There are times when economies deteriorate so fast that the regular policy debate simply doesn't keep up. For example, over the weekend, Darling proposed accelerating public expenditure in order to prevent the economy from drifting into recession. Today, the treasury published the public sector borrowing numbers for for the first nine months of the year. The figures were just horrible, and made Darling's expenditure plans look positively irresponsible.
The public sector deficit during the first nine months of the year were broadly equivalent for the entire deficit for last year. Since March, the public sector borrowing requirement is running at ₤3 billion more than last year. If this trend continues, then 2008 deficit is likely to be close to ₤60 billion, or about 4.3 percent of GDP.
Darling might be talking about a fiscal stimulus. Others might think that we need a few rate cuts. That debate was left behind at the station. The economy is spinning out of control. The monetary transmissions mechanism has broken down, base rates are negative in real terms, the fiscal deficit is rising to historically unprecedented levels, personal debt levels are off the chart, inflation is at a 16 year high, the economy is in a recession, and we have a banking crisis.
Remind me again, how will an interest rate cut will sort this mess out?
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