How will the Chancellor repay debt?
The Chancellor has said that he needs the flexibility in the looming recession to spend and borrow more than would be possible if he adhered to the fiscal rules.
These are the strictures on how much the Government can borrow that were introduced in 1997 by Alistair Darling's predecessor as Chancellor, Gordon Brown.
The positive gloss Mr Darling put on this admission that those rules would be breached is that - with recession looming - only spending by government can compensate for a slump in spending and investment by businesses and households.
And more government spending would mean more borrowing and an increase in the national debt.
But Mr Darling also conceded in an interview with me - to coincide with his Mais lecture on "maintaining stability in a global economy" - that there's a negative side to the inevitability that the ratio of the national debt to our economic output is set to explode through the 40 per cent ceiling.
The current contraction in our economy means companies and households are paying less tax.
Stamp duty receipts have all but evaporated with the collapse in house sales.
And the appalling plight of banks and other financial firms is endangering 25% of all revenue from corporation tax.
So there's less revenue coming into the Exchequer just as it has to find extra money to pay benefits to those losing their jobs.
The criticism of the government therefore from the opposition is that it allowed the national debt to grow far too much in the boom years.
And it is a serious criticism, because when Gordon Brown introduced the fiscal rules all those years ago there no suggestion that they were only to be applied when the going was good.
Nor is this an academic criticism.
If investment institutions controlling billions of dollars aren't to shun sterling and the debt being sold by the Treasury - with the horrid consequence for the Government of a sharp rise in the cost of servicing that debt - the Chancellor has to explain how the fiscal rules would be changed to remain credible and how the national debt can be reduced to some kind of tolerable level after it rises significantly.
So what slightly surprised me when I interviewed Mr Darling is that he wouldn't even confirm that the fiscal rules will be reformed, rather than simply being conveniently ignored for a while.
There can be no doubt that he will have to reform the fiscal rules in a matter of weeks, and come up with a convincing plan to reduce the national debt as and when economic growth resumes - because in this economic age of anxiety, failure to do so would bring the risk of a dangerous run on the pound.
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It is interesting that Robert Peston is constantly looking for angles to report which will exacerbate the very anxiety he warns about. "failure to do so would bring the risk of a dangerous run on the pound". He says this as if it is a fact but frankly we are nowhere near the borrowing levels seen either here or elsewhere in fairly recent history. Ever since his first alarmist reports about Northern Rock we have come to rely on his scaremongering to help unsettle the investing public. Whilst I have little regard for Gordon Brown I believe we must allow his measures to gradually take effect and do our best not to undermine them. I believe the media in general and the BBC in particular has a responsibility to be restrained and not to talk up each financial challenge that we seem to be encountering into full blown hysteria. I am pleased to see that some sensible investors are currently attempting to call the bottom of the market. No comment from Peston I note!
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Did the fiscal rules ever really exist in the first place? Didn't they just redefine economic cycles or keep their borrowing off the balance sheet (think PFI) to give the impression of following the rules no matter what the reality was?
Yes, this is all a mess, and a worse mess than before, but I think it's just a matter of degree rather than any qualitative change.
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with absolutely everyone taking a short-term view - and expecting a quick fix (because lets face it, the public and the media are all bored of this story now, downturn? recession?? depression .. yada yada yada).
the government are desperate to hold off the inevitable bad, nay terrible news that we are spent out and we just cannot go on as we stand. So they will just keep everything looking 'ok' and hope no-one notices the black shadow lurking around the corner.
So its all going to be short-term.
that applies to the UK economy.
and to the value of sterling.
and to the delay of the real kick-in of the recession.
but also to the day when Labour are kicked out.
I wonder if the conservatives can save the day again, like they did the last time - or if we are all just so short-term now that if they haven't sorted out the UTTER MESS by tea-time that we will be baying for their blood too.
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Robert
If Alistair couldn't tell you what was going to happen to the fiscal rules, I suspect it is because he didn't ask Gordon that question when he was briefed.
However once he has referred back to Gordon, and once Gordon has stopped dithering, I am sure he will let you know (throught the usual channels no doubt).
ps. Mandleson says that the business relationship between the UK and Russia may be damaged if any one criticises him - is the business relationship between the nations so sensitive and reliant on this individual? What do you think?
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The actual rules themselves probably don't matter. The key is that they should have some kind of rationale - this in turn gives credibility.
For example, we might move towards the Maastricht rules used by the eurozone - public debt less than 60% of GDP and a deficit under 3%. There would be a clear rationale for this (consistency with the rest of Europe) which brings with it a stamp of credibility, by making it less likely that the goalposts would be moved again when convenient.
With public debt between 40 and 50% (depending on how you count Northern Rock, Bradford and Bingley and the bank bailout) we have plenty of headroom here. It would therefore be reasonable to allow a higher level of deficit in the short term with the aim of bringing it under 3% before we breach the 60% level.
The Treasury may well want to supplement this by retaining its 'golden rule' of zero deficits over the business cycle. It would be well advised to make its definition of the cycle clearer to make that rule more believable.
Interesting that after all these years, Britain still has to impose these rules on itself to retain credibility. Eventually people will forget the legacy of the 70s and early 90s but it may take a successful navigation of the coming recession to achieve it.
I'll be writing a more detailed response at http://www.knowingandmaking.com/ later today.
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How will the Chancellor repay debt?
By raising taxes to enable his oh so 'prudent' predecessor avoid a leadership fight.
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Darling will cut any government programme that will escape the notice of the entitlement brigade and tax consumption to the hilt. I would not be surprised to see savings, capital gains and property taxes revisited, he will go where the money is and take it.
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Well you may be surprised, Robert, but then again what value would really be placed on a new set of rules given the old set has now been proved to be so completely worthless (what most of us suspected all along, given the number of times it was redefined to suit Gordon).
The markets will not judge Darling's husbandry of the UK economy according to his own declared set of rules, but simply against what other countries are doing in the present global financial maelstrom.
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You seem to fail to look at relativities in these matters Andrew.
Having said that you are correct that as soon as possible we need a plan to reduce govenrment debt.
We also need a complete back to basics overhaul of the world financial system. IMHO this means we need to get it back to a point where an ordinarily competent person (like a politician or regulator for example) can understand it.
You only need to watch current share prices to conclude that currently the lunatics are runnung the asylum.
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There's plenty coming from people like me. I have a northern rock mortgage that will soon go onto the their svr currently at 7.34%. No chance of switching mortgage. Oh, they also get tax receipts - most people haven't lost their jobs - yet.
There will only be a run on our country if investors think we're not a safe investment. Surely all this behaving like hysterical sheep does not look good to them?
If anyone thinks this is 'typical labour apologist' comment I would ask - so you think anyone else would do better?
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I am just an ordinary family man with a wife, three children, a mortgage to pay and a job, yet I am sensible enough to know when times get hard you cannot borrow your way out of trouble.
Gordon Brown is acting like one of those mugs on the Carol Voorderman advert, "that nice man on the phone says we can pay off all our debt that we were so worried about and still have enough left over for a nice holiday"!
Economic growth is NOT sustainable year after year financially or ecologically, and at sometime, the debt will have to be settled.
We are living off our grandchildrens inheritance. A completely new approach to politics and economics are required and new forward thinking people put in charge.
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Dear Robert
I agree with your general proposition that the CHX is going to have to come up with a set of fiscal rules adapted for this once in a century financial crisis.
However, is everyone satisfied that that the banking crisis has been resolved yet?
If not it seems to me that you are being somewhat premature in expecting the CHX to:
confirm that the fiscal rules will be reformed, rather than simply being conveniently ignored for a while.
I'm not sure I would have used the expression - conveniently ignored for a while that does not sound very prudent to me.
I think in reporting these issues you have to separate out borrowing to do whatever it takes to put the banking system back on a sound footing, from borrowing to help reduce the risk of depression and ease the economy out of recession as fast as possible.
Peter Kenyon
http://petergkenyon.typepad.com/
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we know for sure he will not be, its to be expected that all the major players have salted away enough so they will be happy and not have to pay too much tax.
so the burden of there debt will fall on the fools that voted for them.
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Government is not the solution, government is the PROBLEM!
Thus opined Reagan, who so many of the politically correct despise.
But he got it right in the early 80's, as did JFK in the early 60's.
1. Cut taxes, all manner of taxes, aggressively, especially the capital gains tax.
2. Cut government spending, aggressively! The Nanny State's appetite for the wealth of the nation.
3. Rinse, and repeat. Rinse, and repeat.
It's the only way out, on either side of the Atlantic.
Instead, we have GM going hat-in-hand for taxpayer money to be used to buy Chrysler!
(Comment here that I know won't get past the moderators, so I won't even try!)
And, we have a proposal floated in front of a Democrat-controlled House committee that would seize all 401-k's and have them replaced by a 'fair' government dole check.
Heaven help us!
Thomas Sowell says it well here:
http://townhall.com/columnists/ThomasSowell/2008/10/29/taxing_times?page=full&comments=true
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How will the Chancellor repay debt?
Simple, sell land! I'm sure Argentina would be willing to buy the Falkland Islands (it's just a bunch of sheep anyway), Spain would love to have Gibraltar, perhaps France is willing to buy the channel islands.
And if the debt is really that bad there's always the possibility of selling Wales, Northern Ireland and maybe even Scotland.
;P
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He will say that the billions pumped into the financials, together with the money pumped into public works will provide growth from spending and repayment through profit on investment.
What will happen is the interest rates will be cut (the usa will not allow the dollar to be sold) and we will swinging on the tail of the USA's quick deflation and then tidal wave of hyper inflation
The analogy of a tsunami is very precise:
Cutting interest rates is the water being sucked of the beach toward the impending wave.
You have a bigger beach to play on before you get drowned
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Darling & Brown can change any permutation on fiscal rules they want, because they know they haven't a cat in hells chance of winning the next election.
Given Brown's continuing talk of 'he long term' it is clear he intends to screw things up for the Conservatives so much that labour should have a chance in 2014/15.
With them having shown total contempt for the British Taxpayer what ever gumph they come up with now will be viewed as more bluff and bluster.
We must pray that labour MP's looking to save their necks will vote against any demented plans to increase debt still further which undeniably woudl not just see the pound collapse but implode!!!
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Define boom years.
The implication of this article is that we're living beyond our means. Isn't it a matter of confidence?
What's wrong with taking on debt for investment so long as the investment provides a return?
Was it the fiscal rules that caused this situation? Did you really expect the general rules to be adhered to for ever? That would imply the government could forsee the future and if they included caveats for all possible scenarios then the rules would not be workable.
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If govt. increases spending to compensate for reduced consumer spending and spends it on consumers the spending side could balance out. If they borrow from consumers (who are saving instead of consuming) and later tax consumers to repay (to consumers) earlier borrowings the financing side should balance. IF they got it spot on there would be no real effects. Could they get it close?
If they do not wish to spend on consumers (I doubt they will buy me beer!!) then they can pull forward future infrastructure investment. Then, when in the future they need to spend less on such investment, they can use the money they save to repay earlier borrowings. Increased borrowing need not mean increased future taxation if the borrowings are saved. It would be pointless simply to save money (governments can't really do that, unless we have a bal. of trade surplus and can save foreign money); they could SAVE IN REAL TERMS by spending on capital/infrastructure/housing. As long as they don't import it all from Europe. Unfortunately, we are not allowed to stop that.
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Mr. Darlings boss should have been saving for a rainy day during the good times. But due to a toxic combination of arrogance, stupidity and dishonesty - failed to do so.
The plan now has to be to cut taxes, cut interest rates, and cut public spending on all of Labour's pet projects (e.g. ID cards).
The best plan of all is for Mr. Darling, his incompetent boss and the whole Labour shower to resign and allow a Conservative government to take over.
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If government stamp duty income has all but evaporated, why not abolish it? - that step might encourage a few more house sales.
This NuLab government is trying to bring forward projects to make it seem as if things are improving to help RE-ELECTION, not the economy. Increasing public sector projects has to be financed mainly by taxpayers, who are already being hit in the pocket in inumerable ways, but in particular in futrure pensions.
Time to CUT government spending, not increase it. CUT unnecessary health spending - ie lifestyle requests such as gender changes, most cosmetic surgery, IVF etc. Get the scroungers off the dole and sickness benefits (respect for genuine disabled etc). Send the illegals back home IMMEDIATELY. etc
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A convincing plan. More like a cunning plan Baldrick.
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Over the last 11 years the Gov't should have been running a surplus and that mean't controlling the growth in public expenditure. Boom and bust Brown NEVER had any idea how to run the economy. The Uk was an experiment in Broonenomics! If Ken Clarke has been in charge we would now have a surplus to dish out to everyone as tax cuts to help people just at the moment when we need it back in our pockets.
Unless we want to become a seriously deb't ridden country we need to stop more borrowing and START to live within our means and that means...........
after 10 years of growth in public expenditure we need 10 years of static expenditure.............whatever the consequences.
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Gordon Brown recently said that bringing forward Government projects was the only way to help the country out of recession, not giving increased tax cuts. This is exactly the wrong thing that the country needs,especially as it will take a long time for these measures to have any effect.
What is needed is for the housing market to be stabilised, ending the negative equity which is projected for thousands (or even millions) of householders, people to have more money to spend, and also to save long term so that the banks will be able to loan these savings, rather than selling off these loans as happened before. To do this quickly then some kind of tax cut is necessary, including mortgage tax relief.
I would also advocate doubling the amount allowed in ISA, and also give extra tax credits for this. I would also suggest that cutting tax on petrol would help everyone, especially hard hit tourist industry.
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How to repay the debt? the Treasury hopes that it can make a few pounds by charging the banks 12% interest for the preference shares the government plans to buy from the banks.
The banks have to pay 12% interest to the government for these shares and the government, at the same time, wants to force the banks to lend to risky mortgage customers for let's say 6-7% interest. How the banks can make a profit and stabilise their finances under these plans nobody knows.
To summarize:
- The government wants 12% interest for their (our) money.
- banks should lend for let's say 6-7%
- normal shareholders (UK citizens, pensioners etc.) get no dividends as the government has to be paid first.
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In my very humble opinion the government should do whatever possible to get the pound at a higher level against euro... not probably 1.50 any more, but 1.35 should be feasible... after that, enter the euro at 1.35 : 1 ratio.
If you want to repay a huge debt, it is important you know how much it is, so freeze the currency as soon as possible and then work out the rest. It is unlikely the pound will strenghten again if the government does not declare (so call for) the expected ratio. Is it a bet? It is a load of money to be avoided -our taxpayer- the burden of.
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> There can be no doubt that he will have to reform the fiscal rules in a matter of weeks, and come up with a convincing plan to reduce the national debt as and when economic growth resumes - because in this economic age of anxiety, failure to do so would bring the risk of a dangerous run on the pound.
Won't an effective devaluation will come anyway as sterling is isolated (and, long-term, weaker) outside the Euro? When the dollar declines from its present 'money-go-home' rally, won't speculative attention turn to our currency?
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'The Chancellor has said that he needs the flexibility in the looming recession to spend and borrow more than would be possible if he adhered to the fiscal rules.'
The Chancelloe can't afford to spend, even before the economy started slow down the government was borrowing money to fund itself.
They even had to borrow money to fund this years 10p tax cut rebate, if they want to do it next year they will have to borrow again.
And that's on top of borrowing more money to pay for less tax revenues coming in.
The idea the government is borrowing money to invest in anything other than day to day spending is false.
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RP> the appalling plight of banks and other financial firms is endangering 25% of all revenue from corporation tax
Dismal. That those charged with running the economy can make such a basic mistake - overexposure to a single source of income - tells me all I need to know about their business aptitude, or rather, lack of.
It's so simple it's on my website under "Habits of Misguided Managers". Quote:
type: All Eggs In One Basket
behaviours: becomes over-exposed to a single customer
likely outcomes: insolvency (when this customer takes their business elsewhere, there may not be enough additional income to keep the business afloat)
early warning signs: the business spends all its time servicing one customer
responses: explain how the business could fail if the key customer walks; suggest sales staff
Yawn........
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OMG @ 15 what are you mad how can you even think along those lines.
all i can say is treason is still a crime thankfully.
next youd say selling northern ireland to the south along with any other overseas properties sold back, i can only hope you dont have property in spain becouse they may well just take it back.
let alone all the lives lost in conflicts to proitect the sovrenty of the people of those overseas properties.
why waste money on our military just sack them all sell off the equipment etc to cover the debt would be the next phase, totaly nuts.
just raise taxes by 15% across the board and cut government spending by the same will quickly reduce the loan amount.
close the NHS making every one take out insurance to cover health, would also save money towards the debt.
charge higher taxes on second homes, car tax increases and fuel tax upped, alcohol tax increased along with tobacco.
all measures used to pay off the debt.
but mp's are to still get there pay rises above inflation to keep them happy.
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14:
Don't believe all myths.
In the 1981-1983 recession, that is the Reagan-period you talk about, government borrowing increased (!) actually by exactly the same as the drop in private borrowing. They actually did what the current British government is doing. The key policy was not the tax cut, but
1) allowing firms to write off interest payments from tax, that is, when the prime rate was above 20% and the firm still managed to make profit, it got a budgetary transfer in effect. This facilitated the largest inter-sector asset transfer in the US in the post-war period
2) with such a high interest rates the dollar exchange rate was sent high (reaching the top in 1985 with one pound = one dollar)
3) which led to massive short-term capital inflow (sizes unseen before) that financed the budget and the current account deficit and made the US the largest debtor of the world (17 trillion dollar then including household debt)
4) almost all the capital inflow went to current consumption and not investment, creating the lowest savings ratios until then facilitating the credit based economic growth.
If you want to do this, make sure that your currency is the key international currency and hope that when your currency is devalued, you can pay back your borrowing (it was partly successful in the US in the 1980s), leaving the creditors high and dry (instead of rinsing). You also have to account for the disappearance of manufacturing (whatever left of it) and also that people would continue to expand their consumption and as real wages have not increased in the US in the last 20 years, thus it has to be done from credit. Now you have to make sure that people get credit. Since there is not enough money, you may want to create monopoly money (why don't we start with junk bonds which creates volatality in the securities markets and continue with SIVs).
Now where is it so familiar from?
So, your suggestion is actually what historically (not directly) led to the current situation.
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18. At 7:02pm on 29 Oct 2008, 5imple5imon wrote: "Isn't it a matter of confidence?
What's wrong with taking on debt for investment so long as the investment provides a return?"
5imple5imon, confidence doesn't achieve anything economically. What you are referring to is trying to keep people from realising that their pyramid scheme is going to collapse. Investment is when you use someone's money to produce something. That something has a value, and some of that value can come back to you as an investment return. When you pump trillions into a country's inflating housing market you don't produce anything, nor when you heap mountains of money onto scores of investment bankers. All of that is not investment, it is life on debt and it is by no mean sustainable.
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Post 16 Peterskitchen
This blogger is ahead of the curve for definate!
Does the Gov't not realise that all this loosening of monetary policy and now fiscal policy is only going to bring back inflation.
Gov't policy seems to be as volatile as the markets....when what we need is a steady and resolute hand.
Once inflation is back we'll have to have a new policy framework!
