When Gordon Brown was Britain’s Chancellor of the Exchequer under Labour Prime Minister Tony Blair, he relished boasting in the House of Commons on the efficacy of his stewardship of the UK’s economy. However, now that the Global Economic Crisis has impacted the United Kingdom with particular severity, Prime Minister Gordon Brown is being seen as ineffectual as both a politician and economic manager. The British economy is plunging into the depths of its most severe contraction since the 1930s, with all the macroeconomic indicators pointing south.
The response to this financial meltdown has been happy talk, at times bordering on the ridiculous. At one point, Brown even claimed that his spendthrift ways had “saved” the global economy. As recently as last November, Chancellor of the Exchequer Alistair Darling claimed that in 2009 the UK economy would contract be a mere 1%, a fantasy calculation that even the Labour government now concedes. Yet in the supposedly more realistic budget just tabled by the Chancellor of the Exchequer, imagination still takes precedence over reality. The UK government now projects a decline in the nation’s economy of 3.5% in 2009, with a return to growth in 2010. However, the International Monetary Fund released its own estimate on the global economy shortly after the British budget was tabled, projecting a decline in the UK economy of 4.1 % in 2009 and likely a continued contraction in 2010. Interestingly, this number reflects growing pessimism by the IMF concerning the UK economy, as it had projected a decline of 2.9% back in January.
The imploding British economy has set off deflation in key asset classes, particularly real estate. Unemployment is skyrocketing, having reached an official figure of 6.7 %, or 2.1 million jobless. However, the opposition Conservative Party has claimed that the actual number of British unemployed stands at more than three million. Whatever the true number of unemployed is now, it will certainly rise substantially during the next two years.
Complicating the economic problems in the UK is its disastrous banking crisis, which rivals that of the United States. Much of Britain’s banking sector is insolvent, prompting a costly bailout by Gordon Brown’s government. With plunging tax revenues due to the nation’s economic contraction, the UK has been forced to borrow vast amounts of money to cover the cost of subsidizing the nation’s zombie banks. The combination of bank bailouts and stimulus spending has created staggering budgetary deficits, prompting the governor of the Bank of England, Mervyn King, to warn that further government indebtedness threatens the long-term stability of the UK’s finances.
The IMF actually challenged the official UK government estimate on the cost of taxpayer funded bank bailouts, presented in Darling’s budget at 60 billion pounds. When the IMF issued its own cost estimate of 200 billion pounds, Gordon Brown and his team went ballistic, forcing the International Monetary Fund to lower is projection to an earlier figure of “only” 130 billion pounds, still more than double the official UK estimate. However, strong-arming the IMF cannot alter the fact that the national debt of the UK is climbing at an astronomical rate. Alistair Darling is projecting that the UK will need to borrow more than $500 billion during the next two years, a sum that exceeds the cumulative borrowing of all previous British governments since the creation of the Bank of England more than three centuries ago, according to the leader of the official opposition, David Cameron.
The UK economy has been transformed, in effect, into a candle burning at both ends. Insolvent banks are consuming taxpayer funds at a rate that is intergenerational while the domestic economy tanks and unemployment soars .In the meantime, the national debt is exploding. Deflation is raging now, while the specter of hyperinflation hovers around the corner, as eroding financial fundamentals cripple the value of Britain’s currency. Amid the acute economic and financial crisis afflicting the UK, the nation’s political establishment offers only rosy projections. Tony Blair may have been called George W. Bush’s lap dog, but Gordon Brown is proving to be his economic disciple.
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