According to the Ambrose Evans-Pritchard in Times, the head of Fitch Ratings, Brian Coulton, has branded the British government’s response to its growing public debt as “pedestrian”. He said that Britain has "the most rapid rise in the ratio of public debt to GDP of any AAA-rated country" and that a clear plan of austerity is needed for us to maintain world-wide confidence.
This after hugely disappointing trade deficit figures and the pound sliding below $1.50.
With other nations biting the bullet with clear plans to cut deficits the danger is that the UK’s mountainous debt will soon overshadow every other countries’ with the clear risk that our AAA rating may be affected.
According to Fitch, the UK seems to be relying on a Korean model of recovery by hoping that increased output and tax revenues will eventually fill the gap. Fitch believes this to be optimistic and believe that Britain is more likely to be heading for a Japanese style ‘lost decade’ unless we change course soon.
Fitch also believes that, although Greece was in bad shape and not out of the woods yet, the danger of the Greek problem spreading around the globe has been overhyped. Whereas the dire position that Italy is in has been understated.
It also points out that the developed economies have not ‘self-insured’. They have not built up buffers to absorb these economic shocks. This is in contrast to some rising Asian and Latin American states that have.
One very good point that Ambrose makes is that if the whole planet goes for a concurrent dose of fiscal tightening medicine in response to calls by agencies such as Fitch, “the rating process itself risks becoming the enforcer of destructive debt deflation.”
But the UK doesn’t need to be the self destructing engine of global recovery. We must look after ourselves first and foremost.
Like someone who has gone crazy with the credit cards but cannot face the family with the truth, Labour is continuing to spend at home and abroad in the hope that ‘something will turn up’. Just as a person with melted plastic doesn’t have the duty to keep the local economy going by overspending, the government has no duty to keep the world economy afloat while they quietly recover themselves.
Public spending cuts are essential, but that means pain for many people and the government doesn’t have the courage to face the public and tell them the truth of the economic position. But they do have the chutzpah to try and re-write public sector employment contract redundancy rules to limit possible future costs. Whilst at the time I may add stating that they can’t interfere with bankers’ bonuses as it is ‘in their contracts’ and distracting us with dog insurance and microchipping.
But decision day for the UK electorate is fast approaching. With a budget on 24th March a general election date of May 6th looks favourite. Let's hope we get a strong government at the end of it that can lead us out of this mess.