The global financial crisis

While I have been away from Britain, the news seems to have been getting worse and worse. Australian television referred to the meeting between Brown and Obama as one involving the heads of two of the world's weakest economies.

Obama has had to throw good money after bad to bail out AIG yet again and prevent systemic failure of the financial system. General Motors has the begging bowl out again and one has to ask whether taxpayers' money has to be used to prop up any failing company, at least without a major restructuring. There are employment consequences, of course, but there are also opportunity costs.

At one time there was some hope that the acquired assets could be nurtured back to health and taxpayer funds recovered. This now looks much less likely. At some point politicians will have to be honest with voters: public services will have to be cut and taxes will have to go up. This is going to be a long and deep recession with painful consequences.