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China donates currency to G20

Stephanie Flanders | 14:37 UK time, Sunday, 20 June 2010

The timing of China's exchange rate move is hardly accidental. The Chinese have said they will "increase the flexibility" of the exchange rate "to benefit the domestic economy".

But in the very short term, it is in Toronto where the benefits will most clearly be felt.

A few months ago, the battle over the exchange rate threatened to blow up this week's G20 Summit in Canada. The US Treasury Secretary, Tim Geithner, took the first step towards defusing the issue, with his decision in April to delay a politically charged report to Congress which would have labelled China a "currency manipulator".

With this statement just days before the Summit, China have now rewarded his patience. As usual, the wording is vague. It doesn't even mention the dollar. But the assumption must be that China plans to move back to the policy of allowing its exchange rate to appreciate in real terms against the dollar.

Between July 2005 and March 2008, the yuan appreciated 18% in real terms against the greenback. But then Beijing got spooked by the collapse in global exports, and re-instated a rigid peg.

As I've discussed in the past (see my post from Davos earlier in the year), a rising yuan won't get rid of China's structural excess of savings over investment - so, by extension, it won't get rid of its massive current account surplus with the US.

Also, as far as the Chinese are concerned, the weakening Euro has already pushed up the trade-weighted value of the yuan significantly. The rise against the dollar in the months ahead may be slower than many Congressmen would like.

Thanks to the recession, China's current account surplus has gone from 11.3% of GDP in 2007 to 5.8% in 2009. The country even had a trade deficit at the start of this year, for the first time since 2004. The question is what happens next.

Tim Geithner - and others in the administration - fear that the surplus will go back up as the global recovery gathers pace. Or, at the very least, not fall any further.

That's a problem, if you're looking for external engines to drive US growth - so it doesn't have to rely on a massive budget deficit for many more years to come.

The exchange rate is only a means to the end of more balanced growth. And as we saw from President Obama's recent letter to the G20 leaders, published in the Washington Post, the US is worried that the widespread swing toward fiscal austerity could put that balanced future at risk.

As I mentioned in an essay for the Today programme on Saturday, when Chancellor George Osborne announces a faster programme of deficit cuts in the Budget on Tuesday, he won't be the first finance minister from a major European country to do so - he's almost the last. Italy, Spain, Portugal and Germany have all unveiled new austerity plans in just the past few weeks.

For some, this is all good news. For them, Keynes might have been the man for 2009, when the biggest risk was another great depression. But now, they say, that risk has gone away: and a mountain of government borrowing has taken its place. If we don't want a government debt crisis to replace the crisis in the financial system, ministers need to show they can get a grip. Everyone can agree that they don't want to be another Greece.

But there are others who say that governments have been too quick to change course - especially in countries like Germany, which are not borrowing anything like as much as the UK. The worriers say the G20 is spending too much time second-guessing the markets, when the risk of another depression has not really past.

After all, the recovery - on both sides of the Atlantic - is still fragile. Lending to business is weak. Investors are still willing to lend to most governments at very low rates. And prices are falling in Ireland and Spain.

True, China, Brazil and other emerging economies are taking off again. But in the industrial countries, they say there's still a question whether the private sector can grow under its own steam.

These doubters include Martin Wolf, the FT commentator whom Mr Osborne tapped this week for his commission on bank reform. Paul Krugman shares his fears - and, as we are seeing, so does the US president. It will be interesting to see what they can agree to say on this subject in Toronto.

In the debate over government borrowing, the world has moved a long way in the past few months - and it has moved in Mr Osborne's direction. The only question is whether the global economy has moved as far.

Comments

  • Comment number 1.

    "China's current account surplus has gone from 11.3% of GDP in 2007 to 5.8% in 2007"

    Oh Stephanie. I know it's a Sunday and the sun is out, but...

    B- See me!!

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    Given our QE programmes, I think there is a very strong case to say that we are engaging in as much (or even more) currency manipulation than the Chinese.

    And meanwhile the benefits of QE to the average person in the street are nowhere to be seen, as this chart clearly shows:

    Chart - interest rates quoted to UK households, data from Bankstats table G 1.3

  • Comment number 4.

    ALL countries manipulate their exchange rates, usually thru interest rates. The US problem is that their interest rate is as low as it can go-effectively negative given inflation. China's route to growth has been and is the same as that of all other countries that have or are trying to expand;ie keeping down the exchange rate and an the samr time concentrating on exports while holding down labour costs. They have been fortunate with labour costs because so many peasants were keen to move to the cities to avail themselves of the higher wages. That source is now drying up, and as labour shortages begin in some areas, wage rates have to rise, thus making it possible for them to buy foreign goods. A way of holding down wage rises is to allow the yuan to rise, so that it has the same effect, allowing greater purchasing power. Remember the enclosure acts and the English peasants flocking to the cities to fuel the original industrial revolution?

  • Comment number 5.

    @SKVAMi China knows full well that its transition to a market economy must be gradual. You must be dreaming if you think Russia's turned into a blissful state after the Soviet Union. While democracies were cheering, Russia collapsed and mobsters ran a muck. Even the world's largest democracy India is also home to people living in one of the world's largest slum conditions. Furthermore if you read the news recently, labour/wage protests followed by wage gains apparently are permitted in China.

  • Comment number 6.

    Stephanie, the key thing to understand about deficit situations is that there are two kinds of countries in this world. In others central banks stands behind the national debt, and in others it don't. Money lending banks are only worried about the latter kind of countries, while interest rates in former reflect expected interest rates set by central bank over that period, and not any solvency issues. With proper institutional arrangements there is no such thing as country running out of money OR being unable to borrow, no matter what conservative economist believe in to.

  • Comment number 7.

    Of course you manipulate your currency. If the private sector isn't borrowing and the public sector refuses to spend, then you'd better make damn sure you have an export boom.

    Which in itself is stupid because you are shipping real resources out of your country in return for essentially worthless bits of paper.

    At what point are sovereign governments going to wake up and realise that they don't have to borrow, they don't need to go via the grasping financial markets and that they just need to tax effectively to control inflation.

  • Comment number 8.

    Chinese companies are paid for their exports in dollars. The Chinese central bank gives yuan to Chinese companies in exchange for their dollars; so Chinese workers are paid in yuan, and the central bank invests its dollar reserves in commodities and US Treasuries.
    By appreciating the yuan, Chinese workers will get pay rises.

    But Western importers cannot afford to buy the same volume of products, due to the dollar's recent appreciation as the reserve currency, plus the general effects of the gloabl recession.
    Chinese companies reduce the dollar price of their export products, to make them more affordable.

    The yuan appreciation allows Chinese exporters to reduce their dollar selling prices whilst not reducing the yuan denominated wages of Chinese workers.

  • Comment number 9.

    'That's a problem, if you're looking for external engines to drive US growth - so it doesn't have to rely on a massive budget deficit for many more years to come.'

    This besets the UK also although you never really seem to major on it as a problem, or perhaps I am not attentive enough. It is interesting that for a long time eg 80s, GBP ran in the 1.4 to 1.5 USD range where it is now, the 2 USD of a couple of years ago always looked wildly wrong.

    NB it is good to see Mr Tweedy about, still batting on a sticky wicket.

  • Comment number 10.

    3 bsanchez

    The graph is displaying a milking of the average guy in the street to plug the banks bottom line. So much for competitive market forces. So much for regulation of the marketplace. You have got to be driven to borrow at those rates and slightly mad to deposit at those returns. But yet again, we never seem to see any really searching media comment. Quite how HMG expect any discretionary spend to boost the economy when we have significant inflation and this sort of deal is beyond me. Re QE I am still waiting for confirmation from somebody that the whole QE deal was because the Maastrict Treaty prohibits a central bank lending direct to government, ie it was pass the parcel via a third party. If so it was simply a device intended to allow Brown and Darling to spend a bit more and a bit more.

