Before we start, a word about bankers’ bonuses.

With the head of the Financial Services Watchdog, Mr Airhead Turner, placing bankers on a scale between Socially Awkward and Totally Useless, people have been coming up with plans to curb excessive bonuses. Mr Airhead himself floated the idea of a transaction tax or Tobin tax, where you charge the bankers for passing money across the border.

Captain Clegg and the Liberal Democrats don’t think this would work, because the bankers would just pass their money over everyone’s border but ours!

We’d rather see bonuses cut down to size by cutting the BANKS down to size, breaking them up so they are no longer too big to save when it turns out that they are too big to let fail.

For the Conservatories, Master Gideon Oboe said that if banks didn’t stop awarding big bonuses he would have the regulator write them a VERY STERN letter, warning them that he would not sign off on their pay package. And if they persisted in paying out, well, he’d write them ANOTHER very stern letter! That would sort them out.

And Mr Frown, the Prime Monster himself, promised to try very hard to put a STOP to that sort of thing, and then tried very hard to scupper Monsieur Sarcastic and Ms Angular Meercat’s plan to ACTUALLY stop that sort of thing!

I think it is time to put a fresh proposal on the table.

Here we go: bankers can have as much bonus as they like BUT they have to collect it IN CASH in a wheelbarrow on a day announced to the public. What you get home, you can keep.

The real story of the month is that the recession is OVER. At least it is if you are French or German or Japanese. If you are British, and you wish it really, really hard, then maybe we will recover THIS quarter.

Yes, I know what you are saying: but that’s a whole ‘nother season, but you can go to the Academy with your friends NEXT year, Luke… oh wait, that’s Star Wars…

No, the REAL first question you are asking is: if Britain and Americaland are such supposedly “nimble” economies, unencumbered by all those “Socialist Chapter” workers’ rights and alleged (by Mr Frown) to be “better prepared” to weather the storm, why are we lagging behind the lumbering dinosaurs of Europe?

Actually, “dinosaurs” is NOT a bad analogy, here, and nor should you think of it as uncomplimentary to our European pals: after all, as a group, the dinosaurs ruled the Earth for two-hundred million years, which is rather better than we mammals have done, and better than any other group other than the Beatles. But back to the analogy: the reason that dinosaurs got so big and fat was because this helps to slow down any CHANGES that might affect you. If it’s a nippy morning, a HUGE diplodocus will still be full of toasty warmth from the day before while an itty bitty mouse will been frizzed to a popsicle if it doesn’t find breakfast.

In the same way, making it too much trouble to fire people might reduce your industries’ ability to grasp the opportunities in the good times but it doesn’t half help things keep ticking over when times are more wintry. Likewise, a hefty and generous social security provision may be a DRAG on the nation’s finances when the weather is fair, but that generosity also enables people to keep buying the stuff your economy is producing when the sun isn’t shining any more. Basically, economic inertia SMOOTHES out the bad and the good alike.

The good news, from OUR point of view, is that if the good times do come back, Great Britain should be in a position to take off rapidly and with luck will catch up with Europe again. Does this mean that Mr Frown was RIGHT and we WERE better prepared? NO, not a bit of it; there are a LOT of frizzed mouses that have fallen by the wayside in the BRUTAL process of this evolution.

However, that is if we are LUCKY, and what may count against us is the huge amount of DEBT with which Mr Frown and Chancellor Sooty have saddled the lot of us.

Of course, there are TWO problems with this: first, we have to repay it all somehow, and THAT is going to take some painful readjustments to the budget – rather more painful than Mr Balloon’s widely mocked “salad tax” for MPs. But second, it doesn’t do for the government to be mopping up a lot of the available credit at the same time as we are suffering a recession caused by a credit CRUNCH.

DEBT, remember, is the ROCKET FUEL that we use to power our economy and if we are planning on taking off, then we don’t want to get to the gas station and find that Mr Frown has got there first and emptied all the pumps!

Still, maybe we don’t NEED any more credit, since, for the first time since records began (don’t get TOO excited; the records only begin in 1993), the Great British public actually repaid more debt than they borrowed in August.

Yes, the TOTAL amount owed by individuals has fallen – for the first time ever, remember – from one thousand four hundred and fifty eight billion to one thousand four hundred and fifty SEVEN billion pounds, a fall of zero-point-six billion pounds. Okay, it’s a drop in the ocean, but paying off even SOME debt is surely a good thing, isn’t it.

Isn’t it?

Um, actually maybe not. The experience of JAPAN in the Nineteen-nineties, what they call “the lost decade”, was of an economy that got caught in a deflationary spiral because people used any spare money they had to pay down debt. We’re not there yet, far from it, but it’s a cautionary tale.

It works like this: you may remember that banks use lending to CREATE money.

I’ll go through it again quickly.

Suppose I put £10 pocket money in the bank. The bank says: “well, Millennium won’t want ALL of that money TODAY, so we will lend some of it to someone. Let’s say he might want £1 for a STICKY BUN, and lend out £9 to Cuddly Cthulhu”. So, now I have £10 (in the bank) and Cuddly Cthulhu has £9 – and the bank has, somehow, magically almost doubled the money.

