CITY AND BUSINESS: The walls are closing in on Blair

We know Tony Blair has a wide range of personal interests. Remember, he played guitar in a rock band and is a keen supporter of Newcastle United. I wonder if he ever read Eldridge Cleaver's Sixties classic, Soul on Ice. If he hasn't, maybe now's the time.

In the jailhouse memoir, the late American Black Panther compared life in his cell with life outside and found little difference. Describing his methods for asserting himself in the face of American racism, he declared: "I am attempting to perform a series of extremely intricate manoeuvres in a very tight space."

In the two years since the May 1997 general election, Blair has had no need of the activist's wisdom. Now that's changing. The slanging match between Blair and John Prescott is even more serious than is generally perceived. It's not only about the value of public services. It's a debate about the validity of the Third Way.

"John," says the Prime Minister to his deputy, "I need your constituency to support me if Third Way policies are going to come good. I bear scars on my back from allies of yours withholding that support."

"Tony," the Deputy Prime Minister replies, "you believe the Third Way will deliver social justice while making us more competitive in global markets. Not everyone is so sure. Unlike your constituency, my constituency will suffer if Third Way policies fail."

Last week, in the face of this debate, the Third Way rolled on. The Prime Minister announced a public/private plan to build six new hospitals for pounds 650m. The Government announced the Post Office would become a publicly owned PLC - protecting jobs for the workers and posties in the Outer Hebrides while positioning it to compete in the online world.

There are political reasons for Blair and Prescott to fight. We shall almost certainly have a Cabinet reshuffle later this month. The new Cabinet will oversee Phase Two of the Third Way - and middles are always tougher than beginnings.

There are, however, no obvious economic reasons for Blair and Prescott to fight. The first great blow to the post-Cold War global economy - the pricking of the Japanese asset bubble - happened before he came to power. Since then, Japan has suffered something approaching a 1930s-style deflation. But the rest of the world has been insulated because Japan is a nation of savers, and its citizens have been living on savings stuffed in the mattress.

Last year the Asian asset bubble collapsed. For a moment it looked as if the whole world was going to follow the region into deflation. But Alan Greenspan and other Group of Seven central bankers opened the money taps. G7 economic policy makers have acted skilfully to mop up after the emergency.

Consumer confidence is rebounding. Investors - at least, US retail investors - barely remember that the New York Stock Exchange actually closed at the height of the panic.

And yet, despite the good economic news, there is an underlying economic logic to the Blair-Prescott fight last week. The London and New York stock exchanges may have hit record highs last week. Gordon Brown and Eddie George may have engineered a soft landing for the economy. We may be in for a modest but not unhealthy expansion of the the economy this year.

But virtually everyone, from the shrewdest City fund manager to the most lowly wage slave, shares a sense of foreboding. Maybe the best is behind us. Maybe there really is something unreal about the good times we're enjoying.

The financial world runs these feelings through the prism of its disciplines and comes out with a more sophisticated sense of foreboding.

"All the US fund managers I talk to have their clients' money fully invested," says investment adviser Andrew Smithers. "But these same fund managers have their own money in cash."

In parts of the financial world there is now something approaching mute panic about Japan. Two weeks ago, the country's long-time Deputy Minister for International Finance, Eisuke Sakakibara - "Mr Yen" - stepped down. He was replaced by Haruhiko Kuroda.

Mr Sakakibara kept the Japanese financial system from haemorrhaging money - despite the fact that interest rates are zero - by allowing the yen to rise. The gradual appreciation of the yen gave global investors a reason to stick with their yen-denominated assets despite zero interest rates.

But Mr Kuroda is thought to be opposed to a strong yen. A weak yen, he thinks, will help Japan by helping Japanese exporters. But if Mr Kuroda plumps for weak yen, the floodgates may open and a selloff of Japanese financial assets could destabilise a still-recovering global financial system.

In every nook and cranny of high finance, meanwhile, a debate rages about the US economy. The New Paradigmers hold that the internet and other new technologies have set the stage for a long-term boost in productivity. This prospect, they hold, means the record stock market makes sense.

High share prices, in turn, bolster the confidence of American consumers - thereby completing the virtuous economic circle. The sceptics say the New Paradigm is an illusion. They focus on the steady rise of debt in the US.

"The short-term outlook for the US is rosy," economists at HSBC write in an analysis of prospects for the three months ahead published last week. "But the medium-term risk is that the bubble could burst."

So far the bears have been wrong. The bulls taunt them by asking them what will trigger an end to the American economic boom. The bears reply that any trigger they can describe is by definition not a trigger because it has been foreseen and discounted. The US asset bubble will burst, they say, when an unforeseen event comes along.

One place to look for a trigger is US electoral politics. For eight years outgoing US Treasury Secretary Robert Rubin and incoming Treasury Secretary Lawrence Summers have orchestrated a consensus on US economic policy. So the US has presented a unified front in pressing globalisation upon the world.

But as the fight for the White House picks up steam, the Rubin/Summers consensus may crack. Democrats want Washington to use the fruits of globalisation on government spending programmes. Republicans want them distributed as tax cuts.

Here, in the meantime, Blair must press his case for signing on to America's globalisation project as that project ages - runs into disagreement at home, falters perhaps as a generator of wealth worldwide.

Tony Blair's way so far has been The Third Way. It may soon become Eldridge Cleaver's way. The Prime Minister is increasingly likely to find himself attempting to perform a series of intricate manoeuvres in a very tight space.

Sport
Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Voices
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
Sport
world cup 2014
Sport
Popes current and former won't be watching the football together
PROMOTED VIDEO
Sport
News
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
books
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
business
News
Mick Jagger performing at Glastonbury
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
Extras
indybest
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
News
people
Arts and Entertainment
Chocolat author Joanne Harris has spoken about the financial struggles most authors face
books
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

£30000 per annum: Harrington Starr: A global leader in trading platforms and e...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil