Boom and Bust

I listened to the comments of the Governor of the Bank of England - Mervyn King - earlier today who at last admitted the world's worst kept secret - that an artificial boom in the UK economy led to the present economic collapse.

One of the proudest boasts of the former Iron Chancellor - Gordon Brown - was that the last Labour government had brought an end to 'boom and bust' economics - and that the country could look forward to years of stable financial growth.

But not only did Gordon Brown prove to be completely wrong - this ridiculous claim flew in the face of what the Labour government was actually doing at the time - which was to encourage an unsustainable boom in the UK economy via cheap, easy and plentiful credit.

So if the UK banks became far too greedy and eventually overreached themselves - they were only following the lead of the Labour government which was - in reality - pursuing policies very similar to those of the Federal Reserve the USA.

Namely an out of control credit boom based on ever riskier loans and financial instruments - which were nothing to do with sustainable growth, but were simply all about getting rich quick. 

The laugh is that Gordon Brown - the sometime MP for Fife - is now a 'global leader in residence' at the New York University (Abu Dhabi campus). 

I wrote about this whole crazy business some time ago - here's what I had to say back in 2010.

Mad, Bad and Dangerous (July 16th 2010)

The press is having a field day over the publication of (Lord) Peter Mandelson's memoirs - which provide proof positive, as if proof were needed - that politics is a poisonous old business.

Gordon Brown was apparently 'mad, bad and dangerous' according to Tony Blair - or so says Peter Mandelson.

And who are we to disbelieve such a 'noble' politician - who was elevated to the House of Lords and then brought back into government - by none other than Gordon Brown himself.

So, the New Labour project has finally ended with its three principal architects - Tony Blair, Gordon Brown and Peter Mandelson - all stabbing each other in the back.

But the fun of having these giant egos laid bare and open to such public ridiclue should not obscure a much bigger truth - the complete mess that Labour ended up making of the economy.

What Peter Mandelson exposes is not just the enmity between the big beasts of the jungle - he also confirms the serial mismanagement of the UK economy - fueled by a government-led credit boom.

So, when the banking crisis finally came to a head - the UK economy was already perilously weak - its energy sapped by a seemingly ever-rising and ever-expanding private housing market - which the UK government allowed to get completely out of control.

The housing bubble may have finally burst because of the 'sub prime' mortgage market in the USA - but there were culprits on this side of the pond as well.

The truth is that the Labour government of the day was just as culpable as the one led by American President - George Bush.

George Bush's chief economic advisor - during his two terms in office - was a supposedly 'wise old owl' named Alan Greenspan, Chairman of the Federal Reserve between 1987- 2006.

Interestingly, Alan Greenspan was first appointed to this key economic post by Ronald Reagan - and he remained there throughout Bill Clinton's presidency as well.

And who was one of Alan Greenspan's greatest fans for many years - well none other than Gordon Brown, of course.