Best to buy houses, commodities and shares because in 3 years your CASH will become increasingly worthless!
Brooneconmics..............back to the 70's we go....hyper inflation, high interest rates, high unemployment, poor growth.
Even Camoeron hasn't got it yet.....we need repay our debts, resist taking new ones on, stop the growth in Gov't expenditure (whihc means in real terms it will be cut over a few years to a level that we truly can afford) and basically work damn hard as a nation to get ourselves out of debt!
The nice decade really is over. The nasty one is about to begin!
The sad part is that had we lived within our means for the last 10 years the nasty decade would never have to happen.
Gordon Brown is solely responsible for this debt fuelled asset boom which is now bursting in all our faces.
Come on Cameron............stop being a lackey to Brooneconomics........ tell the country as it is...we are ready to listen.
Thatcherite remedies required once more..........
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This looks like a great time for Gordon and Mandy to announce that the famous-five conditions for entering the Euro (on sell-out terms) have been miraculously met.
Value of Sterling (debts) reduced at a stroke and the whole damn mess not his problem any more - over to EU !
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Why does the Government need to open the spending taps? Next year, to quote the phrase, the pound in our pockets will be worth more. The inflationary bubble of the last 12 months or so in oil, food etc will pass. Deflation is a possibility.
If the BofE cuts interest rates and the Govt. cuts taxes, the economy will likely rise without the need to man the money pumps. Let the workers of the UK get us out of this mess not the Nanny State!
Unfortunately we have a Labour Govt. and they like nothing more than handing out largesse and encouraging debt.
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It seems a contadiction that it was a high level of debt that put the banks in their present plight, and now the government intends to do the same on behalf of the taxpayer. Let the banks dissapear and leave Mr. Prescots working class to get paid weekly in cash and not have bank accounts. Let the C.C. companies shrink and have a true economy where we get what we earn.
We did not need accounts and C.Cs. until about 30 years ago.
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Another problem looming for the chancellor is the amount of mortgage interest paid to those losing their jobs
Good for the lenders and home owners but very very bad for the taxpayers
Mortgage interest will be paid on mortgages up to £150000 from January for the qualifying unemployed.
This despite falling house prices.
So the lenders will benefit by full repayments of interest backed by the taxpayer continuing for an unspecified period of time, maybe years on the depreciiating assets of the home owner.
Not a good incentive for the home owner to take a lower paid job then.
I don't think this government have costed this one out yet but the mind boggles.
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Paying off the debt would cause a recession... No really...
All our money comes from debt, so paying it off will simply destroy the credit and reduce the amount of money which exists.
This will cause a recession...
The debt can never be paid. Any talk otherwise is simply bluster.
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33 Northernthatcherite
Thankyou ,
However, instead of staying ahead of the curve, I would rather be behind it as it sweeps in it will take all and sundry
Unfortunately, I need to repair the boat first
Do I borrow or save?
If what I think actually happens in the majority of the worlds population then savers will get value by getting good rates above interest, but before they get a decent return the tide will have swept in and the boat will sink.
We will be left floating in an ocean that clearly did not change water into Gold
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If the money borrowed is used to fund investment which would have been necessary anyway in the future, then less money for investment will be required in the future. This should make repaying the loans easier.
If a repeat of the asset price bubble is to be avoided, higher taxes will be required anyway, if and when the economy starts to overheat. There will be no need to reduce the debt until this starts to happen.
The golden rules always were economic nonsense. The important thing to watch is the real economy. Control of the money supply should be
dedicated to keeping the real economy healthy, not obeying arbitrary rules.
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Robert, I wish you weren't so negative. Maybe Andrew Sachs could complain about your negative blogs, and you'd be sent to the naughty chair with Messrs Brand and Ross?
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Maybe he could sell off the Queen and the Royal Family. Turn Buckingham Palace into Disneyland. Privatise them, and make them wear mickey mouse costumes to entertain the tourists.
Should ease up a little of the taxpayers burden.
Not much, but every little helps right?
See how they like them apples.
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true-liberal - If you make overpayments on your mortgage earlier you save countless thousands in interest that would have gone to the bank.
You end up with a net profit.
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In the land of the blighted.....the one-eyed moster is king[Canute]!
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The Fiscal Rule (FR) was introduced to Parliament when Gordon Brown (GB) became Chancellor.
Before that there was no FR.
So what is so earth shattering that the FR is to be dropped, suspended?..
Absloutely Nothing.
There is no need for PP (Pessimistic Peston) to get his proverbial knickers in a twist. Just accept that it is going to happen and get on with your life. The world will not come to an end and the sun will still rise again in the morning and you, PP, will still get your salary cheque at the end of the month.
Your apparent concern for everyone in the planet is laudable, but it is not your responsibility, so just relax and enjoy life...or maybe you can only relax and enjoy life when there is a crisis as we are having right now.
Finally, when sitting at the news desk, waiting to be interviewed, please do not do so, slouched and with your hands in your pockets, it's so unprofessional.
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Frankly, nobody gives a hoot what Darling or Brown say about the economy. They no longer have any credibility and are just introducing short-term measures to try and save their skins.
It doesn't wash with me, or with the electorate.
I am coming to the conclusion that the best thing government can do right now is absolutely nothing.
Lowering interest rates and increasing spending will cause a run on the pound and send the country to bankruptcy.
Raising interest rates and lowering spending will save the pound but make companies and individuals bankrupt, with much the same result.
So we are stuffed whatever they do. Even electing in a new government will not help, although we would all like the satisfaction of seeing labour booted out with a flea in their ear.
Labour have ruined this country, turning it into a degenerate, splintered, alcoholic, bankrupt police state. End of story.
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There can be little doubt that the problems now facing UK plc are structural and by their very nature long term. At a governmental level the old revenue streams can no longer be relied on and only as the economy rebuilds over several years can certainty about where the new revenues be found be developed. At industry sector level it is probable the banking and finance will never regain its former cash and profit generating status ( given where it has got us this is probably a certainty). Where future growth for UK plc is to be found therefore is still unclear. Any exceptional public spending now therefore could have a much more profound long term negative effect on those yet to be developed future growth sectors that in the longer term will be the only solution to our current woes. Sound business people plan their revenue streams,investment and spending plans with a precision based upon detailed knowledge and analysis of where the money can be reasonably expected to come from. Why should governments be any different? Just hoping that the average (and much overburdened)tax payer will cough up is not good enough. A detailed vision and plan for UK plc is now required. No political party seems to have yet thought past the crisis management of the immediate situation to address these issues or even initiate the vital seeding that will allow the green shoots to appear sooner rather than later. What will probably prove to be at least a five to seven year recession could easily turn out to last ten or more if our politicians continue to show such a spectacular lack of leadership.
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This is fundamentally liquidationist nonsense. Total UK debt is below the 60% Maastricht limits so there's plenty of room for more government borrowing.
Any attempt to cut spending during a recession is doomed to failiure as those sacked from their public sector jobs will end up claiming benefit so you will only shift spending from department to department.
Cuts in spending will also lead to less demand, further cutting tax revenues.
The only way to effectively cut government spending in a recession is to cut public sector wages and benefits, i.e. Snowden's failed policies from the 30s.
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What I don't understand is how Brown and Darling intend to borrow all this amount at the same time as interest rates are being cut.
Can't help but feel that everything is designed for the very short term, until the next election, after which they hope that something will just turn up.
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At Cass Business School this evening, Darling acknowledged the mistakes of the Barber Boom and the Lawson Boom but had nothing but praise for the government's actions during the Brown Boom.
He spoke about the need for targeting true inflation, including assets such as houses, rather than just CPI, yet went on to declare that the reversal of the decline in house price inflation in 2005 was some sort of victory.
He suggested that past recessions had been homegrown but that this one was due to external factors. Newsflash for Mr Darling - this recession, like those of Barber and Lawson's booms, is homegrown; only the trigger is external.
Whilst tackling the mildy irritating form of inflation shown in CPI, New Labour actively encouraged the more damaging and more explosive form - a house price bubble.
Brown's government should be relieved of their duties, as they are clearly not fit to undo the damage they have caused.
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This is hardly "relaxing "the fiscal rules its re writing them to suit.....and it goes without saying that even though the previous rules didn't work they don't admit it......
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I must confess to being confused by those posters that believe that the answer to all our problems would be a return to the economic policies of Reagan and Thatcher.
Surely the problems that we face now are both attributable to policies pursued by both leaders in the 1980s and will furthermore, be exacerbated by them.
It was finanancial deregulation that allowed the credit bubble to become so inflated and the ideological aversion of those in government to any kind of intervention in industry which has left us in real danger because we have an economy which is so heavily reliant on people working and feeling confident that they will be working in 3 months time (financial services and service industries in general).
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Instead of borrowing to get us out of trouble, why don't they just stop blowing it all on wars in other countries?
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To avoid a damaging run on the pound put interest rates up.
If we do not (put up interest rates) and increase borrowing as anticipated, then the pound will collapse and the spending we are contemplating will be wasted.
However putting up interest rates will ensure large numbers of mortgage defaults and repossessions, but it will get house prices down quickly.
It we do not put up interest rates, or worse still lower them, the pound will crash as we increase borrowing, but as our borrowing will be in foreign currencies it will cost us even more and still the economy will crash.
So in the end we are shafted anyway or more politely caught between scilla and charybdis!
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The Government is behaving in a way that, if its citizens followed suit, they would individually be bankrupted.
Moral hazard is written through this whole 'escape plan' - if indeed it's a plan at all.
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#46 - "They no longer have any credibility and are just introducing short-term measures to try and save their skins. It doesn't wash with me, or with the electorate"
I agree (ref my earlier comment #3), but I have a horrible feeling that whilst this may not wash with you, it may well wash with the vast majority of people eligible to vote.
I'm not being demeaning to the public by saying this. But:
* the real reason for the mess we are in
* the current events and why they are happening (eg CDS, carry trade)
* the sheer inter-related complexity of the global economy and associated financial mechanisms that have been built upon and over it
* the previous historic economics events/disasters, how they came about, how they were addressed, what lessons might be learnt (e.g. Great Depression, japanese crisis)
* the reality of economics being an art and not a science
c'mon, this is difficult stuff and I just don't think the level of common understanding in the street is capable of ever being raised to the required level to have this rationally debated and therefore criticised.
Plus - and the common point I think we both agree on - we live in short-term world. The press are already bored. The public are too. Until the next disastrous turn of events, that is. It won't be long .. but I fear we have several more progressively worsening (and costly) events to go through before we reach either a sufficient outcry of public anger, or the vote of no confidence in Parliament, or even both. I guess the latter is the most palatable ? and the most British.
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The trouble is that we have a government that has squandered millions over the last 11 years, and it now wants to squander more. And just like the bankers there is no accountability, just spin and manipulation.
A government that was all about "Education, Education, Education" - but they haven't learnt and adapted. And today it's announced that future students are having their grants cut because the government can't add up properly.
There was a time when one could be proud to be British. It would be great to regain that pride, but with our current captain it's clear that the we're in for more doom and gloom.
Government has expanded out of control, we squander billions on the EU, we're fighting wars with no end in sight. And they want to squander more. Keynesian economics suggest spending one's way out of recession. Now if the government cuts out the huge waste, bureacracy, unrequired costs, then it could cut taxes, and hence stimulate demand and keep the economy moving. But this government loves waste, loves bureacrats - why else bring mandy back...?
The one key message of the of a previous era was the importance of a small government that provided the necessary regulation and safety net so that the rest of demand could be supplied by the free market. Why this focus isn't paid more attention is beyond me.
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48: "This is fundamentally liquidationist nonsense. Total UK debt is below the 60% Maastricht limits so there's plenty of room for more government borrowing."
Not when the taxpayer is severely personally indebted. Government borrowing can only be funded if the taxpayer has taxable disposable income in excess of personal debt obligations. I doubt this is the case. All historical case studies of Keynesian policy break down when the taxpayers upon whose shoulders the burden of additional government borrowing will eventually be placed have thousands of pounds of high interest credit card debt. Comparisons to continental Europe break down also. How many continental Europeans are using balance transfers to juggle several credit cards? Increasing government borrowing will eventually put a squeeze on unsecured debt repayments.
As a side note, I bet by now the moderators are better informed than the Treasury.
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#46 wykhamist has summed it up in a nutshell.....we've all been shafted.
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Have a nice holiday cityNickDrew!
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Hi Robert
No political points from me, nor casting aspersions on your reportage motivations - you may be relieved to read.
Just a simple question which I've tried to get answered by posting eMails and on blogs related to various BBC radio and tv news, current affairs and money-related programs.
It's a two-part question actually:
1. With all the recent talk about the government's having to borrow as part of a strategy to anchor the economy, why in no interview nor report nor on-air analysis do we get an explanation of the terms?
I remember Peter Snow with all his graphs and digi-charts giving us extremely helpful explanations of various news stories, such as election swings, etc.
The economic situation is very complex and many viewers and listeners, like myself, are interested but with huge gaps in our economic knowledge.
You sound very credible, Robert - how's about a primer either on radio or television [not just we internet elite] on the basics.
For instance:
2. If we've just bailed out various lending institutions with billions of our tax-monies, and now we hear the government intends to borrow money for our failing economy -- exactly whom are they borrowing from?
If everyone's skint, who's got the dosh?
I've heard people mumble stuff about bonds and gilts. I don't know what those are. Can you please tell us. How do you borrow from a bond?
Also - if the government is borrowing money, on what terms is it being lent? What are the implications for us? How soon do we need to pay back the money and at what kind of interest rates?
I'm guessing you and your colleagues probably know the answers to this kind of stuff. But I'll bet I'm not the only BBC audience person who isn't offay with business terms. I don't want to be patronized, I don't want to score political points. But I would like the courtesy of a corporate policy on the part of the BBC to explain these things.
Hoping you'll agree and assure that - whether or not you provide a reply here - that you manage to blag some time on your next on-air report to make sure we viewers and listeners are treated to a comprehensive explanation of exactly what "borrowing" means.
Thanks for your attention.
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Mr Darlings policies were a fantastic winner when he was transport minister. So I believe anything he says will steer our country out of economic disaster and back onto a path of wealth and security. I can also dance on the sun....
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Peston's blog is obligatory reading on this side of the Atlantic - USA. But all the optimism -- not his -- associated with the Fed bail out and presumably the BoE scheme is foundering fast as the penny drops that the banks have no intention of opening up their lending policies at all. They will hang onto the capital or use it to buy up smaller banks and consolidate. The markets will continue to clog up and the residential property markets will fall even further as homeowners are forced to sell just to clear the decks. Those below deck will just give up.
Evidence of this is emerging fast and increasing blogs on US sites confirm this.
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Obvious! Increased personal and other tax rates for many, many years to come. Tighten your belts.
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HI ROBERT - GOT A SCOOP FOR YOU - BETTER BE QUICK - DARLING HAS ABANDONED GORDONS 'GOLDEN RULES'
THERE WAS SOME SPIN ABOUT IT BEING 'A RELAXATION' BUT THAT WAS FOR THE IDIOTS - NOT FOR MEN OF YOUR CALIBRE.
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ARE YOU FACING REPOSSESSION, DO YOU NEED A BAIL OUT?
THE ONLY PROCEEDINGS THAT CAN BE BROUGHT AGAINST A JUDGE IS FOR MISCHEVIOUS BEHAVOUR. HOWEVER, POLITICIANS ARE INFAMOUS FOR SUCH BEHAVOUR AND EXEMPT FROM PROSECUTION EXCEPT FOR FRAUD ? BUT PROCEEDINGS CAN BE BROUGHT AGAINST: THE LEGISLATION, REGULATIONS AND DECISIONS THAT THEY MADE, AND AGAINST THEIR FAILURE TO MAKE AND ENFORCE PROPER REGULATION THAT WAS THE CAUSE OF THE CREDIT CRUNCH AND THE SITUATION IN WHICH YOU FIND YOURSELF.
HAVE YOUR MORTGAGE WRITTEN OFF, AND INSIST THAT YOUR BANK OR BUILDING SOCIETY, PASS ON TO YOU, THE CUT IN INTEREST RATE BENEFIT RELIEF, INCLUDING BACK DATED BENEFIT, FROM THE BANK OF ENGLAND, TO YOU, AND IF YOU LIVE IN THE USA FROM THE FED TO YOU.
AND WHY NOT?
After all, Bankers were gambling with mortgage-backed-securities using them as collateral in unregulated volatile markets and they lost them causing a crisis ? the effects for you as a homeowner and taxpayer are devastating.
At no time did homeowners and taxpayers give authority to any bank, building society, institution or any government to create, or gamble with instruments used as collateral putting their homes at risk. At no time did your lender in principle and in law have the authority of the regulators, or authority of law.
Why should you pay for the greed and ruthless behaviour, most foul, of the super-rich bankers, who caused the credit crunch and contributed to it? ? Not only is it the biggest modern-day bank robbery but the biggest robbery of the economy leaving it vandalised. It was all avoidable. It didn?t have to happen.
At no time has the taxpayer been responsible for the conduct and dealings of private investors or for loses incurred by private transactions of banks, mortgage lenders or any financial institution.
Many homeowners struggle for years to get on ? and stay on ? the property ladder. Why should they pay for bank loses by way of: Increased interest rates; negative equity; repossessions - made homeless with predatory bailiffs plundering their property?
Why should they pay with: financial hardship; not able to put food on the table; mental stress; and devastating effects of it all for the rest of their lives and their children s lives - whilst the bankers are having a party?
CHANGE OF THE SYSTEM
Up until 1997, the Bank of England controlled the Banking system. It was common knowledge that prior to 1997, mortgages were protected from such abuse, under existing safeguards of regulations and the law, and that mortgages, in particular, were sacrosanct.
Mortgages were only to be used for the purchase of property; loans for all other purchases had to be through a bank loan or hire purchase, which were short term and had a higher rate of interest, there was a separation of deposit banking and mortgage lending. The lending banks and building societies were strictly regulated.
However, Mr Brown decided that he didn?t like that anymore. So he introduced a system were we had, the Financial Services Authority, the Treasury, and the Bank of England, (the Tripartite Authorities) carving up the job amongst them. Just one big problem ? when there was a crisis, apparently nobody knew who was in charge. The effect of all this ? the system unregulated.
The bankers most certainly knew the enormous value of your mortgage backed by the secure asset of your home, and that they would be the driving force behind a powerful booming economy. They knew they would make a fortune if they could trade them on the US financial markets in the same way as US government-sponsored-enterprises, or GSEs. However, the bankers knew they couldn?t be traded unless they were taken out of their protective regulation. So how did they get their hands on them?
Well, first, you must know what you are doing, and know how to have them deregulated. By changing the banking system in 1997, banks were able to trade CLOs and other stealth products through institutions, but an institution is not called a bank, and therefore operated outside strict bank regulations. This was the key to the unscrupulous bankers making a fortune. The question one should keep in mind is, was it Mr Brown's idea, or the Bankers' idea, or both? Who persuaded who? Brown was the only one, in his position as PM, that could make such a decision.
Mr Brown when answering questions about the economy he says: I want to do??. He never says what he can do. He says that he wants ?Transparency? in the banking system, but he somehow omits the word ?Accountability?. The only thing that will give stability to the markets is a proper DETERENT.
