Global recession and domestic lending
There's shocking evidence this morning of the magnitude of the global economic slowdown from Rio Tinto's swingeing expenditure cuts. But there are also signs of evasive action by the Treasury to prevent the continuing squeeze on bank lending from magnifying what looks like a very sharp recession in the UK.
Remarks yesterday by the Chancellor (see this morning's FT lead) suggest that the Treasury is making progress on initiatives to facilitate increased bank lending to the real economy.
For detail on what the Treasury is considering, see my note of Friday (How much will taxpayers finance the real economy?).
Putting the mechanics to one side, the government is edging towards a scheme that would have the following important characteristics:
- taxpayers would underwrite bank lending to the real economy, or the provision of loans to business and to the housing market;
- the cost of that taxpayer support for banks would be cheaper than the main existing scheme, the £250bn credit guarantee scheme, and access to the support would be easier and quicker for banks;
- the help from taxpayers would be in place for perhaps as long as five years, or longer than the three years of the credit guarantee scheme and of the £200bn special liquidity scheme (which allows banks to swap mortgages for easy-to-sell Treasury bills);
- the overall design of the new arrangements would mean that the state would in effect be borrowing to provide funds to banks, thus in part filling a massive hole for them caused by the virtual closure of wholesale markets.
To put it another way, taxpayers would become lenders to the real economy to the tune of several hundred billion pounds, on top of the £600bn of support we as taxpayers have already provided to the banking system in the form of loans, guarantees and the injection of capital.
That may sound scary. And it would certainly be foolish to assume that money managers, who are supposed to buy all the debt issued or guaranteed by HMT, won't at some point get a seriously bad case of the heebie-jeebies about the rising burden of our public-sector liabilities.
But even the Tories say that extending and easing taxpayer guarantees for bank lending would be a good thing, presumably because, like many, they view the alternative - bank lending continuing to shrink and thus exacerbating the deep problems already being experienced by businesses and households - as much scarier.
There's no ignoring the powerful recessionary forces that threaten us. For example, the National Institute of Economic and Social Research - which is never knowingly sensationalist - said today that it believes that the economy shrank by a worse-than-expected 1% in the three months to the end of November.
Also, a shocking announcement of massive redundancies and spending cuts at Rio Tinto is a microcosm (albeit a very big microcosm) of savage recessionary trends highlighted yesterday by the World Bank.
Hailing the end of a "historic commodity price boom", the World Bank forecasts that world trade will shrink by 2.1% in 2009, the first contraction of world trade since 1982.
Part of that is a manifestation of the amazingly shrunken appetite for raw materials of the world's great manufacturer, China. And Rio doesn't expect a recovery in Chinese demand until the second half of next year.
The World Bank says that "the possibility of a serious global recession cannot be ruled out". And you only have to look at what Rio Tinto is doing to see why a cut in the world's economic output is far from impossible.
The giant mining conglomerate is reducing its "controllable operating costs" by a colossal $2.5bn a year. Its capital spending is being reduced by $5bn next year to $4bn - and it gives no guarantees there'll be a revival in 2010.
Those attempts by Rio to generate cash and thus reduce its massive borrowings of $39bn will cause disappointment and indeed hardship in many communities all over the world.
In developing countries, for example, belt-tightening by companies like Rio will have a profound effect. According to the World Bank, net flows of lending and investment to developing countries are projected to shrink from $1000bn in 2007 to $530bn next year - a reduction of almost half.
The official forecasts of the World Bank are that in 2009 the world's "high income" economies will shrink by 0.1% and the global economy will expand by an insipid 0.9%.
To put that into context, in recent years global growth has been nearer 4%. So although the global economic mess was largely generated by the financial excesses of the richest countries, notably the US and (in a supporting role) the UK, no country will be wholly insulated or protected.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~01~RS~)
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Let me repeat what I wrote in yesterday's blog:
Here is a piece of info EVERYONE HAS BEEN HIDING FROM THE PUBLIC.
NYMEX Oil Future Contracts:
1998: 121,497
2000: 148,123
2002: 182,718
2003: 181,748
2004: 212,382
2005: 237,651
2006: 283,080
2007: 482,246
first 6 months of 2008: 536,837!!!!!!!!
They kept buing the same oil over and over again (on paper/screens) before it reached the refinery, hence upping its price every time. The bankers/brokers/speculators!
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Robert,
In the model that you are proposing above, it seems to me that banks will be taking NO risk whatsoever, and instead taxpayers will be burdened with it.
So why are we still keeping these banks alive? What is their purpose/function?
Should we not just get rid of them as they are no use to anyone? I'm sure we can come up with a new organisation to facilitate this, and it will cost us less.
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No surprises here.
This is just printing money in reverse.
You give the loan guarantee first under favourable terms making it appear attractive. The loans get made - many of which are simply to those who should not be borrowing or lent because they are not going to be able to repay the loan later. It is also an attempt at price fixing.
Later the government will print the money via bonds to cover the bad loans and extend the mess still further. The advantage this way is that nothing actually enters the books now and is therefore unpriced and costed.
Either way our currency will fall still further and all imports - which is most of what we need gets more expensive.
When will we learn:
It appears we are going all the way into depression in the UK with the associated risks of civil unrest and race riots etc.
All this to avoid making realistic tough decisions.
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I honestly believe that most authorities and commentators have no idea what they want the economy to recover into. They just want/hope/pray that it gets better.
It would be insanity to return to status quo ante but that appears to be the aim. To get people lending and borrowing again as if what has happened was a minor realignment. If they are wrong and it is a systemic collapse of Bretton Woods/Bretton Woods II then the situation looks grim.
A friend of mine who was travelling in Phoenix reported that shops were offering 70% discounts the day after thanksgiving - unbelievable really.
The Baltic Dry is through the floor. UK PSBR (inc PFI, pensions, bailouts and the RBS debts et al) is now c.400% (yup... four hundred) of UK GDP. Stock markets are rising giddily on the slightest lack of bad news - this has all the makings of an economic crash and subsequent re-boot on a par with - if not bigger than- 1929-1932 and, bearing in mind we are only 3 months into it forecasts of a sunny disposition look exceedingly misplaced.
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Capitalism seems to have this suicidal tendency to hit the self-destruct button. Perhaps it's Capitalism inherent contradiction - it's great strength is it's dynamism is also it's downfall. Time to blow the dust off those Marx books me thinks and hope Capitalism doesn't end in violence.
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At last! A chance to post in the top 100! It's a sign of how important this blog has become.
I have a couple of points that relate to the new scheme;
- we're in a credit crunch because the debt is too big, that's why lending's dried-up. Why is more lending going to solve that problem?
- the government are prepared to underwrite loans. This can either work, or it is mad. I think the latter. Why? International investors, who are keeping is going at the moment, will put two and two together: we're not a good risk anymore. This will lead to, neither's the UK economy. Lending will be withdrawn (plus with the US following the same strategy my bet is they'll suck up the cash as being the surer bet).
