Saturday, October 17, 2009

Ex-FSA Chief Says British Folks Living in "A Fool's Paradise"

In a recent report titled  Ex-FSA chief Sir Howard Davies sees 'dramatic’ risks for Britain, the Telegraph cites the ex-FSA chief as saying that "the British people are living in a fool's paradise and have yet to understand the gravity of the economic crisis". The Telegraph reports:
Sir Howard Davies, said Britain faces a dangerous rise in the levels of public debt – even taking into account tax increases planned for coming years. "The next six months are going to be extremely delicate in the UK", he told a gathering of HSBC clients in London. "It is very clear that something dramatic has to happen to control spending: but is the economy robust enough to survive fiscal tightening?"
The Government is already running out of weapons to fight the crisis. While the fall in the pound has helped boost exports and proved benign so far, Sir Howard said that past experience handling sterling crises had taught him that the matters can turn ugly fast once confidence is lost. "The pound never stops where you want it to," he said.
What is disturbing is that the British people seem unwilling to face minimal belt-tightening. Even professors in higher education are balloting to strike, demanding a continuation of boom-time pay raises. Polling data shows that 48pc of the public are against any spending cuts and only 20pc see the need for retrenchment.
To this we would add that the British people are not alone in their delusion, they have the entire U.S. Congress, CNBC's "I want Lower Taxes" Larry Kudlow, and the Fed in that camp as well. What is happening in Britain is just the preview for what is to follow in the United States. As Congress fails to reign spending (especially on wars) and lets U.S. budget deficits spiral out of control, it is inevitable that the government will have to raise taxes here in the U.S. as well. Coupled with this, the Fed will soon have to raise rates to prevent the U.S. dollar from going in an unending nosedive. So whatever "green shoots" mirage folks have been dreaming of is going to wither away and there is going to be no economic recovery for a long, long time to come.

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