Osborne preened himself – yet again – at the IMF conference 2 days ago that the Western economies are now set for a prosperous future even as central banks steadily withdraw the lifeline that kept them afloat after the 2008 crash. The line is that normality is returning after the unfortunate blip 5-6 years ago that required more than $3 trillions of funds to be pumped into the US economy and £375bn of quantitative easing into the UK economy to prevent a catastrophic credit crunch. The idea that such enormous sources of demand can be gradually but increasingly withheld and that interest rates can be pushed up again to a ‘healthy’ 2-3% without any disturbance to markets is pure complacent folly. There are two grounds for serious pessimism. One is that the recovery internationally, not just in the UK, from the longest recession since the nineteenth century remains weak and fragile. The other is that the levels of debt in the system remain disturbingly vast and dangerous, and indeed the whole emphasis of policy has been to encourage this as the last desperate throw to snatch growth from the jaws of stagnation, but without any regard to inflating future risks.
The ‘recovery’ has required interest rates to be kept on the floor for the longest period in modern history, the mountains of cash that had to be generated to prevent collapse are the largest ever, and the results from this gargantuan monetary support mechanism have been an unprecedentedly tepid and febrile upturn. The eurozone remains in deep trouble, with growth forecast for this year of just 1.2% (including Germany). The Spanish and Irish banks are still in a bad state, France is stagnating, and Italy is stuck in an endless recession. Osborne of course uses the eurozone as the excuse for UK failure when they have been deploying exactly the same austerity policies as himself. In the US there has been a string of disappointing economic data, with growth halving to around 2% in the current quarter compared with 3.5% in the second half of last year. Emerging markets have been scalded yet again by the abrupt flight of international investors as the US asset purchase taper starts to bite. China is having to squeeze a gigantic credit bubble in its shadow banking sector, which could markedly slow down global growth.
Osborne boasts there will be a Goldilocks exit from winding down the gargantuan support mechanisms by which alone the Western economies have survived. Fat chance. The level of indebtedness and financial risk that they have left behind in the global system is frightening. In Britain the government debt is still £111bn, the national debt is £1.2tn and rising, and the household debt is £1.4tn and rising. The same is true across much of the Western world. In addition, financial derivatives, the highly toxic precipitating cause of the almighty crash in 2008-9, are coming back strongly into fashion. Osborne is a chancer, and one day he will chance his arm once too often with his panglossian assurances. Pride does come before a fall, and we may not have long to wait.