Both major parties seem to have been pre-campaigning on spending cuts, fiscal restraint and responsibility. But only one of the parties is in power and could actually be doing those things right now.

I suspect that the reason for New Labour being so slow to get the scissors out to public spending is political. If things are slow in the economy now, how much slower could they be if they used some restraint? Slashing budgets and spending over the preceeding 12 months would probably have made the recession even deeper and would not have helped their re-election prospects.

So the political imperative has been winning over the economic. For now.

But if the Conservative Party are elected with any level of majority, they will need to start wielding the scissors – and be seen to be doing so – immediately. This could easily be the start of the next ‘leg’ down in this recession. With public sector borrowing so high, this needs to have started months ago, but better late than never.

This might sound ‘doom and gloom’ of me, but the prospect of a devaluation of sterling, substantially increased inflation or a full-blown default on sovereign debts are not that unreal. Somehow, the UK needs to start dealing with it’s huge financial deficit before things are too late. They might be too late already, but there probably still is time to act and have a meaningful influence.

The real problem scenario lies in a hung parliament. If that were the case, the Liberal Democrats would suddenly become the most important people in town!

Broadly speaking, I quite support the occassional hung parliament. One problem with government – to my own slightly libertarian eyes – is that it always feels the need to act. But often times, doing nothing would probably be just as effective. The level of action is merely to give the impression of being vital and to justify an existence.

So when a hung parliament slows down the level of action, that can be a good thing for individual liberties and responsibilities.

However, at a time like now, a hung parliament would be a financial disaster for the UK. The one silver lining would be that Vince Cable would be propelled into a front bench position. Otherwise, any delay on financial restraint could be crippling in the long-term.

What are your thoughts? Do you have any insight into how bad the UK economy really is?

Bearing in mind the awful state of the UK economy currently, can it be much of a surprise that property prices have fallen again?

I would like to contend (and as someone that has worked in the UK property market for a few years, I know a little about this) that the UK residential property market is massively influenced by movements in London. I find it difficult to believe that whatever the numbers show, anywhere but London has been rising in prices recently.

I know, I know, the numbers say differently…

Just before Christmas, a member of my family was looking for a property in the South West of England. The house they found was on the market for (as I recall) 275,000 pounds. Under great pressure from me, they made what was an ‘insulting’ offer. From there they negotiated upwards. Finally, they agreed a price at 235,000 pounds.

Does that sound like a strong market to you?

It seems that the biggest beneficiary has been Scotland. I’m not going to go along with the conspiracy theorists that charge two Scottish Chancellors of the Exchequor of expanding their financial pie to secure votes at election time. But it is easy to see why such theories exist.

It is clear that the policy works however.

Your author has been to Scotland about 10 times, with another trip due this summer, and the transformation is clear. Glasgow is now a great place to visit with lots going on, great shopping, bars and clubs and a modern and cosmopolitan feel. Contrast that with the Glasgow of the 1980s! Finding links from the 80s isn’t easy, so instead I offer this link and picture as my poor attempt at proof. Needless to say, the Glasgow of the mid 1980s was a very barren place.

The Scottish economy isn’t the most well diversified on earth. At least not to the poorly informed naked-eye of a tourist like me. Now that North Sea Oil is slowing down, tourism and agriculture appear to be the mainstays. Well, that isn’t quite true or fair. Edinburgh has a financial services industry of some note. And Glasgow now has a number of call centres for nationwide UK companies.

But somehow, somewhere – and it seems reasonable to presume that the NHS and education are the locations – taxpayers money is really being spent. This post from the SNP in December is trying to highlight just how badly impacted Scotland would be if the Conservative spending cuts were implemented.

But the recent news ( here on the BBC ) suggests that there will be significant cuts in public sector positions in 2010. With public debts rising out of control, changes are inevitable – so inevitable that even President Sarkozy is having to discuss pension reform with the unions! – but the outcome of the changes may be felt much more in some places than in others, making this recession much deeper in these areas.

My fingers are crossed that Scotland fares well. But I fear that my finger crossing may not be enough.

CNN has today published a story about the likelyhood of seal-level flooding costing US$28 trillion by 2050.

This story is based on research for the insurance company Allianz – one place where the costs of floods will be severly felt – and the WWF ahead of the Copenhagen summit in early December.

As an aside, I’d expect lots more stories like this in the coming days. They are being timed to force attention onto the negotiations and – hopefully – to get everyone to agree a deal.

Whether this number is real, who can say? It seems big, very big. But then if you submerged London, New York, Rio, Barcelona and a few other large cities, the cost would be, well, very big. So let us not argue about the costs. It is only splitting hairs when the numbers are this big…

Instead, think about the impact on the property industries, insurance industry – and more importantly – national economies (it is worth bearing in mind that if, for example, London were to truly be flooded, a very large part of the UK economy would simply stop). The impact on the finances of the globe would be catastrophic.

To use an example that is happening right now, Cumbria in the North West of England has been hit by floods and heavy rain – while parts of Ireland are under water as well.

To quote from that BBC story, “The cost of damage is expected to run into tens of millions of pounds.” Those ‘tens of millions of pounds’ relate to 900 properties and businesses that have been hit.

Anyone that has been to Cumbria will know that it isn’t exactly the most densely populated place on earth, partly because of the multitude of hills and wild country. But of all places, they ought to be able to cope, after all, much of Cumbria is known as the ‘Lake District’. If they aren’t used to lots of water – and it rains a lot up there – who is?

So what would be the impact of major flooding hitting a capital city like London or New York? “Total economic shut-down” would be my guess.

And a new definition of the term ‘offshore banking haven’.

My mind has been changed. We need to take this ‘water’ thing much more seriously than we already do…

a) interested in finance

b) wondering what the real cost of the bailouts are

or,

c) from the UK

be sure to spend 30 seconds of your day taking a look. See the slides here.

