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.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

ebooksNow available in paperback
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum