Going for bust - the Government can't afford a proper bail-out

Maybe a simple answer ?...........Halve all Taxes and double interest rates..........

I recall Gordon has had the temerity to lecture other EU leaders about the merits of our "flexible labour market". However, in a flexible labour market, people need to be able to move house easily & cheaply. Gordon's 3% stamp duty makes it very expensive for me to change job -hence reducing labour market flexibility.

So let's leave the economists, politicians et al to their own demise. Know that GREED is born of FEAR. And FEAR is rooted in all mortals.....The fear of "losing what I have" or "not getting what I think I want". It is that simple...no need to ruminate on this further...the answer is all too apparent: I cannot be in a state of FEAR if I am in a state of LOVE. So seek that which will give you LOVE, and LOVE that which you have sought. GOLD comes to mind. It asks nothing of me, it gives me nought but peace of spirit and the contemplation that when all about me are losing their heads, I alone am standing and asking...why this is so, "have I misread the situation?" Fiat currency is doomed, history teaches this (google: Inflation in the Roman Empire)...also see www.jsmineset.com for the Truth as we descend into financial armagedon, and protect yourself from the ravages of the false pretenders.

Well said cynthia on September 3, 2008 3:32 PM. Entirely agree with your lovely 55 BC quote. Nothing changes eh? And I do believe never will. So, it's human nature then, and that is nothing anybody can change. They just go on..making the same mistakes. Sad that Homo Sapiens is not so wise after all. I have lived here long enough to realise the ultimate condemnation of the human race. Fortunately I am not of this planet, but I am so sad to witness the deprivation of such a beautiful environment. I have no way of knowing what drives these maniacs to their own inevitable distruction, or why it should be so, nevertheless it seems to be the destiny of the creature called Man. I do not dispair, for in the greater universe where 'mother earth' is but an insignificant item, I know that LOVE will prevail, for it is the only thing that can be given away in abundance and yet received, even greater, in return. Gold has this quality too, even more so in today's environment! Check out my real values in a place full of LOVE and GIVING, without asking anything in return (there is no interest paid on gold!). And do not forget 'Peter' at www.arabianmoney.com ..he does deserve your attention!

"I've been calling since June for a rate cut tomorrow and with the oil price now sliding faster than I'd expected, the risk of inflation is reversing at an equally rapid pace." Is that meant to be a joke? Oil has slide 20% accompanied by a 12% fall in the value of the £ against the $. Much the same applies to commodities generally. A cut in interest rates might well totally destroy any advantage to be gained from falling commodity prices.

We can't do anything about inflation which is down to imported food & fuel? Hardly surprising after letting the pound slump by 25%? the ony solution is to raise interest rates - the housing market and with it the retail economy is going to tank whatever the socialist idiots do and this rubbish beggars belief: who will buy in a falling housing market even with money loaned by taxpayers and developers only to buyers who can't pay it back? And of course developers with no capital left and nursing huge losses will be queuing up to lend, yeah right.

Well said Cynthia! The UK has a mammoth task to turn its economy around. Labour should have built on the Conservative management rather than encouraging the public and private sector to go on a debt-fuelled spending binge. There is now no quick fix and I hear no political voices telling the UK what needs to be done - urgently! Slash public spending Remove generous public sector pensions Remove benefit culture Give everyone a decent tax free allowance Incentivise investment etc. etc.

I thought we might all enjoy the following quote from another site: "The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance. --Cicero, 55 BC." Now that we are repeating age old mistakes, perhaps the age old solution will work too. Politicians seduce voters with big promises, funded by taxpayers. Expanding public sector jobs and welfare has enlarged NuLabour's voter base - at the expense of taxpayers, particularly the ones in the private sector who pay for inflation busting pay increases and index linked pensions enjoyed by politicians, and their employees who account for nearly half of all UK jobs. We need a revolution: smaller Government, public spending cuts, and at some point, lower taxes. This is financial prudence, not politics ...as nations have discovered over many centuries. We need better managers in Government, and public service who will get results for our tax money instead of simply turning a blind eye to waste and ineptitude among public sector funded organisations...starting with Parliament, The Bank of England, The Treasury, and all major Government departments. Wishful thinking? Perhaps. So, I guess we'll experience the alternative: plunging pound, inflation/deflation, millions more unemployed, greater social unrest etc.

