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Why do we care what markets think?

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Paul Mason | 10:17 UK time, Tuesday, 11 May 2010

"In reality we all know who will be running the UK for the next couple of years: the bond market." Gary Jenkins, Evolution Securities, 10 May 2010.

"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a 400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." James Carville, Clinton special adviser, 25 February 1993.

*********************


Every time I talk about how the markets are reacting, or might react, to the British hung parliament, there are always some viewers and blog readers who object: why do we care what the markets think?

I understand their frustration. I think journalism is sometimes over-obsessed with what the markets "think", even when it comes to ordinary business and economics stories, let alone politics.

But let me explain why the markets are - in this situation - important, and define more clearly which markets are important.

First, I am not really talking about the stock market. The stock market is a voting machine (and in the long term a weighing machine) for judging the profitability of companies.

If it were that alone I would discount it altogether in this situation: however because it exists in a global market, the price of UK equities can reflect the market's view of what is going to happen to sterling.

If you think the pound is going to fall and remain low, you hold fewer shares in British companies.

Next, the foreign exchange markets. Forex is a 24-hour market, into which many speculators and day traders have piled, but it plays an obviously vital role as a barometer of investors' expectations of economic growth, inflation and the public finances.

However, since you have had a government and central bank in Britain happy to acquiesce in a 25% fall of sterling since this crisis began, I would not be rushing around headless at the odd dip in sterling.

Sterling will only become the speculators' target once the fundamentals become unpredictable, as in Greece.

It is the bond markets that are important in this crisis, and for the obvious reason that the UK government has to go, repeatedly, to them and borrow money. It is doing so today to the tune of £2bn.

There is - and read my lips - no danger that the UK will default on its debts; or that the international debt markets would suddenly close to the UK. The danger is that those who buy the bonds start to demand a higher interest rate, to the point at which it becomes dysfunctional to finance Britain's £1 trillion debt, and it pushes the interest rate on everything more risky upwards.

(Jargon buster of the day: The effective interest rate on a government bond is called a yield: as the bond's price falls, the yield rises.)

There is a clear material difference between the bond markets and stocks, currencies and derivatives. The bond markets lend money to the government and thus their reaction to what the government is doing has to be logical, ruthless and unsentimental.

So who are these here bond markets? Well, fundamentally, it is you.

Pension funds hold large amounts of government bonds because the interest on them provides a steady and predictable income and they are not liable to fluctuate in price.

Hence the bond markets tend to be dominated by people from pension fund managers: Threadneedle, Norwich Union, Standard Life, for example, as well as the "fixed income" desks of the banks which make money out of buying and selling the bonds.

If bond buyers aggressively punish governments who do not look like they have realistic budgets, or who overstate growth, or who - as in Greece - cook the books, that is because they do not want to have to write you a letter saying "sorry we lost the money you put aside for your pension".

Indeed, such is the culture of caution, that a one or two per cent loss in this profession can be a career-ending moment.

Now it is still going to rankle with you that these bond markets have the power to make or break governments, to insist on what electorates sometimes want to reject.

That "markets" and "bonds" seem to have power over "voters" and "governments".

But I want to invoke in their explanation an economist not often quoted on Newsnight:

"The commodity form... is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things."

Yes, the original Doctor Doom, Herr Marx of 1 Modena Villas, Camden, put his finger on it. (Capital Vol 1, p165). He pointed out that, in a market economy, people's own "movement within society has for them the form of a movement made by things, and these things far from being under their control in fact control them". (p167)

He lamented the fact, but he also understood it: "market forces", which appear to be uncontrollable by human beings and look more like a force of nature, are just the products of human action, mediated by an economic system.

What gives the bond markets their ruthless character is, you could argue, the ruthless determination of millions of middle class retirees to buy a cottage in the country, a Labrador and globetrot like grey nomads the archaeological wonders of the world. To not have their savings lost by incompetent fund managers.

Oh, and the fact that we all want credit cards and mortgages - because these two basic financial instruments also require the bond markets to exist. Ditto all manner of public bodies, such as local councils, housing associations etc, which access the bond markets.

There is the related question of Credit Ratings Agencies (CRAs). Those who know this market are expecting the CRA guys to start tapping the bezels of their Jaeger-LeCoutre chronographs quite soon in quiet indication that they need some kind of certainty about what is going to happen.

