Osborne’s ‘safe haven’ view is delusional

Osborne’s statement to parliament on recent economic volatility was pervaded by inaccuracy, complacency and vainglory.

By David Hilferty

It was only appropriate that during the rioting of recent days, meditations on the crises within the global economy were made to take a momentary backseat both in term of political and media focus.

For those inclined to wonder what a Chancellor gets up to on holiday, Monday’s Daily Telegraph article offered a fascinating insight and an interesting overture to his speech today.

Where most tourists in Los Angeles write home with postcards, Osborne, it seems, writes home with Telegraph articles.

Then, Osborne’s article was pervaded by inaccuracy, complacency and vainglory. Today, his statement to the Commons continued along much the same lines.

Opening his statement, the Chancellor proclaimed the UK as the country best-equipped to ‘lead a more effective international response to the fundamental causes of this instability.’

The reality? Osborne and team have been largely reticent throughout the American and eurozone crises of recent weeks.

It was the action taken by the European Central Bank that temporarily placated market concerns. The Chancellor would have you believe otherwise, however:

“For months now we have been impressing on our European counterparts, in private and in public, the urgency of what needs to be done.”

Such crowing would normally infer that recovery in the UK was firmly back on track.

That despite growth stagnating at 0.2% during the previous quarter. That despite manufacturing output falling 0.4% between May–June.

And yesterday, the Bank of England downgraded the UK growth forecast for the fifth time since Osborne took office.

Paul Krugman, the American economist, recently compared the ratio of employment to population at three stages – June 2007, June 2009 and June 2011 – to indicate that job growth is non-existent in the US.

If a similar analysis is applied to the UK economy, the conclusions to be drawn are equally grim.

In June 2007, 74.4% of adults of working age were in employment. But as of June 2011, under Osborne’s watch, the same figure stood at 70.7%.

The Chancellor’s delusions of recovery are matched only by his delusions of UK imperviousness to problems in the eurozone:

While other countries struggle to command confidence in their fiscal forecasts, we have created an internationally admired and independent Office for Budget Responsibility.

These bold steps have made Britain that safe haven in the sovereign debt storm.

Given that the global economy is so inextricably entwined, collapse, whether in America or the eurozone, would have inevitable repercussions on the UK.

China’s unprecedented intervention during the American debt crisis, for instance, was not a mark of its seemingly inevitable ascendancy into the world’s new economic superpower; not the act of one nation offering prudent advice to its less economically-sound counterpart.

Rather, it was a statement of its own anxiety; the recognition that, with some $3tn-plus of US dollar reserves, its own economy would be impacted by a US meltdown.

Osborne’s assertion that the UK is a safe-haven represents a deep misunderstanding of the impending risk of contagion.

Perhaps most perplexing of the Chancellor’s statement, however, was his unique take on the action taken by Standard & Poor’s to downgrade the US credit rating:

The very same rating agency that downgraded the United States has taken Britain off the negative watch that we inherited and reaffirmed our AAA status.

For Osborne to find vindication in the S&P decision was a staggering misjudgement.

As a recent US Treasury factsheet underlined, S&P are far from infallible. The shrewd response of John Bellows, Acting Assistant Secretary for Economic Policy, highlighted a $2tn miscalculation in its forecast for American debt to GDP.

The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.

Despite acknowledging this error, S&P upheld its original decision. Bellows described the S&P rationale as driven by political motivation, rather than economic astuteness.

Following today’s statement, as the Chancellor continues to peddle his tiresome recovery delusion, the same allegation must be levied at the Government’s flailing fiscal policy.

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19 Responses to “Osborne’s ‘safe haven’ view is delusional”

  1. Ashley Walsh

    Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  2. jamie walker

    Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  3. paulstpancras

    Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  4. Andy Gilpin

    Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  5. Pucci Dellanno

    Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  6. False Economy

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  7. Liza Harding

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  8. matthew pitt

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional http://t.co/osVFA8a

  9. Michael

    Osborne’s ‘safe haven’ view is delusional l Left Foot Forward – http://bit.ly/pCpAO1

  10. Doc Gamester

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  11. Pissed Proletariat

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  12. Juan Voet

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  13. William Bain

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional http://t.co/pkbGEPd >> Great piece by David Hilferty

  14. Ashley Walsh

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional http://t.co/pkbGEPd >> Great piece by David Hilferty

  15. Altany

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional http://t.co/pkbGEPd >> Great piece by David Hilferty

  16. Mike Batley

    RT @leftfootfwd: Osborne's 'safe haven' view is delusional: http://t.co/045i5VS writes David Hilferty #falseeconomy

  17. Mr. Sensible

    Couldn’t agree more; Osborne is living in complete denial as to the impact of his cuts on the economy.

  18. Lizzie

    RT @leftfootfwd Osborne's 'safe haven' view is delusional: http://bit.ly/oQo0PW writes David Hilferty #thelostrecovery

  19. Tyler

    God, are you stupid or something? I thought this was evidence based blogging, rathrer than pure rhetoric.

    German CDS has only jsut squeezed under UK CDS today, but traditionally Germany has been seen as much safer.

    Likewise you compare the employment participation at the absolute peak, then post recession. No wonder its lower. For your guide, from the ILO unemployment rates;

    June 07 5.4%
    May 09 (When Labour left Office) 7.7%
    June 11 7.7%

    So not really on Osbourne’s watch then, is it?

    And Whilst S+P are most definately fallible, they are correct in saying the US is basically bankrupt already. Socail security accounts for apporx 90% of Federal tax revenues. It’s simply not sustainable. But the CDS market is where people really price risk – ratings agencies are usually reactionary – and CDS says that the austerity measures and move to balanced budgets in the UK is helping keep rates low in the UK.

    Whilst the UK will suffer in a Eurozone crisis, it won’t be our debt which blows up in yield like Italian and Spanish bonds. Try extending deficit spending forever as many on the Left, let alone Ed Balls, want to do, and the markets will simply crush Gilts. Pension funds are lining up to pump the ECB with their crappy EU debt at the moment, and the ECB is quickly running out of bullets. Osbourne is completely correct that fiscal responsibility in the UK is preventing the same happening to UK Gilts.

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