I have spent the day clutching at a couple of straws.
Last week in the tractor factory Nick Clegg appeared to confuse the ‘deficit’ with the National Debt when he said, “We have a moral duty to the next generation to wipe the slate clean for them of debt. We have set out a plan – it lasts about six or seven years – to wipe the slate clean to rid people of the deadweight of debt that has been built up over time.”
It sounded like a fail in GCSE Economics. But suppose he wasn’t mistaking the policy to eliminate the structural deficit by 2017 for a moral crusade to wipe the slate clean by removing the deadweight of the National Debt, all £1,300 billion of it.
At the other end of my straw was the realisation that Nick Clegg might have become an extreme Market Monetarist and was revealing his plan to re-establish Nominal GDP back to its trend line, even if that meant buying in the whole of the National Debt in the mother of all quantitative easing exercises.
Now, wait a minute before you pile in with the derision. We have already bought in roughly a quarter of the National Debt with the QE so far and our head is just above the water. That lot is sitting in a computer in the Bank of England as a figure owed by the Government to the (nationally owned) Bank of England. It is just a press on a delete button to wipe it clean, so why not go the whole hog, hoover up the rest and press delete. Could that be Nick’s intention?
Madness you say. Think of the criticism he would receive from the Telegraph.
Until, that is, you read a piece on Monday by the Telegraph’s senior economics commentator Ambrose Evans-Pritchard entitled, World Edges Closer to Deflationary Slump as Money Contracts in China. The gist of Evans-Pritchard’s argument is that we are on the verge of another shock similar to that of 2008/9. Whereas then, the BRICs were able to keep the world economy afloat (just), this time the BRICs are in the mire too.
The situation in China, India and Brazil makes scary reading. Writes Evans-Pritchard, “My fear has always been that the credit cycle in the Rising World would blow itself out before the Old World has safely recovered, or reached “escape velocity” to use the term in vogue”. And the second straw? The stock market fell by 2% today. Pundits pointed to Europe, but just suppose the market is responding to similar fears expressed by Evans-Pritchard. Greece and its politics have surely been factored in. The election and the aftermath can’t have come as a shock to anyone. In fact, says I, grasping at the second straw, Syriza and the Greek people probably have it right. Greece is too important for Germany to allow it to fail. Faced with a Greek exit or renegotiation, the Troika will blink before the Greek people do.
In pursuit of extreme monetary stimulus, Evans-Pritchard is all for loading the helicopters tonight, “sovereign central banks have the means to defeat any depression thrown at them by launching mass purchases of assets outside the banking system, working through the classic Hawtrey-Cassel quantity of money mechanism until nominal GDP is restored to its trend line.”
“The problem is not scientific,” he continues. “A world slump is preventable if leaders act with enough panache. The hindrance is that the Euro Tower still haunted by Hayekians, and most G10 citizens – and Telegraph readers from my painful experience – (and Lib Dem Voice readers from mine, B le B) view such notions as Weimar debauchery, or plain Devil worship. Economists cannot command a democratic consent for monetary stimulus any more easily today than in 1932.”
In 1932 they couldn’t print gold. In 2012, the ECB, the Bank of England, the Bank of Japan and the Federal Reserve can print Euros, pounds, yen, and dollars.
Nick, don’t let me down. You can eliminate the whole of the National Debt and you may have to. But more importantly you will be saving future generations from the legacy of a preventable depression. Winter is coming early if you don’t.
* Bill le Breton is a former Chair and President of ALDC and a member of the 1997 and 2001 General Election teams