London Calling

I’m just back from visiting family in England, and got to have a first-hand look at how the economic crisis is playing out on the other side of the Atlantic. Suffice it to say, it is the dominant story. Before we left, the Bank of England cut short-term interest rates by 1.5% and it was revealed that they had contemplated a 2% reduction but did not want to spook the financial markets. The next week they did spook the financial markets by projecting a contraction of GDP of 2% for 2009. As a result the value of sterling continued to fall against other major currencies, with a total drop of about 30% since the summer. The decline over the few days before our trip alone saved us a couple hundred dollars.

In other news, there were layoff announcements almost every day, and like New York there is a big hit to a financial sector that had become complacent after years of fat bonuses. Housing prices are down 15% over last year and new starts have dried up. While we were there inflation dropped a full percentage point on the most recent announcement (to 4.5%, which is somewhat quaint from a Canadian perspective). As we left yesterday, the major retailers were in panic mode offering up big sales as pre-Christmas activity was well below targets.

The economic situation has also reshaped the political landscape. A faltering PM Gordon Brown has had new life breathed into him, scrapping back from being behind in the polls to David Cameron’s Tories. Brown is coming off a financial rescue package that has become THE model for government intervention with the government getting equity stakes in the banks, guaranteed returns and seats on boards (unlike the Bush-Paulson plan, as Naomi Klein points out).

Brown is now pushing a fiscal stimulus package of tax cuts (apparently aimed at low-income families (though I am skeptical) and spending increases, while Cameron is pressing for revenue-neutral tax cuts (i.e. no stimulus) and is looking very Thatcher-esque. That said, I personally found the Liberal Democrats the most convincing in terms of an plan, with a focus on green infrastructure spending, but like the home front the LDP is a third-party looking on the race from the outside. Brown’s package will be announced on Monday, and comes on top of a deficit already over 3% of GDP (like in the US the deficit is not much of an issue in England despite attempts from the Tories).

In sports, better news. England beat Germany 2-1 in a friendly, capping off a solid year for a national team that missed qualifying for Euro 2008. John Terry made up for a gaffe that led to the German equalizer by potting a fine header late in the game. A well-played game for the English side, who played aggressively and at times were dominant, in the first win for any foreign side in Berlin for many a year.

One comment

  • After 2 years of shocks and debate we still do not know what is wrong. WHAT IS WRONG? obviously something no one has experienced before, although they claim superior knowledge. I was reading the Financial Times and other commentators 2 years ago and decided something was very wrong so I sold 40%of my modest portfolio. My broker thought I was mad.What could ever happen to banks goodness sake.
    The shares I kept showed massive losses, but I slowly fed money back in expecting a recovery.Not a chance 2 years on we have had commodity bubbles,oil surges to record high. Massive right offs,a world that looks as if it is bust at every level, and they think pumping money in is going to save it.
    I have decided to put my faith in a newly discovered economic guru-Captain Cook. Cook sailed into uncharted waters in his small ship,hit a reef and started to sink. He threw everything he could overboard, furled a spare sail round his ship stuffed with anything that would stop the flow of water, beached his ship, and carried out repairs so thorough his ship brought him safely home. First he had a sturdy ship. Second he stopped pumping and took the trouble to find the hole.
    It would appear the economic ship we are stuck with is anything but sturdy.Downright flimsy in fact, and the crew would not know what a hole looks like if they were sucked into one. So they just carry on aimlessly pumpimg and writing off what they don’t understand. It is not the debts but the right offs that have been so damaging.and nothing will improve till they find the holes, and then its back to the drawing board for a new economic model we can all understand, not a few hyped up whizz kids.

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