Some bond market professionals I know pay scant regard to the CRAs and there is a legitimate argument that you could run a bond market without them. What they have tended to do is issue signals that become qualitative inflection points: as with Lehman, in the world of the CRA it is always going swimmingly until its not, and the first downward notch usually signals rapid decline.

The CRAs got the credit boom badly wrong; were caught red handed distorting their own findings under pressure from the mortgage-backed securities industry. For this reason they are being doubly hawkish over sovereign debt: at the first sign the UK has no coherent or credible plan to reduce the deficit, they will downgrade.

Indeed there is a theory high up in the investment banking industry that only a downgrade will create the kind of government that can address Britain's debt problem.

Now to the specifics of today. A Lib-Lab government, say analysts and BNP Paribas, would "almost guarantee" a downgrade. Let's see.

The current British government has a deficit reduction plan. It is quite tough, front-loaded but suffers from two related problems.

The first is it might be over-optimistic, based on growth figures the markets (i.e. the guys employed by you to look after your money) do not believe. Second, it is absent any detail for about four-fifths of the cuts envisaged. Nobody can judge whether the plan is achievable until they know whether it means massive pay cuts for civil servants, the loss of the strategic nuclear deterrent, a massive sell off of state assets, etc.

The Conservatives have a tougher plan on paper, with cuts starting this year and a more aggressive deficit reduction curve (but still; like Labour and the Libdems, only getting debt below 40% of GDP by 2031).

The problems: first the Conservatives seem to have moved back from trying to ring-fence the budget process within a coalition government. Vince Cable has reportedly been offered a "quasi chancellorship" and Tory sources believe they have already "split the difference" over this year's £6bn cuts.

Anybody who hoped or feared the Tories would bring in a draconian, ideologically driven, socially confrontational budget can forget it in a Lib-Con coalition whose theme tune is being composed by Philip Blond and Oliver Letwin.

As for the Lab-Lib coalition: the worry in the markets - on top of the budget plans being softer than the Tories' - is that Lab-Lib does not deliver certainty, stability or credibility.

What they fear from all parties was demonstrated when it emerged last night that the Conservatives have agreed to the £10,000 tax floor demand of the Libdems, which should cost £17bn. We do not know where that would come from, though as one wag in the Newsnight office pointed out, they could always scrap Trident.

The markets thought that, even with a hung parliament, we would get a stable coalition of the Lib-Tory type, or a confidence and supply based Tory government.

Now - over a weekend - a lot of things have become uncertain. Because the deals are being done behind closed doors, with participants emerging only with concessions and not painful economic remedies, the fear in the bond markets will probably have to be addressed head on, in the form of restatements of commitments to cuts, tax increases and growth.

One final note: there is a lot of opposition to public service cuts. The New Economics Foundation makes the case that £50bn of the deficit could be addressed through closing tax loopholes. Others point out that selling off RBS and Lloyds Group could raise tens of billions. But in the end, if you want to keep going year in, year out, to the pension funds to borrow money, you have to show a long term plan consisting of some cuts, some tax rises and above all some growth.

To summarise, the difference between the bond markets and the stock markets is that, with stocks you are taking a bet on a race. With bonds, if you place a big enough bet, you can influence the outcome of the race.

That is why we should care about what they are doing.

Comments

  • Comment number 1.

    I agree with the NN wag (wife and girlfriend!)...we need to ditch Trident...and ditch it fast. We just can't afford it anymore.

    What's the latest about the oil find off the Malvinas islands btw?

  • Comment number 2.

    Happy to see the reference to Marx here. Of all the economic analyses post-crisis I read, the ones which provide the greatest clarity and sense always draw on Marx to some degree or other.

  • Comment number 3.

    Good post but a few questions. Overseas investors buy gilts and bonds also as well as pension funds. Banks buy gilts and bonds to maintain liquidity buffers.Big banks have the monopoly in making markets for gilts - why, how much are they paid and what influence do they have? What can motivate them? Central banks buy gilts also, ditto. Derivative traders get in on the act.What do the Inter Dealer Brokers do as intermediaries?

  • Comment number 4.

    isn't it as simple as:

    We have got ourselves into a position where we need to borrowing billions, so obviously it matters to us how much the people we intend to borrow from are going to charge us.

