VAT Cuts

Gordon Brown has decided to drop VAT to 15%.
He wants you to spend your money to help get his badly situated economy out of the mire.
How? Haven't we all borrowed to excess in the last decade and run up enough debt?
2.5% Vat cut. Big deal. Food, children's clothes, books, newspapers etc are mostly exempt or zero rated. You will only save a little on the Fuel bills you pay. Now has anyone noticed the catch? Unless you spend a vast amount, ie you have money to spare, you will benefit, but if you have little money to spare, your Xmas presents will cost a little less, but will you be tempted to spend?
The aim is to stimulate the economy just enough to keep us all employed and paying tax.
Well it's Tax what will go up when he decides to up the VAT again and then repay the GBP12 billion he would have to borrow extra, to pay for the initial VAT drop.
Gordon then gets a double whammy of tax. Your Income tax will have risen and the VAT is up to boot.

Well it seems the plebeian majority are finally listening to their conscience.
They now seem worried the economy may actually already be up "Canal De Merde" and don't want to get their hands dirty on the smelly end of the paddle. They are starting to save their money. Sorry Gordon. Not quite what you envisaged.

As the numpty Mr Darling has already borrowed GBP 70+Billion to prop up the banks and the salaries of the incompetents,spin doctors and the muppets of the Department of Stupidity and Red Tape, I can only envisage a massive rise in income tax. Next year he intends to borrow a further GBP110 Billion. He will do this by issuing Government Bonds and Securities and pay interest to the people who take up these issues. It will mean that he will be taxing you to pay for the interest payments to the pay back to the Bond holders, or he will forever be issuing new bonds to cover the old.

What a prudent Chancellor should have done Gordon, would be to save some funds. Put it away for a rainy day. But he didn't. Well the rainy day is the global recession brought about due to Sub Prime greedy bankers, who lost the plot and forgot that some people just cant afford houses.
Now they have no interest from the mortgagees to pay on to the bond holders of the bonds the bankers issued, to get more money to lend to more poor people to buy more houses.
It's a vicious circle.

The Bankers forgot what would happen if people couldn't repay the initial interest. People/Pension Plans/Other Banks pull out of the bond, eventually causing panic and creating a run on the banks. That's why the governments of Europe and the USA are guaranteeing banks now, as they cant afford to have a recession like the 1930's.

The UK Government are so desperate that interest rates could soon be cut to zero. Then there will be competition to sell goods as shop keepers try to tempt custom just to stay afloat. People will always hold off for a better price, and this creates negative inflation ie things get progressively cheaper, in the fight for custom. This will mean that the global economy actually will be like it was in the 1930's, the thing they are trying to avoid.

The UK isn't in the best position to prevent this. It's Government has borrowed way to much in the past. It is suffering from already low interest rates. It has said it will increase it's big projects to stimulate jobs, and will spend its way out of the recession. Well it's hands are tied as the normal tools to cut a recession are to cut interest rates, and borrow to spend on economic projects. As I say, it has to issue Government bonds to pay for this. It has technically borrowed so much, and has had to prop up the banks it cant let fail, I cant see who the hell can afford to buy these bonds. The interest rates on these bonds will probably be better than you or I can get for our cash sitting in our current and deposit accounts in our banks.

If it was yours or my company that was doing the same, we would already be bankrupt and living in a cardboard box under Blackfriars Bridge.

Somewhere along the line someone will realise that you cant spend what you haven't got.
We will then be stuffed with increasing interest rates to prevent spending, and higher taxes to balance the books and then it will all come around again in another 30 odd years.