BROWN AS CHANCELLOR CLAIMS THAT HE IS NO NOVICE - BUT IN EFFECT, HE HANDED HIS CONTROL AUTHORITY AND THE STABILITY OF OUR ECONOMY TO UNSCRUPULOUS GREEDY BANKERS IN THE USA A FOREIGN COUNTRY.
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Any bets on a terrorist incident being engineered to distract from all this mess?
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#15 Get real !! Who the hell would want to buy Wales. It's just a bunch of sheep there. And Doctor Idi Amin Dada, President for Life and King of Scotland is no more !! So he will not be buying Scotland. As for Northern Ireland, the Irish are too busy with their own financial woes to want to take on more of the same !!
France may want the Channel Islands since they lost Devil's Island; see Papillion - the book or the movie !! A good place to dump their unwanted citizens !! Hostile environment and savage natives come free with the purchase, see news about the orphanage there !!
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#48 "Any attempt to cut spending during a recession is doomed to failiure as those sacked from their public sector jobs will end up claiming benefit so you will only shift spending from department to department."
Ah, but sacking a 60,000 quid a year do-nothing public "servant" and putting him on the dole *WILL* save a significant sum. Multiply this by many, many times and the savings mount up !! Cutting MPs salaries and expenses will make that mount up even faster !! What representation have our MPs given us during this crises that justifies their pay ??
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Just read the news that China has cut interest rate by 0.27% because they have a "recession" !! Their growth is predicted to fall to 9% next year !!
9% growth in the UK will have Gormless Gordon and his cohorts salivating like Pavlov's dogs and the Chinese complain it is not enough !!
Expectations, expectations !!
The Chinese can afford to cut rates because they are a major (if not *THE* major) exporting nation !! They also hold a massive lump of the US debt; approx. US$ 2 trillion !! With the US$ so high now, I bet they will be liquidating some of that debt before it becomes less valuable !! Watch for a sharp fall in the US$ in the very near future !!
If Gormless Gordon tries to issue gilts into that same market, I don't think he will get many takers unless the terms are disastrously bad for Britain !!
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CUT GOVERNMENT SPENDING TO REDUCE BORROWING. Government spending can be cut without cutting front-line services in schools and hospitals.
First, every single MP takes a 0% pay
& expenses increase until the economy starts to the grow. A gesture but an important one.
Did you know that government Quangos cost the taxpayer £50bn a year?
Unelected levers of government 'advising' them what to do?
How about listen to the people?
Get rid of the Quangos, simple, just announce a complete closure of activities. Give them their severance pay and let them go looking for work in the productive sectors of the economy.
Did you know that RHAs and LEAs skim as much as 17% off the health and education budget?
For what? What value for money do they bring to the party?
Abolish the LEAs and RHAs put the schools and hospitals in charge and give them money directly from government.
I reckon that's another £15bn a year.
So that's £65bn a year saved.
Job done.
One slight problem, the swelling of the quangos and the swelling of these 'middlemen' is a purely Labour phenomena.
Labour has added 400,000+ extra civil servants to the roll since 1997.
Fat chance of streamlining it then.
It wouldn't be difficult to go further and then pass the savings as tax cuts.
Let the people decide what to do to get the recovery started, after all, it was always their money to begin with.
Robert, you seem to forget that.
You also forget that in the late 1970s, the economy was in tatters (again under Labour stewardship) with a better current account position than now (a surplus), lower percentage national debt and lower personal indebtedness.
Continuous Keynesian 'stimulus' did not work then and it resulted in government 'crowding out' investment and offering very high interest rates to attract investors.
It famously led to Geoffrey Howe in 1981 raising taxes to cut interest rates prompting 364 economists to write a snotty (and wrong) letter to the Times.
Why Keynes should ever darken the UK's door is completely beyond me.
Or does Labour have a point to prove over a haunting ghost from the past?
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So they aren't going to Nationalise the Building Companies then ?
Thats what they were talking about doing to save jobs.
Desperate times desperate measures.
I still remember Bradford and Bingley.
Three days after its directors state it is in healthy condition, the Gov't take it over, with no compensation to shareholders, and give it best bits to a Spanish Bank.
Very little air time has been given to the Spanish financial crisis, affecting many Brits living abroad who have bought homes in Spain.
Of course Spanish property prices have fallen more in some areas than the British prices.
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The Chancellor will print money.
It would just be nice if he treated the Public sector with a bit more respect and at least matched the average private sector pay rises.
Of course with Inflation heading up possibly to eight to twelve percent everyone will feel poorer.
As Sterling falls towards one pound one dollar, all our imports will start to become more expensive.
Sterling will decline further against the Euro.
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Good morning,
Having just read all the doom and gloom again must tell you that the cocks crowed last night in Dubai and this is a sure sign that my remedies are working.
Some geezer tried to borrow our truck last night -not until the fat lady croaks.
Regarding the selling of vast pieces of real estate to pay the bills.
I am sure that someone has already borrowed the UK, sold it back to them, bought it again and given it back.
Can you please leave it alone as we will be in sight of the coast soon.
PS 2.1 bn to save Iceland but 18 bn car scam. You think I'm crazy.
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Ah, the Government gives Gilt edged securities to a bank, who then credits their account (the Gov't s) with a sum of money equal to the value of the Gilts.
Or the Gov't pays it's contractors directly with Gilts.
Gilts are just promises to pay later that attract interest.
Like Hire Purchase contracts, nobody strictly speaking has to put money up front.
Printing Presses are go !
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Actually, if Gov't spending is cut, more businesses will fail.
It is easy to close a business, hard to start one up again.
Capital once lost stays lost.
Not many ex millionaires make another fortune !
Restraining Public sector pay has put the brakes on the economy at just the wrong time.
Afterall the Public sector represents a significant body of consumers.
If they can't spend money or are put into poverty (some are) then the businesses that depend on their trade will start to fail.
QED.
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71
Didn't high paid consultants start with the Tories ?
Five Hundred Pounds an hour !
Thank you Mrs T!
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1. We have spent and borrowed our way into this recession.
2. Our government proposes spending and borrowing our way out of it.
No crystal ball required to predict the future - absolute disaster!
Regaining control of the asylum is the main priority.
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"Government borrowing can only be funded if the taxpayer has taxable disposable income in excess of personal debt obligations" says W/S.
Or if they eventually print the repayments and leave non-state pensioners to bear the grief. Remember the inflation after Barber's 'dash for growth' and the Weimar mega-inflation?
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Dear Mr Supercalmdown,
Please calm down!!
Moderators going down like flies keeping up with you.
Stopped for breakfast.
Locals blame everything on de Gaulle, but I don't see what the Welsh have to do with it.
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A falling Pound could actually be quite beneficial in the longer term.
Reduced imports - good thing.
Potential for more exports , another good thing.
No more cheap imports though and no more cheap holidays.
Time to invest in the british seaside!
Shortly to have a surge in new business I would think.
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Who thinks, as I do, that Robert should be the new Doctor Who? ...
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Gosh, there are people who still think that there is a crowding out effect...
The whole securitisation happened because the capital refuses to invest in the real economy.
The interest rate increase in 1981 was a general phenomenon (with the exception of France) in the Western world and served against inflation and not for economic growth. Also it was a break with the original Thatcherite policy (it took two years) that claimed that wage increase doesn't cause inflation (hence the huge increase in wages in the public sector - that was Thatcher).
The British economy did not recover from that shock until 1984-85. It was a consumer driven recovery (and in the meantime creating a deficit in foreign trade which required foreign capital inflow to finance it - this is when the UK became a component manufacturer instead of product manufacturer) and got to its logical point of the 1987 Budget. It also left the UK extremely vulnerable to external shock and it came in 1991.
France that did not apply any liberal policy until 1986 went through roughly the same cycle just as the rest of the advanced capitalist economies.
The biggest mistake of the Labour governments of the last 11 years is the extension of the Thatcherite policies. Now they can harvest what they sow.
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Of course for Britain to benefit from a falling pound there must be an industry to export something in the first place.
I would like to hear what the Gov't and shadow Gov't have in plans to establish new manufacturing industries within the UK.
A Gov't who can come up with a convincing plan to re industrialize Britain would get a lot of Votes.
And respect from foreign leaders.
This is a difficult problem.
To say Britain will specialize in creative or high tech industries isn't going to work.
Because the size of those markets is not nearly big enough to make up the needed level of output to make a balanced economy.
To make Labour competitive pay must fall.
Now the less painful way is to allow the exchange rate to atrophy thusly sharing out the fall in standards of living across the whole population.
Or one could just Inflate the economy, and hand out low pay rises to the lower echelons, penalising the poor, whilst allowing the more wealthy to continue unaffected.
So far the Gov't has opted for the later option.
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Would the current crisis have been avoided if the bank of England and more importantly the Federal reserve had included house prices in their measure of inflation?
And in breaking the fiscl rules should not the chancellor spend money only in those areas likely to increase the profitability of the UK?
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What else to do; we don't have much choice.
This could have been prevented if BOE was given wider parameter not just inflation to set interest rates; like asset price inflation, growth, etc. Also CPI is a manipulated measure which didn't help.
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I must top up my consultancy contracts.
Money makes the world go around!
No Mr Peston would not make a good Dr Who!
Such blasphemy !
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72 @supercalmdown
I remember Northern Rock.
It was nowhere near as bad as painted, but Darling's utterances made the situation worse.
Like B&B, the best bits were sold to a foreign bank - J P Morgan the day before Blair joined them.
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On a more serious note...................
That fooled you !!!!!
Throughout life I have always tried to put myself in other peoples shoes in order to put alternative shoes on.
This theory always fell down with high heels.
However, if I was the British government I would............................................
On the road again, looking forward to.....................................
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UK borrowing levels as mentioned by others here are low compared to a lot of developed countries so there is room.
No, of course we dont like borrowing especially in this climate, but Robert, whats the answer?
Unfortunatley you are right lower tax revenues and higher Govt spending (on dole payments etc.,) if the cupboard is bare, the people out of work cannot feed their families - I am afraid the cash has to come from somewhere.
Also, if govt borrows for capital spending, thats not a bad thing as it sustains the economy and also creates assets - sort of ''asset backed finance'' lol!!
It has to be done and thats it. There is no magic wand for cash! If we aint got it - we have to get it (or starve) ''end of''.
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Of course another option that would maintain standards of living.......
Import restrictions, high tariffs on imports from outside of Europe.
This would reduce the need for pay cuts for manufacturing workers.
As the manufacturers would be competing on a more level playing field.
IE not competing with artificially disadvantageous exchange rates.
Afterall how much does a pound of Rice cost in the UK?
How much in China ?
How many Yuan do you get for a Pound?
So Uk Rice Pounds buy more Rice in China than in the Uk, therefore in Rice terms the Uk Pound is overvalued.
This problem of faulty exchange rates leads to huge disadvantages for UK manufacturers, but huge advantages for any one with a pile of Sterling as cash!
You do not need to be a genius to work this out.
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The markets have a strange possibly unfounded confidence in Housebuilders today......
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I used to think if I had a TARDIS how nice it would be to go back in time and buy a Lottery ticket.
Unfortunately as most of the companies I would have invested in have gone phutt!
I would probably be back to square one by now !
Still, be able to have some nice holidays with a TARDIS........
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TARDIS
Transdimensional campervan.
I like Campervans soemthing very 60's about them.
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Hi Rob,
Economics 101 lesson for the Treasury. and Mr Darling.
Money Supply and Inflation:
What happens then the number of goods available on the market contracts (demand drops) but the amount of money chasing this new limited supply of goods (ie an increase in public spending) increases?
Answer: Inflation. But in this case the money supply is going to be so distorted that the result is most likely hyperinflation. Clearly the braniacs at the Treasury know nothing about inflation, or they simply choose to ignore this problem.
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As a Director of a business, of you knowingly take on debt you cannot pay in the "normal course of trade", you are potentailly committing illegal acts.
Mr Brown, any ideas on how you will pay it. UK plc is a credit risk now, so you will soon have to pay your overdraft back (ouf of your control), and your credit risk is increasing.
If you can't repay, someone will want your assets back - quickly. Please give them those you have recklessly pawned off, not mine which I have saved and paid for.
Failure to either hit your budget, deliver customer satisfaction and not foresee major market change are normally good reasons to change the Chief Exec in the real world
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84:
I fully agree with you supercalmdown on this. Essentially the policy choices are those you mentioned and those are the constraints.
This is why from policy point of view the current crisis is not at all complicated (while rather intricate from an academic point of view). Once the decision is made (if it is made openly and clearly) the rest fall in their place.
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This is nowhere near as bad as it appears, nor is it as worthy a story as it appears. Please remember that the British government is now a major shareholder in some of the world's largest and (usually) most profitable banks. We can simply raise the funds to repay the additional borrowing when we come to sell off those shares.
The answer is very simple. The real question should be 'when do we intervene and start pumping vast quantities of public money into the economy in order to get it working again?' That is the problem. If it goes in now, it will simply be swallowed up. We need to wait until the economy is ready to turn around, then inject the cash.
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95:
Fisher's equation on this works only ex-post and not ex-ante, because every element of the equation is conditioned (context dependent).
But I agree that the current crisis management is likely to fuel inflation, but not because of the money supply per se.
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This Chancellor, to quote a notable phrase used by General Montgomery, is "100 percent useless and 100 percent wet"
I say this because I listened to him this morning on Radio 4's Today Programme struggling to put into constructive English precisely what was meant by his requirement for the banks to whom he has given Govt funding must return to their 2007 levels of borrowing to business.
HOWEVER
He added that 'of course' (as he likes to say) it would be 'daft' (sic) to lend to firms who are in trouble; ergo only the firms with robust order books are going to 'get past the front door of the banks'
This man and his followers (thye be many..) belongs in a toy factory not at the head of a Western industrialised country.
Figure it out.
How many firms who WERE robust and profitable up to 2007 are now NOT entirely because of the recessionary mess we're all in?
Wet because it's a complete cop out to stop his precious succour to the collapsing banks from being burned to ashes by incurring further 'risky' liabilities.
Useless because it's obvious that the firms who suffered most over the last 6 months or so are the very ones, who by demonstrable track record of profitable trading for X many years are the VERY ones most likely to need reassurance and financial support - right from the top.
What the heck was the point of supporting those particular banks AT ALL?
Consider this, Chancellor:
For 10 years business has been assured beyond reasonable doubt that the basis of UK Govt economic policy was "STABLE MACROECONOMICS". Brown virtually invented the phrase! I have a letter in my desk from HM Treasury from 2007 STATING EXACTLY THAT and moreover stating that stable macroeconomics were the the overriding consideration in ALL Govt domestic economic policy.
SO!
In short summary, as if it wasn't obvious enough. If a firm is in real cashflow trouble today, who's fault is it? Modest examination of their P&L by year will show who's business has been performing PERFECTLY and meeting all its liabilities until now.
Sudden collapse of sales in the 3rd qtr of this year, as many of us in business know - can hardly be described as anything less than coincidence.
This spineless and escapist behaviour will haunt the Chancellor and the whole of the Labour party increasingly in the days to come.
GC
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This situation is Bizarre the government is less concerned with actually resolving the problems and more concerned with stealing media headlines.
We are told that the problem is that banks are not lending to businesses who therefore cannot conduct business as usual and as a result have to lay people off this then reduces tax income and increases the cost of social welfare programs.
Surely the answer is too set up a corporate lending facility within Northern Rock and instead of pumping billions into the rest of the banking system who are just hoarding the cash we channel the lending directly through Northern Rock Straight to the businesses, as long as suitable Risk management is adhered to we are creating an asset within Northern Rock the revenue generated for providing the funding will then translate into Northern Rock being able to repay it's obligation to the taxpayer and the increased corporate lending will allow business to develop and employ more people therefore in increasing Government tax revenues (both Corporate and Income). It will also reduce are dependence on the big banks who will be forced to reduce their lending rates to compete.
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I'll keep it brief,
How will the Chancellor repay debt?
He won't, we will by paying higher taxes and interest rates when the tories are elected in 1.5 years.
Ta da !
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From this site today.
Darling: "If you have got a good business in front of you and if your prospects are good, the pool of money available is the same as it was in 2007. What I can't guarantee is that anyone who walks in the front door of the bank will get what they want. It would be daft to claim that. What you can say is the pool of money will be the same."
What he should be saying is if you have a good business record BEHIND you..
100% wet, 100% useless. What can I say?
GC
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Hi,
I reall don't know much about Economics but what I do know that the TAX PAYER'S MONEY has never been used for the in a proper way i.e, Education, Health Service and the wellbeing of the people, instead, sadly to say that our hard earned money goes into WARS WARS WARS WARS and nothing else. Our hard earned is being used to kill INNOCENT PEOPLE AND GET OUR OWN BROTHERS AND SISTERS KILLED FOR THE GREED AND TOTAL IGNORANCE OF OUR POLITICIANS AND DECISION MAKERS who we vote to suposedly protect us and look after us. What an irony?
How the Chancellor will make it better? That's a good question but not easy to answer because it's always us the people who will have to pay the cost for their mistakes.
Why Mr.Darling don't do something like get the money from the FAT CATS , THE CELEBRITIES, THE SUPER RICH, THE WAR MONGERS. If he can do that then I will believe in DEMOCRACY because these people don't care about the Economy and mostly all their money is in OFFSHORE BANKS IN CODED ACCOUNTS so, meaning UNTOUCHABLE. If the Chancellor can do that then he can have some respects from the LAW ABIDING CITIZENS. I hope things will get better soon and that there will be more stronger LAWS to protect us HTE COMMON PEOPLE.
Moubarak.
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yo #84
I vote all the most able and dynamic should move to Scotland, where they need talent and industry, with the SNP assert Scotland's full independence, rebuild the brave old country, end the involvement of English politics forever in Scotland and leave England and Labour to subsist on EU handouts.
That would be a turnaround. How about it Alex? You up for a influx of hardworking foreigners? I wonder what the other Scottish Parties would think of that idea.
GC
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didn't AD and GB already ignore their fiscal rules? What was the point of them anyway? This whole situation still smacks of smoke and mirrors-none of this shows any support for families who will lose their jobs and homes, nor indeed, those who have aleady done so!
As a country we have been led like lambs to the slaughter, and apart from utilising our right to freedom of speech, our traditional national character of not making a fuss and just getting on with it prevails.
Either way our current government are responsible-
They knew this was coming and knew what was going on with the banks
Or
They didn't have a clue
Both options prove our leaders are unfit for purpose. This new style of money manipulation is going to be formally named 'canuteism''!
We're bored with it cos the nanny state isn't doing anything to help us simple folk-nothing new there then?
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96 keepsmiling
It is your assets and everybody elses assets that are a risk, not Browns. Brown has no liability other than at the polls. And there is not a thing anybody can do about it until there is a poll. Money does not seem to be any object to Brown at the moment, the figures just get bigger and bigger and the outlook appears to be one of global saviour rather than local fixer. Before this jamboree there were tut tuts about a million here and there, now billions are common and trillions are creeping in. I support intervention because I cannot see any other route, but I have concerns about somebody who so easily can move from millions to billions to trillions in the red so rapidly and so casually.