- if international investors and foreign governments are propping-up the UK economy, not only do we lose any chance of what little national economic policy we can have, but we have no guard from economic storms such as this. The plug can be pulled and we face an economic shock far worse than this.
- this is a long-term problem In five years, we'll still be dealing with this so delaying it means we'll probably be in an even worse condition. (Didn't people blame the skipped recession of 2001 for storing-up problems?)
Final point: it's not fair. I'm aware of the arguments, but, and I say this as a non-saver, the people who borrow are bailed out and the savers have to pay. No, we have to grind this one out. Unpretty as it is.
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Banks do not represent real people. Investment Banks only have a few hundred portfolio's for individuals like sainsbury's and the rest is institutional. It seems HMT is barking up the wrong tree for money.
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If you have a good credit rating and assets and/or a deposit depending on what the loan is for you have no problem obtaining credit now.
The deposits requested are high because that is the anticipated further reduction in property values
The collateral needed to secure business overdrafts into next year have changed because every companies forecasts have changed. The risk is higher. They pay more, but if the company is sound the credit line still exists.
So WHY is this government intent on bankrolling the funding to (potentially) bad loans?
Are the banks going to seriously reduce the amount of deposit needed to secure a mortgage? Are they seriously going to return to lending in mutiples far in excess of what is prudent with falling salaries and massive redundancies?
It will protect jobs that should have been lost and keep people in houses that should have been repossesed and therefore, will enable an Election to be fought that will give Labour a chance to stay in power.
It will almost certainly put this country in severe distress for many, many years.
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Hailing the end of a "historic commodity price boom",
I am sure prices have been inflated artificially through speculatuion by banks, as stated by #1 but to assume with an ever rising world population that prices will not increase rapidly again flies in the face of reason.
It is almost certain that the world will consume more grain than production in 2009 therefore prices of grain could again reach their 2007/8 highs for instance.
The same will be true for all the commodities we as a species consume at an ever increasing rate.
Commodity prices are bound to increase again.
Most economist assume stability, this is not possible with finite resources and an ever growing number of consumers.
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Let me get this right.
The banks are now being encouraged to lend money to anyone and don't have to worry about whether the borrower can pay it back or not because the tax-payer (you and me) will underwrite the lending and pay the debt off.
What could possibly go wrong?
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Robert your weeks behind,
I told you a couple of months ago that things are bad.
77% of the wealth in the western world will soon be 33%.
23% of the wealth in the rest of the world is soon to become 13%
some 40 million jobless in usa and 12 million in the uk.
in the rest of the world some 2 billion to starve to death in the coming years. the rest of the world are strugleing to live on 23% of the wealth, they certainly cant manage on 13%
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I agree pretty much 100% with GrouchoMarxist1 in post 6.
It was too much lending that got us into this mess. The economy is now like the average household after Christmas.
We have consumed too much and have spent too much money that we don't have. To be honest the UK economy needs a decent detox. Let us just accept the fact that we need to tighten our belts and bring a bit of sense to the whole economy.
Yes it is going to be tough but getting yourself out of debt when you have over indulged always is. Just this time it is on a massive scale.
Sorry to say but the UK economy is like the alcoholic drunk you see in the High Street asking for money. This scheme is the equivalent of just give him some money and he will hopefully go away.
The suggestion put forward is another flawed attempt to try to keep GB and ZanuLabour in power. The first problem an alcoholic needs to accept is that he is an alcoholic and saying I will just have a couple of drinks isn't a solution.
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"The official forecasts of the World Bank are that in 2009 the world's "high income" economies will shrink by 0.1% and the global economy will expand by an insipid 0.9%.
To put that into context - in recent years, global growth has been nearer 4%. So although the global economic mess was largely generated by the financial excesses of the richest countries, notably the US and (in a supporting role) the UK, no country will be wholly insulated or protected."
Robert, all this shows is that all the global institutions are taking the Bush approach to economic commentry - "Don't use the R word and it will go away!" When this crisis bites really hard, both in the US and Europe, at the start of 2009 the truth about the World economy will finally become clear.
The bubble of economic growth in China and India will burst dramatically. Without the ability to export and invest overseas both of these countries will contract rapidly. This will have a dramatic effect on all of the other countries in the region.
In the Middle East oil prices will be slashed dramatically. The soverign growth funds will contract at an equally rapid rate as they will have no safe home in which to invest.
Until the Western economies recover the ability of developing economies to sustain themselves will be severly limited and they will be in recession for longer than we will.
So the World Bank and the IMF can continue making esoteric announcements that the rest of us just know are ludicrous.
As for loan guarantees I think that I am in accord with JackTraven :2
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RP may be correct to note the possibility of investors, at some point, becoming unwilling to finance the government's growing debt. However, two points on this. The first one is that the money managers he refers to are actually investing many peoples' savings, primarily their pension savings invested in defined benefit schemes. Despite their closure to new entrants etc, these still contribute the biggest pool of capital in markets such as US and UK.
Over recent years, there has been a move towards de-risking these schemes, better matching the maturity profile of assets and liabilities. In plain English this means selling equities and buying bonds. Except there aren't enough bonds to go round, so much of the bond exposure is actually in the form of swaps, with investment banks as counterparties. I suspect many pension schemes would love to offload this counterparty risk and take real government bonds instead. So, in the short term (ie while nobody has any confidence in banks), governments like US and UK ought to be able to sell lots of new bonds.
There is one thing to consider here, though, and that is how pension schemes will react to the losses they've suffered on their other investments this year (equities, property). They may stick with their long-term asset allocation strategy which, as the name suggests, is meant to be long-term and ignore short term market noise. The noise has been deafening this year, though. Note if they do this, they'll actually be reducing bond holdings now, as market falls will have left them underweight equities as they have fallen and bonds haven't (government bonds haven't: they are actually up, corporates are a different story). Against this, though, companies may well have to make additional contributions to their schemes to at least reduce the additional scheme shortfalls reported in the FT yesterday (GBP 155 billion apparently). A portion equal to the bond allocation will be invested in bonds obviously. Overall, therefore, probably not bad news for funding the deficit.
Alternatively, schemes may well decide to increase their "risk budget", ie take more risk with a view to earning higher returns as the way of covering part of the deficit. Schemes may well take the higher risk associated with equities in order to boost returns and limit additional contributions required to cover scheme deficits. I think this makes sense: equities are at historical lows, with limited (lower) downside risk. Any asset allocation won't happen short term. Schemes will have to undertake strategic asset allocation reviews first. But if these conclude a higher weighting to equities is justified, then schemes will sell bonds to finance the switch, resulting in a more difficult environment for the government to fund its deficit. Incidentally, this is actually a further benefit to pension schemes. Difficulty funding the deficit means higher long term interest rates. Higher rates mean lower present values of scheme liabilities, meaning lower scheme deficits.
