It is often wrongly claimed that Gordon Brown failed to spot the housing bubble. In fact, he called the bubble as early as 2005. The trouble was he believed he had addressed it. Brown thought he had successfully managed a boom without a bust.

You can relive the hubris of the time by reading this passage from Brown’s 2005 speech to the Labour conference. No modesty here. But I think it was the one and only time he has used the word “house price bubble” as chancellor or prime minister.

We will have the strength and resolution to take the right long-term economic decisions too.

Why has it been that at every point since 1997 faced with the Asian crisis, the IT collapse, a stock exchange crash, an American recession, last year a house price bubble, this year rising world oil prices, why has it been that at every point since 1997 Britain uniquely has continued to grow?

In any other decade, a house price bubble would have pushed Britain from boom to bust.

In any other decade, a doubling of oil prices would have put Britain first in last out and worst hit by a world downturn.

I tell you, it is because with Bank of England independence, cutting debt, fiscal discipline and the New Deal this Labour government has shown the strength to take the tough long-term decisions, that inflation is low, interest rates are low, growth has been sustained in every year, and we are closer than ever to the goal which drives us forward: the goal of full employment for our generation.

Labour, the natural party for economic strength in our country today.

The full video can been seen here on the BBC site. The bubble section is about 5 minutes and 20 seconds in.

I was surprised to see the GMB union describing as “total bollocks” my scoop this morning.

The story revealed talks between Corus and union officials over a possible 10 per cent pay cut for the steel group’s 25,000 workers. It’s interesting because this is the kind of idea which could be followed elsewhere (FT journalists have already been handed a pay freeze for 2009).

JCB agreed a deal a few months ago where it would cut pay and hours in return for savings jobs - although the digger company went ahead and cut hundreds anyway a few weeks later.

I was a touch disappointed by the GMB quote in The Guardian. So I called the union’s spokesman, Steve Pryle.

This is what he had to say: “I have spoken to one official who was not aware of this and another who said there had been talks about going down the JCB route.”

That strikes me as more confirmation than refutation. By the way - the BBC has confirmed the tale on its website today. And Robert Peston, the Beeb’s business editor, has more to say on the subject.

Incidentally, here is the statement from the Community steelworkers union. Again, it’s denying that a deal had been struck; but I only wrote that talks were taking place (this is called a non-denial denial in the news world).

‘The report in the Financial Times is inaccurate.  Nothing has been agreed at this time.  Community Union has recently met with Corus Management to discuss a response to the current economic situation. These constructive negotiations are on-going and it would be premature to speculate on the outcome. As yet no agreement has been reached and no deal has been done.”

Why would unions deny today’s FT? For starters, members don’t like to hear that their officials are negotiating from such a weak position. Nor might they like the idea that unions have “offered” to take pay cuts in return for preventing job losses. So their line is that Corus suggested the pay cuts.

Here is what Community told the BBC:

“Any proposals which have come forward have done so as consequence of proposals that have been put by the company.” In other words Corus thought of it first. But yes we did agree to take it, and put it back to management.

This is semantics.

Peer Steinbrück, Social Democratic finance minister, hardly pulls his punches in a Newsweek interview:

“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?”

UPDATE: A Downing St spokesperson just invoked some of Mrs Merton’s homespun wisdom to laugh off the remarks. “As Mrs Merton might have said, I’m not going to speculate on what would have provoked the German finance minister to make these comments in an election year.”

Here’s a clip of the real thing.

[youtube]http://www.youtube.com/watch?v=Lj-9lSEBBm0[/youtube]

The Westminster village should remember Mapeley. The property company is linked inexorably with the purchase of 600 Inland Revenue offices several years ago - controversially, after it emerged that the group was based offshore.

Since then it has floated on the stock market - although US investment group Fortress remains the biggest shareholder.

But the share price has fallen by about 97 per cent since the peak of the property bubble: from about £40 to £1.15.

The group’s interim results, reported in August, showed a £53.8m pre-tax loss for the six months to June 30. Its net asset value per share fell by 13 per cent to £16.17. The group said it had seen a “strong operational performance” over the period and its cash position was healthy. Although it is highly geared, it said it had remained within its banking covenants.