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Most ordinary people in the street do not realise what is actually going on at the moment. They will become painfully aware in the coming months.
After receiving a mortgage endowment policy valuation on Monday, and having previously paid off the mortgage, I decided to cash in the policy and duly sent off the letter to Standard Life yesterday.
Upon reading the Mail this morning, ref Standard Life and their slashed payouts, I rang for todays valuation which has resulted in a 12.87% drop in value since Monday. It is the third time this year that Standard Life has slashed payouts to with-profits funds.
Theft from people's savings is taking place upon a scale that has never been experienced before, both in pensions and endowments that may be used for what is considered to be the main investment in their lives, ie the mortgage for a home.
At the same time, I read that bonuses are still to be paid out to the perpertrators of this mess. Some people will never get the chance to recover from this theft as they approach retirement.
As I have said before, we need to see blood on the floor.
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Oh dear Robert, there are still some, like #1, who think that your reporting has caused the entire financial crisis from Northern Rock onwards. As if informed people in the market didn't know what was going on. The run on NR was both justified under the circumstances, and forced the Govt to do something about it. It was always too late for the ordinary shareholders unfortunately.
This crisis has been caused by irresponsible borrowing and irresponsible lending - usually by the same institutions. We need an informed debate to ensure that HMG doesn't fall into the same trap. This means that. as a nation, we may need to tighten our belts and consume less in order to pay our way in the world. All of us will still be better off than those in the Asian economies and elsewhere who work long hours in dreadful conditions to make our cheap consumer goods.
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Alistair Darling won't pay any of it back we all will and it will fundamentally affect the financial options of chancellors for the next ten to twenty years.
Whoever is the next Conservative Chancellor in 2010 will have similar problems to face as Sir Geoffrey Howe did in 1979 when he inherited the spoils of a financially and morally bankrupt government policy after the Winter of Discontent.
All we need is for Gordon Brown to go cap in hand to the IMF like Jim Callaghan and we will have 1979 all over again.
The golden rules were bent by keeping PFI and PPP off the governments debt figures to keep debt below 40% to assuage Gordon's vanity and ego. Just ask Enron and the banks (northern Rock, HBOS, Bradford & Bingley in particular) where keeping activities off balance sheet gets you.
We have our new hospitals and new schools bought on interest only mortgages in the form of PFI deals which will drive how and where we treat our sick and educate our children for the next 25 years.
In five years time the anger over local hospital and village school closures will be over not health or educational standards but the simple financial logic that we will have to pay for the PFI hospital or school whether it is full or not so the old local and convenient school or local maternity unit or small hospital can go hang.
How many small children will be bused across towns and pregnant mothers and heart attack vicitms will die in ambulances going many miles to hospital because of Gordon Brown's golden rules.
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#91 Then again, how many rice fields are there in UK ?? So *imported* rice has to account for transportation (not much) and middlemen (most of the increase in price) !!
Now, if the UK were to barter for rice from Thailand - North Sea oil for rice - just as the Iranians did, the price of rice will fall dramatically !!
#105 ....move to Scotland ?? I thought the idea was to flog Scotland to the highest bidder to repay for the government loans !!
Since you are in the racing car business, you must know a few rich people in the F1 "industry". Perhaps you can get them to do a whip-around and buy Scotland. A Scottish Grand Prix - up hill and down dale - would be more fun than just going round and round a circuit until everyone is dizzy !! And dizziest of all are the young(ish) ladies in minimum apparel; they began that way to start off with !!
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i do have one totaly mad way this government could deal with the debt crisis.
they could
1- legalise all drugs and have a very high rate of tax on it.
2- they could do a deal with the pope and get the church of england dissolved as devil worshipers that taking there assets.
3- they could pretend not to be in when payments are due.
4- they could do nothing and let the balifs come in and take over ( european takeover).
5- my personal favourate hike up taxes on every thing and reduce public spending to cover the debt.
6- charge immigrants a fee to move in then over tax them.
7- do nothing just sit there and smile to the camera, knowing it will be someone elses problem soon enough.
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#109
Secondary blame: The way I read it this crisis was caused by irresponsible borrowing by property-based lenders thinking that they were onto a winner buying cheap money - principally from the USA - to sell on. To be honest I had never imagined such a thing took place till the story broke and frankly they all belong in gaol.
There wasn't a crisis as such in the UK until the equity on US properties fell thru the floor and the US lenders couldn't raise any more capital to sustain their businesses. Then they started leaning on those who'd borrowed from them. Cue NR. Because of what is euphemistically called 'over-exposure' to sub prime loans, as we now know them.
Tertiary blame: in my view can be firmly set at the door of the US Government failing to see quickly enough that the damage that would follow from the loan-domino. The knock-on effect could have easily been halted by securing the homes and mortgages of those at risk from losing them, as they are now doing, or so I understand from a snippet on the BBC news this morning.
UK fiscal revenues were dropping and certainly there was too high a level of personal debt, sure, but the latter was containable and reduceable if constructive measures to improve peoples' means has been introduced, ie: emphasis on Govt wealth creation rather than spend.
The means to achieve that were never considered and yet still are not, given the PM's team stated intention to spend their way out of this mess.
Oh - Primary blame?
Both Governments allowing the loan domino to exist at all and fooling themselves into believing that the companies mixed up in it had any commercial or ethical right to continue in business at all.
GC
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Although we are more than twelve months into the credit crunch and much has been written and said about what is or isn't going on, nobody seems to be able to fathom out what is actually happening within the financial markets or if this will manifest itself into a world wide depression and that raises a number of disturbing questions.
Firstly, why did the credit crunch not happen several years ago when the cause was first identified and the banks knew that the stupid financial engineering techniques they were using would lead to sub prime mortgage problems and subsequently the toxic debt problem that is now proving difficult so difficult to unravel.
Secondly, why did governments around the world not act sooner to prevent the situation from getting completley out of hand. In the case of the UK was the government afraid that it would be accused of over interfering in the way in which the free markets should be allowed to operate. Especially at a time when the markets were booming and everyone assummed they were making vast ammounts of money for the economy.
Finally is it because the central banks/bankers are now trying to regain control of the money supply after they realised, too late, that they had lost control of the money markets and the money supply and the complete system had descended into chaos and was out of control. Or is this simply the way that unregulated markets correct themselves from time to time.
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It's a pity that there never seems to be any good ideas from commentators about where any extra government spending should be directed. One area in particular that deserves attention is the persistent UK trade deficit. Perhaps goverment sponsored business investment (e.g. cheap long term credit) in selected sectors might act as a substitution for imports? This would affect employment and the balance of trade. Is too much to ask for viable alternatives to increasing consumer demand, again.
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#112, nice one.
but you couldn't do that deal with the His Holiness - he might insist that the vast assets of the Catholic Church be given back that that were stolen on the orders of Henry VIII.
And that would mean all the grace and favour estates being handed back and bankrupcy for the landed gentry.
oooh, hang on, maybe you're onto something there..!
GC
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wayword bemoans scaremongering and Mr Peston causing "a run on the pound "because we are nowhere near the borrowing levels seen here or elsewhere in recent history"
Mate! Why do you think governments have to borrow?
Could it be something to do with govt not being able to pay the bills? Well I've got news for you. When UK went to IMF in 1976, the trade and budget deficit was nowhere near as big as it is now and if you don't believe me read this extract from a Guardian piece in 2006 and for added laughs they add the only thing that is saving UK IS THE FINANCE GENERATED IN FINANCIAL SERVICES SECTOR ..the same financial services sector that is being found out for the sham it always was !
"Crowning the worst year for the trade deficit since figures for imports and exports were first collected in Stuart times, the government admitted yesterday that Britain was just under £56bn in the red in 2006.
Data from the Office for National Statistics showed that under Tony Blair, Britain's trading performance has been worse than under any of his Labour predecessors. Worse than under Clement Attlee and Harold Wilson, both of whom had to devalue the pound when the trade figures turned nasty, and worse than under James Callaghan, who was forced to seek help from the International Monetary Fund amid the sterling crisis of 1976."
Mate that was written in 2007 it's got a lot worse since then.
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15's suggestion got me thinking. How about selling the Royal Family? That should fetch a few bob.
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#113 guy croft
Both Governments allowing the loan domino to exist at all and fooling themselves into believing that the companies mixed up in it had any commercial or ethical right to continue in business at all.
I totally agree with you, Guy. However, it does beggar the question of who was actually on the Boards of these companies and whether there was a conflict of interests anywhere which wasn't declared at the time.....?!!
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The company i worked for has just gone insolvent.
i have just lost my job.
The reason is soley because of the downturn in the construction industry brought upon by the incompetence of the banks and the ignorance of the goverment not to have acted 18 months ago.
Whatever the goverment does now is irelevent to me and my work collegues as we wont be able to go back to work because it doesnt exist.
I now face the prospect of losing my house.
Why cant the goverment bail me out with a low interest loan say 1% to get me, my collegues and the economy.
Otherwise i will just have to take the law into my own hands to feed my family?
Is that what we are heading for? A civil war.
If things get any worse, i am up for it. I dont want my children to be cold and hungry because of these horrid peoples faults
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This comment was removed because the moderators found it broke the House Rules.
Help.
Can someone please explain why increasing the national debt will lead to further devaluation of sterling? If a huge amount of sterling is hoovered up by the increase in government borrowing wont this have the opposite effect by the increased demand to buy the extra governemnt bonds? Combine this with the contraction of the money supply taking place from the de-leveraging that's taking place and I would have thought that if anything the value of sterling will increase.
Appreciate it if someone could provide an expalnation of why sterling might de-value.
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I don't get any of this. Didn't we get into this mess because interest rates in the US were too low for far too long and people over borrowed? Why is the remedy the same policy that got us into this mess in the first place. I would love it if Robert could explain.
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# 120
I truly sympathise with your prdicament, especially when you have family responsibilities. There are only two things you can rely on however. (1) The government will be no help to you whatsoever. (2) There will be no civil war. Wars of any kind are fought for strategic issues, like territory or wealth or even ideology. They are not fought over debt.
It's your family and friends who are the only ones you can rely on to support you while all this passes (as everything does). And of course the charities ...
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The fiscal rules were nothing more than more Nu Liebour smoke and mirrors. There is no definitive start or end date to an economic cycle. This is a totally subjective call. The clunking fist decided where the economy was at any given moment to suit the Nu Liebour economic mirage. Gordy has borrowed, spent and stealth taxed for 10 years. He was more than happy to bask in the reflected glow of the good times, continually telling us he had ended boom and bust and that house prices would never be allowed to get out of control again. Remember that? He claims it's all the fault of America. Rubbish, pure rubbish. Much of the "boom" was built on sand foundations. The cupboard is bare and we all know who emptied it. And now that the government has run out of money it's going to borrow more just like an out of control spendaholic with a wallet full of credit cards. The age of irresponsibility happened under the guidance of the clunking fist and will now continue under the guidance of his puppet replacement. Time for an election to vote out these economic incompetents!
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Fingers in ears waiting for GB's borrow and spend bubble to go bang...
How on earth did he fool so many people for so long when he was the Chancellor.
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#119, thanks
Whoever they are, let's be clear: this really is a war being waged by the 'great and the good' and they are determined to win it at ANY cost. We really must not allow that.
#120 says it all. Brandyzee - if you do nothing else at least sign my petition at:
http://petitions.number10.gov.uk/Harsh-treatment
This could turn on the definition of 'arbitrarily' (something rather arbitrary in itself) but my attention is focussing currently on:
Article 17 of the Universal Declaration of Human Rights which states that: "no-one shall be arbitrarily deprived his property"
GC
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Whilst one appreciates the need for new government spending to be used to improve the increasingly dire condition of the economy, one would also appreciate if the existing pattern of government spending is restructured to meet the same criteria.
I don't envy Mr. Darling the intellectual exercise that needs to be performed but the fact that he recognises the need in the first place is reassuring. Oh that his predecessor had possessed the same clarity of circumstance!
Might I first put in a request for a cut in income tax through raising the personal allowances. This is long overdue.
Large infrastruture projects can now be brought on stream and others contemplated. However, we do need strictures within the contracts for UK suppliers and British employees to be first in the queue within reason.
Government spending needs to become skewed to long term economic improvement through the education, taxation and benefits systems. Idiotic projects that just massage bureaucratic egos, such as ID cards, must be cancelled.
There is also a need for funding to pump-prime new industries which can provide a long-term benefit to the UK.
The way to manage this entire process will require intellectual and managerial skills. I have reasonable expectations for Mr Darling but not of his party and certainly not of the Prime Minister. I am not too burdened as to the attitude of overseas investors as they are more likely to invest in countries actually working to produce viable results rather than those too overburdened by unredeemable debt. We have problems but they are not that bad.
We need to ensure that we do not panic ourselves into taking short-term measures. I fear that wholesale cuts in the base rate will not work yet. It is apparent that the money markets have factored in an imminent cut but this need not be large.
The problem that this government has is that it is likely to run out of time. If a good plan can be drafted it can be carried forward into the next government. I have expected for some time that this will need to be a National Government.
The coming slump is going to be unpleasant. However, it does create a positive opportunity for this country to put its collective house in order. This will require that prevailing attitudes change in all sections of the community. It is going to be tough but in the end we need to make it worthwhile.
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Look at this for a disaster that might yet transfer across the Atlantic.
http://www.thenation.com/doc/20081110/greider2
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?
Leo W. Gerard, president of the United Steelworkers, raised these explosive questions in a stinging letter sent to Paulson this week. The union did what any private investor would do. Its finance experts vetted the terms of the bailout investment and calculated the real value of what Treasury bought with the public's money. In the case of Goldman Sachs, the analysis could conveniently rely on a comparable sale twenty days earlier. Billionaire Warren Buffett invested $5 billion in Goldman Sachs and bought the same types of securities--preferred stock and warrants to purchase common stock in the future. Only Buffett's preferred shares pay a 10 percent dividend, while the public gets only 5 percent. Dollar for dollar, Buffett "received at least seven and perhaps up to 14 times more warrants than Treasury did and his warrants have more favorable terms," Gerard pointed out.
"I am sure that someone at Treasury saw the terms of Buffett's investment," the union president wrote. "In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal--50 percent invested and 50 percent as a gift--is quite consistent with the Republican version of spread-the-wealth-around philosophy."
The Steelworkers' close analysis was done by Ron W. Bloom, director of the union's corporate research and a Wall Street veteran himself who worked at Larzard Freres, the investment house. Bloom applied standard valuation techniques to establish the market price Buffett paid per share compared to Treasury's price. "The analysis is based on the assumption that Warren Buffett is an intelligent third party investor who paid no more for his investment than he had to," Bloom's report explained. "It also assumes that Gold Sachs' job is to protect its existing shareholders so that it extracted from Mr. Buffett the most that it could.... Further, it is assumed that Henry Paulson is likewise an intelligent man and that if he paid any more than Mr. Buffett--if he paid $1 for something for which Mr. Buffett would have paid 50 cents--that the difference is a gift from the taxpayers of the United States to the shareholders of Goldman Sachs."
The implications are staggering. Leo Gerard told Paulson: "If the result of our analysis is applied to the deals that you made at the other eight institutions--which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return--you paid a$125 billion for securities for which a disinterested party would have paid $62.5 billion. That means you gifted the other $62.5 billion to the shareholders of these nine institutions."
If the same rule of thumb is applied to Paulson's grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers "to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years."
Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns. I hope they are mistaken.
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120 brandyzee
Check out your figures before you start talking to anybody. You will need to to talk very shortly but you cant negociate without knowing where you are. You might not be able to negociate anyway. Go to the Jobcentre and ask for info. Check any insurance policy in place that might help re loss of job. Contact Citizens Advice. Bear in mind the government has asked the banks for repackaging of mortgages as a first option. The courts have to listen. However if the situation is not manageable the inevitable happens. It may be worth going along to your MPs next surgery to ask what is going on and where to get up todate info, the situation is still in flux. MPs are variable but some are exceptionally good. Try to ensure that anything coming through as policy that might help you is being checked out. Put whatever queries you can in place and document. The courts are likely to ask for delay in any action against you if you are being positive and proactive in the matter and any documentation helps. A bound diary, such as journalists use, is considered a legally sound document so note all telephone calls and discussions. Report to your MP if any procedures which should be followed are not being followed. Finally Good Luck.
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#117 You have to compare like with like and not sensationalise the statistics. In 1976, a shilling (5p) could still buy something worthwhile despite the 15% inflation. What can you buy for 5p today ??
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The fiscal golden "rule" has been nonsense for a while. The government has lied about the debt load and then moved the business cycle and eventually like most frauds ran out of elbow room. No one with more than two brain cells believed Brown on this subject for a long, long, long time.
It is clear what Brown's plan is - a massive inflationary spend. Worked well in Zimbabwe didn't it.
Verdict - Sell GBP.
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#120
"I now face the prospect of losing my house.
Why cant the goverment bail me out with a low interest loan say 1% to get me, my collegues and the economy.
Otherwise i will just have to take the law into my own hands to feed my family?
Is that what we are heading for? A civil war.
If things get any worse, i am up for it. I dont want my children to be cold and hungry because of these horrid peoples faults"
So you would rather steal and attack people than live in rented accomodation paid for by benefits there to help you at times like these to ensure you have no reduction in your standard of living. Margaret Thatcher was right, there is no such thing as society. I hope you get what you deserve.
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#122 (1) Since the government borrowings will be mostly from foreigners, it will not "hoover up" much sterling.
(2) When the government debt is too high compared to its perceived ability to pay back, the foreigners will get jittery about it and stop buying sterling. In fact, they might start selling sterling for other "stronger" currencies.
(3) When the government announces that its aim is to cause inflation (excess funny money over assets held), foreigners will withdraw their capital invested in UK and take out that asset value with them. This further reduces the amount of asset value left in the country.
So the sterling goes down. It is the "do unto them before they do unto us" mentality !! Sentiments have no place in the business world !!
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This could happen here too!
Reported by the US Magazine The Nation:
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?
Leo W. Gerard, president of the United Steelworkers, raised these explosive questions in a stinging letter sent to Paulson this week. The union did what any private investor would do. Its finance experts vetted the terms of the bailout investment and calculated the real value of what Treasury bought with the public's money. In the case of Goldman Sachs, the analysis could conveniently rely on a comparable sale twenty days earlier. Billionaire Warren Buffett invested $5 billion in Goldman Sachs and bought the same types of securities--preferred stock and warrants to purchase common stock in the future. Only Buffett's preferred shares pay a 10 percent dividend, while the public gets only 5 percent. Dollar for dollar, Buffett "received at least seven and perhaps up to 14 times more warrants than Treasury did and his warrants have more favorable terms," Gerard pointed out.
"I am sure that someone at Treasury saw the terms of Buffett's investment," the union president wrote. "In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal--50 percent invested and 50 percent as a gift--is quite consistent with the Republican version of spread-the-wealth-around philosophy."
