Economic mess

Unfortunately, Walter J Allan’s sycophantic defence of Alistair Darling (Letters, 5 July) is contradicted by the latter’s apology for the economic mess Labour left, however qualified that apology was.

As most will know, the seeds of the UK economic disaster were sown on day one of the Labour government in 1997 when it handed to the Monetary Policy Committee (MPC) responsibility for meeting the government’s inflation target.

The first adverse signs were apparent when house prices went through the roof. The standard remedy of increasing interest rates was not available as the MPC’s remit did not apply to the housing market.

So, Labour presided over artificially low rates of interest and the cheap money fed into the credit-driven fantasy growth from which Labour benefited in the shape of the windfall of the consequential taxes from high street sales.

Where there are too few goods, inflation rises, but the availability of huge supplies of foreign goods kept prices low, but we had a 300-year record balance of trade deficits.

We suffered more than 100 stealth taxes, and not content with that, Labour embarked on a borrowing spree. In 2004, borrowing was about £30 billion a year; six years later, in 2010, it accumulated to about £180bn.

That contributed to the banks’ problems – the money could not be in two places at once, out in the economy and in the banks.

It was President Clinton’s introduction of anti-discrimination legislation aimed at the relatively poor minority groups being denied loans that caused America’s problems. That led to the so-called subprime mortgages that lenders were tacitly obliged to fund.

And the reason we have no growth in the current period is due to domestic borrowers repaying the debts which had resulted in Labour purloining the opportunity for that growth.

Douglas R Mayer

Thomson Crescent

Currie, Midlothian

Walter Allan wrongly blames President Obama for the “world’s present financial woes” but correctly cites the subprime gambles and shambles as the primary cause.

It was President Carter who initially required banks to extend loans to non-creditworthy applicants; and President Clinton who greatly expanded that scheme in the 1990s, also repealing the Glass-Steagall Act which had successfully ensured the separation of retail and investment banking between 1933 and 1999.

UK bankers joined their US colleagues with alacrity in their lemming-like rush over both these cliff edges.

While crediting Alistair Darling for his response to the 2008 crisis, Mr Allan omits from the equation Darling’s part in the Blair/Brown increase in public expenditure by no less than 50 per cent after inflation in only 11 years, expanding our borrowing to unsustainable levels and aggravating the global meltdown’s UK effects.

Obama can certainly be criticised for re-appointing Clinton’s cohorts to clean up their Augean mess and for his own actions and inactions as constrained by Congress since 2009, but not before.

John Birkett

Horseleys Park

St Andrews