).

Here endeth today's lesson.

Bob B

Mark - If there is any political or economic problem for which a land value tax is not a complete solution, please let me know.

Bob B

Alistair Darling, the Chancellor, on Monday offered to guarantee all Northern Rock deposits, regardless of size, which amounts to an improvement on the regular guarantee:

"Banks are covered by the Financial Services Compensation Scheme.

"If you have up to £35,000 on deposit then you would, in the event of insolvency, get back all of the first £2,000 in your account and 90% of the next £33,000.

"That would be a total of £31,700 per person in compensation, or to look at it another way, a loss of £3,300.

"But any money above the £35,000 threshold might be lost altogether."

The question is, what is to be done if the enhanced guarantee doesn't work and the queues of depositers withdrawing their deposits with Northern Rock don't abate?

Suggestion: Offer a guarantee + 10 per cent?



I think the government will end up nationalising the bank, if not in name.


What Mathew said - it is the distribution of debt that is the key to it. And how big it is relative to income. You wouldn't want to be like the US owing lots of money to foreigners (an enormous amount relative to exports) having blown it on current consumption.


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