Rule Britnannia - Blimy, Why Couldn't This Be 100 Years Ago?

Evidently everybody in the UK thought it would happen. Now the Prime Minister, Gordon Brown, has made it official.

In a speech to the Trade Unions Council,  "our good mate" Gordy stated - "Labor will cut costs, cut inefficiencies,  cut unnecessary programs, and cut lower priority budgets." . Which some in Britain  probably interpret as meaning 90% of National government spending. < Ok. It's probably only 50% >

Not only are the Brits having nothing to do with any stimulus programs; they're actually cutting government spending and axing workers.

Brown also stated he wanted a new industrial policy that would create a few million new jobs < to pick up all those redundant gov workers? >, which is a sizable  amount given Britains population size. All Guido can say, is that this guy has big dreams, or maybe he just had one too many beers at the pub before his speech.  

But Gordon has called it wrong before. Remember several years ago, when he was Finance Chancellor? That's when he decided to sell a big chunk of British government gold. Promptly after the sale, the gold price soared and still hasn't returned to Gordy's fire sale price. That little adventure cost British taxpayers several billion pounds of potential revenue.

Many may think that  this is the wrong time to start fiscal austerity in Britain, when the country is still probably in an economic depression like the rest of the world < despite all the hype about a housing recovery >. The Bank of England governor, Mervyn King < Bernanke's former college neighbor when Merv was doing a US sabbatical >,  has indicated that there may not be that much more latitude available for "monetary stimulation". But then it's hard  to know really what Mr. King means these days. One day he seems to imply one thing. The next day the complete opposite. Then there's been days when he seemed to say two contradictory things at the same time. Among the hoi polloi, they usually call that schizophrenia. Many, however, just claim Mervyn is a "bit" tired.

But why wouldn't the BOE be able to do a Bernanke bomb mission of money creation? Why does the British government actually have to cut their budget, when a double douse of fiscal stimulus  may be needed to provide an economic floor?

The reason, Guido thinks, is quite clear. The British currency, the pound, unlike 100 years ago, is not the world's reserve currency. There's only so much debt the government can borrow or the BOE create, before  world financial markets say get lost. And there's a lot less money British taxpayers have, to make up the slack.

This is also true for Continental Europe as well. Over the past six months the Germans have had trouble finding enough bidders for their government Bund auctions. < Actually the most recent auction was oversubscribed several times. But Guido suspects this may have to do with everyone trying to diversify out of US T Bonds. Also failed bond auctions for Germany have occurred  a few times sporadically over the years and are not a recent anomaly. > Other countries face similar restraints. Some severely like Eastern Europe. And others, like France, with many billions more borrowing potential.

Only the US has been in the enviable  position to do what it wants. And pretty much has, without any regard for itself or the rest of the world. As the reserve currency of national governments, America can monetarily print it's way out of trade deficits and Federal gov deficits.

As I've said, the dollar maintaining it's value vis a vis other national currencies is the cornerstone holding up the world economy. That's the reason the US has been able to consume so much of the world's goods and services. Once the dollar dives, the entire economic structure comes crashing down.

There was a currency crisis in the 1930s, with the dollar then a significant player but not the dominant guerrilla . The rest of the world seems to remember this and trembles at the thought of another money debacle. America's leaders, however, appear to be blithely unconcerned.

One can only hope they are not.

"Those who can not remember the past, are destined to repeat it." - Santayana.

< As always this article's is for information purposes only. >