    I don't see what this has got to do with "middle class retirees" and their cottages in the country. Why would anybody lend money at a low rate of interest if they think there's a good chance of not getting repaid? *

    If we want to get ourselves into a position where we don't have to worry about such things, then we need to ensure we can pay our own way, which is the same direction that "the markets" want to see us moving in anyway. The need to bring govt spending in line with govt income (taxes) isn't some artifact of "neoliberal" economics or "markets", which is why talking about things in terms of what the "market wants" is almost misdirection: it detracts attention from the fundamental problem.

    * as you point out, the chance of UK defaulting on its debts is low, but the chance of us inflating our way out of debt is meaningful enough to influence the expected return.

  • Comment number 5.

    Right on the money again Paul.

    I only hope that you can get a longer slot on Newsnight, as you really come in to your own when you tackle these bigger strategic issues.

    Would be good to see Peter Warburton on Newsnight at some point:

    http://www.economicperspectives.co.uk/index.php?id=21

    His book "Debt and Delusion" placed major emphasis on how the bond markets have essentially funded our "debt fuelled consumption economy" these last 20 years or so.

    I can just picture him nicely refereeing between the laid back Neo-Keynesian Stiglitz with his lap-dog printing press and arch-hawk "here's Jonny" hedge fund manager from Electra Equity Partners (Hendy/Hendry?).

  • Comment number 6.

    "[Marx]lamented the fact, but he also understood it: "market forces", which appear to be uncontrollable by human beings and look more like a force of nature, are just the products of human action, mediated by an economic system."

    This is why Marx was for freedom & democracy.
    By understanding that capitalism enslaves humanity, it becomes obvious that for humanity to be collectively free requires the democratic control of the means of production.

    A good example is the ecological crisis.
    Capitalism can only offer growth, so it sells us 'green' growth.
    The ecological crisis requires humanity to take collective, conscious action.
    This is exactly what the market prevents.
    To be a Green is to be anti-capitalist.

  • Comment number 7.

    Paul,

    With this single post you've probably done more to explain the financial firmament and why it matters to the general public, than anything I've seen from the mainstream media since it all went pear shaped in 2007. Kudos.

    For those more interested in Karl Marx the economist, you should check out David Harvey http://davidharvey.org/ I think you'll find he makes an awful lot of sense, and has a video series free to watch if you want depth.

  • Comment number 8.

    Bond markets are ok, but I think oil price is a very significant player, at least when it comes to kicking in the head of Joe Public.

    I paid 1.42€ per litre to fill my tank with supermarket petrol this morning. Nothing modern, anywhere, can prosper with that kind of overhead.

  • Comment number 9.

    ''With bonds, if you place a big enough bet, you can influence the outcome of the race.''

    That begs the question... who owns most of our debt? Pensioners in waiting or China?

    As I mentioned earlier a sensible amalgamation of Lib-dem and Tory policy, while in a tradional party orientation sense looks like an obsurdity on a practical (there goes the engineer in me again) level actually looks quite sensible and balanced in the midst of an equally obsurd situation we find ourselves in.

    Re-balancing the tax system (10,000 limit - changes to capital gains etc) as a sweetener to bringing the cuts forward just seems like the right answer to me to a tricky conundrum of keeping the markets happy while preventing large scale social disorder (strikes or worse etc).

    That is the cornerstone economically but a similar approach offers up other policy gems also.

    What I can not understand is why on earth the talks with Labour have gone on for so long!! Surely they can not be serious!!

    The only thing that makes sense is if the lib dems are using labour's desperate power grasping leadership as a stick to beat the conservatives with until they cough up, which on a practical level maybe will get the best result policy wise for the country (as given by example above) but leaves me with a bit of an uncomfortable feeling! It may be effective but it is hardly democratic!!

    Interesting.

  • Comment number 10.

    This is all getting way out of hand now!

    A couple of people on the other BBC blogsites have now posted/referenced the same link below...

    "89. At 11:49am on 11 May 2010, armagediontimes wrote:

    Oh what a tangled web we weave when at first we practice to deceive. Just who is being bailed out here - Southern European economies, French banks or the bonuses of French bank FX traders?

    http://www.zerohedge.com/article/european-banks-now-feverishly-betting-against-euro-bailout-fails-gold-surges

    So... to make a few guys even richer we are expecting Spanish citizens (and others) to take a big hit with a big bat. Good trick if it works. If it doesn´t expect fighting in the streets."

    --------------------

    These traders are completely out of control, they will single handedly bring down the whole Western economy...THEY ARE LITERALLY TERRORISTS DRESSED IN SUITS WEILDING WEAPONS OF MASS FINANCIAL DESTRUCTION.

    Someone needs to sort them out fast.

  • Comment number 11.

    ...and this one is bang on the money as well (no pun intended)

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/05/benchmark_gilt.html

  • Comment number 12.

    WHY IS THE CURRENT WJHEELING AND DEALING BEING DONE BEHIND CLOSED DOORS? iTS OUR COUNTRY. WHAT ARE THEY SO ASHAMED OF? WHERES THE HONEST AND OPEN STUFF THEY HAVE BEEN BANGING ON ABOUT? THESE ARE THE 'DEBATES' I WANT TELEVISED, NOT THE SMARMY EMPTY PROMISES.

    There could be more radical solutions that you are not countenancing.

    We could nationalise the banks - and our utilities, so that profits are back into public hands.

    We could employ British people instead of paying them dole money while other workers repatriate earnings.

    We could cut the terrorism budget by gettiNg rid of the terrorists.

    Its a narrow view of a country and ultimately its economy that doesn't take account of the difference between a country pulling together - or not, and the effect of this on the bigger picture.

    Motivational forces are not limited to the narrow concept of Chigago rational economics.

    But thanks for the explanation.




  • Comment number 13.

    the NN Popular People's Front?

    marx?

    http://www.youtube.com/watch?v=iDJeTnLKLEI


    i had a copy of Das Capital once but i sold it for a profit.

  • Comment number 14.

    marx is a curious pair of glasses to be wearing. why not look at the market economy through theology? its bonkers.

    what kind of 'a market economy' did Marx have access to? a democratic one? globalised? its all nonsense to use his analysis of 19th century oligarchic feudalism where only a few have the vote and few have access to information unless one believes that society still exists? marx is irrelevant to the modern world economy except for those stuck in a time warp.

    let us look at what the experts on Marx [one might think] are doing. China. Currency manipulation that smashes jobs in the uk and creates a wealth transfer from us to them. Their analysis is to use the market to economically destroy everyone but themselves.

  • Comment number 15.

    Jim Rickards: "Goldman Can Create Shorts Faster Than Europe Can Print Money"
    http://www.zerohedge.com/article/jim-rickards-goldman-can-create-shorts-faster-europe-can-print-money

  • Comment number 16.

    #14 jauntycyclist

    Perhaps if you read & understood Marx you could provide a rational criticism of his standpoint.

    I have debated with many economists & it is quite obvious that mainstream economists (& Austrians) have difficulty in explaining what is going on in the aggregate (world economy) because they have a flawed conception of value (the marginalist conception only works at the micro level).

    Unlike other blogs this one has quite a high standard.
    Please try to engage with the analysis rationally rather than make emotive responses.

  • Comment number 17.

    @9 "The only thing that makes sense is if the lib dems are using labour's desperate power grasping leadership as a stick to beat the conservatives with until they cough up, which on a practical level maybe will get the best result policy wise for the country (as given by example above) but leaves me with a bit of an uncomfortable feeling! It may be effective but it is hardly democratic!!"

    Jericoa old friend - the system which enables parties to seize absolute power on just over 1/3 of the vote is "hardly democratic". Preventing it from happening again is vital, to secure long term good governance for this country. Nick Clegg should be playing hard ball with the Tories, and I'm glad he is.

    Off to get ready for my choir's annual Christan Aid concert now. Funny - many of us aren't religious, but it's a good cause and a community event so we happily cooperate and play our part. Politicians should remember the community as a whole is watching them, and most of us aren't blindly partisan.

    @10 Hear Hear. The traders are not part of our community: they are parasites who need to be found "alternative employment."

    @14 Jaunty. Yes - Marx became theology in the hands of "followers" who wanted certainties. Nonetheless, many of his analyses were valid when he made them, and are relevant now. In particular, we still have a degree of planned in obsolescence to avoid crises of overproduction.

  • Comment number 18.

    In reality UK gilts market has been pretty toothless so far, allowing UK govt to print money to buy its own debts, run inflation over 3%, budget deficits over 12%, and devalue its currency by 25%. I wonder if Gilts market is a captive audience. Pension funds have such huge amounts invested that they simply can't move into other assets (gold, real-estates, cash) and no matter what happens no other asset class will ever be considered as safe for pension funds to hold.

  • Comment number 19.

    Government bonds issued by reputable countries are supposed to be risk free, and their coupon rates/ yields therefore set the risk free return on investment. This is especially true of short-dated government bonds.

    The risk free return on investment underpins the whole financial system.

    If government bonds are no longer seen as risk free then the whole financial system is undermined, given that capital reserves are essentially underpinned by government bonds.

  • Comment number 20.

    @jauntycyclist

    Marx is actually fundamental, and I say this as a Keynesian :)

    What the public know of Marx is communism & the Russian revolution. But Marx was first and foremost an economic thinker & commentator if not a "real" economist, though truth to tell the "Dismal Science" at that time was more rightly thought of as natural philosophy or political economy. We in the West view history through a prism, but the economic system we know of, didn't really take shape until the 1940's and the market economy had to wait until Milton Friedman before it attained it's current ideological status. But then I have a very dim view of Monetarism [spit!]

    The Argument Paul seems to be making is one for the collective will, the fact that there is no "us & them", Man vs Market, there is only us, we are the market. For that perspective, Marx is your man. Unless you want to start reading Mancur Olsen :)

    Which is Why I said that if you want to understand Marx the economist, then David Harvey is a very good guide. If you want to understand Marx in context then you need Heilbroner:

    http://www.amazon.com/Worldly-Philosophers-Lives-Economic-Thinkers/dp/068486214X/ (US)
    http://www.amazon.co.uk/Worldly-Philosophers-Economic-Thinkers-Business/dp/0140290060/ (UK)

    Which is the standard work on economic thought and the implications of such. If you've come this far, and read and understood the above why not go a little further and discover how deep the rabbit hole goes?

  • Comment number 21.

    Paul, what are your thoughts about the possibility of capital and exchange controls being introduced? Likely? Possible? What might be the impact?

  • Comment number 22.

    #17

    On reflection you are quite right!

    Yeah Lib dems, play dirty, play smart, just remember to forget that approach once the 'negotiations' are complete. I never thought they had the political cage fighter spirit in them!!


    The Lib dems suffered almost to the point of extinction by the 'big twos' relentless squeeze on the media, starving them of anything approaching 'fair' coverage, continually belittled in public as 'irrelevent' by both main parties.

    Irrelevent of course really means threat to our power sharing see-saw duopoly therefore must be made to look irrelevent to protect it.

    Thanks for the new perspective Sasha...go on sock it to em lib dems, make them suffer, take no prisoners, give as good as you get, extract the blue blood unreasonablness from the Tory policy agenda with the professional zeal of a career torturer who takes pride in his work extracting fingernails one by one from unbelievers in order to save their souls.

    Why stop now

    VINCE FOR CHANCELLOR

    Vince cable on paper and track record is by far the best qualified candidate for chancellor for, if it were a job interview, Gordons Browns CV (degree in History) would have gone straight in the bin at the first round and george osbourne would not get past the corporate psychometric testing or basic 'experience' test.

    As for what the market 'thinks' mattering.

    Like everything.. it only 'matters' with my permission. A self fulfilling prophecy, a shared illusion built on the idea that the world can 'grow' forever.

    With our collective permission we choose to believe it, so long as we keep getting bigger TV's, faster computers and more fresh fruit flown in from Chilli.

    Its quite hilarious really.



  • Comment number 23.

    re: "has to be logical, ruthless and unsentimental".
    Reminds me of the times when gladiators needed to have the above qualities to survive the arena. Today it seems, however, the gladiators, rather than plying their skills against each other, strike out at the spectators and use these same qualities to determine who survives in the stands. Bad dream.

  • Comment number 24.

    16

    ah the usual name calling. no red can live without that.

    what is this great marxism?

    ..Humankind's history is fundamentally that of the struggle between social classes..

    so class is their highest idea of the mind.

    ...Marx argues that in capitalist society, an economic minority (the bourgeoisie) dominate and exploit the working class ..

    where is the working class today?