If government added property price inflation into the BoE inflation control mechanism index then perhaps we would not keep on repeating this level of volatility every decade or so. Keep Politicians Away From Economies!

Have you seen how sterling has devalued over these last few months. How can you call for an interest rate cut? If anything, we need them to rise. Furthermore, isn't it time that we had a different economic model. Playing 'shops', I thought, was a childrens' game - not something to base our entire futures on. What has the government done with all the tax receipts it has received over the years? NuLabour must be made accountable regarding the poor financial state the country is in. What does the National Audit Office have to say about it all?

England is not ruled by the English for the benefit of the English. The things that need to be done will not be done. The insane policies of socialists have their routes in the expressed intentions of Marxists, they actually do intend to destroy Christian Democracy.I was tempted to include the ridiculous term capitalism I mean did none have capitol in Communist Russia What this means is you don't get a vote on the EU constitution you must destroy the Crown the House of Lords,change the good laws and last but not least wreck the economy of the west to introduce the new world order. Saxons are Isaacsons the tribes are lost only to the blind Isaiah is a good place to start. Jacob is always punished at the hands of his enemies for idolatry.Repentance and rescue come later.

great arguments CWood 12:42 PM keep the pound, yeah!

Simply reducing the tax on property up to £175k has little long term benefit. Instead the tax should be reduced by the cost of significantly improving the house's insulation to high standards. This would help reduce CO2, gas and electric consumed for a long time. Our North Sea oil and gas are now past their peak and declining (like much of the world) so will cost more and more over the coming years which will worsen our terrible trade "balance". Instead Brown makes gesture policies, last weekend against Russia selling the irresistible story of the good guys standing up to the evil enemy that seems to be threatening us. Maybe he is just following precedent and setting himself up for US lectures?

I wouldn't like to be selling a house for around £200k everyones going to offer £174.5k. Law of unintended consequences? Also with the £ dropping there appear to be two broad choices 1. Raise interest rates (oh dear) 2. Have higher even inflation (oh dear) The BoE will write a letter. The Chancellor will say ok then. Ummh someone has to pay? Savers? People who have pensions? We'll private ones anyway? International investors..oh they've offshored their money already? People who borrowed or lent too much? They took a risk... People who made huge fees from complex opaque financial debt instruments that turned out to be worthless? Oh that's it everyone can pay...

You'll need more than 'good luck' if you stay in the euro, eurotrash 10.30 (what a marvellous name), you'll need a miracle.

We need to let this bubble burst, which will be painful but better than wrecking the UK economy forever. With houses cheaper and taxes lower this country could start inventing and making things for sale again. The employees making those goods and services would need less pay if houses were half the price and the tax take were less, making the goods cheaper and more competitive. This approach would mean that the pound could stay strong without hitting exports and we could have decent interest rate returns for savers so that people provided for their own retirements. In a nutshell we need to start earning our way in the world instead of feeding off an asset boom fuelled by printing pound notes and cheap credit.

"the evidence for an interest rate cut is now overwhelming......." Bang on if you will, and if you are proved to be wrong then everybody will have forgotten what you said. The evidence for an interest rate cut is in fact underwhelming. The slowdown in the economy is not simply the result of high energy prices and high food prices but in the main, the high level of government spending. High energy and food prices simply provide this government with a convenient smoke screen. A recession can just as easily be accompanied by inflation, caused directly by excessive government spending. The solution is to increase interest rates, not reduce them. This government have not only spent so much that we face borrowings exceeding 40 perccent of GDP, but are guilty of spending a lot more if you add the PFI schemes on top. No matter that they insist these are capital projects which, clearly many are not, it still increases the volume of money out there on the street. Interest rates need be increased, but nobody on the MPC has the balls to vote them up, and those who might, are in any event outgunned by Gordons friends on the committee

The Treasury has no more money to bail out desperate British banks. The Govt has no more money to cover collapsing tax revenues and mushrooming unemployment benefits. They will be forced to sell more Govt bonds and raise the national debt in order to keep going. The pound is in freefall. So when they start to issue Treasury Bonds, no-one will want to buy them because they are denominated in sterling which everyone is offloading. It will be a repeat of the Seventies with the Govt being forced to go cap in hand abroad for urgent funds in order to prevent national bankruptcy. However this time it will not be the IMF. It will be the ECB which will be asked to bail out the British economy. And the price we will pay will be enforced euro membership at a low rate, possibly at parity. The alternative would of course be to do nothing and end up like Zimbabwe.

Brown's Cunning PLan Managing the economy is difficult, and managing the nation is even more difficult; but it is the economy that trumps all. It is difficult predicting the bottom of the market, and 'catching a falling knife' is often used to picture the danger. However, the best time to gain maximum effect and to allow the market to do its thing is when there is capitulation. There has been a call for lowering interest rates, but at a time of wage rates shooting up because of cost increases it will increase risk of cost-push wage inflation and lead the nation into stagflation. Now that growth expectations are negative in all BRIC countries and UK is soon to be in technical recession by Christmas there is a feeling that we are at bottom, and any action will have maximum effect to boost economy without stoking inflation. Oil prices are lowering on concerns for lowere global growth, particularly in China and India. Geopolitics has re-emphasised the need to develop energy security and a more vibrant and diverse industrial capability that does not make it totally reliant on gobal supplies and will give skilled UK workers something to have pride & purpose. The pound has fallen and is like lowering interest rates, making UK goods attractive and competitive; UK will also be more attractive to make investment (we need it big time). Soon, say around Christmas the UK interest rates will fall and Government will announce major infrasctural investment: Severn Barrage (tidal power), Nuclear investment (actual building), new industrial training and investment projects. Much of the infrastructure will emphasis dependable & alternative enery whilst making energy conservation & efficiency the hallmark of British Industry. At the forefront high technology for transport is Rolls Royce which is the one to be invested in for the long term, particularly the Maritime propulsion. The recession can allow UK to re-allocate its factors of production.

'you can't trust Labour with the economy' hemm, not that i would want to defend the labour party, they are a useless bunch, but who was in power and for how long the last time the UK faced a serious recession? i'll give you a hint, the year was 1992.

thanks god the UK did not join the euro. Do you remeber the mantra 'they need us, we do not need them'. hehehehe, how ironic, now everyone knows the UK economy's boom of the the 2000s was built on credit and it is now time to pay the bill. and keeping sovereignty of monetary policies does help when you need to socialize losses. not that the eurozone is doing much better, especially the pigs counties, but at least if you live in Germany you do not own negative equity. i can only say one thing, good luck guys and god save the queen.

With the pound falling and inflation rising surely an interest cut is the last thing we need? Posted by Egbert on September 3, 2008 9:14 AM Exactly. I wonder, really wonder, why economic ‘experts’ keep banging on about interest rates as the Holy Grail to salvage the British economy. When will they realise that interest rates are a tool for FINETUNING an economy, not to fix an economy when it is broken. They are like engine oil, you add more when the engine is running low, avoiding adding too much, but oil is useless when the engine is broken, as the British economy is. The UK has had a long period of economic growth based on a consumer debt binge built on cheap and easy credit and households using their houses as cash machines. This binge is now definitely over and no amount of interest rate reduction will change that. The UK needs to find a new economic model that is different to the previous one of financial speculation and consumer spending fuelled by debt. This is one reason why reducing interest rates won’t work. The other is even more important and of greater short term effect: The UK’s gigantic current account deficit. The UK, being outside the Eurozone, has this mythical independence to set its own interest rates. Yet, this ‘independence’ has its counterpart in the ‘automatic transmitter’ mechanism, whereby every rate increase or reduction by the BoE has its concomitant opposite effect on the exchange rate. If the BoE were to reduce interest rates tomorrow, the pound would fall further against the dollar and the euro. Because the UK is a net importer, and it pays most of its mountain of imports either in dollars or euros, any benefit of lower interest rates will be wiped off by higher prices at the pump and higher costs for food and energy.

