For some time now it has been possible to see the four horsemen of the apocalypse on the horizon. Most economic commentators ignore their existence and the potential damage that could be inflicted on our economy if they all swept through at once.

Horse one symbolises the ruinous state of public accounts. The government first claimed the deficit to be around £85bn. This was revised in the pre-budget report then revised again to £175bn in the budget itself. I argued that these estimates looked conservative and the latest guesstimates on the deficit this year come in at £200bn and maybe even £220bn.

This sum has to be borrowed this year, and for the foreseeable future. Whether there are any lenders out there who will lend to this tune we do not know.

The government has busily been printing money and practically the whole of this funny money has been used to buy government debt.

So those economists employed directly by banks, or those dependent on bank contracts, again mislead when they prattle on about long-term interest rates being held. We simply do not know to what level long-term interest rates will go once the game of printing money stops.

Horse two is the harbinger of inflation. It simply isn't possible to increase the money supply by 300% and for there not to be a megadose of hyperinflation built into the system. Inflation is the cruellest of redistributors taking away from those who have saved and penalising most those on low earnings who have limited or non-existent collective bargaining powers.

Horse three warns of a rapidly collapsing tax base. Hamish McRae - one of the few commentators who doesn't buy the current cosy consensus - has been looking at the catastrophic fall in income and corporation tax.

VAT receipts are running 8% lower year on year which is perhaps understandable given the cut in VAT, but taxes on production - mainly income and corporation tax - are down by around 16% year on year.

There is going to have to be a mighty change around in the economy for this falling collection of tax-revenues to be reversed. Falling tax revenue means an even longer period in debt with the budget deficit in this country continuing to be far worse than any of our competitors in the G8.

Horse four sounds a jobless recovery. One of the reasons why thankfully unemployment has not risen to the level the government projected is that employers have been hoarding labour. On all counts this is welcome. But it does mean that when the economy starts to grow again - assuming it doesn't bob around the bottom for too long - employers will be using this hoarded labour to match increased output rather than enter the recruitment market.

The economic and political outcome is too grim to describe if all four horses of the apocalypse swoop down at once.

Failure to convince the markets that UK Ltd is a going concern will initially result in the rising of long-term interest rates. A killer to long-term recovery.

Then we stand to lose out on credit rating. Worse still would be if the government cannot then, even at record long-term interest rates, raise the necessary capital to bridge the huge deficit on the public accounts.

At this point it is a fight to maintain the currency.

That is why the present debate about maintaining the so-called stimulus is so naive. If only the world were that simple.

I believe we need to cut, and cut quickly, if we are to prevent the scenario I have just described coming into full force. It isn't a choice between protecting the recovery by keeping in and cutting at a later date. If we don't convince the market how serious we are about cuts soon, there simply won't be any recovery whatsoever and that is putting out future prospects using the most moderate of language.

David Cameron's speech isn't simply a raid into Labour territory. The speech declares war on Labour's reason for existence.

There have, over the past hundred years, been disputes over what Labour is or should be about. Whatever individual views protagonists have pushed, most have agreed that Labour exists to protect and advance the interests of the poor.

It is this belief in our very being that Cameron attacks by looking at this Government's record. His choice of figures is in a few instances dodgy. The data on those at the very, very bottom of the income scale are not that reliable.

But Labour has spent undreamt sums financing its anti-poverty programmes. Despite this expenditure the programme has in recent years stalled. Labour has been slow to draw the right lessons.

This has given Cameron his opportunity. Read the speech assuming you do not know who has given it.

I guarantee that most people would conclude that this was a speech by Tony Blair who had carefully blended in the best of Labour's left-wing thinking. That is the size of the challenge we now face from David Cameron.

On one track he takes the argument back to the advent of new liberalism. The idea that people should simply be free is not for him.

The conditions for freedom have to be created. And then the new Tory state ‘must actively help people to take advantage of this new freedom'.

Cameron also asks why it is that, when Labour has spent record sums on welfare, the results are disappointing. He cites the Institute for Fiscal Studies, report that the Government's ‘current strategy of increasing (means-tested) child tax credit is effective at reducing poverty directly, but its indirect effect might be to increase poverty through weakening incentives for parents to work'.

A more rounded conclusion would have been more devastating. Tax credit penalises two-parent households and therefore actively seeks to break up the natural social ecology within which children are successfully raised.

Acting audaciously he argues that the alternative to New Labour is first, to make opportunities more equal and then, second, actively, to help create a stronger and more responsible society.

There is a lot here for Labour to pinch in renewing itself. How can Sure Start and education be delivered in a way which most favours the poor while also increasing the power of parents and local communities?

His ideas are thinnest - but then everybody else's are as well - on how the state burns itself up in creating a stronger society. But at least he has started the debate on the role of social entrepreneurs and community activists.

This thinking needs to be taken much further, but it is a wonderfully bold beginning and Labour must rise to the challenge.

Labour's normal stock response of trying to ridicule him simply will not do. Cameron's aim is clear. It is to turn traditional party politics upside down. The time for jeering at Cameron is over. Labour's survival will now entail outmatching his programme.

Only now, we are told, are the markets beginning to register the fear of growing inflation.  After months of propaganda on the dangers of deflation a few of the dunderheads that run our financial system are beginning to wake up to a spark of reality. 

One sign of the change is the demand for US Treasury-protected securities which has accelerated in the past month.  Supplies for such bonds held by Wall St. dealers are at their lowest level for three years.   

Even before the last round of "quantitative easing", the Bank of England increased the money supply by a cool 280% to fight off recession.  This action may have lessened the immediate impact of the recession.  But increasing the money supply in this way massively increases the likelihood of run-away inflation. 

Most of the funny money has been used to buy Government debt.  We still have no idea, when the Government stops the printing presses and floats its record debt on the market, who out there is going to buy. 

This is where the economic debate has been made juvenile.  The Government has continuously argued that to cut back on its reflationary measures will push the country into deeper recession. 

These inflationary measures centre on the cut in VAT and similar small scale initiatives.  I say small scale initiatives because these sums have to be compared with the major reflation of borrowing £200 billion a year for goodness knows how many years in order to meet the Government deficit.

What this debate takes no account of is what will happen once the Government has to test the market with its debt.  It is here that the commitment and timing of public expenditure cuts are so important.

There will be a cost even if the markets are convinced by Government and Opposition alike that they will bring the mega deficit under control.  It is inconceivable that long term interest rates won't be pushed up that will poleaxe investment programmes on which our sustained long-term recovery depends.  The sooner the markets believe we mean business the smaller will be the rise in long term interest rates.  

Far from there being a sustained period of deflation that most commentators have signed up to, the Governor of the Bank of England will shortly have to write the Chancellor explaining why on the fiddled inflation index, prices have risen above 2% and it won't be long before we are looking back at the "good old days" of 2% inflation.