Saturday, 27 June 2009

Nobody warned us

Gordon Brown has been heard to complain that he should not bear any of the blame for the economic disaster that we are living through as he had not been warned of the impending disaster; in fact nobody predicted it. Of course this, like so much of what Gordon Brown claims, is a lie. Alex Masterley lists some reports of warnings and here they are (my emphasis):

December 2003 and the BBC report that:
"Chancellor Gordon Brown has been warned by the International Monetary Fund (IMF) that he risks breaking his own rules on government borrowing.

In its annual assessment of the British economy, the IMF said the government needed to cut its spending deficit.

The IMF also said that further interest rate rises were needed to prevent a crash in the housing market. "

September 2005 and This UIs Money report that :
"BRITAIN'S £1trillion personal debt mountain may be starting to fall apart with dire consequences for millions of households, the International Monetary Fund warned yesterday... Their warning is made all the more chilling because the IMF rarely singles out one country in its report pinpointing the biggest threats to the global economy. This means that its decision to focus on Britain is even more worrying."

September 2005 and The Times reports that:
"GORDON BROWN’S budget plans came in for criticism on two fronts yesterday as the IMF joined Brussels in giving warning that weakening growth will send Britain’s finances billions deeper into the red than he has forecast.

In a double blow to the credibility of the Chancellor’s tax and spending plans, the International Monetary Fund threw its weight behind warnings from the European Commission that government borrowing will remain above 3 per cent of national income up to 2006-07.

As the Commission left Mr Brown chastened with a formal rebuke for breaching the EU’s 3 per cent of GDP cap on state borrowing in the last two financial years, it joined the IMF in predicting that the Chancellor will have to borrow billions more than he has forecast into 2007. "

December 2005 and Forbes reports that:
"The IMF, which angered Brown this year by warning that his deficit projections are too rosy, said there were 'substantial' risks to its growth forecasts, including a property downturn in Britain.

Overall, it said, 'economic stability in the UK remains remarkable'.

But the IMF reaffirmed its belief that Brown needs to get a better grip on his budget.

'Recent deficits, while not an immediate threat to economic performance in a benign world environment, needed to be reined in,' its mission report said. "

December 2005 and the Bank of England warns that:
"in the longer term, some significant downside risks remain. Previous Reviews have noted the continuing accumulation of debt by many borrowers and the aggressive ‘search for yield’ across financial markets. That has fuelled a rapid increase in highly leveraged financial products — a trend which, if anything, has intensified since June. The relaxation of lending criteria in some markets and increased appetite for potentially illiquid instruments suggest that financial discipline may also have weakened somewhat. Previous experience suggests that such developments could herald future problems if assessments of risk were to change sharply."

September 2006 and The Independent reports that:
"A sharp rise in interest rates could trigger a slump in house prices, which are overvalued by "any conventional measure", the International Monetary Fund warned yesterday.

The world's chief financial watchdog warned that soaring prices posed one of the biggest risks to the UK economy.


The fund's warning came as the Royal Institution of Chartered Surveyors revealed that house prices in the UK are now growing at the fastest pace since May 2004 as house prices accelerated for the fifth month running in August. The balance of surveyors reporting price increases in the past three months climbed to 30 per cent in August from 24 per cent in July.

The IMF also said the chances of another rate rise were "delicately balanced" and urged Gordon Brown to use next year's three-year spending review to cut expenditure to prevent a crisis in the public finances."

June 2006 and the Bank of England in Summary warns that:
"Vulnerabilities in international financial markets
• The unusually low premia for bearing risk presently prevailing across a range of asset markets, notwithstanding recent market movements. In part, this may reflect
improved fundamentals and more efficient markets over recent years. But if risk premia rose abruptly, asset prices would fall sharply.
• Large financial imbalances among the major economies have continued over the past six months. These may unwind in an orderly fashion; but there is a risk of disorderly unwinding, which could conceivably crystallise credit and market risks.
Extended non-financial sector balance sheets
• Rapid releveraging in parts of the corporate sector globally — for example, among commercial property companies or arising as a result of leveraged buyouts.
Against a background of possibly underpriced corporate credit risk, this releveraging could widen and deepen over time.
• High UK household sector indebtedness in relation to income. Household balance sheets look strong in aggregate, but there are signs of stress among a minority of households, with personal insolvencies rising sharply.
Structural dependencies within the financial system
Rising systemic importance of large complex financial institutions (LCFIs) given their pivotal position in global capital markets and increasing links with UK banks.
Their balance sheets and risk-taking activities also appear to be expanding.
• Dependence of UK financial institutions on market infrastructures and utilities for clearing and settling payments and financial transactions, whose contingency
plans in the event of any disruption to their services may be inadequately understood and tested by some users."
Do read the whole of this report it is most interesting.

October 2007 and The Times reports that:
"Runaway increases in Britain’s house prices over the property boom of the past 10 years have left the housing market in danger of an American-style slump in the value of homes, the International Monetary Fund said today.

In a bleak warning, the IMF finds that the cost of homes in Britain and other European countries may have become much more excessive than in the United States before the present property slump began there. "

April 2008 and The Times reports that:
"House prices in Britain are among the most exposed in the developed world to a severe slump thanks to the runaway scale of the property boom of the past decade, the International Monetary Fund said yesterday.

In the latest bleak warning over the threat to the economy from a housing market bust, a the IMF identified Britain, with Ireland, France and the Netherlands, as the countries most vulnerable to painful correction in overvalued house prices.

Britain is heavily exposed to an abrupt adjustment in property values because the scale of the huge gains that homeowners have enjoyed means that at least 30 per cent of these cannot be justified by fundamental factors like demand for housing or incomes, the study concludes.

“It is difficult to account for the magnitude of the run-up in house prices,” it said. "

So did Gordon Brown and his highly skilled paid team not read the major UK newspapers, the BBC reports, the Bank of England's reports or those of the IMF between December 2003 and 2008? If they did not read them then they were surely negligent as they should have. If they did read them and did not act then they were surely negligent as why did they not act, did they assume they knew more than the experts? Maybe they really believed that Gordon Brown had abolished "boom and bust" economics.

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