  • Comment number 11.

    All this wonderful misdirection from the US administration about jobs etc
    China holds a pile of US treasury bonds and the US wants the Yuan to rise! That pile of bonds effectively becomes worth less to the Chinese!
    When the Chinese try to buy assets in the US to wind down that pile of bonds its blocked with National Security etc
    The irony with all this is that the US is protesting to WTO regarding China's restrictions on exports of rare earth metals! I suppose there's a selective case for cheap Chinese exports! After all surely if the chinese don't export rare earth metals to the US the trade deficit won't grow as much!
    Not sure who's doing the manipulating here!

  • Comment number 12.

    No.6 zfvr

    If the BoE prints money to finance government borrowing, the value of the pound falls.
    (i) This reduces the value of foreigners' GBP denominated investments. If foreigners fear further currency depreciation will occur, this will act as a disincentive to invest in Britain. This makes it harder to run a current account deficit, as the capital account surpluses required to finance it start to dry up. As foreign owned companies pull out of the UK, unemployment in Britain increases. Perhaps the foreign companies move to Eire, where the corporation tax rate is only 12.5% and where wages are falling and its exports to the UK are zero rated for VAT.
    (ii) Necessary imports to the UK increase in price, causing inflation (RPI in Britain and Greece is 5%). Rising input costs (currently increasing by 10%) push up the price of British exports, making them less competitive. Britain is hugely reliant on the import of physical goods - the U-Boats tried to starve the British to death in WWI and WWII, and the UK is no more self-sufficient now than it was back then.

    No.9 YellowBrickRoad - Thank you for the kind comment.

  • Comment number 13.

    No.12 MrTweedy

    My understanding is that 'printing money' as you call it does not automatically cause the price of the currency to fall, or cause domestic inflation. I have been told that such inflation is predicted by the Quantative Theory of Money which has been discredited by most people, even though it still appears in all the economics text books.

    This 'Printing Money' already happens perfectly normally every year, except by convention governments prevent themselves from spending it directly - it simply gets pushed through the 'discount window' of the BoE to banks to 'finance' their loans to others.

    Money can always be created up to the capacity of the economy to absorb it, and with 8% unemployment we have plenty of capacity left, I am told.

  • Comment number 14.

    Why ALL this worry about China choosing to advance in its future by changing it OWN Interest Rates for Self advancements.

    For afterall when China in the past was a much poorer Nation then it now is today, did we in the UK consult along with China about our past movements to Capitalise upon everything from Trade to Domestic Interest Rates back then, for our own SELF best interest. NO of course not.

    What we are seeing is the beginning of a shift of REAL Power in the World Market places and Finance Houses, from the West to the Far-East and this trend is now set to grow stronger and continue well into the future, for long gone now are the Days whereby many Ex-Far-Eastern Countries will need to rely upon the supply of Exported Goods coming in from the once British Empire, and other Western Nations.

    China however will not be alone in trying to Capitalise upon its New found Wealth and Export Drive since Mexico, India and other Nations WILL also soon be following suit as their respective Industrial Revolutions start to crank-up into Top - Gear, while at the very same time Britains Economy goe's into Terminal decline in a race to reach the bottom of the pile.

    This of course stacks yet another layer of problems into and on top of the slow death of our British Manufacturing Nation, since it begs the Question as to just WHAT are we going to be able to Manufacture in the UK in the future that WON'T be produced, or built cheaper elsewhere in another part of the World, and once we have got over this Question of finding out WHAT, then HOW are we going to find the Capital needed to Invest Billions of Pounds for the Medium - Long Term while we are facing a hugh Deficit.

    This "Shift" in World Economic Power will lead - as it already has done -to rising Unemployment in the UK, as fewer and fewer Full - Time Jobs are needed due to a drop off in World - Wide demands for British Exports, since we will never be returning to the past Glory Days of Full Time Employment for ALL, and THIS IS a Lesson the current CON-DEMED Government has simply got to learn, since tinkering around with the raising of the State Retirement Age is not now and never will be again the Answer to advance future Growth within ANY future UK Economy.

  • Comment number 15.

    #14. LondonHarris

    Bang on the nail.

    Makes an £80Million loan for cutting edge technology to become one of the leading exponents in the WORLD for nuclear reactor components seem like small beer seeing as everyone will be building them soon I reckon. One of the few things we had a head start on and considerable expertise at our disposal and we withdraw the loan. An opportunity to make high end products with clear global demand and we blow it, someone should be hanging their heads in shame. As they say, "China over to you!"

  • Comment number 16.

    I suppose that, on the national scale, Britain is in the same mess as the mining districts of Nottinghamshire and Yorkshire were in, after Scargill and Thatcher had their little argument.

    What I hear, there wasn't so much done to fix that problem. And what could those miners have been retrained for?

    I supose Britain could still be a place to do financial business, but who are we selling to? The bankers, it seems, are less than honest. Well the selling point for Britain plc be permission to carry on being crooks, or an assurance that the crooks will be dealt with?

  • Comment number 17.

    #13. At 7:51pm on 20 Jun 2010, Charles Jurcich wrote:

    "No.12 MrTweedy

    My understanding is that 'printing money' as you call it does not automatically cause the price of the currency to fall, or cause domestic inflation. I have been told that such inflation is predicted by the Quantative Theory of Money which has been discredited by most people, even though it still appears in all the economics text books.

    This 'Printing Money' already happens perfectly normally every year, except by convention governments prevent themselves from spending it directly - it simply gets pushed through the 'discount window' of the BoE to banks to 'finance' their loans to others.

    Money can always be created up to the capacity of the economy to absorb it, and with 8% unemployment we have plenty of capacity left, I am told."


    While it is true QE doesn't always cause inflation it is solely dependant upon where the QE money goes. At the minute it is sitting in the banks propping up their balance sheets and not reaching businesses or joe public and thus avoiding inflation. However, should this money start to pour through to the public domain (which could happen due to a varierty of reasons) without the BoE clawing it back from future bank profits then inflation could be a problem. If it takes many years for the money to flow through it becomes less of a problem by the year providing there is natural inflation to swallow it up. Herein lies the conundrum, government wants banks to lend to boost the economy, BoE won't be so keen because it gets QE money onto the high streets quicker and poses an inflationary threat. There again inflation will reduce levels of personal debt providing wages follow suit but this will suck out all the QE stimulus money too quickly making the humble quid worth thruppence trashing the economy.

    So what to do? Well very low interest rates for a very long time, more than modest inflation at say 5-6%, powers to curb bank lending but reassure everyone it's to stop economic booms, take money out of the economy by some means how about sacking public servants so that the QE cash can drip into circulation without worrying effects and a dose of high unemployment to keep wage demands down would be an answer. Actually a good war would be useful if we could pick one with somebody we could beat. That should just about get us through five years then we can leave someone else the mess but we'll have done Ok for ourselves and our mates. Cynical? Me? Never!

  • Comment number 18.

    What a load of nonsense. The Chinese announced nothing whatsoever about exchange rates, only that their currency will be more flexible, which is something we already know about from their age old plans to integrate the Asean+N into a regional yuan-based trade zone. The Americans, and likewise Flanders+co by rote, seized on this news to create the expectation that there would be some revaluation of the Yuan wrt the typical Western basket.

    Indeed, the Chinese have just announced that the Yuan will remain 'stable'. Makes it worth retracting the original post I think.

  • Comment number 19.

    15. At 8:40pm on 20 Jun 2010, NorthSeaHalibut wrote:
    #14. LondonHarris

    Bang on the nail.

    Makes an £80Million loan for cutting edge technology to become one of the leading exponents in the WORLD for nuclear reactor components seem like small beer seeing as everyone will be building them soon I reckon. One of the few things we had a head start on and considerable expertise at our disposal and we withdraw the loan. An opportunity to make high end products with clear global demand and we blow it, someone should be hanging their heads in shame. As they say, "China over to you!"

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

    Yes, indeed.

    The proposed £80 Billion was only to be a Loan to Sheffield Forgemasters by the last Labour Government, with an annual return of 3.5% Interest Rate paid back to the Tax-Payers purse upon this Loan.

    Subject to the Loan being advanced there was an further expected expectance of an extra additional Loan from the Private Sector / Banks of over £70 Billion for this New Cutting edge advancement.

    This currently now leaves "ONLY" Germany with the same advance Manufacturing currently in production, and we hear from the CON-DEMS that Tuesdays Bubget WILL prevent Britain from being ruined.

    It will once again be "as now already shown with Sheffield", that this Government is following in the steps of Thatcher by destroying anything to do with Skilled Manufacturing Industry, and this CON-DEMED Government again indeed itself will infact be the REAL ruin of any future British Industry.

  • Comment number 20.

    16. At 8:44pm on 20 Jun 2010, WolfBaginski wrote:
    I suppose that, on the national scale, Britain is in the same mess as the mining districts of Nottinghamshire and Yorkshire were in, after Scargill and Thatcher had their little argument.

    What I hear, there wasn't so much done to fix that problem. And what could those miners have been retrained for?

    I supose Britain could still be a place to do financial business, but who are we selling to? The bankers, it seems, are less than honest. Well the selling point for Britain plc be permission to carry on being crooks, or an assurance that the crooks will be dealt with?

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

    What could the Miners have been retrained for after the closure of the Pits by Thatcher?

    That will now forever be a Question without ANY real proper Answer, since back then during that previous Con Government under Thacher, NO ONE from that Government tried to attempt any re-training for the Ex-Miners at ALL, and with the recent events at Sherrield Forgemasters History is about to repeat itself.

  • Comment number 21.

    No.13 Charles Jurcich

    Thank you for your comments.
    When the volume of money in circulation increases faster than a country's productive output, price inflation will result. It is bearish for the home currency, as demand tends to flow to the purchase of imports, unless an output gap exists. There is much debate regarding whether the UK's current output gap is actually much smaller than the BoE anticipated, due to the UK having swapped important productive skills for imports in recent years.

  • Comment number 22.

    14 london harris

    It is still possible to manufacture in the UK. However it has to be done within the context of the environment. That means you do not try to manufacture what can be nade cheaply in mass production in a low wage zone. You have to flexibly manufacture, rapidly respond to demand, use digital tech to reduce overhead, market direct via the internet to cut out the middle man, avoid tax traps. The weakness of the low wage zones is they are remote from market, have high transport costs, have to produce en masse, cannot easily modify or respond, require middle men marking up, and crucially do not always understand the culture their product end up in. There is huge inertia in their supply chain.

    Unfortunately many UK firms want to behave like the low wage companies overseas and they cannot compete with them because of the low wage differential. There is however a problem for HMG with the solution I have outlined, and that is trimming overhead etc etc reduces tax revenues by definition because the whole model is more efficient. Furthermore such a manufacturing unit or network is independent of location and can leave the UK if the environment declines. Inherent in the structure of such a solution is that it is designed to survive, to be above all to be very flexible and connected with the customer base. At the risk of yet another furthermore, the fundimental of such a set up is the inherent flexibility allows the movement of the target market to different socioeconomic groups or other countries as markets. This model applies to both hardware and more soft type products.

    You however will not find the products to compete - with China for instance - for consumers money, by making an inventory of what China produces, by definition.

    As I have tried to point out before, the issue is not whether somebody can operate in the environment, because clearly this is entirely possible, the issue is are enough going to do it, and will enough tax revenues result. I have my doubts so UK prosperity may well decline, UK public services may well decline.

    Despite the concept being incomprehensible to some, it may well be that globalisation has peaked, some suggest this may be the case. There are limits to what can be relocated elswhere, there are limits to what can be bought here when currency declines, low wage areas are showing increased cost pressures. However in the same way peak oil does not mean oil has been stopped being extracted, if globalisation has peaked, the flow of activity out of the UK does not stop.

    I have also pointed out at one time or another that high tech is difficult to commercially exploit, which is the objective, with a country the size of the UK. There is a quite a bit of experience pointing to the fact you need an integrated economic block the size of the USA for this to work well. This is the whole point of the EU, to try and develope an integrated economic block to compete with the US, and now, given time, China and maybe India. However the EU has failed to be interested in integration to the extent needed and continually squabbles. This however is the other area of development needed, cross national high tech development.

    We will know categorically if growth is going to return to the UK in the next 5 years and if it doesnt then the only outcome is further slow decline. The general public and the public sector seem to be unable to comprehend this scenario. It may well be that HMG do not understand it as precious little connection with reality was shown with the last administration.

    I personally am not in the least bothered about China because I do not even bother trying to compete with them. I some respects I am glad they exist because what they do on the whole is just so damn dull it makes us look good. You need dullards around to make you stand out.

    So at the end of the day, which is not that far away, the question is will adaption to the environment occur or will extinction occur, but that has always been the case.

  • Comment number 23.

    16. At 8:44pm on 20 Jun 2010, WolfBaginski wrote:
    I suppose that, on the national scale, Britain is in the same mess as the mining districts of Nottinghamshire and Yorkshire were in, after Scargill and Thatcher had their little argument.

    What I hear, there wasn't so much done to fix that problem. And what could those miners have been retrained for?

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

    They have loads of skills that could have been and should be used for national infrastructure projects. Deep sealing of nuclear waste in redundant coal mines. Putting roads in tunnels through areas of ONB. Building light rail mass transit subways in major cities. An extension to the London Underground system running inside the M25 and outside the North and South Circular Roads and joining up existing radial LU and overground rail lines.

  • Comment number 24.


    Re:18 Oblivion.

    Indeed, the Chinese have just announced that the Yuan will remain 'stable'.

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

    The mere fact that the World is looking in anyway across to see where currently the Chinese Currency Rates are at, saids it ALL, for there was a time only some 25 Years ago when no one really cared for one minute what was going on within the Chinese Country nevermind where today the Chinese Currency is at.

    Mark my word, the Western World including America are very much today taking stock of what is going on in China since it hold around Half its Currency Reserves in US Dollars.

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 26.

    19 London harris

    I dont know much about the Forgemasters proposed deal, however a couple of things stand out.

    3.5 percent is hardly a commercial deal. It might even be challenged as subsidy by the EU, I dont know but I wouldnt be surprised.

    Re the Germans - The Germans have for decades sewn up the technology supply chain via German written standards, ie DIN standards being taken up as the EU wide standard and being adopted in turn as British Standards or BS codes. The UK basically gave up doing this sort of thing because short term think scorned manufacturing. I dont know either the codes involved or the product but I would expect problems. If you want BS codes that are written here rather than DIN Standards written by German companies to suit German companies then there is a problem. For this reason it has been known to be difficult in the past for UK companies to bid for some German jobs that have to be EU wide tenderable, simply because they have to by BS materials that are really DIN spec materials and consquentially are only made in Germany. The tender cost therefore has to cover buying materials in Germany becasue that is where they are produced (UK production having slipped), shipping to the UK and shipping finished goods back to Germany. I am not saying this is the case in this instance, I am just pointing out the matter can be complex. I dont blame the Germans in this, if nobody is paddling the canoe that is their problem. We have not been paddling much.

