Big government isn’t just expanding in the UK, in the Euro zone and the US as well, the reach of government and it’s control over the daily lives its citizens is reaching Orwellian proportions.

Yesterday, the ITEM club and several other prominent economists sent a letter saying that the chancellor should be lowering taxes, not ramping up spending and risking a hyper inflationary holocaust.

When you try to spend your way out of a recession, the results are as predictable as dropping a snooker ball out of a window….it’s a cause and effect thing…you drop the ball…it falls due to gravity. When you attempt to spend your way out of a recession, soaring inflation, a plunging national currency which we are already seeing and the huge ramping up of national debts, follow. Drop the snooker ball….gravity takes over. Spend your way out of a recession and inflation, increased national debt and a declining currency follow…see how that works? Cause and effect. 

Milton Friedman and his wife have demonstrated this connection clearly and without argument. History has shown this over and over…not one attempt to spend our way out of a recession has ever worked. Jim Callaghan said it in 1976 with his famous quote “in all candour that the option of reversing a downturn by deficit-spending simply “doesn’t exist”.

What is Gordon the Gofer saying? “We are spending more to get the economy moving,” said Brown last week. “That’s the right thing to do.”

It’s not right for the man in the street. It’s not right for future generations, it’s not right for people on fixed incomes…but it is right for a desperate prime minister, it is right for the cities investment bankers and people in the public sector who will benefit from the extra work.

If you’ve never seen someone trying to put out a house fire with petrol….sit back and enjoy a lunatic who believes in fundamentally discredited principles of economic management at work. He’s made some mistakes, but this is by far his most damaging to date….most just don’t know it yet.

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Tags: Chancellor, Euro Zone, Hyper Inflationary, ITEM Club, National Debts, Recession, UK, US

One of the defining cries of any bubble is when hair dressers and taxi drivers are able to explain why this boom is different to all other proceeding and ultimately failed booms. (I’ve nothing against hair dressers of taxi drivers by the way). Having a perception of being “different this time” is a prerequisite for any boom.

The dot come boom was “different this time” because the economy was going to change our society into an uber efficient utopia (how many time have we heard that in history?). It was also different because dotcom stocks weren’t measured on earnings, but on eyeballs.

The property boom was different this time because a confident, swaggering Gordon Brown proudly proclaimed as the Chancellor of the Exchequer that the days of boom and bust were over. He was the David who shad slain the Goliath of the business cycle. Everybody lapped it up and we all wanted to believe him. Who wanted to think of the situation critically?

We all took his word for it and financial journalists went to sleep for a while they counted their paper profits and measured each other’s property portfolios on the sly at dinner parties. The game had changed. The new era had begun…and then it suddenly fell apart with what is known as a parabolic rise…right before the crash. This parabolic rise always happens and the reasons are psychological.

The parabolic rise happens as amateurs and everyone who can raise capital race to jump onboard the departing boom train. Eventually, everyone who is able to get onboard has gotten onboard and there are no new buyers to drive prices higher. The crash inevitably follows.

As the hairdressers and taxi drivers ditch their jobs to become speculators in the latest boom that is exactly the time you should be selling and looking for the next boom.

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Tags: Chancellor, Credit Crunch, Financial, Gordon Brown