TheJuryIsOut

President Obama retains a great deal of his victorious feel good factor. Almost everyone, even his political foes need and want him to succeed if for nothing more than enlightened self-interest. He, unlike Gordon Brown retains a feel good aura; a ready smile and the appropriate words that make us believe he might have the right answers.

But does anyone really have the required knowledge to navigate these uncharted and dangerous economic storms?

Gordon Brown became Britain’s Chancellor of the Exchequer as part of then Prime Minister Tony Blair’s first government, a dozen years ago. His first action was to divorce the Bank of England from his own direct control. The reason he gave for doing this was so that the Bank of England would set interest rates in order to control inflation independent of any political considerations.

Now Gordon Brown is Prime Minister I would bet big money that he wishes the Bank of England were still in his own direct control. Last night the Governor of the Bank shook the government to the tips of its toes when he said that finance deficits were already too high and therefore there is no room for the Prime Minister to engineer either big tax cuts or any further spending increases to spark life into the economy.

The timing of the Bank Governors intervention couldn’t have been more embarrassing or unfortunately timed for Brown. It comes a few weeks before the next big budget, on April 22 and more or less simultaneous to the Prime Minister making an impassioned pro financial stimulus package to the European Parliament in Strasbourg. He has been touring the world promoting his ideas of a global stimulus package prior to the next G20 summit of the world’s economic superpowers, which he is hosting in London next week.

Mervyn King, the Governor of England’s central Bank, doesn’t believe the country can afford any further stimuli. Gordon Brown believes we have to find a way to afford to stimulate the economy.

An auction in government debt in the UK failed to achieve the target sum for the first time in 7 years. A major warning sign we would do well to heed.

Brown believes that we must be prepared to do what is necessary to resume the growth in the economy achieved by the fiscal stimulus strategy promoted by President Obama and Brown, This includes quantitative easing and extraordinarily low interest rates and effectively means spending our way out of the recession.

The current European President, the Czech leader, believes that the road to hell is paved with the President Obama fiscal stimulus plan.

This is possibly the most important economic argument ever to be fought in the world since the Great Depression and the implications for our future well-being are enormous.

Although it is pleasing and somewhat cathartic to castigate and condemn the wrongdoers and criminals in the financial sector who cost us all so much with their stupidity and greed it is not the most important of the tasks that must be conquered.

Neither should we focus too much attention on more regulations when all we ever needed to do was enforce the regulations that already existed. In fact there is a very good argument to reduce regulations, and make the markets simpler.

Of equal or possibly even more far reaching consequence, we have to consider the future of markets that have operated more like bookmakers. We should eliminate shadow markets and return to a world where financial instruments must be real and paid for.

Right now the battle for the hearts and minds of the G20 leaders is under way and during the next week they will decide whether we spend our way forward, hopefully out of the recession or, as I think is equally likely, we move into a Japanese style decade of stagflation. The jury is out.