    I have the impression you have not been involved in manufacture or technology, which is fine, quite a sane thing I would suggest in some cases, but the situation is not always striaghtforward.

    The whole issue appears to me to be undermined by the fact the UK deliberately neglected the nuclear industry, in part because of the whinging whinning protester lot (who will undoubtedly be first in the queue to bitch about not having electricity on demand) and the Dash for Gas was cheaper and quicker for Thatcher. In the meantime the French with their No Gas, No Oil, No Choice policy went with Nuke power. So now we are buying French Nuke technology in a sector we were at the front at one stage - which I would suggest is the bigger crime. If you abdicate an area of technology you also weaken your support infrastructure in that area. Can't recall Mr Brown being big on Nuke power until he got desperate, so just more short termism.

    In view of Mr Brown scant regard for reality it would not surprise me if the whole original proposal was political rather than realistic with a GE looming. Maybe not, but I would need convincing.

    Regrettably 160 new jobs for an 80 million loan does not exactly set the world alight. That is one new job per 1/2 million. That would point to better uses of 80 million loans.

    Not that I am wild about the ConDems, it is just I cannot bear Mr Brown and his ghastly bunch.

  • Comment number 27.

    21 MrTweedy

    Thats a knock out dude. LBW. And he's walking to the pavillion.

    Much debate. Hmm, I'm not sure there is much to debate about it but I dont have the hard figures. But the guys remote from the action being behind the times, never ; )

  • Comment number 28.

    Reference the UK output gap.
    When government funds are scarce, it's better to allocate them to investment than spending.
    If the private sector is unwilling to lend to Sheffield Forgemasters, the government should step in and provide the funds if the investment returns a profit or reduces imports or increases exports. At first blush, the government loan looks a reasonable investment and should not have been withdrawn. I haven't seen any sound reasoning as to why it's been withdrawn. The banking system is still risk averse; government must step in to provide finance to viable private enterprise when necessary. We need to retain and develop skills that will yield energy security and reduce our reliance on imports.

  • Comment number 29.

    17 NorthSeaHalibut

    But if the QE really was to provide cash to HMG via the banks (and the sale of notes or whatever to the banks by HMG), to avoid the Maastricht Treaty criteria that central banks are prohibited from supplying money direct to government (due to scares about inflation in the good ol' days) then that would explain why QE has not shown up. Not that it is necessarily right, but.

  • Comment number 30.

    1. But in the very short term


    Do not begin a paragraph with "but".


    2. to blow up this week's G20 Summit in Canada

    "blow up" means just what?


    3. Beijing got spooked by the collapse

    "spooked" is a term children use, less suited to economics discussions.

    4. (see my post from Davos earlier in the year)

    no link is given (sign of casual indifference to the reader - should we go searching for the work she claims to have done?)


    5. in 2007 to 5.8% in 2007

    basic re-reading mistake, should be rewarded with a day's wage reduction to encourage thoroughness.



    6. The question is what happens next.


    The question is "what happens next?" is BBC standard.


    7. in the Administration

    Is this an article for Americans only?


    8. And as we saw

    Do not begin sentences with "And"


    9. Everyone can agree that they don't want to be another Greece.

    "Everyone can agree", what sort of presumption is this? This has no place in the article.


    10. But there are others

    Do not begin a sentence with "But".


    11. the risk of another depression has not really past.

    She means "passed" but failed to realise.


    12. And prices are falling

    Do not begin a sentence with "And".

    Besides these small mistakes this is a valuable article showing insight and high journalistic ability known only at the BBC.

    Well done Stephanie Flanders - keep up the worthwhile efforts.

  • Comment number 31.

    23 Uptosnuff

    Apart from stuffing nuke rubbish in old mines which may well have its problems due to geology, all your proposals are about moving people around. Why on earth do you want to do this. The internet is the solution for most desk based work which is what most people do. Every experience with transport development, which is phenomenally expensive anyway, shows that no matter how much you make a system faster it chokes and draws more traffic in so is self defeating. The speed of vehicular traffic in London has not changed in a hundred years. What makes you think anybody can overcome this. The recession is the only thing to have made transport flow better because it has reduced volumes. There is always an up side somewhere.


  • Comment number 32.

    28 MrTweedy

    Question - Does it really make any difference if the French nuke plant is located in the UK or in France with a long copper wire coming in. How does the security of supply improve if it is located in the UK. Thats the question I have with it, it appears to be a turnkey package. If you dont know how to do it you are no better off. There has to be technology transfer. Is that going to happen. Usually key technology with these sort of deals is held at base, in this case France. The company running the show remains French from what I have read. This all comes back to what is strategic infrastructure and who should own it. The exception of course is the Chinese who say if you want to operate in our country we want the knowhow (aerospace).

  • Comment number 33.

    But in the industrial countries, they say there's still a question whether the private sector can grow under its own steam.

    Industrial countries... so that can't include the UK then. We don't do industry.

  • Comment number 34.

    Thankyou MrTweedy,
    Your reply has helped me enormously, and I'm glad you took it in the spirit in which it was meant.

    I did not mention the trade deficit for reasons of brevity, but I think I agree with your comments. For a nation used to imports there may be some 'due process' and therefore 'time' involved in adapting to the new position, in order to avoid imported inflation for example. Intuitively (I cannot prove it) though, I believe we can adapt much faster than the forecasts predict. I think the structural deficit is over-stated significantly, but I have no way to prove this - but as I understand it, no-one else is able to prove the opposite either.

    Thanks again.

  • Comment number 35.

    YellowBrickRoad,
    I am guessing that the reason we need the nuclear plants in the UK is as follows:

    If it is in France, then we would need to convert some of our currency to Euros to purchase power from it - this negatively affects our trade balance (making us even more of an net importer). This though is a debateable area, not because what I have said might not be true, but for the future of our currency and whether we fully embrace its 'Fiat' nature.

  • Comment number 36.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 37.

    Re: 26 YellowBrickRoad.

    Regrettably 160 new jobs for an 80 million loan does not exactly set the world alight. That is one new job per 1/2 million. That would point to better uses of 80 million loans.

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

    As with ANY Lost in Industrial Output your opponents such as in the Case of Sheffield Forgemasters, whereby they the Germans must now today be rubbing their Hands with Glee, while at the same time NOT believing their luck and fortune that the CON-DEMS have handed them sole Production of this NEW Cutting Edge Manufacturing over to them, since it may well be the Case that many UK Politicians have Large Shares in the operational Factories at the German end of production, while further still selling the results of these Products back into the UK Market Place to make profits for the German Economy. Talk about walking around Blind...

    Otherwise, we must conclude that we now have an utterly useless CON-DEMED UK Government that simply has no ideas in knowing whatsoever just what is needed to create ANY future UK Full - Time Employment places here in THIS the UK, and just perhap this is WHY they are calling in a load of once has-been and over the hill Politicians from across other Political devides so that once things start to go wrong, [ and things will very soon and quickly go wrong ], then the Government can off-load any of the blame for their mistakes onto those called-in Political rejects MPs' of the past, such as Hutton and Fields etc, but not forgetting the Monkey's that are being made out of the Lib - Dems, by the CONS.

    So rather than setting out to seek and destroy completely any future prospects for UK Manufacturing, our ELECTED UK Government should get out and about a bit more and smell the Coffee and find New Businesses both in the Public and Private Sectors so that worthwhile New Start-Ups can be commissioned to take place.