Where are we right now? Well the US Treasury auctioned off some 90 day bills yesterday, and these traded at negative rates for a short while, ie people paid prices that will result in them paying the US government for the privilege of lending money to it. More importantly, auctions of 2, 10, and 30 year bonds all went at low rates for the year last week, suggesting the US is having no problem funding its deficit right now (and suggesting UK will be the same). The only reason for this is investors' continuing risk aversion. Holding US government debt is the least bad asset class in a climate of uncertainty.
Will it last? I doubt it. There are too many structural imbalances in US/UK: low savings ratio, implicit use of principal property value as a key component of pensions saving, inefficient public sector (not that US/UK are the exception on this one), significant reduction of tax revenue in UK from financial sector (corporation, income, CGT, stamp, VAT on employees' excessive lifestyles). That suggests longer term problems funding the deficit.
So, the UK government ought to borrow everything it can now, while it can, at low cost.
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I note from the FT article that the government is being advised by Sir James Crosby, current head of the FSA and, until July 2006, CEO of HBOS.
Yet another architect of the present mess being rewarded for failure, and trusted to get us out of it.
Why are MPs of all parties not objecting to this?
Surreal or what?
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Robert Id like to hear your views on how these changes will affect metals producers etc., such as Corus. Any thoughts?
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#10 hits the nail on the head, the lesson here is to borrow up to the hilt and bugger it, its everyone’s problem! Mind you, I’ll have a great time and when it comes to pay back, adios amigo’s!
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this should do a lot to address unnecessary brain damage to the economy - i.e small to medium sized companies going bust because of cashflow problems (not because they are insolvent / obsolete).
however, i have a horrible feeling that by the time this policy initiative is implemented, the ultimate private sector borrowers will have become as risk averse as the banks, and (beyond meeting necessary day-to-day expenses) they will just hoard the cash that they borrow in the same way that the banks are doing.
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So the economy will shrink by 1% after having grown by 2 or 3 for year after year...hmmm. So back to where we were a year ago? And yet companies are shedding staff at extraordinary rates. Hang on let me re-state that. Companies are shedding lower paid staff ("shop floor") workers and yet the upper echelons remain. This ensures those with more money than they need to survive a downturn will continue to get their fat salaries and bonuses.
The economy ticks over because more money is generated by 1000 people buying a £200 fridge than 1 buying a luxury £1000 fridge!
In order to solve this conundrum governments would have to link tax, penalties, subsidies etc to the behaviour of companies, ratio of salaries, spread of redundancy etc. Of course this would provoke howls of protest from....yes you guessed it those with more money than they know what to do with it.
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I think you should say savers will be propping up the economy Robert, not taxpayers. Borrowers will be rewarded for borrowing. Credit is necessary to oil the wheels of capitalism, but let's not fool oursleves what behaviours it stimulates.
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@4
"A friend of mine who was travelling in Phoenix reported that shops were offering 70% discounts the day after thanksgiving - unbelievable really. "
Have you ever been to the US? It is quite normal for the Friday after thanksgiving for this level of discounting to go on. Its like our January sales but they do it before Christmas. IT is always the biggest shopping day of the year in the US
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Bloomberg is today reporting that buying UK government bonds is being priced on the open-market as much, much riskier than buying McDonald's bonds (ie the restaurant of the red nosed clown) !!!!!!
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Robert,
You just can't leave it alone can you? Here we go again - "swingeing cuts", "shocking evidence", and all at Rio Tinto.
]
In fact, Rio Tinto is facing problems of debt that go back some way before the summer and, while it is true that minerals and metals demand is falling, that isn't the only problem the company faces. Job cuts will include 8,500 contractors - many non-UK- and the company has itself said that the closure of one of twio Lonodn offices is unlikely to lead to job losses.
Now I don't doubt that if you are one of the people affected by Rio's problems this is serious news, but if this is "shocking evidence of the magnitude of the global slowdown" your world is very different to mine.
My advice, Robert, would be to save the hyperbole for a time when it is relevant and stop seeking to exacerbate the situation. Your efforts to turn a recession into a full scale depression are increasingly ridiculous.
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The NEISR numbers out today are a nail in the coffin for the treasury. Next year will be a fiscal disaster unknown even in the 1970's.
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This Christmas is the first year my teenage children have no desire for new phone, digital camera etc. Hurray!
Now when I think of all the stuff in each room of our house, and compare it with what was in our house when I grew up as a child 30 years ago, its no wonder companies like Rio Tinto have been digging up so much of the earth and sending it to china to made into my TVs, computers, gadgets etc.
The worrying thing for the world economy is that most of this stuff can be lived without, or not upgraded as often.
I've often seen quoted that the rate of our consumption of un-renewable resources will require several more earths to fulfill, if places like China get anywhere near our standard of materialism.
The problem is that politicians will not and cannot tackle such a massive problem, that for the sake of the future of human-kind, we simply cannot continue the path of consumption we have been on.
So when I read that Rio Tinto are massively cutting back, and that we are consuming less oil, I think its great. Maybe we will be putting off the day when we have major world wars over resources, at least until after I have died.
However, my income is mainly dependent on people buying technology products. So do I support and vote for policies that will ignore the future but provide my income now?
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What is most noticable is that there is convergence in policy between political parties and countries. That smacks of desperation and a total lack of control. It all smacks of reactive not proactive. We are on a track with apparently no forks with a loco driver.
There is a far bigger issue looming and that is the possiblitity of massive sums of taxpayers money being piped to an ever bigger list of multinational businesses with the begging bowl out. This looks like the conduit set up to do that. The question is if the situation, by its convergence of policies is out of control is this action also out of control. Trying to stop decline with money is dodgey to say the least, it is a black hole. We now have the prospect of a government - which surely anybody must now accept is part of this mess - linking up with businesses that also cannot manage what they are doing. That is hardly a containment strategy.
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The important thing now is to keep companies afloat and minimise redundancies, which would otherwise lead to a vicious spiral of further reduced demand and yet more company failures/redundancies. So banks need to be able to lend to those companies that have cash-flow problems. I guess that's OK.
But why provide taxpayer guarantees for the housing market when house prices have still got a long way to fall. That's madness.
And I hope the additonal lending to companies doesn't include lending to Private Equity - better to let them go bust and then refloat the companies they bought as going concerns without the current burden of debt.
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# 24
Well said.
Rio's problems have more to do with their bid defence strategy versus BHP Billiton than the global downturn. BHP has walked away from the bid, an unexpected victory for Rio's management as measured by the share price reaction when it happened (BHP rose, Rio fell over 30%).
However, there's now a payback for making the company unattractive to BHP, and today's announcement is it.
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Robert perhaps you should compare notes with the BBC Science Correspondent, Pallab Ghosh, who reports:
There is a giant black hole at the centre of our galaxy, a study has confirmed. The black hole is four million times heavier than our Sun. Black holes are objects whose gravity is so great that nothing - including light - can escape them.
A similar means of describing the economic disaster we are facing is called for and might also help to avoid these million vs billion vs trillion typos:
There is a giant black hole at the centre of our economy. It is estimated that the total toxic debt relating to the sub-prime crisis and other unsustainable lending is c. 4 million times greater than the total GDP of all the planet's economies since the beginning of time. The economic situation is so grave that nothing - not even Robert Preston himself - can escape it's destructive pull.
Yes it's a proper crisis of capitalism and when we come out of it we'll need a new paradigm for economic well-being. One which is not predicated on environmentally unsustainable annual growth of 4% globally. We need an economic system that is recalibrated so that it can sustain people at lower levels of consumption and carbon emission.
Individuals and companies simply do not need to replace their cars every 3 years, on credit or not. We do not need to buy new, bigger TVs every few years. We cannot continue to accept this blatant nonsense trotted out by our govts that we can meet stringent climate-change reduction targets whilst building extra runways at Stansted and Heathrow so that people can use Ryanair to take completely unnecessary day trips to Christmas fairs in Germany etc!
The current credit crisis may well mark the PERMANENT end to over-production and over-consumption. That leaves us with very large numbers of people without a productive economic role, which is a massive SOCIAL challenge, but one that will actually be better for our poor old planet. Fundamental changes to human behaviour are required.
There is no point in looking at the crisis solely from an economic point of view!
IT IS MUCH BIGGER THAN THAT
AS BIG AS THE PLANET ITSELF
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JayPee28bpr @ 14
inflation expectations are important too - a main driver of tightening nominal gilt yields in the last couple of months. i think deflation expectations in this country are way overdone. we are a small open economy, a heavy importer that does not manipulate its exchange rate, and we have our own fiat currency. i think it is more likely that the pound will collapse further and we see sharply rising inflation 12 months from now. hence another reason for the government to speed up new debt issuance while the going is good.
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Why should we not celebrate these huge economic changes being forced on us by the global financial crisis? The massive behavioural change required to combat climate change has until now seemed almost impossible to achieve through democratic means. But now the global economic crisis we are seeing will surely provide the huge kick up the backside to those unwilling to act - and through peaceful means. The investment in generating the carbon free energy needed to save the planet is enormous and will require a change in mindset not seen since the industrial revolution. It will also require global cooperation on an unprecedented scale. Now is the time to invest in the human endeavour required to bring clean energy without emitting carbon; renewable energy, nuclear fusion, carbon capture and storage, energy conservation etc. Let's get those released by Rio Tinto to work in what will be the next big growth industry - solving our sustainable energy problems. We should be thankful that the economic crisis has given us this opportunity to put people to work on what is really important - how we can save the planet from a slow death by overheating.
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The commodity market always does get a pasting when times are bad so RTZ's statement is not that much of a surprise.
Neither even is the bald report from NIESR that the economy has already shrunk by one per cent. This just quantifies what those of us in the real economy have seen with our own eyes.
What does irritate is that the government is trying to introduce another system for lending through the banks.
This just tells me that the original bail out was hamfisted and expensive. I can forgive incompetence as it was by nature a rushed job. I agree there needed to be a short period to allow the matter to settle down but it is very evident to every business in the country that the world changed in mid-October 2008 and now everybody's job lies in the balance.
The government has been too slow in following through on the issue of bank leanding and now many jobs will be lost as a consequence.
In principle there need not be a problem with banks lending taxpayer funds to business so long as provision is made for repayment.
I only hope we do not get into the mad position of the late Seventies when the entire moribund machine-tool industry in the UK, badly in need of restructuring, was being liberally supplied with cash in order to prevent unemployment. Ma Thatcher came along, stopped the gravy train and has been blamed ever since.
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At the end of the day, the long-term sustainable global population is around 2B.
Anything more requires the use oil for making artificial fertilizers etc. And we're past peak-oil.
I pity the children.
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Banks won't lend money.
Banks don't give useful rates on savings.
It isn't even a safe place to keep money.
So what are they for?
Wouldn't we be better to let them go and replace them with a nationwide network of local credit unions where those with savings can get a return and their money directly and traceably goes to local companies and mortgages?
Mind you if I was a bank I wouldn't lend at the moment. No-one knows how deep this recession is going to be and who will be left standing. Still I suppose it's OK if the money they are lending is the taxpayers - it's only him who loses out. Hang on - that's us!!!
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So how much would all this scheme have cost if we'd allowed all the banks go to the wall who were financially incompetent, then hoover up the cheap assets and make a UK bank to get the lending going.
The administrators would have isolated the debt ensuring that they could sell it onto collectors who could then pursue the bankers for payment
Thus we have got rid of the toxic debt and held the real people accountable.
So really it is just more dithering from Crash, who realises too late that the situation is beyond his control
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Rio Tinto is just adjusting for the loss of froth which has to come off the commodities market.
So no big surprise there.
Domestic Lending
Well if the flow of money via loans stops then we all STOP!
Inflation is the next worry.
As we all know the only way to make the DEBTS look small is to increase the amount of money in the system hence the Gov lending to banks.
ROBERT
I don’t see the subject on this one worthy of you posting it UP ???
YOU can do better.
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Gordon Brown worships the sun
Brings you down...into the doldrums
Thief in the night
Taxpayer`s fright
Always a frown with Gordon Brown
Every time just like the last
He`s controlled by the ruling class
Serves the E.U
Freemason too
Always a frown with Gordon Brown
Gordon Brown tries to impress
New world order he is obsessed
Bilderberg tool
Think`s he`s so cool
Always a frown with Gordon Brown
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The Black hole that was found at the centre of the galaxy this week is big brother to the one in the UK governments finances.
Expect a new Galaxy to pop up around that black hole sometime soon
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Lets be clear about the where the money for the governments plan comes from. Initially it comes from money managers investing money which is then paid back by the taxpayer through taxes. Robert rightly points out that these managers might get the heebie-jeebies, but I would qualify that and say they are getting the heebie-jeebies as the latest gilt auction shows. The bid to cover ratio on the latest auction was 1.58 in comparison to 2.49 on October the 28th. Global money managers will decide what stimulus the UK gets not the government and it is looking increasingly likely to me that the government may need to change tack as a result.
The world bank also produced a report on China saying exports of electrical and mechanical goods would hold up, only for Panasonic who have factories across China to announce the next day they were drastically cutting production. The world bank does not appear to me to be keeping up with events.
Rio Tinto may also not be the best example to look at from a bell weather point of view. It is suffering from inventory runs downs in china and some fairly heated pricing negotiations. It will also benefit from any building programs coming out of stimulus packages in China and the US.
What I keep hearing from the government and to some extent the opposition is that things will stabilise and we will steer a course through this and lets prop up the housing market so first time buyers are still locked out. What I don’t here is contingency planning for possible coming economic shocks. What happens if the problems in Greece or currency problems in eastern Europe force a Euro crisis. What happens if the US Treasury bubble bursts too quickly taking the US economy with it. What happens when investors realise that the metoric rise in the Yen has destroyed the Japanese economy. What we must ask our government to do is to be a lot more efficient in its use of current resources at the very least. What is the point of having separate departments for government to give money with one hand and another to take it away again. Why do we really need 20 different ways of paying tax and is this really a cost efficient way to target very small minorities.
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To all the whining savers
Do we HAVE to be shafted in this manner? I have seen a few suggestions about buying foreign currency money markets, etc. but not much discussion generally on how to protect our savings.
I have this uneasy feeling that after 6 months of deflation the uk will have hyper-inflation as the least painless way of taking our losses and spreading the pain around.
The world's bond markets will lose their ability and willingness to pay for worthless uk paper. The flight to US treasuries at negative rates is a manifestation of extreme risk aversion. Why would anyone buy uk paper in such an environment?
What's the answer then? i have 80% salted away in USD currency funds, but is there a prospect of hyper-inflation in the US also?
Why is the Euro doing so well? will it continue?
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There is a way to put pressure on the banks to circulate the government capital and that is by encouraging the public to put their savings only in those banks that can show that they are playing fair. This way banks not circulating will have a very hard time improving their "customer funding gap" because they receive less customer savings.
Couldn`t you encourage the media to pick up?
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This is all pretty much what the US Fed Reserve has been doing since September - so much for GB' world leadership. As some other posters have said too, the effect will be inflation, but only after the upcoming Election. The net result will be that we will all be poorer than we had thought we were - the bill for te past 10 years must be paid, and shared out, somehow. Inflation is the path of least resisteance in many ways but it will be rough justice and I doubt anyone has much idea yet of how severe it wil be.
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More Preston doom and gloom; Rio is trying to get over a big takeover bid - which he knows; but forgot to mention. Look at Yahoo at the moment.
Making working capital available to small businesses so they can continue to survive is a sensible thing to do - why does he think this is bad?
Preventing the housing market from over reacting is a good thing to do - try for a softer landing.
Going back to what we were doing before; with sensible banking practices, no sponging merchant bankers and no house price inflation doesn't seem so bad to me. What's the problem?
Too many people want to talk up the crisis and make it worse; like Peston.
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#15 sashaclarkson wrote:
"Yet another architect of the present mess being rewarded for failure, and trusted to get us out of it.
Why are MPs of all parties not objecting to this?
Surreal or what?"
I`m more inclined to ask "corrupt or what?"
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Here we go again - more attempts by the UK and US authorities to "buck the market" by trying to avoid a shortage of credit without increasing the price. Reminds me of the way the old Soviet authorities used to respond to shortages by exhorting the producers to make more.
Hey, Robert, how about some elementary economics about the price mechanism??? - Which applies to credit just as much as other commodities.
The State borrowing to provide funds to banks will have NO EFFECT WHATEVER on overall supply and demand for credit. The State will simply be taking available credit that could be borrowed by the private sector. the ONLY way to get out of the credit shortage is to increase the price of credit!!!
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Why on earth is the Gvt. underwriting housing loans??
Can someone please explain to AD & GB that asset prices, need to fall before some normality will resume.
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Hey there GORDY/Alistair D
We wont be buying any Government Paper!
However our Fiscal Prudence Lavatory Paper
is going well.
Cheers Guys
All this day by day Proves that an ELECTION
SHOULD BE CALLED ASAP.
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Robert, if the banks are ot totally risk averse with all risk covered by the Taxpayer, what value banks if merely distribution centre.
When UK government debt carries a higher insurance premiuim than HSBC all we can see is that the banks have successfully hoodwinked the government into a massive bail out with no downside risk save paying a higer rate of interets.
Very clever we must all agree but if banks are no longer doing what they are deemed to have always done i.e take risk why pay rates of pay to 'senior executives' who clearly no longer justify the money!!
This is the classic stitch up and teh government has taken the bait hook line and sinker.
A child died through incompetant handling by Harringey Social Services and is sacked with no bonus but full persion rights, Banks have hoodwinked the government into underwriting their toxic self inflicted liabilities and no one goes anywhere.
A government minister says there will be no rewards for failure yet I repeat no bank executives have gone except a few at RBS.
This isn't rocket science this is a sham of the highest order and no wonder the pound is now treated like a joke currency.
Cameron is right call an election now for February and lets get this sorted properly we can't afford as a country to have this madness continue.
The lunatics truly are running the asylum!!
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Kick the habit
Go cold turkey
No more credit
1 day at a time
I used to be messed up on credit
Now I'm all messed up on God
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#27 glanafon
"proactive"
A whore on saturday night?
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Arch left wingers are seeking to convince the electorate thjat only nationalism of everything will save us all from impending doom and gloom.
The fact that it has been their economic mismanagement aided and abetted by hopeless regulation and a level of greed never experienced before which was compounded by a massive use of derivitive instruments clearly is now of no consequence and surprise surpise the honest tax payer is paying the bill again.
The tax payer needs honesty and we will never get it whilst ministers whilst the socialist spin machine and its apologists seek to convince everyone they are the innocent party in all this.
GB you can fool some of the people..................
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#24 - 'woundedpride'
"My advice, Robert, would be to save the hyperbole for a time when it is relevant and stop seeking to exacerbate the situation. Your efforts to turn a recession into a full scale depression are increasingly ridiculous."
Stick to Eastenders; because to think that RPs words have had (and will have) any effect on the hole the world is falling into is ludicrous!
I thought commentators of that ilk had realised that (just perhaps!) the cause of this thing is a bit bigger than a solitary blogger!
Aaah well....'there are none so blind......'
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I agree with brickfielder, no 41. It's all very well for Brown and Darling to leak a report saying they'll borrow squillions to reflate the housing bubble, but the fact is that events are moving at frightening speed. Certainly, the growth estimates in the PBR of a month or so ago look like purest fantasy. My guess is that the government will be forced to cut spending drastically in 2010, or possibly late 2009, maybe as a condition of an IMF loan. Meanwhile, the collapse in Sterling continues and 1970s style inflation can't be far behind.
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Browns CONTEMPT for us is SIMPLY beyond
BELIEF.
ABSOLUTE POWER AT ANY PRICE.
AS WITH EVERY LABOUR ADMINISTRATION
THE COST RISES BY THE DAY.
IF THIS CONTINUES WE WILL RELOCATE.
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To coin a phrase often heard at the barriers at London Bridge, too late mate.
The banks have successfully cocked the most enormous snook at Cruella Darl Ville, who promised payback if they didn't mend their ways in his Pre-Budget Report and several times previously.
The time to nationalise them was when it could have been seen as a positive gesture. Now it will only be seen as a defensive one.
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The Rio Tinto downsizing is not necessarily a clear cut example of the economy going really bad as it might seem.
Just over a year ago they bought Alcan for $38.1bn (after a bidding war with Alcoa i.e. paid too much) most of which was borrowed and has to be refinanced in the near / medium future at higher cost. Hence the expenditure reductions to pay of the loans quicker before they need to be refinanced.