The Steelworkers' close analysis was done by Ron W. Bloom, director of the union's corporate research and a Wall Street veteran himself who worked at Larzard Freres, the investment house. Bloom applied standard valuation techniques to establish the market price Buffett paid per share compared to Treasury's price. "The analysis is based on the assumption that Warren Buffett is an intelligent third party investor who paid no more for his investment than he had to," Bloom's report explained. "It also assumes that Gold Sachs' job is to protect its existing shareholders so that it extracted from Mr. Buffett the most that it could.... Further, it is assumed that Henry Paulson is likewise an intelligent man and that if he paid any more than Mr. Buffett--if he paid $1 for something for which Mr. Buffett would have paid 50 cents--that the difference is a gift from the taxpayers of the United States to the shareholders of Goldman Sachs."
The implications are staggering. Leo Gerard told Paulson: "If the result of our analysis is applied to the deals that you made at the other eight institutions--which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return--you paid a$125 billion for securities for which a disinterested party would have paid $62.5 billion. That means you gifted the other $62.5 billion to the shareholders of these nine institutions."
If the same rule of thumb is applied to Paulson's grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers "to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years."
Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns. I hope they are mistaken.
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Guy.
The other point I forgot to make is this.
If public offices and departments have a Duty of Care to provide an agreed standard of service, how can we apply this to our government and make it stick?!!
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A securities transactions tax, harmonized internationally, to raise revenue in a way that satisfies the public's understandable feeling that the financial sector, which created this financial crisis, should not benefit from the solution.
http://www.nakedcapitalism.com/2008/10/managing-down-bretton-woods.html
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Robert
When you say "How will the chancellor repay debt" DO you mean - how will the chancellor reduce the amount of debt the government has or merely how will the chancellor reduce the rate at which debt is increasing?
The latter is relatively easy - assuming the economy recovers then tax receipts rise.
The former is virtually impossible PSBR has usually existed - only in a few years has their actually been a PSDR and there is no way this Government will be able to get in that position without introducing austerity measures - yes we will have a deeper recession but it will put us on a better footing for the future.
As far as I can see, whenever there is potential downturn, the Governments have responded by substantially increasing debt by increased borrowing (Keynesian Economics part ii) WITHOUT working out how to reduce and repay debt in the better times (Keynesian Economics part i). The result is that each boom and bust has got bigger and more catastrophic.
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Brandyzee
I know it's not much consolation, but I've been made redundant twice and my spouse was made redundant three times. The first redundancy came a month before our first child was born.
We have got through it, although it is hard at times. Don't give up - there's always something around the corner, you just have to keep looking.
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# 120
I've lost my job too. The investment dried up because of the financial problems. I won't loose my house, thank God, and I've got another job hundreds of miles away, but I miss my family.
Yes, we can't let these "horrid people" get away with it this time, else they'll do it again further on up the road. We need to hunt them down like dogs and put an end to this.
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with this goverment almost sure to lose the next election they will be able to put some very bitter pils for who ever follows in place. with tax recipts going down and borrowing up not matter what happens the rest of us will have to somehow pay for it. They will have to raise both income and vat to help ofset such crazy past mistakes. each party is afraid to admit this as before any election you do not want to be seen to be the ones who have to put it into action. For at least some time say 5 years, higher earners are going to have to accept a grater burden of income tax even if only a few % more, they do have greater access to accountants than most to reduce their burden anyway. anyone domiciled in the uk should pay income tax, inc sports people and foreign nationals based here not this payed into offshore accounts. A radical overhaul of the beifits system is long overdue, we have become a magnit to financil migrates not matter what is said otherwise. And to many of our own people live better than some of those working because of the system. We must change our peception of us all be either rascist or homophobic when ever we criticize others of diference race or gender. for to long this has been used as a wepon to detract from truths that are out there. those who are at risk from losing thier maine home not second or third etc, shuold be helped to keep it by banks or lenders, either by freezing loan interst and take capitol only payment, not adding to the interest that is frozen untill either the familys income improves or take a small % interest in the property. Those not in that position earning over 60.000 per year should get tax relef on a % of their interest. All in all we cant go backwords, however we can use some of the past to help go forward. Big companys will take payment holidays to help themselfs, but how do the small people cope?
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Robert
NO MORE BOOM AND BUST, how many times have heard a proud and arrogant Brown saying it
It is a great game when you are player and ref at the same time ; you can change the goal posts wherever and whenever it suits you.
Why bother re-writing the fiscal rules, Brown (thru Darling ) will fiddle the numbers to stick to them as he has done for the past 11 years.
Will the new rules only apply during the difficult times of a global downturn(Bust ) . The old ones were useful only during Brown 's so called personnal achievements of boom times!!! Of course they had nothing to do with China and India fast developing economies, cheap labour costs thru uncontrolled immigration , it was all down to marvellous Gordon!!!
When the going is good it is personnal achievement when it gets tough it becomes global!!
I am getting a bit tired to have my intelligence ( probably very limited as I do not agree with them) insulted on a daily basis by the intelectual dishonesty of our present leaders.
I would respect them a lot more if they were putting their hand up and admit they c.....d it up . To try to come out as heroes as they endeavour to get out of their own self inflicted mess is a bit rich !!
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118. At 12:12pm on 30 Oct 2008, Rabbit-Tooth wrote:
15's suggestion got me thinking. How about selling the Royal Family? That should fetch a few bob.
You don't sell of an asset like that for short term gain - you rent it out for a steady income.
Better still, kick out the current inhabitants and make the monarch an annually awarded, honourary position that is given to the citizen who paid the most tax in the previous year.
You can reward contribution to the country and encourage greater productivity in one go.
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#95: There is another explanation. That is that creating hyperinflation is a deliberate policy (not that they'd ever admit it, of course).
The problem is that the banks have huge debts that they can't possibly repay. But a nice little period of hyperinflation should make those amounts look trivial. Problem solved!
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133 reforse
A telling comment
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iskander -the deficit expressed as a percent of GDP which sidesteps the actual value is at historically high values at its worst in 1975-76 it was ONLY 7.3 % of GDP and that avoids your direct monetary comparisons . There are so many still in denial!!The UK is worse placed of major industrialised countries to weather recession .
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Took you a while to get to this question didn't it. We will all pay for Brown's reckless spending during the boom years. Not a penny saved and now when we need it not a penny to help us through the bad years.
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In the US, comprehensive annual financial reports show a $63trillion surplus - only the US budget shows a deficit of $10trillion. In other words the US's illiquid assets and off budget assets could be sold to pay their budget deficit. Would the same be true in the UK? Is there a difference between the totality of government assets (including local government) and the budget? Would that then bring the UK to a surplus or are they included in the budget? If they are not included then they should be - government land could be sold off without increasing taxes in the future to pay for the borrowing.
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Darling[buzt lightyear to in finity and beyond] wants the future taxipayers to become his flexible friends [the in clementine card 0%interest to infinity and beyond ]
In a cavern, in a canyon,
Excavating for a mine
Dwelt a minerr forty niner,
darling and his Clementine.
Oh im darling, oh im darling,
Oh im darling, Clementine!
Thou will be spent and maxed out forever
Dreadful sorry, Clementine
Light she was and like a fairy,
And her pin was number nines ,
Herring boxes, without topses,
no limmits were for Clementine.
Oh im darling, oh im darling,
Oh im darling, Clementine!
we'll max out and reamourtise forever
Dreadful sorry, Clementine
Drove he ducklings to the slaughter
Ev'ry morning just at nine,
Hit their heads against a splinter,
Fell they into foaming brine.
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Darling[buzt lightyear to in finity and beyond] wants the future taxipayers to become his flexible friends [the in clementine card 0 interest to infinity and beyond ]
In a cavern, in a canyon,
Excavating for a mine
Dwelt a minerr forty niner,
darling and his Clementine.
Oh im darling, oh im darling,
Oh im darling, Clementine!
Thou will be spent and maxed out forever
Dreadful sorry, Clementine
Light she was and like a fairy,
And her pin was number nines ,
Herring boxes, without topses,
no limmits were for Clementine.
Oh im darling, oh im darling,
Oh im darling, Clementine!
we'll max out and reamourtise forever
Dreadful sorry, Clementine
Drove he ducklings to the slaughter
Ev'ry morning just at nine,
Hit their heads against a splinter,
Fell they into foaming brine.
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133. At 12:59pm on 30 Oct 2008, reforse wrote:
''Thatcher was right, there is no such thing as society. I hope you get what you deserve.''
No, the explotion of debt then bust and further debt she is attributed to destroyed all semblence of society. She was not to blame, she fuelled it with horray henries and a I want world
And before her the debt ridden labour government going cap in hand dragged down by desperate unions bent on destroying their jobs and britains economy
And before them the 60's - which is where you will actually find society got firmly buried and the 60sh year olds now that did not deserve to bring up kids are the ones that destroyed society as we know it. Family after disfunctional family years after we have the results
The swinging sixties liberated kids and prepared them for being the worse generation of social behaviour in modern times
The old age pensioners from that decade should be ashamed of their part in destroying society
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Had another laugh today.
Mandelson amd Darling telling everyone how they need yet another forum or quango to oversee the spending of 1.3 billion a year for the next three years.
This is the money they have supposedly levered out of Europe to help SME's
{small and medium sized businesses]
A drop in the oceon which if like the previous EU funding will be spent on worthless training programmes which is not what the cash strapped small business needs at the moment.
Money will eventually be dispersed by another expensive quango the Regional Development agency. What's left that is after the extra civil servants paid to
administer it have been paid
Also mention of the loan guarantee scheme which has been going for years and is nothing new.
Few small businesses take advantage of this because of its prohibitive borrowing rates.
Nothing therefore for any small business seeking immediate help to get excited about
Just another load of spin and no substance.
Certainly not a good start for Mandelson who appears not to have been able to come up with anything new and radical.
Cashflow is the problem for most businesses and EU funding cannot be used for this purpose. Only the banks can provide this facility through the usual channels.
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Peston's Blog
I have worked in the City for over thirty years although not directly in the what is know as the financial markets I work in real physical trading we buy it and ship it.
I do find Peston's blog well written and easy to understand I must say he does always look at the down side which is esay at the moment. Althought what is happening at the moment is not good can it be any worse than the mid seventies with a 3 day working week ect when I was working in the dark.
The markets move on and now it is global but I do not beleive in the end it will be so bad as we have seen before.
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137 shellingout
There was high court action against HMG in the 90's by a business that lost the lot in the 90s mess. Was thrown out. Difficult to take action against HMG
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I recall someone once saying "no more boom and bust" .. look what's happened.
Do we need any more borrowing, when we're already in record national debt?
I don't claim to be an economics whizz but it seems to be that this is NOT the way forward.
Cutting taxes, especially on fuel, may mean less money in from that hand but that will mean more money in our pockets to spend, which means the other hand (the VAT hand) will get more.
Seems this government is hell bent on destroying this country. Should make for an interesting ride in the next few months (or years as it may be).
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Post 131 a shilling would have bought you nothing in 1976 as we had been on decimal currency for a number of years by then.
Sorry to be pedantic but its true.
Post 120 I would reinforce post 130's comments 100 percent.
Have you been made redundant? If so step one is the Job Centre on day 1 and register as unemployed. You never know there may be a job there as well check that out first.
Step 2 go to Citizens Advice. They are excellent and have lots of experience over the last year with cases exactly the same as yours.
Step 3 after speaking to them and getting their advice ring the mortgage company. Sooner rather than later. Tell them exactly what has happened and see what they can do to assist you. Agree 100% re keeping a log of everyone you speak to and what they say. Write done names and telephone numbers of everyone you speak to.
Step 4 look very carefully at everything you spend money on. Separate it into essentials, likes and luxuries. Get rid of all the luxuries and you might find a total expenditure saving of 20% or more.
Step 5 turn the central heating down 2 degrees and put on a jumper this will cut a huge amount off your winter bills.
Step 6 sort out all your old clutter and things you don't need or use. Sell it at a car boot sale or on Ebay.
Step 7 look for local small work that fits your skills pending finding another job. It keeps your skills up to date and can earn good money. Many people will still need essentail work doing and are looking to trade down costwise a few hundred quid here and there may well keep that roof over your head.
Step 8 if you still struggle to get work try to use the time to get extra training or additional skills. There is lots of training out there and most importantly this shows any prospective employer that you are keen and could help get you another job.
Good luck.
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129. sansiromaldini
It's insane isn't it? Have the criminals in power ever been so arrogant and so blatantly obvious in their actions before?
I can remember a time when they used to pretend to serve the public interest, now they don't even bother.
I guess they don't have to worry. With their great propaganda machine called the mainstream press, steadfastly refusing to ask the right questions at every single turn, refusing to dig and investigate anything of importance, instead, diverting attention and whipping up public hysteria over celebrity gossip and scandal. In the states it's coming up to election time, in the UK it's Russell Brand and Jonathan Ross.
The majority of the public have never really wanted to know how the system was run as long as they were housed and fed, like good dogs, but, when the pain of this really starts to kick in, you have to wonder. How much more of this theft is the public willing to take?
I guess when the kennel overturns we'll see.
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#82:
Nah. Nick Robinson would make a much better Dr Who. But it would be great to have Peston as the chief Dalek.
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# 152
What a lot of old cobblers. Sounds like you've been at the sherry!
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#145That is that creating hyperinflation is a deliberate policy (not that they'd ever admit it, of course).
Let's see what the Zimbabweans think of their hyperinflation:
http://humorland.wordmess.net/20081025/what-the-real-crisis-is-like/
Looks like fun!
#118.
15's suggestion got me thinking. How about selling the Royal Family? That should fetch a few bob.
The problem with selling the Royal Family is that the colonials (oops sorry I mean commonwealth countries) might want a share of the profit considering it's their queen as well. :(
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~147
"133 reforse
A telling comment"
Please expand, I am curious as to your view of what it tells you.
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2000 to 2007 may come to be known as "the era of easy money".
But from now on one word will dominate everyones life ......debt.
Perhaps for a decade.
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#48
Total UK debt is below the 60% Maastricht limits so there's plenty of room for more government borrowing.
Well according to published figures this is correct. Government pensions are actually significantly underfunded and that underfunding could be considered as borrowing. It would not be unreasonable to argue that actual borrowing rather than givernment measured borrowing is closer to 150% of GDP. My point is that you have assumed government figures are correct.
#15
I'm sure Argentina would be willing to buy the Falkland Islands.
They have just ordered their pensions to sell foreign assets and probably have less money than the UK.
#18
Define boom years.
As you run up debt, more of your resources go to paying off interest on debt.
#61
If everyone's skint, who's got the dosh?
Well China did have some and so did Saudi Arabia, but considering the downturn the pool of investors in dwindling.Robert hints at this when he mentions a sharp rise in the cost of servicing that debt.If you have £10 will you invest it in German, US or UK borrowing and what interest will you charge. If they all want more than £4 and you are the only source of money then sombody will have to live within their budget.
#75
the Government gives Gilt edged securities to a bank.
Who get the money from the government and you end up with an ponzi finance. Fortunately it is more likely to go to pension funds and foreign central banks.
#83
Gosh, there are people who still think that there is a crowding out effect...
OK I confess.Yes I agree the whole securitisation happened because the capital refuses to invest in the real economy.
#85
the Federal reserve had included house prices in their measure of inflation?
Or even by assuming price rises are due to better quality and more features. You should understand that quoted inflation rates are fundamentally not mean't to be linked to the cost of living.
#122
Can someone please explain why increasing the national debt will lead to further devaluation of sterling?
The more you borrow the higher the risk that you will default on your loans. The riskier you are, the less popular your currency is with investors.
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What confuses me about this recession is that if it is the worst set of economic conditions for 70 odd years then why does it not feel like that this is a full blown on recession, where is the mass unemployment or is that to come? According to Gordon the solution to the problem (more debt) is this not the reason why we are in the mess.
Also I guess that everyone including our beloved Gordon believes in a magic bullet to sort out the recession, I personally believe in the old school, that the recession will play itself out once asset prices are at more reasonable levels, where asset buyers are more confident that they are buying good value.
Resorting to more debt to sort out the mess just delays the inevitable asset price correction.
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#152 PetersKitchen
"No, the explotion of debt then bust and further debt she is attributed to destroyed all semblence of society. She was not to blame, she fuelled it with horray henries and a I want world
"And before her the debt ridden labour government going cap in hand dragged down by desperate unions bent on destroying their jobs and britains economy
And before them the 60's - which is where you will actually find society got firmly buried and the 60sh year olds now that did not deserve to bring up kids are the ones that destroyed society as we know it. Family after disfunctional family years after we have the results
The swinging sixties liberated kids and prepared them for being the worse generation of social behaviour in modern times
The old age pensioners from that decade should be ashamed of their part in destroying society"
I was not blaming Thatcher just using a quote from her to illustrate the terrible view of a previous poster as to their entitlement to their current standard of living even if it means turning against the rest of society "Taking the law into their own hands". Why not contact your lender sign on get the interest paid, get advise. No first reaction is to screw the rest of us to stay where you are.
I actually agree with the rest of your post. (My parents excluded as they raised me with views that ran counter to current society ;o) ) The Baby Boomer society are the one that decided they were entitled.
When they reached the upper echelons of business and society they promoted greed and selfishness (see banking in the 80s to current) and have passed their values down the chain to their offspring who are passing the self regarding views along.
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I have reposted the comment below as it is more apt for this blog than the one where I originally posted it. With tax revenues falling, government debt increasing, as well as unemployment. Are we staring into an abyss? Perhaps for some, but things are not all gloom and doom. Deflation may soon be the topic talked about? If you manage to keep a job, even with wage cuts, your buying power will increase because of falling prices. New car ? No, get the one you have repaired if it needs it. People who repair things will become more in demand. 5 Million unemployed ? Quite possible, yet in the 1930's most people had a job.
The froth has been blown off the coffee, is there coffee or dregs underneath ?
That is the question ?
Things may suddenly improve again, and everybody will say,"Great, the worst is over and we are on track again." Well this will be short lived joy as things will go crunch soon after. Forget get about how you did things over the last 30+ years. Now everything changes.
Original post:-
When your neighbour loses their job, there is a recession. When you, lose your job, you are in a depression.
Thus goes the old expression.
When does the recession that we are already in, turn into a depression ?
No doubt an echo of the 1930's.
Every cloud has a silver lining, what was wisdom, now becomes not the way to do things. During periods like this there is often great innovation. Previous winners will now be losers, previous losers will now be winners.
Everything turned on its head.
Life does and must go on. Just as it did in the 1930's.
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#163
"2000 to 2007 may come to be known as "the era of easy money".
But from now on one word will dominate everyones life ......debt.
Perhaps for a decade."
True, but not all us of chose to take the shilling, some of us chose to buy a second hand car rather than a new. Some of us chose to save and wait until we could afford a new TV. Some of us chose to take a cheaper holiday rather than an expensive one.
Notice the word "chose".
Nobody made anyone take a mortgage out at a vast multiple of salary. We are truly living in a blame culture.
Someone on TV last night was saying "but they were giving money away". If someone gives, it needs someone else to take.
Some people have had a nice car and a big TV and enjoyed those holidays these past few years and now it is time for them to pay for it.
That is the way life is, pay your debts back and learn from it. If you secured the loans against your house that was your choice as well.
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166
Sorry old chap, glad you agree though
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168. reforse
Blame culture? Looks like smug culture to me.
Oh and by the way, I haven't got any debts, any mortgages either and have always lived within my means. But when people are losing their jobs and their homes it's just not cricket to crow about it.