    However, with Tuesdays Budget looming it will be everyone other than the Elite that will feel the pinch and pain of any Cut-Backs since contrary to what David Cameron keeps pro-claiming with his, "We are ALL in this together" nonsense, this should really be re-stated as: Everyone is in this except the CON-DEMED Inner Cabinet along with ALL those in the Rich and Elite Classes, for at least the next 5 Year Term of this current Parliament.

  • Comment number 38.

    31. At 11:45pm on 20 Jun 2010, YellowBrickRoad wrote:
    23 Uptosnuff

    Apart from stuffing nuke rubbish in old mines which may well have its problems due to geology, all your proposals are about moving people around. Why on earth do you want to do this. The internet is the solution for most desk based work which is what most people do. Every experience with transport development, which is phenomenally expensive anyway, shows that no matter how much you make a system faster it chokes and draws more traffic in so is self defeating. The speed of vehicular traffic in London has not changed in a hundred years. What makes you think anybody can overcome this. The recession is the only thing to have made transport flow better because it has reduced volumes. There is always an up side somewhere.



    -------------------------------------------------------------------
    I think you have fallen for a MUM.

    Moving people around is highly important to all sorts of things, not least the NHS. Traffic speeds in London have varied. Overall not much, but there have been falls due to restrictions and meddling by the politicos. In central London there were a couple of periods when average speed for cars went up and buses went down. On the N Circular Rd, east of A10, average speeds rocketed upward and vehicle emissions downward following major road improvement in 1990's.

    Myth says new roads just produce cars to fill them. Actually, women working more, inward migration, the need to travel to access facilities, increases in overall affluence, perception of crime and safety, women learning to drive, people travelling further to find work, etc. - it's all these that produce the increase in traffic. Add to that restrictions on traffic flow added by the politicos plus consistent under provision of new roads and road improvements, leaves us where we are now - in trouble.

  • Comment number 39.

    32. YellowBrickRoad

    I agree that comparative advantage in trade between countries is advantageous; so I'm not in favour of Britain cornering the market, but as a country we do need to increase investment and reduce imports/ increase exports to support GDP. On reflection, by "energy security" I mean access to secure and sustainable sources of energy at affordable prices. The energy can come from France if Britain has something to trade in return.

    From what I've read, Sheffield Forgemasters will use the loan to buy a press which will produce panels to be used in the building of nuclear power stations. So, if the plant is located in France, the UK gets an export by selling the panels. This supports jobs in the UK.

  • Comment number 40.

    Can anyone explain why Brown and Mandelson decided just before the election that lending £80m to Sheffield Forgemasters was important in terms of the UK's involvement in the nuclear industry but not long ago they happily sold off the reactor builder Westinghouse to the Japanese.

    Happily of course the situation now provides an opportunity for one of the UK's banks to set up a loan to Sheffielf Forgemasters and I'm sure they'll be on the phone this morning (ho ho ho).

  • Comment number 41.

    38 uptosnuff

    This is an expanding consumption model and has to fail it would seem. We are at peak oil it would appear. Biofuel is problematic with agriculture generally under demand and output in europe stalling. Emmissions are problematic. Electric cars are limited by capability at present and for the forseeable future. Electric batteries are appallingly energy inefficient, about 10 percent max potential last time I looked, whereas the internal combustion engine is over 40 percent. Hydrogen is probably near impossible to assess because it demands an entire new infrastructure. I can understand the appeal but I think it will fail. I cannot see mass transit growing long term unless there is some sort of breakthrough. That only leaves the internet to develope to deal with new working arrangements.

  • Comment number 42.

    #39 MrT

    Also agree is nice to see you around.

    a) Cheap mass produced solar concentrators (eg: an umbrella covered in tin foil, or a lightweight fresnel lens) and thermoacoustic transducers (glass tube, bit of old cat converter ceramic, wires, sound-to-electricity eg loudspeaker) . No exotic materials required ,with acceptable efficiency.
    b) Wave power
    c) EU supergrid to act as alternative to energy storage.

    Re manufacturing - there is one thing that people have overlooked: flexibility. There is a manufacturing revolution waiting round the corner, when it becomes possible to manufacture things simply by getting a CAD drawing off the net and telling a rapid-prototyping device to print the thing.




  • Comment number 43.

    #13 Charles Jurcich said:

    "My understanding is that 'printing money' as you call it does not automatically cause the price of the currency to fall, or cause domestic inflation."

    #21 Mr Tweedy responded
    "When the volume of money in circulation increases faster than a country's productive output, price inflation will result."

    Just to point out: the latter does not follow from the former, according to some analyses. Empirical evidence suggests that central banks lag the private debt demand. Also injection of base money does not mean changes in volume circulating.

  • Comment number 44.

    london harris

    The British public have had their collective hand in the decline of industry, I cannot remember an great protest movement over the decades. Once it is gone it is gone and by and large the public have been happy to see it go. Perhaps you should look around more. All LG wheelie bins are evidently made in Germany, none in this country. Odd dont you think. Other countries do not play the game the way the British do. They try to keep it at home. Here they do not really like making stuff, too difficult and dirty, far better to work in a call centre, particularly if women are wanting to work. Unfortunately there is no knowhow in a call centre so it is vulnerable. Gaining and keeping knowhow is difficult so nobody can really complain is somebodyelse has done the difficult bit and then benefits. You are correct that government(s of all colour) have had a part. If you look at the French model for utilities for example you will find that the French state usually has a part. EDF has french public involvement. The water utilities assets are owned by the public with management privatised and contracted out. This model was presented to Thatcher and rejected as the sale of the assets was the objective as it raised more cash. Here we cannot wait to sell sell sell. That sale cash then frittered on tax tweaks. There are fundimental problems in selling locl stock and barrel strategic infrastructure. There are fundimental problems in subcontracting key critical activities, you lose control. That is what happened with BP and the oil leak, just another in a long line. If a strategic activity is sold overseas or you buy in turnkey packages you have to expect to have the supporting network of technology or production here is compromised. Thats the game. There is little point in turning up when the game is over saying its all wrong, its too late. Its to late baby, its to late, though I really did try to make it.

    As I have said I do not know a great deal about the Forgemasters set up. However they appear to be wanting to supply the UK nuke power programme. This in this country will be the usual rush to build and then quiet. Historically these take 13 odd years although the current demand is a quicker build, which incidentally the French do not believe is possible, never been done. So just where is the longterm demand for supplier to the nuke programme. Once built they last a long time and teams of metallugists then work assessing them to extend their operational life, which is what happened at Berkley and elsewhere. perhaps this is why Forgemnasters have had trouble, presumably, in raising private capital, I dont know.

    But I do not think it is quite as clear cut as you would like.

  • Comment number 45.

    Mr Tweedy

    I can see the point of not having to import. I am just not convinced that there are other ways of imporving our lot that is all. Have to go. It was work all weekend and now there is a backlog.

  • Comment number 46.

    It is a small cog, in a bigger machine, and is probably a statement agreed with Clinton when she was there, to be released prior to the G20

    Korea is the more relevant issue, and what the Chinese do there will be more important

  • Comment number 47.

    Oblivion

    I tried to explain my take on flexibility in post 22 so I agree with you flexibility is key, although I do not work with PCBs etc which I presume is yopur reference. However trying to introduce flexibility into a inflexible business and inflexible management and workforce is the quick way to being locked up. Hence realistically I see problems. New start up activities are easier when debt is not so prevalent and housing costs are lower, as they strip out elasticity.

  • Comment number 48.

    @30. At 11:42pm on 20 Jun 2010, Kenneth Keen

    Oh for goodness sakes Kenneth, do get a life. Grammar pedantry does not make one seem intelligent; it shows that you have no knowledge of the subject and lack anything useful to say.