After the take over there have been relatively few job losses so this is ineffect the first big round of post takeover job cuts which would have happened at some stage anyway (it is probably larger than it would have been but...). Alcan also had problems before the takeover: long term debt levels, some stategic mistakes such as the demerger of Novelis and the most important in this case inability to cut jobs in certain high labour cost countries after a previous takeover of Pechiney of France, 5 years ago. Look deeper, there is more to the Rio cuts than just the current state of economy.
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WE wont NEED DR WHOs TIME MACHINE
TO GO BACK TO THE 70s.
WE HAVE GORDY TO DO IT FOR US.
WELL DONE GORDY YOU MUST BE SO
PROUD.
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As some day it may happen that a victim must be found,
I've got a little list — I've got a little list
Of society offenders who might well be underground,
And who never would be missed — who never would be missed!
Bill Schwenk
And in the spirit of goodwill to all men at Christmas, pray complete the list:
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I've just done the sums
what we need is a 222.5%
Income rate tax for 5 years
paid by credit card cheques
please check & confirm if correct
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#46 "I`m more inclined to ask "corrupt or what?" "
As Francis Urquhart would have said: "YOU might think that, I couldn't possibly comment."
;-)
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The banks have been bailed out with taxpayers'money at 12%. What does the bank do next? It certainly cannot go lending that money to now risky borrowers at something less than 12%. Thanks to the actions of the spivs who have been (and still are) running the banking system, aided by a central bank which has been deprived of its central role of regulating the industry, the banking system is now extinct - dead as the dodo.
We need a new system and it will be a clever man who can devise one. Perhaps we could start with a few new mutual building societies; a few new small regional banks; a few new tightly controlled credit unions. Perhaps one or two of the existing big banks could survive in a much smaller form, but those that have taken money at 12% are headed for the knacker's yard.
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#26 :arle
quite right. FRUGALITY has been totally out of fashion. Well perhaps the impending depression will change all that.
What really make me laugh are the fashionable green initiatives. Like people taking their re-usable bags to shop for more more more! We (some of us) want to save the planet whilst clinging on to our old materialistic habits. What we want to ignore is the fact that Rio Tinto and other miners are plundering limited resources. I say plundering, because they are not replacing in any way, it's all take take take...
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Since September, the Treasury aka BrownDarling has dug a fresh £10000* hole for every manjack of us and now they're merrily planning to - what? - double it? On top of what we already owe?
What sort of evasive action is that? Quite possibly in the same category as avoiding the pothole and falling over the precipice.
* £600 billion borrowed from 60 million - please tell me my maths is wrong
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It is truly depressing to watch as the incompetents steer good ship UK straight at the rocks
From top to bottom, HM Govt, BoE, FSA, Big Finance CEOs are corrupt and self-serviing. They have conspired to create conditions in which any country would struggle to survive, yet fattened up on the process of stripping out what little provision for protection remained
If the time isn't now, when will it be brethren? They want nationalism, well we are the Nation. They are only the/ a state
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All the talk about lending regulation and reform is piffle. The Government a have bought off the banks and in doing so aim to control the market place.
The disparity between earnings and house prices must be normalised or we are just going to re-invent the crisis.
I've petitioned the Government to state their aspiration for lending. I can only hope that everyone here, who also believes that the Government talks in riddles, will sign it:
http://news.bbc.co.uk/1/hi/uk_politics/7763044.stm
(Please tell your friends too)
All I can say is that you shouldn't consider the economic arsonist a hero just because he is trying to save a few from the inferno.
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Comment 30 has it about summed up, but any politician trying to sell this to the masses is unelectable.
What we need is people who know this whatever colour winning the next election then taking five years to at least attempt to move on some of the issues, whether the majority in this country like it or not.
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Our exports are dwindling fast and there is no sign on the horizon that this will change in the near future.
Their markets are also dwindling and there is no sign that this will change in the near future.
So where will the real growth come from to pay for all this extravagant borrowing?
All more lending will do is put off the moment of truth. There is just not enough money to go around.
Eventually it will run out and heaven knows what the consequences will be further down the line if they have to resort to printing it
All this government is doing is giving themselves a bit more time.
I hope they use it wisely because that time will quickly run out.
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#45 Andywr
"Too many people want to talk up the crisis and make it worse; like Peston."
OK, so Peston uses silly language and often writes "stories" when there's nothing of substance to write about, but please! The bubble has burst and no amount of talking the crisis up, or trying to hush it up (as you want) is going to affect the market adjustment.
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#27
Continuing from the previous question left unanswered on Bob's previous thread.
I'm painting a scenario. It doesn't have to be like this, but I'm making a case while Mr Bumble remains in charge. It makes people realise the scale of what's being mismanaged, and stops us equating trillions with zero as they're beyond grasp.
Go look Malachy up. He didn't stop because he ran out of patience, he stopped because the world runs out of time, it hits the buffers, to use your current analogy. Which is roughly what a decent few folks here are starting to worry about. Which is what the environmental lobby have been saying for ages from a different angle.
There's those who are playing with this, of course, trying to get India to attack Pakistan and the like. One day they'll succeed, according to our security experts.
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I teach young people aged 16 - 20 business, economics and financial studies.
Robert's blog and the comments are invaluable in bringing the concepts alive, and I use the BBC videos with the classes to promote discussion and understanding.
Increasingly students don't want to go to Uni and would like to start working post A levels, but our economy is no longer geared to bringing on young people in this way.
We're trying to get financial services companies to take on young people as 'apprentices' and have had some success with a small number of companies.
Apart from the most able students with A grades and going to the top 20 Universities should we be encouraging young people to go to Uni?
David Fagan
Orpington College
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#45
More wall to wall gloom on Peston's blog again - no change there then! As usual he's totally miscalled the RTZ situation and managed to turn into a story of imminent global destruction.
Time for a bit less capitulation and more of the old Dunkirk spirit - though as I suggested yesterday, you wouldn't find Peston manning the boats, he'd be holed up in a bunker somewhere with a notepad, writing about how many had died and what a disaster the whole thing was and how Hitler would be drinking tea in Claridges this very afternoon.
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This comment was removed because the moderators found it broke the House Rules.
I’ve heard many so called in the know guys on here talk of, cash is king. Really? Deflation / Inflation even Hyper Inflation. I’d argue that buying up cheap property NOW is THE BEST way to protect your savings! At least you WILL get a return on your money via rental income.
In case you haven’t noticed this is Gordon’s plan ;-)
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Anyone else remember Mrs Thatcher's guaranteed loans for small businesses? It was one of her first policies, a complete disaster, and arguably one of the first wedges between the public sector and the banks.
What happened was that people simply didn't repay the loans: they just went bust leaving the government to pay the guarantees. This was a headache for the banks which responded by making things well nigh impossible for small business during the 1980s.
NuLab have already done something similar with student loans. I believe no one really knows who is liable for these.
Mrs Thatcher's scheme was staged down very promptly. It was small beer compared to Brown, but the results will be the same.
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# 3 applepeach
Yes, I agree that this crisis will soon be moving on from the somewhat arcane matters of failing global financial instruments and systems towards real and serious local economic effects, to social unease and so on to civil unrest.
