ARE THERE NO LIMITS TO INCOMPETENCE?
In my previous article, I explained that, whilst Britain’s current account deficit has been lurching into dangerous territory (see chart), no one in authority seems even to have noticed, let alone done anything about it.
Please be in no doubt that the collapse in our financial relationship with the rest of the world is ultra-serious. Current account gaps can be filled only by selling assets or by borrowing from abroad. We don’t, quite frankly, have all that much left to sell, and who in his right mind is going to lend to a country which, already massively indebted, cannot live within its means?
There are three main ways in which markets can communicate their lack of faith. First, they can shift capital out of the country, and this seems to be happening. Second, they can sell off sovereign debt, in our case gilts, which raises the effective cost of borrowing. Third, they can dump Sterling, and under certain circumstances this can force us to raise interest rates.
Capital flight can turn into panic. A weaker pound can hike up the cost of buying essentials such as food and energy. Higher interest rates would be a disaster for a country in debt to the tune of about 500% of GDP. If a big jump in rates was reflected in mortgage costs, the result would be catastrophic.
All of this being so, why does it seem that no-one is watching what’s happening to our current account balance?
Can anyone in a position of authority be quite that stupid?
Well, if the last-ditch effort to bribe the Scots into a “no” vote is anything to go by, they certainly can be.
The flying of the saltire over Downing Street – or should that be Clowning Street? – was ridiculously patronising.
The leaders of all three parties have signed a “vow” promising more powers and money to Scotland, seemingly without even pausing to consider how this might go down in the rest of Britain. (UKIP must be rubbing their hands with glee).
In any case, this (ungrammatical) pledge has little or no substance. On top of this, Cameron, Milliband and Clegg seem to have handed over the “spear point” of their last-ditch panic campaign to Gordon Brown, a man whose premiership was brought to a decisive end by the electorate and who presided, as chancellor, over the biggest borrowing binge in British history.
Can these people be serious? Actually, I think it’s the system at fault, not individual leaders. To be sure, David Cameron has attracted a lot of the blame, but his only real mistake was a refusal to offer some form of “devo max” as a third option on the ballot paper. Ed Milliband clearly fears the loss of a potentially decisive bloc of Labour seats should Scotland leave, whilst Nick Clegg wants to pretend to be the leader of a major party before the Liberal Democrats’ seemingly-inevitable meltdown at the next election.
But it would be naïve in the extreme to blame the whole mess on the three party leaders. Rather, what we have is systemic incompetence. We see this all the way across the public administration, ranging from the tragic (Stafford Hospital) to the appalling (Rotherham) via the simply incompetent (passports, border control, failed IT projects, the rail bidding fiasco – and now, of course, the Scottish referendum).
The system, it seems to me, is not just incompetent but complacent. In few if any of the instances of gross incompetence which have happened in recent years has anyone lost his or her job, let alone their gold-plated pension. In the absence of penalties for failure, incompetence thrives.
If you looked at Britain as an investor would look at a business, you would be struck not just by excessive debt and a severe cash flow shortage but also by managerial ineptitude.
This needs to be sorted out – and soon.