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162 reforse
Hi, I found brandyzee comment telling, not yours - emotion is close when a home is at risk through no fault. I dont think Brown knows what he is playing with. If it gets bad normally placid people will get almighty uppity. The situation polarises, there is little middle ground.
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#152 PetersKitchen wrote:
"... The old age pensioners from that decade should be ashamed of their part in destroying society"
As an old-age pensioner from that decace, but in reply to almost all who post here:
Is there anyone left who hasn't been blamed for this financial crisis? (Perhaps only the poorest of the world's poor, but they can always be blamed for having too many children.)
Every time RP posts an article a stream of blame and counter-blame follows, and dozens of proposals for how "they" should tinker with this giant fraudulent machine so that it will run again. We all want "them" to fix it quickly, so we can get back to our consumptive way of life (even if that means the obscenely rich will continue to be obscenely rich).
Why isn't it obvious to everyone that this financial system, based as it is on the "profits" of endless exponential growth, is deeply flawed?
If "they" do manage to get the system up and running again, it will only be a little while before its damage to our life support system (planet Earth) will produce such suffering that compared to it our present or imminent financial problems will look like heaven.
Most of us old enough to read and comment on these blogs will escape the worst outcomes of the "eco-crunch". But for our children's or grandchildren's sakes, shouldn't we take this opportunity to re-examine the basic assumptions of our way of life and the financial system which "supports" it?
Or are these blogs really just another form of entertainment? (and, yes, I do enjoy the posts by electronicTurkey!)
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hodgeey
Which bits of Northern Rock went to a foreign bank?
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#168
I doubt if more than 5% of the mortgage - loan population fall into the category you're really alluding to.
Be assured because I warrant it will prove to be in your interests: this is NO time for ANY persons in the UK to be judgemental one to another. It just plays right into the hands of the Govt and the other parties waiting in the wings.
If Parliamentarians and civil servants, bankers, moreover want to wag their fingers now, I say 'where was your sound advice not to buy, not to mortgage, not to borrow in former times?'
GC
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#169
"166
Sorry old chap, glad you agree though"
No problem, although I am only an old fashioned 37 year old
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To #1 who is blaming Robert Peston for talking the market down and wants to believe or would prefer to hear a positive spin I can recommend the following site
http://www.gold-eagle.com/editorials_01/seymour062001.html
it contains quotes from the great and the good and references them to the stock market value at the time
To #165 I tend to agree, real values need to be attained before we can move on. A govt spending boom particularly with the awful value they tend to get is not the solution.
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Question:
How much of a burden on the British economy is the Welfare State, Education and NHS ?
In the 19th Century, when Britain was a booming economic power, those three things hardly existed.
Those three elements are reflected in our Taxes.
Most people would say they are a given right.
But their extra economic cost makes it harder for Britain to compete with countries that do not provide those three functions.
So it becomes impossible to have a free market in goods internationally unless all participants in that market provide the same given benefits to their workers.
Yet another argument in favour of protectionism.
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Shillings remained in use as five pence pieces for many years after decimalisation.
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Good thinking 144. But why not rent out the Head of State though a lottery competition or better still sell it to the highest bidder. So we'll then have an Russian Oligarch as our king and with the proceeds wipe out our national debt!!
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In the later 19th century, you could expect to get breakfast for a shilling.
Twelve pence used to go a long way !
In the late 19th century a shilling would have been approximately like a five pound note today.
Though obviously many things we take for granted were not available.
A telegram much more expensive than a text message could be as much as half a penny a word !
Seven or eight Shillings would get a decent bottle of Whisky..........
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#157 Shilling and even tanner (2 shillings, 10 p) coins were still in circulation up until the early 80s !! Sorry to be even more pedantic !!
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#170
"Blame culture? Looks like smug culture to me.
Oh and by the way, I haven't got any debts, any mortgages either and have always lived within my means. But when people are losing their jobs and their homes it's just not cricket to crow about it."
It is sad when people have setbacks in life but no one is ENTITLED to an ever rising standard of living.
My reaction is due to the original poster "BrandyZee" and their sense of entitlement that they have the right to "take the law into their own hands" in order to maintain their standard of living, if people do not take responsibility for their choices in life and think that they are entitled to take from others to avoid dealing their own situation.
That is the attitude of criminals ie I want a TV but cannot afford it so I will take yours. If we all thought like that then society crumbles and we all sleep with a knife under our pillows or an illegal firearm and don't travel alone.
I personally have been made redundant twice, I claimed all the benefits that I was entitled to and downsized my standard of living to deal with my circumstances until I was re-employed.
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who said this?
"This is a boom built on credit"
Gordon Brown said it to Nigel lawson in 1988.
this was the headline in the Evening Standard:
"veteran chancellor bloodied by upstart"
My how the tables have turned.
Gordon Brown created the biggest credit boom in history causing the longest expansion of growwth ni history.
but it was all based on credit; paper wealth.
Now it's bust and he wants to jet around blaming everyone else for the bust.
but isn't it Gordon Brown that put the Sir in Sir Alan Greenspan?
Yessir!
He's boomed and he's bust and we will be in arecession for a long time no matter how much money he government spends.
he's a hypocrite and should resign.
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I can remember the little silver sixpence as well!
(think it was worth 2.5p after decimalisation)
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Let suppose govt dept gets to 55% of GDP.
Solution to bringing this down to more acceptable levels (say 40% or less of GDP) is very simple to explain but virtually impossible for any govt to actually do - mostly because they are inept.
You have to run 5 years of budget surplus of 1.5-2% of GDP and have the economy growing at 3% a year for that period. Do that and debt ends at 40% or less of GDP.
Does anyone actually think either Labour or Tory party has the discipline to actually cut govt spending and increase tax take necessary to achieve this?
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The Chancellor will repay in the guise of a taxpayer, once he's voted himself a big payrise.
The rest of us will be made worse off to repay this.
I cannot help thinking banks will be able to take us over the brink again in future, maybe another 20 years into the future, but we will be back here again unless LAWS are passed that stop bankers gambling.
Politicians have failed the electorate, in part, with such niceties as "light touch regulation!" They need to recognise the failure of this policy approach, I don't believe they have, in fact quite the opposite, I think they want more of the same because they believe higher tax receipts materialise from a less regulated business environment. If this is the case how can they insist on greater regulation for banks? Also, given the bank bailouts can't we argue that any increased levels of tax receipts have, in effect, gone up in smoke having been used to rescue the banks?
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It's funny isn't....when people win either the lottery or the pools and they are asked the question -how will it change their lives-....they always answer..... - it will give me freedom (to blah blah blah)-.
I guess what they really mean is that it will give them freedom from debt slavery.
Together, let's scrap FRACTIONAL RESERVE BANKING and it's pernicious use of usury.
You know it makes sense.
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@173 apollo_mcqueen
Northern Rock sold the best parts of its book to J P Morgan the day before Bliar started working for them:
http://www.guardian.co.uk/business/2008/jan/12/northernrock.jpmorgan
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Thanks for the info hodgeey. No idea how I missed this?!
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Robert
On the BBC Scotland web page, Darling now admits that the possibility of HBOS going it alone is an option. And yet just a few weeks ago, Brown stated that a Lloyds TSB takeover was the only option in town.
As you seem to have a hot phone line installed direct to Downing Street, could you inform us if this a U turn, Darling's idea, a cunning plan by brown but he did not want to make it easy for the press or no one has any idea of what they are doing?
Personally I have felt the merged entity a dumb response to the financial crisis. Of course the scale of job losses of ht e merged bank could have been a factors.
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184
Yes a nice coin.
Actually looks like money.
And yes, I still have one from 1958.
Nicer still the old threepenny silver coin, and yes I have one from 1938 with the old Kings head on it.
I always was hopeless with coins !
More Nostalgia.......
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AS IN 1979 LABOUR ISNT WORKING.
NEW LABOUR NEVER WORKED PERIOD.
NEITHER BROWN OR DARLING HAVE A CLUE WHAT THEY ARE DOING.
PAYBACK FOR UK PLC WILL BE AT LEAST 20 YEARS.
ALL WE EVER HAD IS SPEND SPEND BORROW AND SPEND HOW THEY THINK DOING MORE OF THE SAME WILL RESOLVE THE PROBLEM IS MAD.
YOU DONT CURE AN ADDICT BY GIVING MORE OF THE SAME.
ITS TIME FOR SOME VERY COLD TURKEY.
DEAR ME ITS NOT CHRISTMAS ?
Alexander Curzon.
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Now that we've all been handed the bill for "the era of easy money", it's true to say that not all of us took the bait. (The older and wiser stood back and scratched their heads in disbelief).
But so many young couples have been led up the garden path by these banks and governments, on new-labours' magic roundabout of debt.
Their future is now stuffed.
Who can blame them for throwing back the keys and saying..."it's your problem now."
Perhaps the banks and governments will now get some common bl***y sense.
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182. reforse
I think you?ll find that Brandyzee had recently lost his/her job and was caught up in the emotion, and said he would take the law into his/her own hands to feed his/her family, not as you said, maintain a standard of living. A slight but important difference.
(If not starving to death is a standard of living, then that?s a standard I would surely break the law to maintain. It?s called the survival instinct).
Whilst there are still plenty of avenues for Brandyzee to follow before it gets that desperate, you should be able to sympathise with his/her predicament.
But no, you decided to slap slapped him/her down.
There are a lot of angry people out there. And with each new repossession and redundancy their numbers will swell. Much of their anger is justified.
The government, (which is partly responsible for the crisis) is not doing anything to help the ordinary people who will be the most devastatingly affected, but instead, for reasons of its own, has opted to bail out the privately run banking industry (which is also partly responsible).
This is criminal in my view. Certainly more criminal than someone who has threatened to take the law into their own hands to feed their family.
Sometimes the law is an ass.
But I guess it depends how you chose to look at the world.
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Correct me if I'm wrong (and I fear I am not)... but...
Are the government (with this big bailout plan), proposing to borrow money from us and everyone else in order to give to our creditors, who won't even clear the loans that we've just (essentially) paid off with our future taxes.
In order for the banks to lend back to us, at interest, money that will then be lent back to us, at capital plus interest, and then we're going to be taxed to pay back the original loan to the country?
And, to top it all off, big chunks of that cash are now going to be paid in bonuses to people who made this happen in the first place.
Well, if the government and EU's plan was to enslave the entire population, and to reward minions for helping that aim, they're definitely going the right way about it.
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THE BEST PLAN FOR MESSRS BROWN DARLING ETC IS A P45.
CALL AN ELECTION AND GET THIS PATHETIC CHARADE OVER PLEASE PLEASE PLEASE.
Alexander Curzon
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Jarvis Cocker sums it all up beautifully - listen to his song 'Running the World'.
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NO no no. This is all wrong. I thought my memory was playing tricks on me but thanks to BBC archieves I have found I am not going mad. My shilling is as valuable as ever and boom and bust is finished. It says so here, from the prime minister no less:-
1967: Wilson defends 'pound in your pocket'
The Prime Minister, Harold Wilson, has defended his decision to devalue the pound saying it will tackle the "root cause" of Britain's economic problems.
The government announced last night it was lowering the exchange rate so the pound is now worth $2.40, down from $2.80, a cut of just over 14%.
The decision came after weeks of increasingly feverish speculation and a day in which the Bank of England spent £200m trying to shore up the pound from its gold and dollar reserves.
In a radio and television broadcast this evening, the Prime Minister said devaluation would enable Britain to " break out from the straitjacket" of boom and bust economics.
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Somebody asked what the cost of the NHS etc is. The cost of in all developed European countries of providing healthcare and other social services means a total direct and indirect taxation between 43 and 46 pence in the pound. And yes that, quite apart from a cheaper unit labour cost, is why countries a long way from the UK both physically, and in social provision, are undercutting us. However in the longer term as those countries develope they will face pressure to make similar provisions which will reduce the differential. The biggest load of bull I ever hear was MPs shouting that we should be more like the so called Tiger Economies.
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#181
Inflation seems to be a problem - I thought the tanner was 6d (2.5p) and the florin was 2/6 (10p)
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BLIMEY!
If you you want an interesting read tonight....you should read the thread on Paul Masons blog below....
http://www.bbc.co.uk/blogs/newsnight/paulmason/2008/10/a_slump_in_confidence_in_polic.html#commentsanchor
It's pretty powerful stuff. It would advise not to make any comments (if you have any)until you get to the last post.
It makes the Woss and Brand saga look like kids play!
blimey again!
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HBOS employs a lot of staff in Scotland. However, it seems to have passed a lot of people by that the Lloyds TSB Group also employ a lot of staff in Scotland. Ringfencing just HBOS Scottish jobs quite frankly does not cut the mustard!
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Repaying the debt that's visible is only part of the problem. A bit like Enron, it is the Government debt held off the balance sheet that's scary. When the scandal of the PFI debt is added in, plus the unfunded pension liabilities for government employee's etc, the true scale of the debt that has to be repaid will become more apparent.
Link to the recent article in the Spectator - "The Great Debt Deceipt - How Gordon Brown cooked the nations books".
http://www.spectator.co.uk/the-magazine/features/2088001/the-great-debt-deceit-how-gordon-brown-cooked-the-nations-books.thtml#comments
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172. At 3:49pm on 30 Oct 2008, papanca wrote:
#152 PetersKitchen wrote:
"... The old age pensioners from that decade should be ashamed of their part in destroying society"
As an old-age pensioner from that decace, but in reply to almost all who post here:
Is there anyone left who hasn't been blamed for this financial crisis? (Perhaps only the poorest of the world's poor, but they can always be blamed for having too many children.)
Papana
I wasnt blaming individual pensioners for the destruction of society. I was blaming the wild sixties where anything went and continued until it was inbred into their kids and on to their grandchildren.
You cant get away from the fact that it is your generation that destroyed the British way of life and its community of help others as well as yourself, can you?
An English mans home is their castle? Yep and dont we know it
30ft hedges, Iron railings, barbed wire and even security guards in some of the "new" rich who want to protect their valuable assets from the scum on their borders.
If the British people looked at their multi-national neighbours as to lessons in social community building instead of putting a wall around their 'castles', we maybe able to rebuild an economy on support for all instead of individual greed.
Taxes should be cut to all earning under 25k pa and taxes should be raised from the rich and the corporations that continue to make massive profits.
When you ask the questions:
Why should we pay bills to water, electricity and gas that produce the billions of profit for these companies shareholders with a small percentage going to towards regeneration?
Is it not a statement of our society that our basic needs are used to make money instead of support life?
If inflation is 5% and interest pays 6%, why are legal companies allowed to charge 30+% interest to the most vulnerable
Why do we have to pay PAYE taxes and NI straight form our salaries when the richest people in society pay nothing?
The system supports greed, encourages greed and kills dead social awareness.
If the 60's generation of grandparents can do anything for the world, it is to learn and then teach their families social responsibilities and leave this world having done something positive.
While your at it,look at your pensions and blame yourselves for the way your siblings and the generation below them for the way you have or will be treated
PK
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#168
I agree some people need to start taking responsibility for their own actions.
#174
Please tell where you get your 5% from in my experience it?s a lot more than that.
There are many hard working prudent people out there that have every right to be judgmental against those whose attitude to borrowing is ?hang the consequences? Just as you have the right to be judgmental about the banks or the Politician?s we have every right to be judgmental about those who have contributed to the current situation we find ourselves in.
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@200 scargillwasright
2.5p=6d=sixpence=a tanner
5p=1/-=shilling=a bob
10p=2/-=florin=two bob
12.5p=2/6=half-a-crown=half-a-dollar
50p=10/-=ten shillings=ten bob
To put things in perspective, my first pint in 1958 cost me 10d - about 4p. At that time you could buy fags duty-free on boats for 5/- or 25p a hundred.
Times change!
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"129. At 12:50pm on 30 Oct 2008, sansiromaldini wrote:
Look at this for a disaster that might yet transfer across the Atlantic.
http://www.thenation.com/doc/20081110/greider2"
Yes...and? Central banks are there to guarantee the banking cartel within a country. The Federal Reserve is a cartel of banks. Has been since it was created. It's actions are completely compatible with that function. The same is true of the Bank of England.
Re: sixpence:
A pre 1920 silver sixpence: 3 grams of sterling silver. At the moment silver is 6 GBP per troy ounce, which is 30 grams so a silver sixpence is worth about 60 pence today.
The sixpence was deemed to have a value of 2.5p in copper/nickel coins after decimalisation. That 2.5p worth of decimal coins would today have the value of ... 2.5p...
The silver coin has "increased in value" 2400%...
Lincoln was wrong. You CAN fool all of the people all of the time.
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I always smile these days at the mention of half-a-dollar, a reflection of how the pound has fallen!.
Now, as a grandparent from the 60's I just have to say that was a generation that wanted to change the workd, and did. Two generations on the youth today are not prepaired to change their underwear!. Jeez, they even just re-make and re-make music from the 60's. Please, you shouldn't be blameing the grandparents, if your not happy with the world, change it!
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#206 Hodgeey
Yes thanks for that, slip of the brain on the /6.
My first pint was 29p (1977), lot of beer has passsed under the bridge since then.....
"Use your old coppers in sixpenny lots !"
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Imagine this.
There's a village of 5 people. They have $1 each and 1 day's work is worth $1. It all works fine, the money passes back and forward allowing people to trade their products and services back and forth with each other.
Then one of them has a great idea. Why do all this work? Why not just print more money? So he prints off another $5.
What is he doing when he spends the money? What exactly is happening when that first $1 is handed over? He has stolen a days worth of work is what has happened. He has gained the benefit of that work by counterfeiting the currency.
THAT is inflation. That is "growth", and that is Fractional Reserve Banking.
Inflation is nothing more than a tax on everyone who uses and stores their value in the currency. I recommend you don't.
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As a newcomer to Economics ("an art not a science") it always amazes me that even with the benefit of hidsight no one seems to be able to agree on what went wrong and for what reason.
It's been quite addictive following the debate over the last few weeks. I have just read
J. K. Galbraith "The great crash 1929".
This is fascinating, I would recommend it to everyone.
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i think its clear that this chancellor has no intention of repaying the debts becouse he knows it will be another government that will have to do the dirty work of fixing neu labours errors.
then at a later election they will accuse that government of taxing the people too much and get back in to ruin the countries ecconomy again thus the cycle goes, well thats party politics for you it has reached its end and become a liability to this countries wellfare.
may be if a party has to show it can ballance books and not run in the red during and after an election people may well see what party is likely to borrow billions to solve problems and who is likely to work towards solving it cheaply saving billions.
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172 Papanca, read your comment with interest. Clear thinking. So very very disappointed with subsequent post 204 that i am moved to comment, and I too enjoy the ongoing travels of Mr E-Turkey. And would add GC to that.
Mr P.Kitchen, There is not enough space and time in my life to express my sadness at your post, I am a 60's kid, lived my life frugally but wisely, never did credit apart from mortgage and was 'green' before it was a political party.
Dont believe the newsreel hype of carnaby street and acid parties, it was as common then as kate moss and her nasal incident. i.e. Media Hype.