It's happening now in China, Greece, Iceland and Italy to name a few countries; only the geographic extent and scale will change over the coming months/years.
This mess has a very long way to run - and let's always remember that its principal UK architect was Mr Gordon Brown, exacerbated by Conservative Party acquiescence.
Our problems will be hugely exacerbated by the imminent and sharp decline of mankind's era of cheap energy. Just when we need guaranteed economic growth (on the back of "infinite" cheap energy), we'll discover that we can barely afford to function as a society because of exponential rises in energy costs and dismal UK energy security.
So, yes, civil unrest will start to climb up the news agenda in the coming months/years as citizens discover and experience the extent to which we're now being hung out to dry by our political "elite" ... to save the banking system whose seeds of destruction were sown by the politicians themselves.
Enjoy the ride.
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#14 JayPee28bpr,
You say that the government should borrow as much as possible as soon as possible. But immediately before that you note that there will be long-term reductions in income.
Increased borrowing means increased interest payments, yet these would need to come from reduced income. Is it not the case that the strategy you suggest would necessarily squeeze living standards, in order to make up the shortfall between increased expenses and reduced income?
#26 jonearle,
You imply that you must choose between greenliness and technology, but that is a false dichotomy. Those are not the only choices you face. You can try to sell the greenest technology you can find. This means well-built, long-lived devices with a minimal amount of useless features, minimal packaging, reusable/recyclable parts etc. It means failing to stock things that are power-hogs, or require batteries. It means finding and promoting products made by companies with solid green credentials.
Greenliness? I did say that!
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Clearly some of the most simple and obvious strategies to mitigate our problems are not being pursued.
For example, why is anyone in the public sector or the rescued banks getting a bonus or pay rise this year? Any half way sensible organisation would tell its staff there was no money for bonuses when it was one step away from bankruptcy.
Equally, why are we doing VAT cuts and mortgages when the key issue is lack of industrial/technical capacity and balance of payments.
The question that interests me is whether the government are a. stupid/ in denial about how bad things are or b. calculating political/personal advantage or c. both of the above.
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"#45 said
More wall to wall gloom on Peston's blog again - no change there then! As usual he's totally miscalled the RTZ situation and managed to turn into a story of imminent global destruction."
Are you the Knight that after having his arms, legs and head cut off, crys out
"its only a flesh wound"?
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#73 houseflogger
"More wall to wall gloom on Peston's blog again - no change there then!"
You do not expect him to say everything is OK do you?
He calls it as he sees it and has been right up to now.
I would like to hear what he thinks about the Derivatives Bubble which seems like a much bigger iceberg than we have hit up to now.
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1. What is the socio-economic future for Britain?
2. Do we even have one?
3. Is anyone working on this?
4. Who's in charge of it?
5. How does the plan - even if there is one - dovetail into measures to stop climate change?
6. What's my place in it?
7. What's yours?
8. Where is the leadership in all this?
9. Do we have any leadership or is it every man for himself from here on in till the planet burns to ashes?
Repossessions, social imbalance, recession, slump, free-for-all, crime wave, banks reducing access to credit, blah blah, labour ministers rolling out pointless legislation nobody wants nor cares about - all de- facto coming your way soon. Just like the 90s all over again.
That's all I want to say.
GC
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42. At 12:41pm on 10 Dec 2008, courteousnewcitizen
For what it's worth after a remarkable 18 months in the Yen I am now looking to move out of it, I think it has about run it's course. Top of my list for the new home of my savings is the dollar, the Canadian one.
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PetersKitchen - Peston's not the Messiah. He's a very naughty boy!
Sorry - couldn't resist a bit of Python banter on this dismal day
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just a quick word about Greece. One or two are name dropping as though you understand what the riots are about.
Greek shops were (until last week at least) heaving. There has been little mention in Greece of a local slow down.
The riots have as much to do with a levels of corruption inconceivable to most in the UK, rather than the global crisis.
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# 82 guycroft
Steady on there Guy; it's early days and this is going to get much worse. Check out my post at # 77.
But, yes, it would be nice to know where this country's leadership will come from over the coming years: no sign whatsoever of any candidates right now.
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65. At 1:23pm on 10 Dec 2008, Cheerup-things
Your maths is wrong, it's only borrowed from tax payers and I haven't paid taxes for 7 years, since they greedily introduced IR35.
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from reading comments here day after day one would think the only thing in life is money!!
and I guess it is true of anyone who believes totally in a capitalist system, which rewards those who have the gift of the gab and the utter gall to assume they are god's gift to the human race.
Zimbabwe would have been sorted out a long time ago if it had had resources that would generate huge bonus,' profits etc but it doesn't, so people are left to starve and die. What a sad indictment on the human race to sit and watch it happen in the comfort of our own homes and do nothing.
We might think we needed this crisis like a hole in the head but thank goodness it has happened and however painful it is obviously going to be, the World will not survive without a sea change of attitudes.
It is no good thinking we can go back to what we had,we have to change and as no-one was prepared to do that voluntarily it has now been forced on us by our own greed!! Some obviously much more greedy than others!
By 2030 we shall need two planets to sustain our current lifestyle, which even the dimmest person will know we don't have. No economist can fix this, no injection of capital will help, no sitting it out and hoping for the best. We cannot mortgage or borrow another from elsewhere. We are all sitting on what we have and the World is not like a human body which can to a point heal itself, its irreparably damaged and the prognosis is dire. Far, far worse than any economic crisis!
It may take a generation but we have to wean ourselves off consumerism. Why this constant obsession of making more and more profits, year on year. It makes no sense at all.
As human beings why are we so comfortable to allow others to slave away for a pittance, just so we can indulge ourselves, when at the end of the day whether you are a millionaire or not you will die and you cannot take any of it with you. You only rent the space you live on for the time you are alive and its your responsibility to leave it in as good a condition or better for the next generation.
None of us actualy owns anything in real terms.
Now Robert has managed with the help of others in the media to completely destroy the confidence of everyone in the UK with his armegeddon speak maybe he would be so kind as to now look at reseaching the way forward in a sustainable way. A sustainable world not built on cheaper and cheaper goods, more and more profits, higher and higher salaries for a few.
We need sustainablity in all that we do but we also need to rebalance the whole work structure so that everyone feels that they are contributors and are rewarded adequately. In Sweden incomes do not have this huge descrepancy between rich and poor because as a civilised society they know it needs every aspect to contribute.
in order to function.
People on this blog are obviously highly intelligent and a better use of their obvious talents would be to look forward not look back. That has all gone hopefully forever. It was obscene not only for the vast majority of us but for the World's resources it took us to the brink.
We are still standing on the edge of a precipice but if we really want to we can either step back and give future generations a chance or push them over the edge.
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Darling Brown has a vested interest in the massacre of the savers. The government will want interest rates as low as possible to reduce the costs of maintaining the colossal debt that they are foisting on the British people. However, long term rates are not falling and sterling is weakening by the day. Foreign investors will not want long denominated debt which is likely to be deflated away and a currency in freefall to repay them. This debt increase is happening without the people having any say in the disaster being created for the future. No one can be certain the proposed stimulus of demand will work and alternative thinking that is more radical is needed.
