Start your clocks...

Amidst all excitement about potential cuts in mortgage rates (for that is all they are so far) it seems churlish to point out that the economy is heading to hell in a handcart but as John McCain has shown- the right aren't in this game to be popular.So here goes:

First up- the interest rate cut. Expect to hear calls from generous government ministers (they are so good at giving other people's money away) for banks to pass on the interest rate cut to householders. Neither the proper banks nor their nationalised emasculated counterparts will pass anything like the full cut on- they've got to make up their losses somehow. The government will howl with outrage about this and subsequently blame much of the downturn on the banks (and of course on Norman Lamont, Dominic Lawson, Harold MacMillan and William Pitt)

Next- the pound. Having lived in a country whose currency was so weak that even some official bodies refused to accept it I can tell you that what is going to happen is not pretty. The government's excessive borrowing, the public's excessive borrowing, the absolute unproductivity of the UK workforce (more regulation anyone?) leading to a pathetic balance of payments situation means that there will be very little demand for pounds but huge oversupply. For anyone who doesn't understand economics out there or who is a Prime Minister who pretends to- that is what we call a BAD THING. It leads to a collapse in the price of the currency. This in turn makes it very very expensive to buy things from overseas. In the UK that is everything unless you were wondering.

Currency value induced inflation has historically been subject to constant fluctuations. Not any more. The weak pound is here to stay for as long as economy is managed the way it is.

OK, so that's the mild part out of the way. Now for the real problems:

All that borrowing needs to be paid for- we need to borrow from someone. Most UK national debt is now held overseas. To increase borrowing we need to persuade lenders that it is worth their doing so. The thing is- with government interest rates so low and the pound being the currency equivalent of a man walking round town with a sick chicken fewer people will want to lend to the government.

This leaves the government with the unthinkable option of cutting spending, or the Brownite solution- raise taxes. This is of course bad in its self. It will be worse because it will further undermine productivity and enterprise.

And just around the corner is the real kicker- inflation. It takes a special kind of genius to achieve both recession and inflation at the same time. It is called Stagflation and we had it in the seventies and it is not pretty. Friedman demonstrated it to be the inevitable result of Keynesian economics, common sense reinforces this. The trouble is that a lot of left wing politicians and economists had already fallen in love with Keynes and big government by then.

Reflating the economy on credit as the government is trying to do is just the same as printing money- it won't mean that any more goods or services are produced. Unfortunately, as the economy tanks more people will end up on benefits- leading to ever more government spending which we can't afford.

The result= we end up where we also end up under Labour- going to the IMF cap in hand. Mark my words- it is now a matter of time. Start your clocks now...