Who Should We Believe? The PM Or The Chancellor?

So what on earth are we to make of this?

Alistair Darling said yesterday that everything’s fine. We won’t have a recession. The economy will continue to grow.

Gordon Brown, on the other hand, said there are "difficult times" ahead. He urged pay restraint. He believes the public purse is set for a hammering — and he’s blaming it all on that dastardly oil price. One is upbeat, the other a prognosticator of doom. Now, I don’t want to oversimplify this, but there’s a basic question to be addressed here. Just how bad are things going to get?

I never thought I’d say these words, but I reckon we should listen to Gordon Brown on this one!

The chancellor was speaking at a joint press conference with US Treasury secretary Hank Paulson. So maybe that’s why he was chipper — didn’t want to lose face in front of the Yanks, eh?

"I believe our economy will continue to grow," he said. "If you look at the consensus of independent economists, they think the economy will continue to grow."

Darling’s rationale? Interest rates and unemployment are lower than in the early 1990s. I’ll address these points in turn.

Firstly, lower interest rates have, until recently, been part of the problem, not the solution. Britons, along with those in other western economies, embarked on a long credit binge. And now we have a hangover.

I’d have thought the current mess would be taken as evidence that low interests rates are not the be all and end all of macroeconomics.

As for unemployment, I don’t believe that particular story has even started yet. So let’s just wait and see, shall we?

Darling and Paulson said that it’s the high price of foreign imports that’s causing all the bother. Most of this, they said, was down to the high oil price, which feeds through to other prices and kicks off an inflationary spiral...

Erm... am I missing something? What they’ve done there is explain why we’re getting poorer, and conveniently pin the blame on something outside of their control.

But something not being your fault is not the same as it not being a problem. So why is Darling so rosy? The mind boggles...

It seems that his boss is still the master when it comes to hard core dour miserableness.

The prime minister was promoting hair shirts yesterday, saying there "has got to be restraint in the private sector" when it comes to pay deals.

Brown went on to explain how the rising oil price — which hit $146 a barrel yesterday — is set to wreak havoc with Treasury finances.

"When oil prices are high, people spend less on other things and therefore VAT revenues go down," he said. "People spend less on property as a result of some of the things happening in the economy and your stamp duty receipts go down. Companies tend, with a few exceptions, to make less profit and therefore your corporate tax receipts go down."

Brown reckons the extra revenue received from North Sea oil won’t compensate for this lost tax money. Nevertheless, he still hinted that the government will probably scrap the 2p rise in fuel duty planned for this autumn. He didn’t say they definitely would, of course — he’s hiding behind Darling on that one.

Of the two camps — Darling’s "It’s OK coz economists say so" versus Brown’s "Sorry, we’re broke, and we’re going to get broker" — I lean heavily towards the latter. I don’t want to, of course. But I’m a realist.

I’m going to leave the last word on this today to one of our readers. Responding to last week’s recession question, one respondent wrote:

I took my car to BMW to be serviced today and they said "We’ll be quick, we only have 29 customers in today, we usually have 60. Customers are finding the costs of running a car, on top of everything else, prohibitive."

Interesting. Below, colleague Andrew Vaughan looks at whether the motor industry might be the next sector to feel the brunt of the ongoing economic turmoil.

For me, these little signals tell us more about what’s about to happen than a load of economists typing last month’s data into a spreadsheet. I’m hearing this sort of anecdote more and more, and it worries me. I’d like to say thank you to everyone who wrote in with their views. I read each one, and there were some very interesting perspectives and analyses. I couldn’t reply to all of them — there were just too many.

But I do enjoy reading your views, so please keep them coming.

A unique oil investment that offers inflation busting returns!

Yesterday I talked about the need for an investment to keep ahead of inflation. After all, there’s no point making, say, a 5% return if the price of everything you buy goes up 10%.

Officially, inflation in Britain is currently 3.3%, as measured by the Consumer Price Index. But then, who believes the official figures? No-one’s going to tell me the price of what I buy is only rising 3.3%.

Pull the other one!

The Telegraph’s cost of living index suggests the true inflation figure is more like 9.5%. So that’s the kind of return you need to make just to stand still.

And if you want to actually grow your capital, in real terms... well you’re going to need powerful, double-digit returns.

I know a man who could help you make those returns. His name is Tom Bulford, and he is just about to publish his latest investment report.

Tomorrow morning at 9 a.m. I’ll be sending you an email. It will tell you all about one very exciting investment.

This one share alone offers a potential return several orders of magnitude higher than inflation. I’m talking triple-digits here.

You probably don’t believe me. Good. I’m glad — scepticism is one of the investor’s best allies. If I were in your shoes I’d probably raise an eyebrow myself...

But I have the advantage of having read Tom’s report. I’m not allowed to say much, as it’s still embargoed. But here are the bare essentials:

It’s an oil company. A small explorer operating in a remote, British-owned territory.

It’s listed on London’s Alternative Investment Market (AIM) — because its market value means it’s too small to qualify for the main list.

It has recently discovered 10 billion barrels of oil. 10 BILLION. As I wrote above, oil hit $146 a barrel yesterday. At that price, these reserves are worth $1,460,000,000,000 — that’s $1.46 TRILLION. Way, way more than this tiny AIM-listed driller is worth.

When Tom showed me how much the share price needs to rise to reach fair value, I was astounded. In fact, I’m a little frustrated he won’t let me tell you the figure — I guess he wants to reveal that to you himself!

That’s why I urge you to read his report tomorrow. It’s a cracking read, and tells you exactly what you need to do to get in on this very special investment.

Will cars be the next crisis?

First it was the banks. Northern Rock imploded spectacularly last autumn. Then, earlier this year, RBS and HBOS announced rights issues to shore up balance sheets. Bradford and Bingley saw its share price fall 30% in one morning.

Then it was home builders. The stuttering property market has caused them misery — Taylor Wimpey this week became the latest home builder to make headlines. It shed 900 jobs after it failed to raise sufficient capital from investors to meet debt repayments.

Today, colleague Andrew Vaughan asks which sector of the economy will suffer the next crisis? His money’s on cars — and as our BMW-owning reader above demonstrates, he could well be onto something...

Find out why Andrew reckons that the motor industry is next in line to feel the full force of the economic storm...

Until tomorrow

Ben Traynor

PS Just a quick reminder — don’t forget to check out my email at 9 o’clock tomorrow morning! This is one of the most exciting share recommendations I’ve seen in a long time...

Today’s Daily Reckoning - Americans have never been more dependent

We’re in Charles de Gaulle airport, escorting Edward, 14, off to summer camp. A loud siren has gone off. We looked up. No one reacted to it. And then the siren came from another part of the airport. Still, no reaction. Occasionally, people look up from their papers...soldiers with automatic rifles continue their patrols.

Then, we heard a chant. This was not an airport alarm, this was a group of protestors...trying to disrupt the airport. Why? We never figured it out...

It is Independence Day...and Americans have never been more dependent on the kindness of strangers. The foreigners have some $4.8 trillion on currency reserves — most of it dollars.

Most Americans are enjoying their picnics and fireworks today. But here at the Daily Reckoning headquarters in Europe, we recognize no national holidays and only take a break when we can’t get an internet signal. There’s always something to reckon with.

You can read today’s Daily Reckoning in full HERE. P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.

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Who Should We Believe? The PM Or The Chancellor?

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Who Should We Believe? The PM Or The Chancellor?