    ..In order to overcome the fetters of private property the working class must seize political power internationally through a social revolution and expropriate the capitalist classes around the world and place the productive capacities of society into collective ownership...

    this is 'rational'? or a hallucination that comes from having class as the hifghest idea of the mind.

    any philosophy that does not have the good as the highest idea of the mind starts from other than the good so will have little good in it. marxism does not have the good as the highest idea of the mind so there won't be much good in it. how could there be? If you sow peas do you expect beans?

  • Comment number 25.

    The question is one of priorities: do we spend taxes on war and weapons of mass-destruction or on the things that we need; schools, hospitals, universities, colleges, welfare, decently funded state pensions etc. Marx was clear on the animal that we're dealing with here: let's call it by its name - capitalism. The priorities of all mainstream political parties is to manage as effectively as possible the continued bail-out of the capitalist system, a system that is suffering a long-term crisis of sustained profitability. This explains why British investment found a home in the financial sector as opposed to the manufacturing sector - the profits promised to be much greater than those achieved in producing or manufacturing commodities. Capitalism has been marked by these investment bubbles. Lest we forget the DotCom boom?

    It is clear that credit or debt has been useful in realising massive profits for financial speculators. It has also been absolutely necessary for many millions of ordinary people to maintain living standards using credit and cheap loans as an advance against future earnings, precisely because wages in the UK and US are stagnant. We also work the longest hours in Europe and in the case of the US, some of the longest hours in any advanced Western industrialised economy. Consumerism and living standards have been predicated upon historically massive levels of personal debt in these two countries. Bringing down these huge personal debt levels without raising wage levels, whilst viciously attacking public spending and the public sector, promises to create social upheaval, without restoring long-term profit levels.

    We live in very interesting times!

  • Comment number 26.

    how to spot a marxist

    someone with no sense of humour and who never uses a simple word when a complex one will do.

    the rabbit hole is for midnight tokers.

    marx is irrelevant in the modern world. class as the highest idea of the mind and as the basis of a nation building science is a ridiculous.

    however every marxist society needs to create gulags to deal with counter revolutionaries and political criminals. Yes merely thinking non marxist thoughts is a crime.

  • Comment number 27.

    25

    ..why British investment found a home in the financial sector as opposed to the manufacturing sector..

    who invested in manufacturing in Asia? why is it cheaper to import steel from china than to make it here? does the raw material cost different? is shipping different? No its the 'marxist' currency manipulation that makes china cheaper.

    ..Consumerism and living standards have been predicated upon historically massive levels of personal debt..

    yes we are forced by capitalists to get sky and have holidays. how the workers suffer under this oppression of holidays.

    marxists [in an ego inflation?] think they are involved in some kind of elite intellectual sport that only they understand. the masses could never come to grips with it which is why [for their own good] they must coerced into it through the threat of violence. Only then will people see the workers paradise.

    hands up all those who see themselves as oppressed working class?

    if working class = good then everything non working class [decadent] must be destroyed in a great 'cleansing'?

    the oxymoron is that anyone working class is never going to read marx. unless its groucho.

  • Comment number 28.

    My word is my bond - maybe, but a bond is just a piece of mathematic symbolism predicated on money and time. The problem here is that both money and time are social constructs.Yes they are capable of being concreted in fixed symbolisms, but also liable to dissmeniation too.

    We always end up in the morass of trying to sort the real from the ideal. This was at the root of Marx's problems.He was not alone.

    Michael Polanyi, John Gribbin and John Caputo made useful contributions to dealing with the dilemma. Derrida made a career of it and like Marx ended up inventing his own religion. Maybe that's all we can do ? God's Work a la Blankfein !

  • Comment number 29.

    marxism 101

    'i'm being repressed'

    http://www.youtube.com/watch?v=5Xd_zkMEgkI

  • Comment number 30.

    Where can I find out what percentage of England, or GB has a pension fund. I want statistics on this 'grey nomad' demographic and their pension fund capital. I want to know how the pension fund capital as a whole is spread across that 'grey nomad' demographic; precentages of who hold what. Where can I find it?

    According to the United Nations, Singapore, USA, Portugal & the UK are at the top of the scale when it comes in sociatal inequality with the top 20% of the population earning around 8 times more than the bottom 20%. Singapore is the worst with 10 times almost.

    Japan, Finland, Norway and Swedan are at the other end of the scale with the top 20% earning around 4 times as much as the bottom 20%.