    Back to the subject. Who thinks that revaluing the Yuan will have no effect and that the US Senate is barking up the wrong tree. I wonder if the the US senators and representatives are just looking for a quick fix because they are unwilling or unable to confront the real problems confronting the economy. Here in Britain, we seem to be on the path of denial as we are effectively subsidising our remaining 'industries' of house price growth (via super-low, giveaway interest rates) and refusing to clamp down on the City of London casino and all the 'Ponzi' scheme (oops, I meant 'investment') funds.

    Revaluing the Yuan does not change the distortions which are being created in our economy. I think it's another false dawn.

  • Comment number 49.

    China is disposed to gamble a little. Maybe allowing the Yuan to drift higher relative to American and European currencies will allow domestic living standards to rise? Maybe the impact on China's overseas trades will be favourable and as the cost of imports into China fall a little?
    In current circumstances those aren't too big a gamble for China. Nor are they irreversible if the effects aren't favourable.
    Whilst this is not a big gamble for China, they're a lifeline for a Europe that's taking much bigger gambles at home. Growing Chinese imports might save some of the potential downside in demand within Britain and the rest of Europe.
    Now Britain has joined our neighbours at the monetary casino. Our coalition Government promises to abandon the cautious and conventional economic stimulation, and to lurch back to harsh Thatcherite policy of lower incomes for the least wealthy and 'unemployment is a price worth paying'.
    Will the Chinese gamble pay off? Maybe.
    Will the British and European gambles pay off? Only if Chinese and US economic growth drags us along with them. Not otherwise.

  • Comment number 50.

    Oblivion

    Thanks for your comments. I like the idea of wave power, given that Britain is an island. I'm not an egineer; so I don't know how feasible wave power is. I assumed it wouldn't be too difficult, but there seem to be objections.

    I saw that Steve Keen had evidence of bank lending happening before deposits were received. Now the bubble has burst, the private sector is hoarding cash, repaying borrowing and buying back its share capital.
    My belief is that countries such as Britain and Greece will have price inflation, whereas countries such as Japan, Germany, China and the USA are at risk of price deflation.

  • Comment number 51.

    On UK Inflation Implications of a rise in the Yuan.

    If we assume that the Yuan rises substantially this will put up the cost of Chinese sourced goods on the UK high street. Now, in the past decade our inflation rates (the cpi and RPI) have been overly low directly due to imported Chinese deflation (and this was used to keep a far too low interest rate regime for the rest of the UK economy) This will (should) now be reversed.

    However, I expect the deceitful incompetent Bank of England to argue that it is a one off or some other such argument to avoid raising interest rates as their rules say that they should. Their policy is a joke and a farce - but this might just be an amusing sideline if it had not entirely perverted interest rate policy for the last decade and thereby created and amplified the enormously destructive credit bubbles (that led to the crash)

    When the Yuan rises the Bank MUST raise interest rates as they used the relative weakness of the Yuan to artificially depress interest rates for the last decade. If they don't they will be rightly seen as economic jokers.

  • Comment number 52.

    Thanks Darren. It has now been corrected.

  • Comment number 53.

    Let's get legalistic for a mo here. China's essentially has a policy of uni-trade - they sell to us, we don't sell to them.
    This means that Ricardo's comparative advantage stuff can't kick in. Our Industry A factories close down
    due to their comparative disadvantage but our Industry B factories do not double in size due to their compensating comparative
    advantage - The both close down, they all close down ! - we get a massive and civilisation threatening de-industrialisation
    of the Non- Chinese World. If we don't sell to them how do we pay for it - we don't, we borrow it from them - we now pay
    about the same to the Chinese in Interest on our debt to them as on our whole defence budget - so much for 'cheap imports' !
    The full sentence on Trident should be not "We can't afford Trident" but "After paying interest the Chinese to pay for 'cheap goods' we
    can now can't afford Trident".
    Now this is finally recognised we need to take China to the WTO and fine them several Trillion for wrecking Western Industry with their unfair trading practices.
    If BP can be fined - no Problem there - let's fine the Chinese for the damage they've done.
    The second thing that comes out of this is - If China can be so Rich by Exporting the let's all Export !
    Under the present out of date pre-machine age financial system that lurches from crisis to crisis system we can't but if we used
    a modern system that better reflected the modern world with it's minimal real demand for labour : NEFS - Net Export Financial Simulation then we all could !
    the big worry is "Oh we'll upset the Super Power China" - but China can use NEFS as well, this will enable them to make lots of things and instead of giving to foreigners they can keep it themselves, and because of the ‘simulation’ of them having Exported it in NEFS, they'll be able to afford to consume it themselves and massively improve their standard of living – Win Win Win !

  • Comment number 54.

    If you look at the media coverage of the Beijing move on the Yuan over the last 48 hours, it explains a great deal about why China occasionally gets very hacked off with the West - especially the US.

    Our 24/7 news culture is blotting out investigation and analysis - Ms Flanders very much excepted. With ten minutes research this morning one could've seen (a) what the People's Bank had said and (b)what the price of the Yuan had moved to at the close of Yuan trading.

    But up until half an hour ago, the Guardian was still running yet another 'confusion over Yuan' story.

    The nbyslog at Blogger will remain calm despite all this nonsense and, alongside the BBC, continue to print facts. Ithangyoo.

  • Comment number 55.

    44 YellowBrickRoad.

    But I do not think it is quite as clear cut as you would like.

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

    By the time ANY Politicians have finished with anything, everything becomes about as clear as mud, for whatever happens in Tuedays Bubget with the scale of the pending Cut-Back it will be claimed over and over again for CON-DEMED constumption to have been the last Government fault.

    OK, it is always the same with Politicians whom work at playing a Political Game of One-upmanship as if it matters NOT at any period during any of their current tenture of being in Charge whereby it is only in Fact the current Administration that is in Full Control of everyday events which can only be changed by THEIR Actions, [ but, mainly throught THEIR In-actions ], of everyday Events nothing happens for to better the Majority.

    Try thinking back a short few Weeks ago to the run-up to the last General Election where nobody either in the Lib-Dems or the Cons Party were saying anything concrete about how they would Cut - Back, or Invest for the future to get the UK's Economy out of the current Quick - Sand of time.

    We, then effectively Elected a Government that could tell us NOTHING about how they would set about curing the UK's Deficit problems, unless you excepted the broad Message of Cutting - Back without any Planning and Directions being presented to you just to live upon any Politicians promise that the pain will be worth any Cut - Backs, and would be shared out equally across the Board.

    In truth, this Country voted in this New CON-DEMED Government just to kick out the previous Labour Government without realising that NOBODY either at Westminister prior to the General Election, or currently since has any ideas about just what to do next other than to looking after their own Self vested Interest, and History should have forewarned everyone where the Elite Tories would be standing in any of these events.

    Therefore, things ARE only clearly Cut for some, while the majority will be suffering from these "Planned" Cuts dished out to them since the last General Election, while Cameron claims that WE are ALL in this together.

    Yer, Right - Pull the other One.

  • Comment number 56.

    Stephanie

    Very interesting. Here is an economic parable.

    A randy monkey spots an elephant in the jungle and decides to climb up on its back and have its fun. So there it is puffing away at full speed having a great time while the elephant carries on munching fruit oblivious to the monkey's presence. Meanwhile a mouse wanders by and sends the elephant into a great panic who reacts by trumpeting loudly and stamping its front legs up and down violently. The monkey now in a complete state of ecstasy and unaware of anything cries out "Oh yeah suffer baby suffer".


    China is ready to make us pay the full price for its goods. NO MORE CREDIT. That is actually what they are saying. USA + Europe only adds up to 30% of their trade and falling. This is the perfect time to appreciate their own currency. Our profligacy has left us broke and at our weekest in 100 years. Appreciating their currency will make buying oil and most other commodities cheaper for them. They are now focusing on natural resources and not the cost of stuffed toys.