What happened was the abject poverty created from losing the gold standard and having to pay 'our closest ally' the USA war remunerations for 50 flipping years held families together. i KNOW this, i now live in a society where this is STILL reality.
What happened in the 60¨s was no social revolution, just more money started to flow into the country because the USA traded more with us, why? because Uk PLC opened up commonwealth markets to the US in exchange for debt easement.
Extra cash means more individulaism, not freedom, that is a by product. People started 'breaking away' from family units because thay could afford to. Why stay stifled in a 2 bedroom terrace with parents that complain if you are in after 10 at night when for 3 quid a week you can rent a room and come as you please.
I really must ask you to try and redirect your thinking away from this media smokescreen - In that era, people were even less empowered. Then the police would REALLY take the law into their own hands if the masses got rowdy, with no come-back.
Please, please try and see, all of you, that this and similar directions of thought are a form of denial against ones own lack of empowerment to affect in ANY way the circumstances currently shaping lives.
In 30 years time, in a ruined, depleted, indebted world, your grandchildren will be hating you all in a way infinately more vehement than those views that are expressed here - and I think your arguments will be similar to mine - we are powerless to change macro-events.
Our power lies in altering subtly and slowly the overall paradigm of thinking by continued comment and reasoned argument. Blame is a waste of energy and time in the process of directed clear thinking.
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#208: "Please, you shouldn't be blameing the grandparents, if your not happy with the world, change it!"
Will you be happy with it when they are done? My indebted professional peers are writing letters to postal-vote themselves an inflationary default on their borrowing that allows them to keep their property. A few years of interest rates at 0%, inflation at 20% or more, working government-funded jobs, and the previously unaffordable house is theirs and the personal loans and credit cards are paid off in no time. Is that not the road we are taking? What is this if not "changing the world" or at least the country for their own benefit?
And to think the nation bemoaned the political apathy and disengagement of the young! In a few months they lobbied their way to ownership of the keys to the Treasury.
These developments are bad news for people on fixed incomes...
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Mr Brown/Darling had relied on the imaginary economy for years to avoid having to balance the real economy.
Now he is attempting to sort out the imaginary economy by borrowing against the real economy.
And for his next trick he has to sort out the real economy by using the real economy.
A bit like like flogging a dead horse?
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I like Americans, i wouldnt eat one but I enjoy their company a lot.
I dislike their politicians and foreign policy.
BUT, I respect the fact that their politicians do try for everything for America. not Europe, not Japan and not for their 'Special' relationship partners (Yes sorry UK they have more than one 'special' relationship).
In this current crisis, I have read a lot about the sun setting on the US. unfortunately I have a gut feeling that in fact that this may be a new dawn for the US.
there are a lot of VERY VERY clever people in Washington.
The US has 'ring fenced' their biggest mortgage lenders. 2 of their biggest investmant banks have changed status - AIG is state owned only a matter of time until all this reverses.
In the meantime the value of direct US support in terms of cash/debt is equivalent to the UK - but their population is 4x greater.
Americans can walk away from mortgage debt, so the general population, despite short term turmoil, will recover far far faster - other economies will be burdened by debt and taxes for years.
The US has cut interest to 1%. I have tried to understand this from a global, not US centric view. What this means is that people pile into the dollar, the US gains liquidity. people speculate with the dollar on what? the dollar going down - that would be crazy, so the buck gains. This boosts confidence.
The UK? Plodding. Darling allocates 4bn to business - I read the headline and thought 'at last, some sense' then read further and find it is to be distributed by those same banks that wont lend to each other for fear of losing more cash.
Mr darling, please, just give the keys of the treasury to the banks and walk away for a week. its quicker than doing the paperwork.
Business needs liquidity and the banks are NOT in a position to provide it. For a short time that competetive model is dead.
Interest rates are just far far too high. You may as well just give every labour party worker a big stick and tell them to go out and beat hell out of every business owner in the country.
Loosen up Mr darling - this is all too anally retentive, the UK needs crystal clear, innovative, incisive direction - suprise us!
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I have just read an extract from the rules of the boardgame Monopoly.
Q: What happens if the bank runs out of money?
A: The bank never goes bankrupt. To continue playing, use slips of paper to keep track of each players banking transactions - until the bank has enough paper money to operate again.
Are these the golden rules.
As an aside the game teaches us from an early age that the rich get richer and the poor get poorer. Good training for living.
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Mr P.Kitchen, There is not enough space and time in my life to express my sadness at your post, I am a 60's kid, lived my life frugally but wisely, never did credit apart from mortgage and was 'green' before it was a political party.
Please..............I am not trying to say that EVERY 60s teenager is the cause of the current problems, I never did. I was just pointing out that society died with the Pill. It liberated women only to be hijacked by the male species.
This was the lost generation, not a blame thing at all - they found liberation through 'progress'
The OMO brand followed by the Beatles Brand evolving to Brand the world
We brand everything now, live in a caravan, your a gypsy. Have a mansion, your a toff, live in a council flat, your a scrounger.
The lust for greed brands people before products and while that exists the product brands will be worth more than individuals
You cant blame people for being born in a time of empowerment of siblings over their parents no more than blaming the ape for discovering the effects of the flame.
Getting back to subject, segmenting as they say, a true leader empowers the people(taxpayer), not his generals(banks)
Show me a leader in the world today that is not enjoying the Brand and kissing the feet of their generals and I will surely live my life under their rule.
PK
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two points if I may.
1. Vince cable IS the best of a bunch of 3 chancellors, why not vote them in we have had tory after labour repeat until infinity - Why not give someone else a try ???
2. If you think the politicians are incompetent then I can tell you they are not, their plan is working well and their deliberate actions are about to bear fruit (for them).
YOU are fools, every one of you - Wake up!
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213,
good post there, perhaps your right although I do take on board what PK also said (I happen to believe there is some truth in that also).
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# 210. true-liberal
Imagine this.
There's a village of 5 people. They have $1 each and 1 day's work is worth $1. Then one of them has a bright idea for designing a new plough that will save stacks of work for them, so the others chip in so that he can spend his time designing, building and refining his invention and they work that bit harder until the plough is finished. Once they get to use it, they only have to work a fraction of the time they had to before and can either earn more money with the time freed or enjoy themselves.
That's how traditional banking is meant to work.
Now imagine this.
There's a village of 5 people. They have $1 each and 1 day's work is worth $1. Then one of them says. Look I'm a world class expert in horse flesh and I know all the breeders and trainers. Let me have your wages, trust me and you'll all be on easy street. They give him their wages, he pockets 20% and starts betting using a double or quits strategy. When he's lost all their money, he complains bitterly to them about unforeseen changes in the going, unfair stewards, misinformation etc. etc.
That's how hedge funds and modern investment banks work,
Yours Aye,
Graucho
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HI All thanks for the chance to comment on this,
I think that previous generations have a lot to answer for. However I also think that the yoof of today have plenty of potential.
I think as we get older we lose track of the Edge, so that it's harder and harder for us to know that it is indeed being pushed.
That doesn't mean the yoof aren't pushing it, it just means it's harder as you get older to appreciate that it's happening. We all get into patterns of behaviour and thinking and these can become difficult to see past.
Speaking as a 30-something who's been trying to change the world since his teens, I can say two things, firstly, it is possible, and second, that everything takes a lot longer than you want it to.
Of course, individuals by themselves are unlikely to do anything world-changing, although that does happen, but that's not important, individual actions compound into trends and those shape the future. Try this quote: "Few will ever achieve the greatness to affect history itself. But each of us can work to change a small portion of world events, and, in the totality of all these acts, will be written the history of mankind." -- Bobby Kennedy
Here's another: "Whatever you do will be insignificant, but it is very important that you do it." -- Mahatma Gandhi
So I agree with those who say, stop complaining and do something constructive. Use the interweb bequeathed to you by generations not yet dead. Make a website. Start a business. Write a book. Whatever.... just do it....
The future is what we make. Hope must never be abandoned.
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Hello, this message is not for posting but to alert you to a serious impediment to the governments EIB £4Billion loans which are supposedly available.
I have looked through your Q&A and it appears the only way to access these funds is via Barclays bank as none of the other big banks act for the EIB who don't lend directly.
Could you please report on this as there is a misleading impression that these funds are there to be asked for, clearly they are not
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oh well-back to basics.....
The bank bail out shouldn't have happened-the money should have been invested in the'common people-ie: not high flying bankers, stock brokers or politicians
A new 'really prudent, old-fashioned bank' should have been formed
Balance sheets and off book debts declared to the nation
Honesty, integrity, hard graft and community spirit prevail
I wish! I'm sick, sick, sick to the back teeth of our wonderful nation being drilled into the ground by those with too much or too little. Living from day to day is hard for anyone with 1 or 2 'average' paid incomes, 2.4 children, 1 small car and a mortgage. Us middle people are treated with derision and contempt by those with more or less. We all work hard, but get kicked one way or the other-middle England is very angry-the AVERAGE person is taxed to high heaven, has a lottery for the state education of their children, and watch their 'disposable' income being eroded to pay for incompetent banks, politicians and those with no intention of working. No wonder they are angry. They are now in danger of losing their jobs and homes, and noone in a position of power cares, cos 'I'm alright Jack'!
Revolution won't happen cos those of us who will pay the most will also suffer the most-the voice of the people is parliament-what on earth would Oliver Cromwell say of all of this? I'm pretty sure that the king lost his head from a lot less than the total destruction of our economy and way of life that is happening around our ears right now.
We are all too blasted polite to question to the heart of the matter! The three musketeers (GN, AD and MK) should be on our doorsteps with a £16,000 rebate instead of putting billions into a banking black hole - now that would boost the economy!
November 5th anyone? Who will your guy be?!
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#134
You've raised more questions than answers:
1) Regardless of who buys the Gov't debt it will still have to paid for in sterling. If it's foreign investment then they will have to exchange their curreny for sterling, hence increasing the demand for sterling. As an example if you are an American pension fund with the choice between a US treasury bond paying 1% or a UK treasury bond paying 4.5% why would you buy the US bond?
2) If the Gov't defaults on its debt I could understand investors being reluctant to buy future treasury bonds, but I cannot see the direct link between this and a sell off of sterling? What is the mechanism that makes a currency devalue when a government defaults on it's debt?
3) What is the history of the UK Gov't defaulting on it's debt obligations?
I have looked at the stats for Gov't debt to GDP ratio for the G7, the UKs is the lowest, Japan 195%, US 60%, France 64%, Germany 63%, Canada 65% and Italy a whopping 104%. All these countries are therefore much more likely to default on their debt in a downturn, the UK is much better placed, why wouldn't these stats lead to a flight to sterling especially with relatively high interest rates compared to these other countries?
4) If the Gov't defaults on it's debt obligations then I can understand why investors would not want to buy treasury bonds, but why would this prevent investors buying sterling to invest in the private sector, for example natural resource companies listed on the FSTE in sterling? Surely the determining factor for foreign investment would be the comparitive inflation levels to their own country's?
5) If the Gov't obtains sterling from the money markets, money that say would otherwise have been invested in mortgage securities, how does this cause inflation. This does not cause an expansion in the money supply, just a redirection of capital. Money supply only becomes expansionary by increased lending by banks, at the moment as I understand it there is a rapid contraction of the money supply by the amount of de-leveraging taking place in which debts are being paid off which because of the fractional reserve banking process leads to a reduction in the overall volume of money in the economy. With a contracting money supply and an increase in the amount of Gov't borrowing wont this increase demand for sterling and have the opposite effects to the ones being suggested?
6) Really confused by the final comment of "do unto them before they do unto us" mentality !! What exactly would 'foreign investors' be doing unto us that we should be doing to them?
Can you or anyone else provide a more objective explanation detailing the mechanisms by which sterling will be devalued by the increase in Gov't debt. Why has this not happened with other countries that already have significatly higher debt to GDP ratios.
Ideally I would like to see Robert Peston address these questions in a future blog.
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another brown banking bloomer....
The IMF may need more funds!!!!!
OK-so our dear, esteemed PM is off, yet again, to tell the western friendly Saudis to donate their recent obscene oil profits to the IMF! I wonder when he will go and tell Iran the same?
He is either so full of himself (like telling euros that his way out was the best way) or running away from confrontation at home-not to mention that he I'd highly unlikely to be travelling 'coach' class with a budget airline! Please correct me if I'm wrong, but haven't our PM and chancellor spent a great deal of time and money travelling away from home?
And this helps us avoid national bankruptcy how?
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Some posterrs seem to get upset at politicians and bankerrs being lying hypocrites ,surely that is as foolish as complaining about water being wet .
Live with it ...get an umbrella and a sense of humour
Since debt cannot be repaid without creating more debt , as will now be obvious to the emerging e con omies[ finding themselves in the bottom three layers of the ponzi scheme now popping ]unable to pay interest on assets purchased with devalued imported money created from thin air ,the solution is becoming blatantly obvious ...bankruptcy [montecarlo and bust]
The great Gordons idea of boom and no bust[a scaaam of the old against the young ] would perpetuate the unaffordable reamortising housing bubble for eternity and lead to an exodus of bright young people to greenerr pastures
Poor Gordon doesnt understand the difference between economic growth and debt aquisition based on self certified ninja loony loans to the delusional insane,but there again how could he with his ninja RIP self certified golden rule[the MidAAA's touch in reverse]
We have a simple choice
A Bankruptcy[and a potential new set of loonys to run the show ]
or
b More debt [reamortizing the same loonys]
Choice A should lead to debtors prison ,but the prisons are full.
Choice B more debt, prefferably to infinity and beyond ,keeps the loonys who allowed the debt centre stage and creates an unparalelled historical opportunity for folly on a cosmic level to keep satirists in full employment .
Westernerrs will just have to get used to the idea that the sun no longer shines out of their AAA's holes and its paperr on a roll will soon be worth more without the promices written on it on it
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Mr PK. I see your point, but, are you not confusing 'brands' with 'judgement'?
The human condition is one of comparative behaviour, we assess our world view and environment by comparing ourselves with others. Now as has ever been.
Branding, well yes, thats a function of mass media and marketing, a direct result of technology - notably television - 60's again.
And by the way TV in those days was a whole lot more real and gritty than now, TV dramas did not generally contribute to your assessment of the break down of society - but they did manage to break down outmoded ways of stagnant thinking. We could do with more of that.
I currently live in a society wher I earn 1/6th my UK salary, but all consumer goods are the same price as UK. Whole generations of families still live together (and now, build houses together). It is very family/religion oriented here, and peaceful. But, for the 26 year old girl that wants spend time with her BF... a nightmare. Conversely, laddish drunkenness is moderated. Pros and cons everywhere.
'Leaders' - thats a misnomer isnt it :)
see, I agree with you on something.
No. 225, need a filip - worrying name :)
UK is paying 4.5% interest. You say this is good.
I borrow from the US treasury 1mil dolla. I buy into Govt securities at 3.5% (not sure avg yield).
Where does this extra 2.5% interest actually, really come from... there is somewhere in world a country paying 5% - no. It comes from GDP growth. Now I am no expert at this, but this is simply storing up debt for the long term. The UK govt, needs liquidity to pay its debts so needs the investment... UK does not make anything from this - it is gambling with YOUR future.
TH USA and Japan - well, they just got 1mil dolla or yen. With interest.
Tell me who is winning here? OR, tell me if my logic is wrong - isnt this now a zero sum game?
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#204 PetersKitchen
First point: I took no personal offense at your comment about pensioners who grew up in the sixties. (But it was considerate of you to make the distinction between your general charge and individual culpability - I like to think I'm different, but am probably not as different as I should be!)
Second point: My remark about everyone having been blamed was simply an observation of what has gone on in these blogs. (I do even blame myself, but not because I grew up in the sixties.) My point was better expressed by
#213 traducer who wrote:
"Our power lies in altering subtly and slowly the overall paradigm of thinking by continued comment and reasoned argument. Blame is a waste of energy and time in the process of directed clear thinking."
PetersKitchen,
I heartily agree with much (most) of what you said in your post:
[quote]
"Taxes should be cut to all earning under 25k pa and taxes should be raised from the rich and the corporations that continue to make massive profits.
...
Why should we pay bills to water, electricity and gas that produce the billions of profit for these companies shareholders with a small percentage going to towards regeneration?
Is it not a statement of our society that our basic needs are used to make money instead of support life?
If inflation is 5% and interest pays 6%, why are legal companies allowed to charge 30+% interest to the most vulnerable
Why do we have to pay PAYE taxes and NI straight form our salaries when the richest people in society pay nothing?
The system supports greed, encourages greed and kills dead social awareness."
[end quote]
I couldn't have said this better! And it's your last sentence that really contains the seed of what I was trying to say; "The system supports greed, encourages greed, etc."
What I've hoped since I began following these blogs (and others) was to find people discussing not ways to "fix" the present system, but debating possible alternative monetary systems. For it seems to me, though I have no formal training in economics or finance, that the root problem is how money (credit or debt) is created, and who is allowed to do so.
If HMG can issue a gilt, why can't it issue (instead) a currency note for the same amount? The government, which acts, or should act in the interests of those who elected it, collects taxes to finance its operation and pay for certain social services. The source of the government's revenue is the stored value of wealth created by citizens (and companies) working. If the cost of social services is greater than its revenue, why does the government go into debt to finance the difference? Unless it can be shown that the wealth creation of the people will at some definite point in time be able to pay off this debt, this is "living beyond one's means." But as long as the government is not living beyond its means, why does it not simply issue currency to pay those who will work and pay taxes? Why are we in the situation of owing more in interest on government-incurred debt than on the principal amounts originally borrowed? (I'm not sure this is true of Britain's national debt, please correct me if it's not.)
To anyone who knows much about economics, the above questions and ideas are obviously drawn from the thinking of those who oppose giving the power of fractional reserve banking to private, for-profit institutions outside the structure (or strict control) of government. I don't know enough to argue for these ideas cogently, but the few attempts by others to raise them in these blogs have been ignored, or dismissed as the work of cranks. Is this really justified?
I have talked with someone who knows more than I about economic theory, and while he is a committed "capitalist" and entrepreneur, he says that the greatest sticking point of competing, mainstream, economic theories is that they are all predicated on an assumption of infinite (exponential?) growth. I keep seeing growth curves describing developments or trends in resource consumption, pollution, climate change, and so on which are related to growth in economic activities. Is there a relation between melting financial systems and melting ice caps?
I wish these blog discussions would widen to discuss the larger strategic issues, rather than always focusing on short-term tactics. Or is almost everyone convinced that there is no strategic problem, only tactical ones?
Third point: I only disagree with your (PetersKitchen) narrow assessment of blame for Britain's present financial problems. I wish one generation had a monopoly on greed, corruption and delusion. We have much to answer for, but we did not succeed in cornering the market on these failings! If that were so, it would be a relatively easy job to "fix the system."
Fourth point: Even on behalf of "my" generation I can't accept responsibility for Britain's present problems: I grew up in the United States and made my contribution there! It's a toss-up who's now worse off. I immigrated to Canada a long time ago, and our leaders here keep telling us that our financial institutions are well-positioned to weather the R-word. Time will tell.
Anyway, thanks to both of you (PetersKitch, traducer) for taking the time to read and respond to my post.