    I want to find out about the 'grey nomad' pension fund holding demographic because David Cammeron is going to give these people reward for years of hard work building up the bohemoth of an economy, that just crashed. Moreover an inheritance tax cut will help that top 20% who are 8 times richer than the bottom 20% consolidate or widen the gap.

    And what would their argument to me be...well get up, get out and get on young lad! Get on your bike and work hard and ye shall be rewarded!
    well I say to them; B****CKS!

  • Comment number 31.

    "Why would anybody lend money at a low rate of interest if they think there's a good chance of not getting repaid?"

    To force economic collapse and a new epoch of Capitalism. What purpose does a recession serve? What has history taught us about what happens post recession in Capilaistic societys?

    It's all a game. Knowledge is power.

  • Comment number 32.

    The markets are a reflection of the balance of ourselves, we are fighting against ourselves.

    We are the bloodsucker squids.

    'The Tempest' comes to mind.

  • Comment number 33.

    #20 praxis22

    You are quite right that it is possible to accept some of Marx's insights into the workings of capitalism & still not be a communist.

    Perhaps Gordon Brown falls into this category.

    As far as Heilbroner is concerned, I think he spoke too soon.

  • Comment number 34.

    #7 praxis22 wrote:

    'For those more interested in Karl Marx the economist, you should check out David Harvey http://davidharvey.org/ I think you'll find he makes an awful lot of sense, and has a video series free to watch if you want depth.'

    ----------------------------

    David Harvey conveniently mentioned the Anglo-Saxon foundation of modern capitalism...yet also 'smartly' ignored the real Jewish foundation of capitalism.

    Only one poster on here has had the guts to confront this fact...who I note, most on here, have tended to ignore and not acknowledge. Yet, many on here, have modified large parts of their positions/arguments to accommodate much of what said poster has persistently written on here, without acknowledgement.

    Many on here are cowards...just as David Harvey is a coward.

    Some are not cowards...such as Kevin B. MacDonald http://en.wikipedia.org/wiki/Kevin_B._MacDonald

  • Comment number 35.

    @ Paul Mason - Whats going on with the IMF and the gold market? Do you know anything about the gold markets and their influence on whats happening to the Euro?

  • Comment number 36.

    Paul, what a post! Awesome!

  • Comment number 37.

    "Greece alone has 14 times as much gold per capita as China? Do you realize that your "PIGS" actually have the same amount of gold per capita as the US claims to still have? (PIGS=25 tonnes/million people; US=26 tonnes/million people) And did you know the PIGS combined have 34 times as much gold per citizen as China? Astonishing really. A big gold revaluation should do quite a job on their reputation as swiney muddlers, especially compared to, say, California? I forget. How much gold does California have left?"

    http://fofoa.blogspot.com/

    Is this true about gold retention by Greece?



  • Comment number 38.

    @jauntycyclist

    OK, I'll bite :)

    I'm not a Marxist, I'm Keynesian. I am however a socialist, and my dad claims to be a communist, though I've always thought of him more as classical anarchist :) That said however I wasn't talking about politics, I was talking about economics.

    Marx is one of the classical heavyweights, indeed you cannot get to any of the three modern schools without starting at Smith and going through Malthus, Riccardo & Marx.

    Again, I'm not talking about politics, only of economics, and the history of economic thought. Which anyone reading Paul, may be interested in.

    If you don't like big words how about sock puppets:
    http://www.youtube.com/watch?v=uQEBDoi5MyE

  • Comment number 39.

    #38 praxis22

    What's the difference between a socialist & a communist?

  • Comment number 40.

    "Jargon buster of the day: The effective interest rate on a government bond is called a yield: as the bond's price falls, the yield rises.)"

    I don't understand the bit after the colon. Why if the bond price falls (presumably on the open market) does the yield or interest rate rise?

    Please can someone explain in plain English? Thankyou.

  • Comment number 41.

    #40 Osbornes_merkin

    To simply greatly, the yield is a measure of fear, if it's high, it means people want to be paid well to take the risk, since they figure the govt may default, (Greece.) If it's low then people fear that everything else is worthless and want a government guarantee that they will get their money back, (Japan.)

    If people doubt they will get their money back from the govt, the price drops and the yield rises, they are "inversely correlated" if people only trust the government to pay them back, then the price rises and the yield drops.

