Rudderless and adrift

So, interest rates are down to 0.5 percent, and the Bank of England are about to print ₤75 billion of new money. There is no doubt about it; today’s MPC was a historically important one.

However, what will history actually say about MPC's decisions? For that matter, how will it judge Brown, Darling and the rest of the New Labour crew? How will it assess their handling of the financial crisis?

History is unlikely to offer a favourable opinion. Over the last 18 months, the crisis has torn apart New Labour’s previously carefully constructed macroeconomic framework. That framework depended on four principles; central bank independence, the golden fiscal rule, “light touch” regulation, and financial services as the engine of economic growth.

Whatever the law might say, the Bank of England is now little more than a department of Her Majesty’s treasury. It meekly complied with every dubious policy initiative concocted by Brown and Darling. The government wants to central bank to prop up the financial system with limitless amounts of credit. It also wants the Bank of England to help finance the government growing fiscal deficit. It has lost its claim to be an independent central bank.

Likewise, Brown's once trumpeted fiscal rules have been abandoned and forgotten. Previously, Brown promised that the government would borrow only in order to finance public investment. He called this committment, his "golden" rule. Today, the government borrows in a doomed attempt to keep Brown as Prime Minister. The fiscal deficit next year will be at least 8 percent of GDP, and the government is now borrowing heavily to finance current expenditures.

As for the “light touch” regulation of the FSA, that policy is seen as one of the major contributing factors behind the financial crisis. The FSA is a fatally compromised institution. It failed utterly to regulate the financial services industry. The FSA has become the most expensive policy failure in the history of this fair Island. No other institution has generated such huge costs to economy.

The FSA’s disastrous regulatory failure also led to the collapse of our flagship industry – financial services. The sector is in terminal decline; it has become the coal industry of the early 21st century, doomed to contract remorselessly, creating an army of unemployed loan officers.

Although today marks final destruction of New Labour's discredited policy framework, it also marks the beginning of new period; one where there is no framework. The UK no longer has a coherent monetary and fiscal policies. There is no exit strategy from massive fiscal deficits, uncontrolled monetary growth and a collapsing real economy. In economic terms, we are rudderless; adrift on a sea of trouble.