Saturday, 15 November 2008

What the markets are trying to tell us (if only we would listen..)

Markets have many drawbacks, as if we needed reminding – but keeping secrets is not one of them. Markets cannot hide their opinions; collectively they shout out loud thoughts that individuals dare not whisper for fear of being proved wrong. That is the reason they seem so often to anticipate news, and the origin of the old saw “buy on the rumour, sell on the fact”.

During the past weeks the foreign exchange markets – the true value of our houses, companies, people and pounds as compared with the rest of the world are definitely trying to tell us something. Sterling has crashed, both against the dollar and now (to the lowest level ever) against the Euro. In a financial crisis which is clearly global, where the US is supposedly the source, and where the Eurozone economy was already pretty weak - why is the UK being singled out?

Whether our press is prepared to write about it or not, the answer can be seen clearly in Washington this weekend. It is not the policies which Gordon Brown promotes which are spooking the markets; it is the market’s perception of the man himself and his reasons for acting which have destroyed their faith in the future of our economy. If you don’t believe me, read the international view of Flash Gordon’s posturing at the G20 meeting. Far from being the saviour of the universe which Downing street promotes at home – internationally Brown is seen as something of a joke, the man who sold our gold, who “abolished” boom and bust and who continually lied to the electorate about the state of the economy, blaming – when he could cover it up no longer – every other country for the recession in a desperate bid to cling on to power.

Whether true or not, these same markets now believe that Gordon will borrow (print) money, not as a controlled short term measure to divert people away from the dole queue and maintain economic productivity, but to make the electorate feel richer – and give himself a chance at a future election - whatever the future cost in inflation, taxation, and economic failure for the country.

For the UK economy to recover, and the markets to change their view, we need a Government with a mandate - a government which is free to act for economic rather than political reasons; if the markets believed we had one then we would not have seen the crashing fall in sterling which, whatever the UK press may think – has been the real story of this recession so far.

The challenge for Cameron and Osborne is to make the press, and the country at large, see what the markets are already clearly telling us, and to prepare an honest plan and transparent plan for the economy should they be entrusted with it in the near future.

The challenge for Brown is more serious, because it is a true test of his honesty and courage. If he truly believes that he has the right policies, for the right reasons and that this is not about politics he should go to the country and get a mandate to rescue this country. That way the electorate would have spoken and the markets would listen, rather than vice versa.

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