But then, what does Cuddly Cthulhu do? Well, he puts it in the Unspeakable Bank of R’lyeh! And the Unspeakable Bank say to themselves: “well, Cthulhu won’t want ALL of that money TODAY, so we will lend some of it to someone. Let’s say he might want £1 for a Cultist Kebab, and lend out £8 to the Clangers”.

So NOW, I have £10 and Cuddly Cthulhu has £9 and the Clangers have £8 and it seems like we’ve discovered the secret of making money out of NOTHING!

Unfortunately, as we discovered in the Credit Crunch, the same process works in REVERSE. THEN it was the banks that were lending less, but if you think about it, people borrowing less has the same effect. If Cuddly Cthulhu DOESN’T borrow that money, the Unspeakable Bank doesn’t have the cash to lend to the Clangers.

Repaying debt takes money OUT of the economy, and with less actual money to spend people need to be convinced to spend it and so prices go down – which sounds GOOD – but in turn that drives down earnings – oops, BAD.

The OTHER thing that takes money out of the economy is TAX, particularly when it is tax going to be spent on DEBT rather than circulating back into the economy through government spending. So, for example, an increase in the VAT rate (like, for example, the one Sooty has planned for the end of December) coupled with a decrease in government spending (like, for example, the one Sooty has admitted he is planning) will mean that people have even less money to spend.

There isn’t any way around this, though. International money lenders and Loan Sharks Direct dot Com are NOT going to keep extending Sooty’s tab unless the Government shows it is going to be able to pay the cash back. Taxes inevitably have to go UP. For the same reason, we cannot keep on spending more than we earn. Spending inevitably has to be cut.

And that is HARD. Remember, regardless of whether you think that it is monstrous or inadequate, the Government spends six to seven hundred billion pounds. A year. A third of that goes on pensions and benefits. Another third is shared between the Health Service, the Armed Forces and Education. That is two-thirds of all spending going on things that people are going to care deeply about. So if you are to make ANY kind of serious spending reduction, you are going to have to make real cuts to something that people will HATE you for cutting. Good luck with that!

But in the longer term, this COULD actually be a GOOD thing. The Government needs to be kicked of the habit of just spending money on things to make us happy because, basically, the Government isn’t very GOOD at it. It says it buys presents for US, but REALLY it buys the things that IT wants! Like, do any of YOU actually WANT two new aircraft carriers and a trio of Trident submarines? Where would you PARK? Does ANYONE have a use for a department of Culture, Media and Sport? Can’t we do culture, media and sport WITHOUT civil servants to organize it?

Yes, I REALISE I’ve just abolished the Arts Council and what are left of our local swimming pools; but if people want those things, can we not ENCOURAGE them to do them for themselves rather than IMPOSE them whether they want them or not? Maybe – and here’s a radical spin – we could make them tax deductible; so there’s a sort of VOLUNTARY elephant element to your tax: real people power where YOU choose how at least some of your tax is spent? Or am I just having a bit of a Charlotte Gore moment?

We have, however, been here before. At the end of the last Conservatory government, the Chancellor before Mr Frown, Mr Fatty Clarke, tripled the national debt in order to pretend they hadn’t trollied the economy. Yes, yes, it looks like CHICKEN FEED now! Mr Frown when he came in, though, had to put up taxes and cut back spending. And he actually did it. He was very good at it, and earned his reputation for PRUDENCE. He paid back the debt and put us on a sound economic footing. And then, a week later, he went stark, staring mad and started spending like money was going out of fashion. Which, come to think of it, in the last year it very nearly did!

So, on the plus side we’ve got the sort of economy that CAN shift into growth quickly, but on the other fluffy foot, we also have a lot of hurdles to get over if we’re going to do so. It’s going to be a lot of hard work.

My recommendations for the month, then. Stuff the mortgage; treat yourself to a trip to Bournemouth for the Liberal Democrat conference and I will see you at the party for the Blogger of the Year!

PS: About that “salad tax”: I’m going to go out on a fluffy limb here and say I actually think MPs DESERVE cheap food in the House of Commons canteen. It’s a perk, and perks make life BETTER. If you’ve got to do long hours and work hard scrutinizing the Regulation of Widgets (European Communities) Act 2009, frankly I do not see what is wrong with you being kept going by the thought of a nice steak and chips or vegetarian lasagne for tea.

And one thought that strikes me: this subsidized eating in the House of Commons – is that JUST for MPs, or is it for everyone who works there?

Because it occurs to me that Mr Balloon’s suggestion that he’ll hike the prices and save five-and-a-half million pounds can’t ALL be on MPs, can it? That’s £160 a week each! You could feed a family of four on that. So it strikes me he’s doing a Mr Frown and hitting a wider “tax” base.

Because a more expensive meal isn’t something that is going to hurt MPs that much, but sure is going to be a total fluffy pain for a load of poorly paid researchers and not-paid-at-all interns who suddenly won’t be able to eat!

Now, read my diary!