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  • Stuart Fowler

The Autumn Statement of the obvious

The Chancellor is right: when in debt you want to look like you are doing what your creditors think you should be doing.

The shadow Chancellor is wrong because less austerity would almost certainly have translated into a weaker pound, even higher inflation and higher borrowing costs – for home owners as well as HMG – which would have left us in a worse place than we are today. This is the realpolitik of the Coalition’s economic strategy and it was essentially what George Osborne needed to say today. He will be saying it a lot more.

Politicians do not dare to put it so bluntly (although Alistair Darling, to his credit, did) but the way out of a debt-induced crisis is always some form of ‘workout’ and that needs time. Coalition policies have bought time.

The rest is piffling – including helping aspiring home owners to get into a bind they would be better advised to avoid, amongst other measures we could similarly criticise as pointless or perverse.

The one thing we have consistently said to our clients from the moment the credit crunch hit is that it should, and probably will be, a long drawn out affair. Whereas companies can shift the make-up of their balance sheets very fast, households cannot – and indeed need to move slowly to avoid beggar-my-neighbour effects on other households. Actions by governments may in these circumstance have important validation effects (‘burden sharing’, for example) but they are relatively powerless to alter the course of market economies when driven by balance sheets. That causes me no concern, but I have more confidence in markets than I do governments.

Our clients, whatever the relative strength of their faith in markets and governments, should be glad that their Defined Outcome Portfolios assume that markets can stay hostile for a long time and that their exposures are tested, against personal time horizons, to survive that. Not to plan on this basis would be irresponsible, obviously.

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