Bumty British bailout seen from Bangkok

By Terry Lacey

(August 20, Jakarta, Sri Lanka Guardian) Recent positions taken by the British Monetary Policy Committee confirm that the British recession is deeper than previously thought. Nophakhun Limsamarnphun writing in The Nation ( Bangkok ) (15.08.09) concludes the decision to commit another £50 billion sterling of central bank reserves to asset purchases, bringing the total so committed to 175 billion sterling, may not produce the desired results, whilst prolonging the negative impact of debt repayment beyond the 20 year threshold.

Britain is even more down and broke than people first thought and it will take at least two decades to pay to get out of the mess, with the UK central bank beginning to purchase gilts beyond 20 years in maturity, despite lack of liquidity and market distortions.

France and Germany are starting to come out of recession while the British bulldog is still bumping along the bottom of the curve, accompanied by an Irish tiger who is only just throwing €75 billion euros at his bankers and builders and still faced with a black hole in his bank, rather than a tiger in his tank.

What the Bangkok commentator is asking is whether a big bundle of British banknotes, thrown at the bumpy bottom of a deep U shaped curve can provide enough oomph for a take off, without hitting anything.

This is reminiscent of those magnificent Sunderland flying boats that once spanned the British Empire, taking off from the relatively sheltered waters off Portsmouth or on the River Medway. They seemed under-powered for their size but still managed to take off, with a lot of splashing, in fairly choppy water.

In the case of the River Medway at Rochester, when taking off downstream, they had to be sure to get high enough to miss the Medway Bridge , with the municipal council offices on the left and the Norman castle on the right.

The Monetary Policy Committee and the British Government are facing similar problems in trying to engineer at least the start of a take off before a General Election due in May 2010, whilst avoiding political collisions or negative impacts of historical proportions.

Even a huge boost from a really big bundle of British banknotes might still hit really choppy waters, resulting in a very bumpy take off, or in bouncing back down to reality.

This could result in what the experts call a ‘W` shaped curve instead of a ´U´ shaped curve, which would mean the UK economy might have to come down one more time, before finally lifting off.

The Bangkok newspaper (The Nation) drew on a recent report from a US private bank on the state of the UK economy to confirm that the British government still believes, after all its previous bailouts and boosts, in yet further (German Chancellor Mrs Angela Merkel might say preposterously prodigious) pump-priming.

This means that the extra commitment to Quantitive Easing (QE), a polite technical expression for throwing a great deal of taxpayers money down an apparently bottomless pit, possibly only to obtain results as yet unclear according to The Nation in Bangkok, will cost the British people up to the equivalent of 12 percent of the UK Gross Domestic Product (GDP).

A sad end to a British Labour Government which began with a brilliant Brown, despite his frown, as Chancellor of the Exchequer, riding high in the good years alongside a Blair who certainly had flair. Now our Brown has come down and our Blair is not there.

The pump priming model Gordon Brown propounded is probably more popular globally than in the UK, reflecting that British predisposition for moderation in all things. An economic rescue package, like a good steak, should not be overdone, but to get this just right is probably very rare !

Perhaps Lord Peter Mandelson can emerge as a soothing soothsayer and help present the British electorate with a happy medium, before it is too late.

Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.

-Sri Lanka Guardian