    Essentially the available yield is split between those that want to hold the bond.

    In normal times the 10 year bond, (the long end of the curve) is a predictor of inflation, while the 2 year bond (the short end of the curve) is a predictor of interest rates in the short term. shorter dated bond maturities are also tied to the currency because of the interest rate sensitivity.

    #39 duvinrouge

    My personal take on that would be something like... A socialist is somebody who believes in private enterprise but that that enterprise should be taxed and controlled by regulation for the good of the people. "from each according to his ability, to each according to his need" Robin hood, take proportionately from the rich and give to the poor.

    A communist is somebody who believes in state control & ownership of the means of production in order to guarantee workers have jobs and that all are equal, or at least "some are more equal than others" :) given that party officials usually get better treatment than the rank and file.

    I tend to think that communism is a great system, it just doesn't work with people. Much like the Austrian school in fact :)

  • Comment number 42.

    praxis22

    "A socialist is somebody who believes in private enterprise but that that enterprise should be taxed and controlled by regulation for the good of the people."

    Sounds like the definition of a social democrat to me.

    If you haven't already I recommend you read Lenin's State & Revolution.
    You will see that even the Bolsheviks wanted to 'smash the state'.

    It's understandable that communism has been confused with Stalinism/Maoism given the history of the 20th century.

    But a one-party state dictating to its people is very far from the communism of Marx.

    Perhaps your Dad would agree with me.

  • Comment number 43.

    Paul,

    Thanks for writing this. It's been irritating me for ages that so many people wail about "the markets" as if a bunch of Martians were spitefully trying to sabotage our economy. I don't suppose this will shut them up, but it makes me feel better.

    RE: 40. Osbornes_merkin

    "Jargon buster of the day: The effective interest rate on a government bond is called a yield: as the bond's price falls, the yield rises.)"

    I don't understand the bit after the colon. Why if the bond price falls (presumably on the open market) does the yield or interest rate rise?

    Please can someone explain in plain English? Thankyou.


    I had a blind spot with this for ages. Try this explanation. The actual numbers are obviously nothing like real but they show the idea.

    The government wants to borrow money, lets say a £1,000. They find someone to loan them the money and in return they give that person a piece of paper that promises to repay the £1,000 in ten years time, plus they will pay, let's say, 4% interest (£40) each year. A year or two later, the guy holding the piece of paper decides that he needs his money back right now. He can't get it from the government because the agreement says it's a ten year loan, but he finds someone else who is willing to buy the piece of paper from him. The new guy will get the rest of the interest payments plus the £1,000 at the end of the ten years. However, this new guy isn't willing to pay £1,000 for the piece of paper. He is only willing to pay, let's say, £800. The first guy needs the cash so he takes it. The second guy is now getting £40 per year interest on a piece of paper that cost him £800, meaning he is getting 5% interest on his money, even though the government is actually paying 4% on the money that it borrowed. The 4% is the interest rate and doesn't change during the life of the loan. The 5% is the yield, and (probably) changes every time the bond (piece of paper) is sold on.

    In different circumstances, the first guy might find that he could get, say, £1,200 for his piece of paper. In which case the yield for the new guy is just 3% (but the interest rate remains 4%.)

    Obviously, in the real world, the two "people" above will be banks or insurance companies and the sums involved will be millions or billions, but the basic idea is the same.

  • Comment number 44.

    RE 42

    Lenin and crew were just anarchists PULLING DOWN THE Tsarist state to get them out of the war with Germany,this has now been repeatedly posted to these blogs in the past, why hasn't it sunk in?.

    [Unsuitable/Broken URL removed by Moderator]

    Stalin was the statist, Trotsky (who he got rid of along with the Bolsheviks) were not. Anarchists are good for companies like Goldman Sachs, then and now. Wise up.

  • Comment number 45.

    There is some talk of allowing local councils to issue bonds.

    So 'outsiders' can potential control the country, and we may very well hand over control of our cities/towns too!

    Should that be allowed, will the local voters be told exactly what they are voting for I wonder?

  • Comment number 46.

    In Germany, this topic is also discussed very much, especially now that it down with Greek country is.

    [Unsuitable/Broken URL removed by Moderator]

    In my opinion, should the markets take care of themselves and weaken, rather learn from her, as always to scream for help. Everything takes its time.

 

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