For months, the British public have had to listen to Prime Minister Brown and Chancellor Darling on the news explaining how ‘robust’ the UK economy is and how ‘well placed’ it was to handle the credit crunch.

It now seems that it was ‘robust’ enough to be saddled with massive amounts of debt and ‘well placed’ enough to require them to borrow nearly 95% of GDP!! Imagine what might have happened if the UK economy was in a ‘poor’ position!!

Personally, I don’t believe a word of it, but if you do, then you can at least now have the pleasure of realising that the UK economy is heading for something akin to collapse. Any government taking on borrowing like this is either heading for default on it’s public sector borrowing or crippling inflation. Or perhaps both.

Either situation would likely be a disaster for private investors, those holding units in funds in bonds or stocks and much else besides. Certainly those with fixed incomes would be in a very difficult position…

Without getting too political, the British public has listened to Gordon Brown explain time and again how amazing he is with the economy. If you are from the UK, you can join in with his catchphrases as well…

“Prudence”

“An end to boom and bust”

“Longest serving Chancellor”

“Responsible”

“Borrowing only what can be repaid through the economic cycle”

“The Golden Rule”

Do I need to go on?

And yet here we are, in deep doo-doo. Since becoming Prime Minister, it has been universally accepted that Mr Darling is Chancellor of the Exchequer with a very heavy guiding hand from Mr Brown. That would suggest that Mr Brown’s tenure is still ongoing.

This story from the BBC explains how the credit rating of the United Kingdom is under threat by excessive borrowed money. Thanks Gordon.  In fact, Standard and Poors are worried that the UK debt level might reach 100% of GDP by 2013!!

100% of GDP!!

That is the sort of number that you would expect to hear when talking about a small Latin American country with a mis-managed economy and corrupt government elite. Not the UK.

Did I just say mis-managed economy and corrupt geovernment elite? Sometimes it is spooky how accurate I can be.

If the national accounts get much worse, the valuable AAA credit rating might be lowered. This would increase the risk associated with holding the debt and therefore markets would demand higher interest payments. This, obviously, makes the debt harder to repay and new borrowed money becomes more expensive. In other words, this is a slippery slope towards bankruptcy.

Interest rates may need to be raised to help repay the debt, hurting many in the country and doing no favours to businesses.

Sure, it would be a long way away. I don’t doubt that. However, fiscal policy would need to be improved dramatically – something which the current leadership seem unable to do – if it is to be avoided.

Needless to say, this is not a great thing for an investor. Stock markets are not immune to the goings on in the national economy or halls of government. In fact, they are profoundly connected.

And of course, this is an election year. Though it may only be a european election and therefore not a direct threat to Mr Brown as Prime Minister, the loss of voter support will be another blow to New Labour’s grip and his own position (depending upon how poorly they fare).

With the British public being almost born “eurosceptic“, and combined with the current scandals over politicians expenses, there seems to be little hope for him at this election. He’d be better off going on holiday…

Lets hope that he goes on a permanent vacation soon enough that the entire British economy has the chance to be saved.

Without trying to get overtly political, there are obvious connections between stock markets, national economies, currency valuations and the policies of the government of the day.

For years, Gordon Brown has been at the helm of the UK economy. He has told Parliament countless times what a safe pair of hands he is with the national economy. Well, times have changed and markets have stopped believing in him.

This week he visited the European Parliament in Strasbourg where he met some stern opposition to his view of the world. As you will see in the following videos, he found the whole experience to be rather amusing. What a shame that is for the rest of the British population.

The following video has been watched on YouTube now well over 1.5 million times. MEP Daniel Hannan tells Mr Brown what most of the population has been thinking for many months.

My own accountant is owner of a small operation. His company comprises 8 people in total and is based in a residential house. He is 36 and purchased the firm a few years ago from it’s founder – in total the company has been trading for a couple of decades.

He explained to me that so far his firm has only been involved in 2 bankruptcies. Both related to the residential property (building and development) sector. As he explained it, both were relatively young guys that had seen nothing but money over the last few years and had expanded significantly on the back of borrowed money. They had expanded quickly and then also borrowed heavily for their own residential property. As the property market started to “pop”, they had a mass of liabilities backing falling asset prices. Ouch!

In essence, this is exactly what the press has been describing for some months now.

The firm has a number of other property related clients, but these are older and more established. Having seen such cycles before, they had taken steps to secure their borrowings for longer periods, they have cash balances to see them through (some) bad times, and have generally taken less risks.

Whether they are able to survive long-term, who can say, this recession could be a very long one. But for now at least, they are in much better shape.

My accountant – as you might imagine – also has to go and give bad news to companies. For some of those firms that he prepares monthly accounts for, he has had to deliver bad news. The news takes the form of, “shed some staff or you will go under”, and must be very hard to give. Ultimately, whether the firms follow the advice or not is up to them.

He has been seeing that just about every type of business is being impacted by this recession. If it turns into a depression – as it may well do – then it will be difficult to imagine firms that will escape untouched.

He is trying to convince companies to scale down to the new lower business levels quickly to ensure that as and when a recover comes – and a recovery will come – they are on the start line, still trading, and ready to go again in the next cycle.

He did, however, also mention a number of individuals that are taking this downturn as an opportunity to “cash-out” and retire. They are of a certain age – in their fifties – and may simply not want to be involved next time around. If that is the case, they are thinking, “Why bother?” and are looking to retire completely.

Making way for the next generation of business owners and entrepreneurs is the natural order of capitalism. Like nature, things grow vigorously but will one day wither and die.

It seems that this slowdown is forcing some of these organisations out. One must presume that if this is how the small business world is impacted, then big business must be near identical.