It's one thing, jon livesey 1.37, to share with the rest of the world a 'downward correction' to a period of worldwide 'boom'. It's quite another to have made the correction so unnecessarily harmful by misguided, almost demented, govt meddling as Labour has done here.

The housing market is in a mess because millions of people have borrowed 5,6,7x their income, inflating property prices for everyone else. This is why there are so many interest-only mortgages (with no repayment vehicle) - interest only is all that some people can afford. I believe many of these people would rather of taken a repayment mortgage but that often plays second fiddle to getting the best (or only) property they can and they'll worry about repaying the mortgage later. This has all been made possible by lenders relaxing the rules about 10yrs ago when 'self certified' mortgages arrived. Up until that time, the job of a mortgage underwriter was to carefully consider all the evidence - employer references, payslips, ID, credit score, property valuation etc and make a decision - a process taking say a month with the various tasks and correspondences. Fast forward 10yrs and the same process can now be achieved in.....wait for it.......30 seconds!!! How so? Payslips not required, references not required, valuation done using database on local average prices, credit score online, broker checks the ID. Case send online for instant decision. Mortgage offer printed out. I'm not talking sub-prime here either. About half of the high street lenders still allow self certified income with a 25% deposit (although that used to be 10%) Why? Because if no-one needs to check anything they can save huge costs on admin and speed up the process which customers want. The downside is that people will continue to exploit this and borrow far more than they should thus keeping property prices high or higher. If we want to keep a leash of property prices people are going to have to start proving their income. I'm afraid this is going to cause a mini crash but it will be much better for the long term.

Exactly. The whole housing support thing is just spin, and heavily bureaucratic spin at that. To impact the enormous UK housing market would cost an amount equal to the annual cost of the NHS and in any case would not be worthwhile. If prices fall another 35% as predicted a lot of first time buyers will be able to buy, even with decently prudent mortgage terms including deposits and realistic multiples. I guess Darling knows this and will let the market take its course, with a little tinkering for appearance.

With the pound falling and inflation rising surely an interest cut is the last thing we need?

No comments ! Good - I can be the first to blame Margaret Thatcher .

I can't why any sane government would want to encourage first time buyers into a falling market. Better let the market bottom out and then they may be able to get on the ladder with a mortgage they can afford through stricter lending, and proper deposits. At least it reduces the risk of repossession.

I do believe that UK is in a stagflation, and what needs to be done is to stimulate growth with increased spending or reduced taxes, and BoE should fight runaway inflation and wage-price spiral by increasing the rates. The real interest rates are too low that UK can`t afford to lower rates, especially after talking down on economy and flooring the currency and fuelling the existing inflation in a country where people rely on imported goods. Telling that oil prices are falling faster than ever is a bit optimistic while pound is falling faster than ever. Real interest rates are well below the shown figures, UK doesn`t need another bubble with "easy-to-acess" money.

Some of these failed bankers have to go to jail for this - if not then we truly are only slaves in our own country. These parasites must pay a heavy personal price for their singlehanded destruction of the UK economy. When will our knavish governments look after the interests of their true masters - the sovereign people of the United Kingdom? Until then know this - you are slaves........

OK but surely the same thing is true for the US economy and that will mean that the US dollar rally proves a false one, although perhaps not for sterling? See this analysis: http://arabianmoney.net/2008/06/02/be ware-the-sucker’s-rally-in-the-us- dollar-buy-gold-and-silver/

I am afraid this is a downward spiral and I stick to my 60% decline forecast, see this post: http://arabianmoney.net/?s=1991-3

I know it makes a good story, but let's keep this "only country facing a recession" stuff in context. The UK is facing a recession after a couple of decades of uninterrupted growth. The rest of Europe has drifted in and out of recession several times during that period. The same can be said for Japan, which periodically seems to escape temporarily from a decade-long recession only to slip back into it. And you may want to take a look at China's manufacturing. They look to be at the start of a recession also, and given that they don't have much in the way of a social safety net, the political consequences could be quite unsettling. Darling isn't the only one who is guilty of talking the economy down.

It is difficult to see any way out of the hole that the government has dug for the UK economy. The best that can be said about the situation is that Labour has proved Mrs Thatcher right, almost twenty years after she left office: you can't trust Labour with the economy.