Last Thursday I asked HMRC what would happen to these buildings if - and I emphasize if - Mapeley were to go under.

Here is the statement, just through: “HMRC has wide-ranging rights under the STEPS contract in the event of contractor insolvency. In particular the STEPS contract contains provisions which protect HMRC’s ability to occupy the premises and to secure the delivery of services including the ability to take new leases post-termination, step-in rights and direct agreements with the funder and service providers.” 

We spotted the rapidly rising cost of insuring UK gilts against default in this blog on November 24.

Today the Tories pointed out that the relevant figure (credit default swaps) is now twice the cost of insuring the debt of McDonald’s, the fast food chain.

I liked this take on the story from Bloomberg:

“Britain risks being viewed pejoratively as a banana republic “apart from the technical disqualification that we have a monarch and so cannot be a Republic, and it’s too cold to grow bananas anyway,” says Sean Corrigan, who helps oversee about $8.5 billion as chief investment strategist at Diapason Commodities Management SA in Lausanne, Switzerland.”

UPDATE

The response from a government person: “Obviously there is something odd going on in CDS market. But what matters for taxpayers is long-term gilt yields, which remain very low. It’s a point Dave Ramsden (MD of the Treasury’s new Macroeconomic and Fiscal Policy Directorate) was making at Treasury select committee today.”

Lord Myners made a similar point yesterday.

This is what Myners said: “The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of borrowing is at a lower rate in nominal terms - the long end of the gilt curve - than it has been for 40 years. We are in a position where there is a serious appetite for borrowing and buying government securities.” 

Germany is leading the fightback against Gordon Brown’s drive to stimulate the world. Angela Merkel is distinctly unimpressed by the case for a tax cuts, in spite of sitting on a big budget surplus. In a speech to the German parliament she endorsed Brown’s diagnosis of the problem, but dismissed his proposed solution.

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

If you thought that was undiplomatic, take a look at the views of her confidant and adviser.  Steffen Kampeter, the budget expert in Ms Merkel’s Christian Democratic Union, said:

“I see the danger of creating a new bubble. Massive interest rate cuts and massive borrowing may bring about new problems.”

“How good is a policy package if it has to be changed every other week? How good is it for confidence? The latest British decisions on VAT [value added tax] and income tax, for instance, are inconsistent. Better to wait a bit longer and put forward more durable solutions.”

Merkel said leaders must resist the temptation to “overcome the crisis” and instead “build a bridge so that we at least can start recovering in 2010″. Is this what David Cameron would be saying if he was prime minister now?

The correction came within hours. But the damage was done. Andrew Lansley, shadow health secretary, discovered there are better ways to extend a political career than discussing the merits of a downturn. Labour claimed it was “shameful” for him to say that “on many counts, recession can be good for us”.

But was the real problem his failure to give more than one example? Shouldn’t he have gone further and made a comprehensive case? Don’t all economies, just like politicians, need a correction once in a while?

As politicians are unwilling to recognise the full worth of an economic slump, we will. Behold six good things about a recession. See it as an electoral platform for the inveterate optimist, or a pro-cyclical election pledge card. Continue reading "An ode to Lansley: six good things about a recession"

This Bloomberg chart tells a striking tale. Credit default swaps are a form of insurance on gilts. People buying UK government debt acquire CDS’s to protect themselves against the risk of the country becoming bankrupt.

In August, the price of CDS’s for UK gilts was just 18 basis points. By the end of last week it had soared to 68bp. As of today the figure has reached 87.5bp. (The yellow line is the UK, the pink line is Germany).

This is a huge signal from the markets about Alistair Darling’s pre-Budget report and the revelation that annual borrowing could hit £120bn within a year or two.

The City is shorting UK plc.

UPDATE

In fairness I should add that the stock market has roared ahead this morning with the FTSE-100 up nearly 5 per cent at one point. In part this is because of PBR expectations, which have pushed up some of the big retailers. It is also thanks to news that Citigroup, the US bank, is receiving a $20bn capital injection and guarantees for $306bn of distressed mortgage assets. UK banks are among the biggest rises so far today.