Thursday, 17 September 2009

Tory cuts- a second credit crunch?

Giles Wilkes at CentreReform and myself have been having a discussion about cuts, the economy, etc on his blogsite (highly recommend.) Sunder Katwala has also blogged on this.

Giles made an important point that should the Tories pursue a strategy of radical cuts in public expenditure with the aim of provoking a depreciation of the pound then it is likely that the Bank of England would have to step in.

My column for LabourList
this week argued that cuts in public expenditure at this stage could be disastrous. Now imagine cuts and interest rate rises. With all those people on variable rate and tracker mortgages now and businesses likewise, the results could be devastating.

It would be possible that a second credit crunch could be provoked (again, that is exactly what happened in Japan in 1997 when they prematurely cut public expenditure.)

This Tory economic approach is mad, bad and very dangerous. Labour must communicate that.

1 comment:

  1. Hi Anthony, thanks for the recommendations. I'll try to keep it up - the pace is pretty exhausting! When do you get time to read?

    On this fascinating subject of the timing of exit strategies, Adam Posen in the FT is very interesting today:

    http://www.ft.com/cms/s/0/f27fdbe6-a2f7-11de-ba74-00144feabdc0.html

    Now I MUST get back to QE . ..

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