These are worrying times
So the dollar and Swiss Franc are strengthening as I write, as are German bunds (the equivalent of our Treasury gilts) and gold. These are worrying times and the markets are rightly nervous.
Nobody I know who follows these matters closely believes the Irish bail out will solve the European debt crisis. If anything it has merely underlined how precarious things are. The European Union has a E750 billion stabilisation fund at its disposal to help members drowning in debt. When it was created in May (after the Greek bail out) we were told its very existence would calm markets and mean it might never be used.
That theory was brutally mugged by events coming out of Dublin when it applied for help to the stabilisation fund. Now the fear is that if the sovereign debt contagion hits Spain or even Italy the fund just won't be big enough. Meanwhile Greek bonds are trading at record yields (despite its bail out), borrowing costs for Madrid are still high and the cost of insuring Portuguese debt continues to rise. The Irish bail out doesn't mark the end of the sovereign debt crisis -- just the end of the beginning.
Chancellor George Osborne, who has his cheque book out for Dublin, will soon be under pressure to write more cheques for other countries. Not being in the Eurozone doesn't seem to be isolating us from this crisis; but at least British sovereign debt and sterling are not in the firing line.
The coalition will claim that's because the markets are content with its fiscal consolidation plan. It might be right: it is now clear to me that, whoever won our general election in May, in the light of current events our budget deficit would have had to be savaged by far more than any of the politicians told us in the campaign.
Just consider the market pressure we'd currently be under if an incoming government had blithely proceeded to preside over the size of deficit being projected during the election.
Events in Dublin show that sovereign debt has severe consequences for incumbent politicians. Early next year, if not sooner, there will be an election in Ireland and the ruling Fianna Fail coalition will be swept from power to be replaced, everybody in Dublin tells me, by a Fine Gael/Labour coalition, with Fine Gael's Enda Kenny the new Prime Minister.
Don't expect that prospect to calm the markets -- though by then they'll be concentrating more on Lisbon, Madrid and Rome than Dublin.
~RS~q~RS~~RS~z~RS~15~RS~)
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Andrew,
I think that your headline of 'these are worrying times' is a misquote if you don't mind me saying. We have been in worrying times for some time now. The politicians and economists are going around like headless chickens.
Everything they try seems to fail, and it always will, because they try to 'do something' they just won't let go. For as long as they keep intervering then the problems will never be solved. The solution. let it go, let asset values fall, let currencies fall, or rise. Let the market go, for as long as people take a risk, then don't allow the risk to fail, then there is no risk.
There is a risk in everything, just as there is chaos, this is not like a celestial globe, it is chaos. There is a risk in lending your money, when you get your pay paid into your bank account it is a risk, you are lending the bank money.
We are told that we are in dire straights, that we have over -borrowed and now we must pay for it. Well it would seem that we can now borrow money, but to lend to the Irish, not to solve our internal problems. Neither a borrow nor a lender be is a good old adage, and he who pays the piper calls the tune. Well to what tune do the Irish now dance to.
My fear is that the problem which is Korea will be used as a diversion, same as Afghanistan, same as Gaza, same as all the other hotspots, anything but actually do something. You are quite right about Greece, and its debt. Just look at the thirties to see what happens.
What happened, the market in certain bonds Greece, and Hungary just collapsed. The only way that yields on bonds can rise is by bond prices falling, but the buyers in the secondary market will be able to have their 'investments' redeemed at par, so they will get a massive finacial gain, the taxpayers have taken on the risk, and yet again the capitalists will make a gain, unless of course, the governments decide that only the initial primary investors will be repaid, secondary investors will have to lose, to teach them a lesson they will never forget!
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Good morning each & Andrew.
Is it not so that the germ of a solution is to be found within the problem?
The solution then is either to embrace the prospect of war and military build-up or to turn our backs upon 'might-is-right' once and for all. As per usual we shall do neither and both.
Are we as a species bound to view the world in the short-term only? Is it that our children and their children can have no hope for any future but one of continued and continual fear?
We could think long-term. Grant to they that gambled the realisation of loss, privatise this debt and get back down to business. Business in a way that offers real growth in the fortunes of the populace.
Is it that in using the 'coolies' of India and China to increase profits for the few that we must now kowtow to these same exploiters and have them buy us out of all that we have left? Better by far then to kowtow to our own people rather than blame and curse them with the debt of those who gambled and lost.
Our so called boom years, that yielded much that Gordon was proud of and Dave envious of, have yet to be paid for, but much money, much wealth, was abstracted from our economy and it would go a long way to putting things right, a long way to reducing our dependence on fear and conflict if we were to cut this Gordian Knot and grant the would-be-kings the freedom of responsibility for their errors.
The Enda is in sight, you say. How true.
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'1. At 11:39am on 23 Nov 2010, Catch22 wrote:
My fear is that the problem which is Korea will be used as a diversion...'
Well, as one a wee bit concerned, if all it was was an 'artillery exchange' (sort of a tennis match on with HE shells), then I am sure it will soon be forgotten:)
http://www.bbc.co.uk/blogs/newsnight/fromthewebteam/2010/11/tuesday_23_november_2010.html
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The potential for hostilities , however remote, causes the markets to fall.
Is there any sphere in which we are not ruled and or controlled by the parasitic money dealers ?
If only it was as easy as chucking them out of the temple.
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"Events in Dublin show that sovereign debt has severe consequences for incumbent politicians"
Sovereign debt is a consequence of the crisis which first hit banks and then governments following the collapse of global finance 2007-08.