    You have your astrology books - some have ideology but the Chinese had a plan. Whoosh did someone drop a match.

  • Comment number 57.

    Good post JS.

    China must realise that their US paper is worthless and process of appreciating their own currency will involve buying "stuff" with dollars rather than selling "stuff" for dollars. This could actually be the catalyst for a huge bout of inflation in the states as China start to buy more be it companies (how about BP?), gold, silver, copper, oil and anything else of value they can get their hands on (not paper currency!).

    America will at first rejoice as liquidity increases and they can pay down some debts & perhaps even use the repatriated money to invest in t-bills to help finance their government spending plans. However, if they eventually realise they have sold all their cows to buy milk and all and all that they are left with is a pile of useless dollars that no one wants the race will then be on to buy back commodities that would have course now inflated in value.

    We are no better of here but perhaps it would be in the interests of the UK to plan before the SHTF in the USA by getting rid of paper currency reserves and buying "stuff" with real value.

  • Comment number 58.

    It has been interesting that since 2008 there has been little discussion about the loss of retirement accounts and investments by the average person. This of course was estimated to be over a trillion.(it is also interesting that no one has felt this number should actually be calculated). Although the banks decided to steal twice and the governments all fell for the "too big to fail" deception, the individuals all realized that there was no one looking out for their interest. Given these realties individuals are less likely to make large purchases as the value could drop without warning. This is about confidence and people still do not trust their governments to protect the most basic of banking transactions. It is interesting that for two plus years everything has been discussed but the impact on the individuals who actually lost money and their collective disgust with both the governments and the bankers. Marco-economics does not require that the people be accounted for, it is very tolerant of abuse.

  • Comment number 59.

    #44 YellowBrickRoad. It appears that your memory may be failing. In 1984/5 an entire industry sought to defend itself from total annihilation. For over a year they stood alone against the entirity of state power. They lost, but they tried. Not one substantive word that Scargill spoke was in error.

    The defeat of the miners heralded a succession of further quick defeats for organised labour - the emasculation of the steel industry the destruction of heavy railway engineering capability and the privatisation and dismemberment of the CEGB. The destruction of the CEGB had long term consequences, the ultimate wave of which will be visible (or perhaps invisible) by around 2017 as the UK finally runs out of road and discovers that it no longer retains the ability to supply on demand access to electrical power.

    A truly tremendous set of achievements. All required in order to smear and destroy people who understood reality and whose public representatives committed the hienous crime of telling the truth.

    How much better life is, and how much more sustainmable the economy, now that the truth has been trampled into the mud and telling lies is all that matters and that master liars are revered as the High Priests of the delusion based economy.

  • Comment number 60.

    From the BBC article about CBI wanting stiffer stirke ballot laws;

    The CBI said strikes should require a higher level of support from workers because of the damage they caused to economic growth and the inconvenience they caused the public.

    "Strikes cause misery. They prevent ordinary people going about their daily lives, whether it's getting to work or getting the kids to school," the group's deputy director general John Cridland said.


    The "Strikes cause misery" bit made me laugh - well, that's sort of the idea isn't it.

  • Comment number 61.

    MrT


    "I saw that Steve Keen had evidence of bank lending happening before deposits were received. Now the bubble has burst, the private sector is hoarding cash, repaying borrowing and buying back its share capital.
    "


    Yes, I think the main point was that the causal relationship between the central and other banks is the reverse of what people expect. Yes retail banks (and others) are hoarding cash, which is why the additional liquidity supplied by BoE did not and does not get into the economy. It would be nice to verify empirically here with some numbers but the 'scale' or 'velocity' of circulation of money is diminishing despite the base money injections - which would also confirm the hypothesis that the top-down causality commonly assumed is largely false.

    (I say 'velocity' and 'scale' in quotes because I think those measures are actually misleading or wrong. These are neither stocks nor flows. The most analogous terms for exchange of information (money) between elements from physics would be 'amplitude' and 'frequency' and there would need to be some way of measuring the 'extent' to which the exchange of money involves the elements in a society)



  • Comment number 62.

    Personally I find this move by China to be a welcome development which may help in reducing some of the worlds imbalances. Of course on its own it is not a panacea particularly as we have yet to see how much China is willing to let her currency appreciate. It may be less than we think or hope!
    The G20 meeting will have other problems as Europe and President Obama are currently espousing different strategies.I suggest that more on more on peoples minds will be one of the questions posed today by the notayesmanseconomics web blog.
    "On an individual basis austerity for many countries is a potential way out for their problems, however with some many in Europe attempting to apply it at once are they in danger of sucking each other downwards in a deflationary spiral?"
    I suspect as we move into 2011 this question will be asked more and more.

  • Comment number 63.

    What this all boils down to is that we are paying a huge price for our one pound tee shirts. We are acting as a free market economy while the biggest country in the world is not. In addition to eventually owning enough of the free world's sovereign debt to one day being able to precipitate the kind of crisis that will make current problems look like boom time they are using our money, plus the extra profit made by paying poverty wages, to buy goodwill plus natural resources from much of the third world. Meanwhile they use their power to prevent the UN from effective action against the rogue states that threaten us. The only thing that will prevent future generations of historians from looking at us as the ultimate mugs is that by then the Chinese will be writing the history

  • Comment number 64.

    62

    I believe it will, and I have said against the tide of doom-mongers, that there is much greater underlying deflationary pressure within the system, especially as the cuts to reign in the deficit start to bite

    As such, interest rates are very likely to remain at their current levels well into 2011

    In fact, I can see the Base Rate being at 2.00% or under for the next 5 years

    By acting now, and by taking proper and decisive actions, Cameron and Osborne will be viewed as taking entirely the correct actions in a few years time

  • Comment number 65.

    #64. Kevinb wrote:

    "In fact, I can see the Base Rate being at 2.00% or under for the next 5 years"

    No, KevinB you are just projecting you own personal advantage as being a likely outcome!

    Also if interest rates only go up to 2% we are in a very deep very long depression and there has been further negative growth and you are also postulating that sterling has not collapsed and the rest of the world is continuing to finance our dead beat government! All of which are unlikely! We need to get some genuine price back to money and we need it PDQ (that is 5% - it will only add 63% to your mortgage payments!) If we don't do this now interest rates will be up at 15% or more well before then just to persuade anyone with half of a financial brain cell to finance the deadbeat British state.!

  • Comment number 66.

    We all know your views John from Hendon, you repeat them irrespective of subject very regularly

    In case you are a bit dim, I keep telling you I could pay my mortgage off, although I would have to be mad to do that wen I pay 0.99% interest, and I can make more from investing the cash

    One day this might sink in

    Numeracy is not your strong point either, as if the Base Rate was 5%, it would add 454% to my mortgage payments, ie the cost would be 5.54 times what it is now

    I suggest brushing up on percentages before you add any further inaccurate and misleading comments

  • Comment number 67.

    59 armagediontimes:

    'In 1984/5 an entire industry sought to defend itself from total annihilation. For over a year they stood alone against the entirity of state power.'

    Key word > alone

    I knew a guy who worked for a synthetic fibre producer, big household name (eye see eye). They came under pressure from far east imports, late 70s early 80s I think, fibres were one of the first tragets. All that the workers were worried about was that somebodyelses plant got shut in the group, which it did. Rejoice. Unsurprisingly, the pressure did not abate. All the workers were worried about was that somebodyelses plant in the group shut. It did. Rejoice. Unsurprisingly the pressure continued. Guess what happend next. I am afraid the man on the street doesnt really give a damn if he thinks it will miss him. So there you go. This is before anybody engineers division.

