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

As if home owners needed any more bad news! British home asking prices posted their biggest annual decline in almost 6 years as the credit markets continued to remain tight and lenders ratchet up the pain on home owners while still not passing on the recent rate reductions to borrowers. The volume of new mortgage approvals was less than half of last year’s number. The British economy is now not merely staring into the abyss, it’s leaning over the edge….holding onto a shoelace for support.

Another guide, the Halifax’s, said that house prices are falling at their fastest rate in over 50 years in the growing economic tsunami. The Halifax survey put the decline in prices in the last 12 months at 13.4% and said more steep drops were likely to be felt as the crisis worked itself out. 

Asking prices fell in Septembers right move survey at an annualised rate of 4.9%, up from 3.3% according.

The bad news is that the fall out is now spreading firmly from the construction and financial sectors to other sectors of the real economy. With this, the rate of arrears and repossessions is likely to rise as unemployment is thought likely to reach 5% in 2010. When this is coupled with a deluge of people moving off cheap 2 and 3 year fixed rate deals, the spike in repossessions is likely to put further strong downward pressure on house prices in many areas.

GDP was also predicted by the ITEM club to fall to -1% in 2009 before recovering slightly to 1% in 2010. It looks like it’s time to baton down the hatches.

Will the last person to leave please turn off the lights!

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Tags: British Economy, Credit Markets, House Prices, ITEM Club