Treating it as a cause rather than a consequence of the crisis is a huge error because it leads to wrong diagnosis and treatment.
Cut the deficit everyone shouts,cut,cut,cut.Greece tried it,then Ireland.But revenues fell faster than the deficit,the crisis intensified.Be counter-intuitive,spend when you are in the red,increase your revenues and cut the deficit that way.
The inverted logic of deficitis afflicts the EU like a plague,its here and I can already feel its cold hand on my shoulder.
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How about some big time Quantatative Easing from the ECB? Put some air in the tyres and some petrol in the tank. Get the wheels spinning. Stick the buns in the oven.
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I completely agree Andrew. Worrying times indeed. Not just because of the bailouts needed by foreign countries, which could escalate into a series of dominoes as happened when Lehman Bros went bust in 2008, but because all of the pressures on ordinary UK households at the moment seem to be negative ones. Even the increase in the personal allowances next year won't amount to very much. Probably won't even cover the increase in our energy bills this year...!
But I think you missed one important capital city from your list. Besides Lisbon, Madrid and Rome, I think you'll need to add London before too long.
If we're borrowing money to lend to other countries, our debt is clearly growing. Its as daft as me borrowing the last £100 available on my otherwise maxed-out credit card so that I can lend it to a pal to enable him to continue spending because his own card has reached its limit....!
Two people thus have the problem of maxed out credit cards, rather than one...!
A problem shared, is a problem doubled...!
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7. At 8:27pm on 23 Nov 2010, sagamix wrote:
"How about some big time Quantatative Easing from the ECB? Put some air in the tyres and some petrol in the tank. Get the wheels spinning. Stick the buns in the oven."
QE by making money cheaper, directly affects interest rates and prices.Because the effects of the crisis have been deflationary,Ireland`s interest rates are only 0.7%, so little chance of QE reducing them further.Prices are also depressed at around -1%.So while QE could have a short term effect on prices this will not be permanent unless demand revives.
If Ireland can use some of the ECB money to stabilize bank loans, use some for capital projects and work programmes, while reducing the deficit in a measured way, then there is a good chance they can recover.But if the EU insists on harsh cuts without compensating measures they will have to default.
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bryhers @ 9
Does your final sentence not apply here also?
[funny old world, eh. xT?]
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"Because the effects of the crisis have been deflationary" - bryhers @ 9
Yes, this is what I'm thinking. Whereas QE is inflationary. Fight the big D with the big I. Not too big, of course - none of your Weimar nonsense. It looks like deficits are boxing in governments as regards fiscal expansion (tax cuts, spending rises) so monetary expansion can maybe help us out.
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Bryhers@9
The problem is keeping Germany on board - public opinion in Germany demands that the bailed out economies make changes.
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Ironically there is a lot of finger pointing at Germany - must be galling for them being criticised for managing their economy well and not spending enough.
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Oh dear, looks like we're all in the ---- then. As predicted by this blog, no doubt.
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Good Morning Andrew,
you might think that these are worrying times, and I toitally agree with you. However, it really should be understood that it is not the same for everybody.
Reoports are coming out about the Irish politicians, and their wonderfully generous remuneration packages, but the same can apply 'over here' as well.
Condider this report in a well read national daily newspaper:
'A top civil servant is to take up a new three-day-a-week official post earning him £85,000 – after retiring on a pension of the same amount'.
Is this a sign of the times to come, what with all these Quangoes which are soon meant to be aboloished. It really has been a joke with these senior civil servants, it is no wonder that the public finances are in such a state.
We keep on saying that this or that country is corrupt, Afghanistan with Quizling Karzai, but are we really as clean as we would like to think we are. I personally think that we are going completely down the drain, well that's what I think anyway, but who will we be mixing with when we are in the sewers, amongst the rats, the vermin, and excrement.
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Andrew
Since one of the causes of the credit crunch was vast chunks of unpaid debt that had to be written off has anyone done any joined up thinking about student debt, the rule that repayments only start on a salary greater than 21K and UK businesses preferring to hire experienced foreign staff (including intra company transfers) over UK graduates?
Whilst some graduates will get highly paid jobs mostly due to the British disease of nepotism the majority are going to struggle. Add to the mix that pension age will increase over the next decades the requirement for more and more graduates whilst still importing foreigners it is hard to see where graduates will make an impact on the British economy.
Ultimately a whole chunk of student debt will NOT be paid off and at some point will need to be written off. I accept that this is unlikely to run to tens of billions but at some point the Students loans Company will need a significant injection of money. We are where we are because we encouraged debt - I guess some people have short memories.
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Mr Niel
Just watched your interview of Kevin Courtney.
You are usually hard but fair but your performance this lunchtime should cause you to review the recording and take note.
Your interruptions were annoying but the way in which your own views came into the frame was much more worrying.
You are a journalist and should know better - we do not want to hear your personal views - we want to hear the people you are interviewing.
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10. At 10:30pm on 23 Nov 2010, Tom Austin wrote:
bryhers @ 9
Does your final sentence not apply here also?
[funny old world, eh. xT?]
A UK default is unlikely, but in today`s market conditions anything is possible.Cuts here will be deflationary, and if our main EU market collapses then we face a nightmare scenario.On the plus side the economy grew in the last two quarters, so barring black swans,we would expect growth to be on an unevent plateau as the cuts bite.
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12. At 10:54pm on 23 Nov 2010, meninwhitecoats wrote:
Bryhers@9
The problem is keeping Germany on board - public opinion in Germany demands that the bailed out economies make changes."
Sure,but they also want to be good europeans so mustn`t be seen to bully.
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