    And you expect them to rise up and sort it out guv. ROFL

    Divide and rule.

    BTW Machiavellis text is not that long but it is interesting. It is a better read than King Arthur Scargills speeches though I am told he was better in real life to listne to.

    I am beginning to wonder about your libary, it must have the oddest manifestos, Scargill, Unibomber etc etc. These are all failures, can you guess why.


  • Comment number 68.

    30

    Did you post that unnecessary and irrelevant commentary for a bet?

    No possible other reason...

  • Comment number 69.

    40. At 09:44am on 21 Jun 2010, Wee-Scamp wrote:
    Can anyone explain why Brown and Mandelson decided just before the election that lending £80m to Sheffield Forgemasters was important in terms of the UK's involvement in the nuclear industry but not long ago they happily sold off the reactor builder Westinghouse to the Japanese.


    ==========================

    I imagine the situation went something like this,


    "Ring" "Ring"
    Hello Liam Byrne, Treasury.

    Hi Liam, Peter here, can you send £80 Million over to Sheffield, we need to get our voters out.


    Hmm, a bit tough that Peter, Merv tells me we are running out of ink for the presses.


    Have we nothing we can flog off to raise the cash then Liam?


    Well Peter, that French company who own all our Electricity did mention they would be pleased to take Westinghouse off our hands, seeing that we were committed to green policies and wouldn't touch Nuclear Power with a barge-pole.


    Ok Liam, flog it off and get the cash over to Sheffield.


    Well Peter, Alistair says we have a rather large hole that needs filling already, and we need to put all our spare cash into that.


    Ignore Alistair Liam, if we don't get re-elected the Tories will have to fill the black hole, and although we can blame them, we don't really want anyone knowing just how incompetent Gordon was, do we?

    OK, but what shall I tell Alistair?


    Liam, just write him a little note telling him there's no money left, he'll understand.


  • Comment number 70.

    To me this is chicken and egg. In the industrialised countries the private sector won't grow at the right rate unless and until governments cut back on excessive public spending. I take encouragement from the fact that China Brazil and other developing countries are back on the growth trail. These are the very markets with which we (in Europe) need to trade on level terms. I suspect that the Chinese are sensible enough to realise that too.

    The US has a different problem - it is witnessing the painful process of having to adjust to a new world economic order where it is no longer able to pull the strings.

  • Comment number 71.

    #47 YellowBrickRoad

    Hello. Flexibility - I was thinking about rapid prototyping machines actually. 3d printers. For example, why does manufacturing produce MDF and HDF in cuboids for processing by the tradesman and domestic engineer?

    Why is it not more efficient/economical to have local pressurised containers that can 'print' MDF fibre directly into the forms specified by CAD drawings?

  • Comment number 72.

    ....and, the entire problem of ossified IT infrastructure would suddenly become irrelevant. No more stocks, no more supply chain and ERP software, no more cross-docking warehouses, and no more striving towards JIT or ultra-lean. Just pure and simple distributed construction.

  • Comment number 73.

    71-2

    I was interested till I got to MDF, I hate MDF. lol.

    We design and make to mutually agreed spec - the spec drawn from a concept envelope(s) (which in principle is allowed to vary as we chose (significantly) - make and despatch. Effectively we make in ones, maybe a few, deliberately. There is some commonality in some of the components which gives cost benefits although cost does not appear to be that much of an issue which was surprising. We could not possibly stock the range we produce. Shipping is direct to customer worldwide. Usually English speaking but not always. A mass production facility cannot compete in the range, speed of turnaround, closeness of contact with the customer. We have a significant online library that the customer can surf and interpolate and extrapolate the spec from. The product is allowed to mutate driven by the customer but we limit the ridiculous. As such we see ourselves as flexible converter of raw material centred on design and high value added. Expansion is by word of mouth and repeat orders which appears to be geometric (a problem, and has to be edited). We currently are trying to dampen down growth as the growth is intended to follow a another model in order to achieve sustainable manageable structure. There is therefore a gestation period(s) on expansion which has step function. I have no interest in letting a bank or venture cap get involved because they would try to drive it and the whole concept is it drives itself. It is constructed to survive and move markets if one market dries. As such the feedback loop is massively faster than a conventional business with corespondingly faster response. As a structure the idea is networked cells of production as the flexibility has to be maintained. This requires training people as the skills are not available off the shelf. There is an element of reiteration in the product envelope developement because sometimes we make a far reaches of envelope product to show what can be done and provoke further extrapolation of into the future. Sometimes this backfires and stuff done as display concepts results in immediate sales uptake, which can be difficult. We are therefoe being slow to show online at the moment. The problem is not sales it is production. That was the objective from the start to solve the sales problem. The whole idea is to be organic, not the food organic the system organic. However ethic was placed central to the operation from the word go because ethic are going to get more important and it is difficult to upgrade, better from the start. The question right now is what do we personally want to do. I'm told lifes a beach. A slimmed minimal model and being a beach bum sounds fun at the moment but I also suspect it may get boring.

  • Comment number 74.

    #73 YBR

    Sorry, am a bit lost - are you describing the process you/your business does, and when you say concept 'envelope' what do you mean? Do you mean literally envelopes?

    I fully agree with you that letting the money lenders in would only cede control to them and the way of life to them.

    Flexibility and throughput seem to be the tradeoffs that characterised the late 20th and early 21st centuries: the whole world has gone for throughput and economies of scale at the expense of flexibility, hardly realising it, and almost accidentally describing it as 'globalisation'. This kind of growth of large organisations is a symptom of computerisation, not a driver.

  • Comment number 75.

    My post no.8

    On reflection, I have made an error (Tweedy, you idiot).
    If the yuan appreciates, Chinese exporters will not get as many yuan in exchange for their dollars. This puts downward pressure on Chinese wages. Therefore, the last paragraph of my post was completely wrong.

    There is a risk of deflation in China, as asset/property prices cannot rise when wages are falling; which is why the Chinese economy could overheat.

  • Comment number 76.

    #75 You know when I read that I got myself quite confused trying to understand what you meant. I assumed it was me that was the idiot somehow and went back to my glass of wine.

  • Comment number 77.

    #74 Oblivion

    re: #73 YBR

    I think what he is saying is that he has a set of stock product designs but because his individual customers have unique requirements these stock products are only guidelines (starting blocks if you will). The customer can (within reason) specify any variation they like, the envelope of possible choices given the initial starting condition.
    YBR can limit the scope of variation based on a number of things such as practial difficuties, costs, timescales, current workload, agreeableness (or otherwise) of the customer etc.
    I imagine that he is also capable of delivering a fully custom product if desired, this would be likely if it could be used as the basis for another stock product to add to the starting block catalogue.

    I don't think he makes letter envelopes :) (although he might make balloons :)

    Regarding flexibility, Henry Ford, although bringing the benefits of production line technology had a rigidity that almost brought about the downfall of the Ford motor company, he could not see that the customers might want any variation in the cars he was producing ('any colour you like as long as it is black') and so the customers (fickle bunch that they are) started to look elsewhere.


  • Comment number 78.

    BobRocket

    Yes, rigidity is a curse that afflicts most large organisations today. I also see that large organisations in the past (I mean pre computerisation) would have been more flexible. General Motors, I think, lurched from crisis to crisis throughout their history, and what saved them every time was the level of redundancy in their structure. They had flexibility in the sense that there was always something that could be reconfigured.

    I think YBR's model would need more investigation for me to understand: I think there is always a tradeoff between flexibility and throughput (scale). The holy grail for society is a no compromise fusion of both: high flexibility with high capacity.

 

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