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Brown's Golden Rules are almost irrelevant. They never had any real economic validity - why 40% of GDP rather than 35, 45 or 50? And what is so great about borrowing to 'invest'? RP's own biog of Brown gives a good feel for the way they the 'Rules' were rapidly improvised when Sterling left the ERM - which had been the foundation of Labour's economic policy up til then, as well as the Conservatives'. The only rule that makes sense is for the Government to borrow in bad times and repay the debt in the good - a balanced budget over the cycle, as it were. This Government borrowed far to much when the economy was booming, now that it is bust, they have no choice at all but to borrow more
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No article about whether or not Mandelson discussed tariffs with Deripaska? Oh, sorry he's not a Tory is he? Can't discuss that on State Broadcasting.
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With the current situation, entirely the fault of GB despite some protests from some quarters that it is not his fault, iremaina a fact that GB overborrowed to buy votes and spent far too muich of the UK adding to government and its inherent waste. Millions of jobsworths were earning billions during this time and also fuelling the growth in property prices and demand for goods.
Also Unfortunately, unlike the last prperty boom that was fuelled by investors capital being made freely available and was short lived when they realised the risks, this property boom was fuelled by demand from government borrowing flowing into the economy in a totally non productive way. ie the salaries of jobsworths.
Now that capital has fled or is redducing as fast as it can get out it is absolutely impossible to put a floor under property values until it reaches a level where only personal savings can level it off. That could mean oner the next 2 to 3 years the values falling some 65 to 70% of peak values.
The problem is though this would be very painful to property owners, it has huge consequences for the economy as a whole .
In such a prolonged reduction of the nominal values of prperty then land and consequently new build projects could never restart.
House builders will start to fail one after another as thier assets shrink away , ie landbanks and work in progress, and all of them have borrowings that will be under increasing pressure to be repaid
It could almost totally wipe out the entire construction industry in the UK.
that would soon be followed by all the contracting companies and then the raw material suppliers and secondary suppliers such as B & Q and furniture manufacturing and and every other part of the economy that relies on a healthy property market.
The current situation means that if an average salary now is £10,000 and the average equity in the house is £100,000 then to sell the house would could replace income for 10 years.
but at the current rate of property price declines, which can never slow down until capital is attracted back to the market, then in 3 years the salary maybe be say £11,500
allowing for wage increases at the aprox the current inflation rates but equity in property values down to approximately £48,000 at current rates of loss.
thats only a little over 4 years of repacemtn of income if the house is sold
The only possible solution left open to the government is to allow inflation to rip and to start to print money.
This will soon start to slow the nominal price of property, although it will be falling in real terms but incomes will rise strongly although in devalued pounds.
so in say 3 years incomes will rise to over £15,000 from say £10,000 now but interest rates would rise to similar levels , ie 15% if thats the rate of inflation and the rate of borrowing or currency printing.
so this way incomes would rise to meet he property prices falling in nominal value but they would still be falling in real terms .
This would allow foreign capital to flow back to the property market..
Why? because UK property would start to look very cheap and attractive to foreign investors holding cash in dollars or yen as these currencies will still be a basic safe haven for international investors.
Sure the pound might as much as lose 60% of its value buts tha only way open now from this mess dear GB set you up for
Unfortuantely now there really is only one possible solution,.
House and property prices are bleeding capital vales at the average rate of £3,000 a month.
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#205
..irresponsible 5%?
My opinion based on the hundreds of folk (poor and rich) I spoke to while campaigning for weeks in the last Parliamentary election in and around Sleaford and N Hykeham and the feedback of my (then) UKIP campaign team. When you are trying to get support you really do have to have some pretty in-depth door-to-door discussions. Plus opinion solicited from my very savvy accountants with quite a big client list.
There. What's your view based on?
By irresponsible I mean people who really do know the risks but don't care because they just don't fear bankrupcy. Tiny minority.
You cannot call people who simply do not know any better and who are effectively tricked into deals by smooth-talking money-men irresponsible. That is more than judgemental, it is wrong at every level. It is a great mistake to assume that everyone is as clever as you are (I mean 'as one is'). Everyone is a human being and some - who don't have the advantages of intellect or education/experience sometimes need help and good guidance. Often they know so little about the way the world works that they don't even know when to ask for help or who to ask. Call it a leg up.
In saying that I would just add that assessing risk is a rather intangible thing. If your income meets your ougoings you are doing fine - if the Govt can keep the economy stable. Money gets spent, shops and banks do well and you get on in life. This is by no means confined to individuals as such, it applies to firms and companies too - stock, capital aquisitions etc. You do know all this! If risk was easy to measure we wouldn't be in this mess.
Take away the stable framework and everyone gets short-changed.
GC
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Im sorry to say HE will not repay it.....
It will be passed on to the tax payer
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Another of Mr. Brown's little rules was to hide the real levels of expenditure through PFI deals. As deferred expenditure they don't appear on the balance sheets, but the real effects will start to kick in just as the UK is starting it 'recovery'. Oh what a tangled web we weave...
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In terms of generational theft, I would cite the following:
My father -in -law worked for a bank for 35 years, from age 16.
Not once did he work beyond 5 or a weekend.
He retired at 51 on a full pension (under enhanced redundancy)
He was able to buy a five bedroom house at age 35
he has now been retired on an index-linked final salary scheme for over 20 years.
Does anyone think this could remotely be done now?
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#184 At the current price of silver and, worse still, with the recession on, your silver sixpences will be worth small fortunes in the coming days !! I'd hang on to them, if I were you !!
I've still have a coffee jar full of them from my grandma's time and they are surrounded by razor wire !! I would have added machine guns but they are illegal at the moment :-)
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#233
So your 5% is just guesswork, typical politicians trick use unfounded figures to make their argument sound more valid.
As for where I get my opinion from it is as unfounded as you own but no less valid, 35 years in banking and more recent experience as a landlord.
As for the view of your accountancy friends do you really think these kind of people go anywhere near accountants?
You say assessing risk is intangible and if it were easy we wouldn?t be in this mess yet you seem very happy to lay all the blame at the ?smooth talking money men? who ?tricked people into deals? a tad judgemental I think.
The irresponsible in society must be made to start to take responsibility for their actions, there are already far too many non financial situations where the responsible are made to pay for the irresponsible?s actions, with the later getting off scot free with a pat on the back.
As for the ignorant what incentive is there for them to learn or be more cautious if there is no downside to their actions.
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#238 steady tiger!
How many times in your 35 years in banking - looking back now, given that the country is in recession and with hindsight - how many deals did you give as a banker that, well, now look irresponsible? Not many I figure given that one can hardly close those deals and then afterwards say they were irresponsible and not feel part of that irresponsibilty per se. On the other hand peoples' circumstances change and everyone knows how easy it is for a lender to say 'you borrowed too much' but you never hear them saying, 'sorry, I lent you too much..'
My underlying point is there is no virtue to being judgemental about it. When I say that some folk get tricked into deals that can certainly be cited as an indictment of that sector of the lending business and I have met enough to know it exists but I wouldno more condemn all lenders any more than I would condemn all lenders, bank or otherwise, no ho! I happen to think lending and borrowing is a thing that must be made available in the modern world. My views on the interest made on loans, well, that is a another matter altogether. I certainly consider the +18% APR var interest on cards to be ususry - grossly excessive and morally unjustifiable.
Sure 5% might look like guesswork but I happen to think it is actually very representative. And I did not include in my pet survey the thousands of folk I have traded with over more than 18 years in racing engines - in that whole time I have only encountered one individual I would call irresponsible. There is a simple reason for that - the money that I see tends to need agreement of the man's partner or wife.
GC
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#228
Response to 225
Another patronising and politicised response. You needed to have read the previous threads 134 an 122. The original question was: 'Can someone please explain why increasing the national debt will lead to further devaluation of sterling?'
I realise increased indebtedness places a greater burden on tax revenues what I don't understand is why this directly feeds through to currency devaluation. Japan is indebted to the tune of 195% of GDP, yet it's currency remains very strong, I can't see why investors would be buying up Yen to purchase Japanese Treasury Bills, their yields must be effectively zero?
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Well, I doubt Alistair Darling or another New Labour will be the one having to work out how to repay the debt, so there naturally won't be much effort being put in to look to the future.
Sadly, this is not about New Labour, but about our politics in general. They are all about getting to the next election, the broader long term is simply not given as much weight on the agenda as the short/mid term election time planning, to make sure that things look good in the eyes of their power base at the time they need their mandate.
We are ill served by all our politicians, no matter what their party.
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Have I ever done an irresponsible deal , NO, (not to my knowledge)
Have I entered into deals that have gone wrong because of changing circumstances? YES, but only after taking into account the risks involved against the potential rewards and I do not look to blame anyone else for my errors.
Despite what many seem to think and the media would like to portray the majority of city workers are extremely conscientious and hard working, with 12 hour working days without breaks are the norm for many, over the years they have contributed as much if not more than any other sector to this country?s economy, yes they are well rewarded in general but it is only a tiny percentage that get the mega payouts, compared to the Ross, Williams and Jordans of this world I would say they were just as deserving of their money.
how easy it is for a lender to say 'you borrowed too much' but you never hear them saying, 'sorry, I lent you too much..'
My response would be
how easy is it for a borrower to say ? I was tricked into borrowing or I did not know what I was doing?, but you never hear them saying I borrowed too much??. Which you seem to find acceptable.
"but I would no more condemn all lenders any more than I would condemn all lenders"
Sorry please explain?
As for 18% APR on credit cards these days those kind of rates are reserved for the more risky customers, or if you are silly enough to use a retail store instead of a reputable bank, most quality cards are around 9% APR which you may say is still too high but used prudently cards will provide 0% short term finance and you never hear anyone complaining when they are ripped off by retailers or holiday company?s and its the credit card company who gives them their money back.
The motor racing world is hardly a true representative cross section of the country to be looking at for an indication on how people run their financial lives.
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No. 240, i apologise if you thought I was patronising, that was not my intent at all.
I attempted jocularity at your nickname is all.
Apologies for any perceived offence.
i am surprised you think my comment was politicised... but having moved countries and readjusting my politics from right to left (i once ran as tory candidate in the early 90!s) i now understand that political affiliation is simply unenightened self- interest.
I really wasjust trying to put forward a viewpoint on the interest rate differentials and hoping to get constructive feedback to clarify my thinking.
So. the point i was trying to make was that they are using yen to buy UK (and other) bonds, so the US and japan benefit long term from direct borrowing at 0%,,,, i think....
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On both sides of the pond clear blue water has emerged between the approaches to the economic crises being adopted by the two main parties.
After his initial panic, McCain has chosen to once more follow the Reaganomics approach with which Bush had continued the Republican tradition of the past quarter century. In addition, as announced in George Osborne?s speech at the London School of Economics, we at last have some idea where Tory economic policy is going in the UK. Unlike McCain they now claim to believe, as belatedly does much of the world, in a general philosophy of Keynesianism. At the same time, like McCain, they have dramatically reversed their position (one they held just a few days ago in the brief era of bi-partisanship) on Keynesianism borrowing to buy our way out of recession; now claiming that is ?old-fashioned Keynesianism?.
Thus the UK Tories new approach is a strange form of Keynesianism; especially as delivered in Osborne?s lecture at LSE, whose academics would presumably have registered the anomalies. Osborne seems to be narrowly defining it just as the use of automatic stabilisers, which most modern societies would implement as part of normal social policy; and without a thought of Lord Keynes, even in a recession. It appears that Osborne then consigns all the rest of Keynesianism to ?neo-Keynesianism?, which he seems to believe is a term of abuse. McCain, of course, will not abandon the now traditional Republican hate of such socialism!
For the rest of his economic solutions Osborne seem to hark back to Thatcher economics; in terms of interest rate control (the last remnant of monetarism), tax relief for small businesses and the middle classes, together with limits on government spending (monitored by an independent body). Similarly, McCain sticks with Bush and Reagonomics.
By the way, am I alone, however, in thinking that Osborne?s lack of understanding of economics was demonstrated ? in front of LSE academics - by his idea as to what trickle-down theory is? As an economist myself I always thought it was the discredited idea that the wealth of the rich trickled-down to the poor. In the specific context of a depression, though, Keynes noted that money given to the rich was saved where that given directly to the poor was spent, thus helping us all spend our way out of depression. Osborne rather strangely thinks ?trickle-down? refers to government spending (typically on large scale projects) designed to boost the earnings of the poorer sections of society; especially those working in the hard hit construction industries. McCain, and the Republicans in general, show their own ignorance by labelling Keynesianism as socialist, indeed as almost Marxist!
Even so, is Keynesianism the new orthodoxy for most, or is there something really new out there, or was Thatcher right after all as the Conservatives still seem to believe (and Reaganomics for the Republicans)?
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Marx was right Thatcher and her chum Reagan were wrong. Unfortunatley they had a fashionable following amongst the most inbred and unstable class of mathematicians -'economists'.
It is a fact of life the macro economics takes generations to work out a simple idea, indeed it has taken the whole thatcherite disaster over decades, to infom people what a crap shooot her idea were.
Anyway life goes on we are here, and now we find the storm troopers of fiscalment are but a shower of cheap cowards and no more use than a tissue in a rain storm.
And these are whom we trust our financial stability on?
We have for far too long been misguided by profit at all cost sod justice merchants.
Don't believe me?
Then why are governments taking action?
Friedman was a total arse.
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I'll give you a little object lesson, When the bank repossed my house in 92 I later found that they had lied in their contract which made it null and void. Because I didn't have the money and could ill afford it I was unable to get a case against the Bank in question because all our famous lawyers
a were reluctant to get up a no win no fee case for me because it involved Litigation. No controls by the Bank of England, No teeth by the CML, No interest by the Banking Ombudsman, No joy from the Europeans either via my MEP and as for My MP a man who is currently suspended.. well I might as well never have bothered. My case that the Bank had misrepresented a contract in the full knowledge that it had not applied what was requested contrary to Banking regulations and almost a s.13 of the Theft Act 1968, which must have been fairly common then was left covered up.
Now we find that a bunch of morons wanted to find a way of making nothing into somthing were arguably fraudulent and as a result of the scale of the problem are to be paid of by tax payers who ( certainly in the PAYE sector who will bear the brunt) whilst the politicians who are supposed to make and ensure that the law is enforced go away wringing their hands saying thay have no alternative.
But I watched house prices rise and saw the level of debt taken on and said to a colleague of mine that if this ever went bang we would be reminded of Vesuvius. I seem to have been right again. Now all I know is that the old song about the battle of Balaclava is correct. " Ours not to reason why, ours but to pay the piper" I don't ever want to be lectured about duty, honour ever again, and the last thing I want to listen to is an Expert. This could have been predicted by the mind of a louse let alone me.
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On the subjet of Keynes, and the last great depression, and the many financial 'black holes' beforehand...
UK government policy was always 'send out a gunboat' to invade some poor unsuspecting despotic regime and 'sequester' sufficient resources to cover the cost of the operation + a little more.
It is heartening to see that both France and The UK are now going to send troops into the DR Congo for 'humanitarian' aid.
What I do not know, and this is my question, exactly how many hercules transport aircraft are needed to shift 500bn gbp worth of diamonds?
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#225,
1) Haven't checked the inflation rate in the US so I am going to use Japanese bonds. The key item for an investor is real yields not the nominal interest rate. If in the UK the coupon is 4.5% and inflation is 5% then your real return is -0.5%. If the Japanese JGB coupon is 0.5% and the inflation rate is 0% then your real return is +0.5%. If you can't tell the difference between real and nominal interest then you probably DO work for a pension fund manager.
2) There are two mechanisms, firstly prior to default the government normally tries to inflate away it's debts - like this one is trying - and secondly risk-free yields are what derivatives are priced off and if that jumps it normally triggers a selling off of the currency when during hedging.
3) UK government doesn't usually default on it's debt, it either goes into hyperinflation mode or soft defaults by changing the terms of the bonds. If Japan's coupon is 0.5% and UK's is 4.5%, then even with GB's lying stats, Japan is spending about 1% of GDP servicing debt and the UK is spending about 2%. When analysing credit, you should look at ability to service debt. PS the above is very very rough, obviously not all debt is paying the same coupon.
4) Most of the natural resource companies are dual-listed and also if they are foreign investors they will want to hedge the FX risk leading to shorting of Sterling.
Remember that unlike USD we are not a major export market for China or Japan or the Middle East and so they are not going to rush out to buy UK debt to push Sterling up - and their currencies down.
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#242
"The motor racing world is hardly a true representative cross section of the country to be looking at for an indication on how people run their financial lives."
Why so dismissive? What you trying to prove with that sweeping assertion?
You couldn't be more wrong. I work in it and it is a fantastic barometer because of the huge diversity of trades and professions that motorsport enthusiasts represent. You might have one as good but no way will you have a better one. And it circles the globe too.
As for your notes on those credit card interest rates I only know of around 2 that are at the 9% level and that's very recent, all the rest are 14% and over incl BOS which is over 21%. I got an over of an MBNA card via BT recently and that's 16.9% APR variable on card purchases and 27.9% on cash transactions.
Love your note about 'a reputable bank' BTW, not such quite a long list now is it? Nothern Rock on it?
GC
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Why is her Majesty?s government getting all the flack?
It is the well-paid moneymen who have caused this chaos.
Yet it is the poorly paid politicians who have to try and sort it all out.
As for Peston he is on a win win situation if the economy takes a real dive he says.
?I told you so?
If HMG sorts out the mayhem caused by the bankers which I think most likely, Peston says.
?I was describing a worst case scenario?
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#248
Yet still more questions:
1)Real interest rates only apply when investing in your own currency, surely. I am not too stupid too realise that if inflation runs higher than interest rates returns are effectively negative. But this doesn't apply to foreign investment. If a Japanese pension fund bought sterling to buy UK gov't bonds then if(and I know this is a big if) exchange rates remained the same over the period of the bond then the pension fund would get a better return from buying UK gov't bonds clearly.(20% more over a 5 year bond). They could hedge against any currency fluctuations. This is called the carry trade isn't it?
If you are a US pension fund then you should be even more inclined to buy UK gov't bonds. Inflation is similar to the UK, therefore real interest rates for the US are -4%.
3) Japan is uniquely better placed at servicing debt than most countries but compared to most of the other G7 (Germany spends 2.3% of GDP on debt interest payments) then the UK is better placed.
OK so the UK is small fish compared to the US economy but who isn't, but it is still the 5th largest economy in the world and imports most of it's manufactured goods from overseas. The size of the debt and budget deficits are relative, and relatively speaking the UKs is low. I would guess that the export market to the UK is similar in relative terms to the US for the countries you mentioned, it would still be in their interests to raise the value of sterling to achieve better returns on their exports to the UK.
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As it now appears, the government, even as major shareholders, will not be able to exercise the control neede to return the banks to providing the service that we all need.
The rumours are that the banks are already returning to their old ways and gambling with taxpayers money.
So surely it would be desireable to return control of the banks to the shareholders, government included, by legislating amongst others that remuneration packages for individuals whose gross packages exceed shall we say 1.5 times the average of the entire bank salaries whould be approved by shareholders.
Perhaps then the smaller shareholders would also be able to demonstrate their feelings regarding excess in relation to the risk they accept.
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