The Pru, Some Debt and Number One

Here is my departing shot of Boston, taken on the way to the Logan airport (Don't worry Dad- Eric driving). The Prudential building front and center. I like Boston's skyline - it does not beat the crap out of you like New York or Hong Kong. Modest in scale yet enough oomph to be anticipated. Maybe like San Francisco. Or Frankfurt.

Gordon Brown is really on the down-sling (next general election: June '10 or before). The UK economy over the barrel registering GDP contraction of 1.9% in Q1 while the IMF forecasts -4.1% for '09. Thanks to then Chancellor Super Gee's boom-time "thrift," we will see public sector deficits of >12% GDP for the next several years - figures associated in peacetime with developing countries or emerging markets en route to an IMF programme (read: bail-out). Remember Gordon's "golden rule" of no borrowing to cover ongoings? Large deficits will persist into the second half of the next decade. Not counting the cost of the banking sector rescue, which will likely approach £1 trillion, public debt will hit 80% of GDP two years from now - with the moribund economy, public debt of 100% or more becomes a likely possibility - even if we do not add the capitalised value of Britain's unfunded public sector pension commitments (which are binding obligations, at least in theory). This, my friends, is bankruptcy. And so what? you may ask - well, given Britain's need to issue £200 billion worth of gilts to keep running, we are beholden to the financial market's confidences. '78 re-visited, we may be forced to consider the IMF but: A) we don't really qualify for a loan and B) with £175-200 billion of annual borrowing, the IMF's stockpile of $240 billion doesn't stand up. This why Chancellor Darling raised the upper-tax to 50% last week and is limiting further discretionary stimulus to a paltry 0.5% of GDP (Super Gee don't like this). Further tax hikes inevitable and govt programs to be cut back for sure; say good-bye to restoring British infrastructure to levels achieved in the 19th century - an often stated goal of New Labour. Education and health care will suffer too. Incredibly, this mess not from war but rather a massive systemic peacetime failure with a large domestic component. There will be no political surprise come 2010.

Meanwhile, Italy pursues a strategy-of-diversion: below, Silvio Berlusconi's Barbara Matera proposed for the European Parliament elections.