Should BOE commence exit strategies of the economic stimulus to manage the mounting budget deficit?

Guardian : http://www.guardian.co.uk/commentisfree/2009/nov/20/public-finances-deficit-government-borrowing presented an article entitled Public finances: Broke but not bust yet. The article portrayed the state of despair of public finance and for the past 2 years, the only predictable outcome is uncertainty. The article presses for tough fiscal choices to address decline in tax receipts, retrenchment, and rising welfare bill that firms deem they can no longer afford. I note that cheaper interest rates, access to QE “print money” are artificially creating economic activity which is unlikely to last. While I disagree with the Tory’s rhetoric of the doom state of the economy, I also believe that Labor is offering confusing strategy of continuously pumping more money into the economy. Should BOE hold the debt through to maturity, which would effectively cancel; or it could move to sell rapidly, potentially flooding the market with gilts in a way that could undermine the government's ability to raise extra funds. These views in my opinion can cause panic in the financial markets if the desire to rebalance the books takes priority.

Telegraph : http://www.telegraph.co.uk/news/newstopics/politics/6608660/Government-deficit-now-increasing-at-3bn-a-week.html notes that the Government deficit now increasing at £3bn a week in an article dated 20/11/2009. Simultaneously, Gordon Brown pledged to halve Britain's record budget deficit within four years. I find it rather contradictory when the news from Reuter confirmed on the same date that the Government is due to borrow even more this year than it forecast in the Budget. How is the desire to overcome the deficit likely to materialise in 4 years when Britain continue to borrow. Office of National Statistics(ONS) also affirmed a record £11.4billion in October 2009, questioned the wisdom of the government’s action. Referring to OECD criticism that the Fiscal Responsibility Bill from the Queen’s Speech, I believe that the Labour “soft” economic stance are weak and inadequate to solve Britain’s fiscal problems, demonstrating a lack of understanding of the need to take immediate and effective steps to balance the budget.

BBC : The Government is due to unveil its latest pre-Budget report on December 9, with Mr. Darling expected to pledge how the Fiscal Responsibility Bill will reduce budget deficit. The article also noted an interview with Gordon Brown indicating that Mr. Darling will have to announce further tax rises if the deficit is to be contained. I find it rather inconsistent in terms of the government at one hand trying to spend its way out of recession, while on the other hand, taxing the people thus, and curbing spending. Also, the desire to implement spending cuts on public spending in near terms, and in conjunction with that QE to expand money supply. George Osborne, the shadow chancellor politicized the Britain's debt issue by blaming Gordon Brown for damaging public finances noting the latter has lost the economic argument about the debt crisis. I do believe that Tory’s assertion is biased and unfounded because there has been some positives as well. However, I have not heard of any clear and coherent strategy to manage the budget deficit by both Labor and Conservatives. However, the mild good news offered by BOE that Britain should be out of recession by end of the year do support Gordon’s position. However, with elections around the corner, I would be surprised if Labor would actually do anything that suggested introducing fiscal disciplines to beat the deficit budgets such as tax rises, spending cuts, or cut on social benefits such as child tax credit.

Telegraph reported on “OECD urges governments to sort out finances as recession recedes” http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6608234/OECD-warns-Britain-risks-debt-spiral.html : Acting chief economist of OECD, Jørgen Elmeskov, was vocal in advising the UK government to do more than halving deficit to prevent debt spiral. I think his assertion is founded in that the government intervention has actually been more than necessary; no other country has injected such a sum into the economy. However, it is not desirable to “over kill” the economic stimulus by drastic fiscal measures which could push the fragile UK economy into financial doldrums. Instead, I believe that BOE should start gradually and progressively unwinding the stimulus to ease the risk of high inflation in the near terms. Furthermore, from my diverse reading, many confirm that the failure to act from now will lead not just to inflation, but also debt increases, market confidence dampening, interest rates pushed upwards drastically, and this could leads to even higher deficits. This can aggravate the situation and thus, I believe that OECD’s advice is not a pessimistic statement but one that is grounded on reality if the economic and budget imbalances are left unchecked.

I conclude by reviewing an article in The Economist(http://www.economist.com/world/britain/ displayStory.cfm?story_id=14924465&source=hptextfeature)  that described the key elements of the Queen’s speech by Labor on the UK economy touching on empowering FSA, curbs on bank bonuses, with very little discussion about the economic direction. It seemed as if the speech was more to do with winning public votes with empty promises rather than assertive strategies on economic policies and direction to manage the economic problems and budget deficit. I find it rather amateurish as to what the Labor is aiming to accomplish. Also, while the BOE remains split about the desirability of further QE, signaling the need to focus on some form of exit strategies, the overall “blank cheque book” mentality or printing money strategies are likely to lead to unending economic vows and budget deficits for her citizens for a long time.