An alternative solution may be to crush hedge funds and short sellers of sterling.
I would like to see interest rates raised suddenly and sharply. This would strengthen sterling, reduce import costs and burn the short sellers. Although it might hurt exporters, I suspect the overall effect will be marginal. The main exports being those of greatest value added and less elastic price driven demand.
The increased income available to savers is more likely to be spent than helping a relatively small number of borrowers who are getting the full benefits of the latest cuts and who are likely to be clearing credit card and personal loans before they spend further. Everyone is now aware of the risks of the recession and the most likely to come to the market are those with genuinely disposable income.
Stop the debt/tax upward spiral before it is too late
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# 85 reportthetruth
Yes, but the Greeks' disgust at politicians' ability to find billions to pour into the banking system at the drop of a hat, whilst defending years of non- or under-investment in health, education and other social services is a strong cause for them taking to the streets. Ask them.
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It seems to me that the financial world is looking too far ahead judging by share prices of oil companies.
The price of oil has dropped by $100/b and this means a company producing 1mbpd is losing $100m/day or $36.5bn/yr. So a company like BP or Shell is likely to lose money this year, unless I am mistaken.
Any comment on this?
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@82
1. dome and gloom
2. no
3. no
4. no one
5. it does,nt
6. the same as all of us,we dont know
7. the same as 6
8. on nicks blog go see its funny
9. yes sure we do crash gorden as just said in the commons he,s saved the world,lol
SADLY I THINK MOST PEOPLE ARE WAKING UP TO THAT HES NOT, EVEN NICK ROBINSON HIMSELF.
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We need to take radical action to make sure we have the necessities of life covered. Cheap, good quality food and renewable energy supplies. Once this is in place we will have a much sounder base for the future. This is where a large proportion of the Government investments should be directed. Rebuild our farming and food industry at once. Reduce the crazy reliance on other counties for our fuel. Then if it really does unravel we will have something to fall back on.
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# 31
Totally agree. Deflation in UK will be very short-lived, and I expect a fudging of inflation targets pretty soon as well. Under the guise of building in some inclusion of asset price inflation to the BoE target, what we'll have is a loosening of the target, thereby allowing the UK to inflate its way out of the debt problem. I think the US will do something similar. That implies higher nominal yields on long-term debt, and means the US/UK government should flood the market with 10-30 year paper now while the going is good. And, as I noted before, higher nominal yields actually mitigate the worsening of the pension shortfalls too, as higher future yields translate to a lower present value of scheme liabilities.
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In the old days you bought goods from shops to build up debt, nowadays you go to work. If we used cash for all transactions we would not be in this mess.
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88. At 2:24pm on 10 Dec 2008, timetoponder
The world is NOT irrepairably damaged, it's hardly even scratched!. Just as soon as 6 billion little furry animals disappear it will heal that little scratch and move on to the next experiment.
Whilst I appriciate your concerns for the planet, until someone does something about the exploding population, the rest is just p****** in the wind. In the meantime it matters little if someone dies of starvation today or as a result of world war tomorrow.
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I notice more and more people keep asking where we go from here and how things will be when this is over.
There is a man keeps writing about the solution being sharing, and whilst I believe him, it has been difficult to see exactly how this would work. Gradually the penny is dropping, as well as the pound, and the light is dawning.
It is worth a read, and see how long before you catch on
www.share-international.org/index.htm
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It is interesting and heartening to see so many people already starting to address what kind of economy and society we should build once this whole crisis has worked itself out.
The majority of actions to date appear to be a desperate attempt to shore-up the old system. We still talk about extending credit to a public that is already maxed on it. We exhort spending to save the economy when the rational individual wants to reduce expenditure. We reduce interest on savings. It's just a repeat of the same old crazy system!
Marxism 9in its purest form) still has not been tested. Communism has failed. Now Market Capitalism is in its death throws. So the more we start to think about what the future may look like the better.
the pain in the short term is, I feel, inevitable. So we need the hope of a better tomorrow to sustain us.
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If you leave the kid in the candy store unsupervised, don't be surprised that they get a little glutinous.
I have some, some mind you, sympathy with this collective blame theory in relation to consumption, but let's not kid ourselves. The fact that we're all became increasingly greedy and got fat is the fault of those who made the sweets in the first place and encouraged the shop owners to give all us kids the run of the place
And now we're all sick, obese and at risk of diabetes. Arise the age of big pharma
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89. At 2:27pm on 10 Dec 2008, sosraboc
Wow! I was worried for a second with the mention of crushing sterling short sellers and then realized you don't mean me because I am a long buyer of Japanese yen. Must admit, I was worried for a second.
Always amazazed at the bad press shorters get, I don't hear anybody complaining about shorting oil down from 147 though. Curious.
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The banks are not lending because they do not have the money to lend.
The banks can't raise money by offering attractive rates to depositors because the regulators are trying to force rates down to borrowers.
The market wants higher rates to attract money into the banks so that the banks have money to lend. Yet the regulators are trying to force rates down which is acting against the need of the banks to raise rates to attract money so that they can lend, and the regulators have further tightened capital requirement of the banks which also restricts liquidity.
I'll give it a month or so before the market forces rates higher - no matter what the BoE sets as its 'base rate'. The banks must have money to be able to lend (even if they are permitted to lend multiples of their assets!)
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Oh dear poor 96 a real NIMBI
I bet you would feel different if it was your nearest and dearest!!! Its OK while its some remote part of the world viewed from the comfort of your home but if it was in your road, in your home then maybe you would think differently
Africa is not on another planet. In term of the universe its next door so don't be too smug!!
Of course we need to look at population, we need to look at everything but as individuals we can do something. Singularly it might seem insignificant but collectively it can change but guess while we have people with attitude it won't work and our children and grandchildren will hold each and everyone of us responsible.
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# 72
I agree that only the top ("elite") third tier institutions are worth attending. One of the cruellest deceptions of the current government is that by going to University (as in ANY University), a person's career opportunities are enhanced. And this is not the case. Someone with a degree in David Beckham Studies from Stoke Poly simply does not have the same opportunities that a graduate (in almost any discipline) of a top 10 University.
What results do we see from this? We see lots of graduates from Divison 2 institutions, with virtually the same student debts as those from the "Premiership top 4". Essentially those attending the best Universites are underpaying for their education relative to career earnings, whilst the rest are overpaying.
Ideally, Universities ought to be able to set their own fees, and match places to demand. What this would almost certainly do is lead to an expansion of the top 10 Universities, mass closure of second rate ex-Polys (note not all Polys fit the description) and, of most signifance to your question, a large reduction overall in third level students. The government's target of 50% of kids going on to higher education was always just plucked out of the air. Instead of feeding people into a quasi-academic system which actually just hides the true level of youth unemployment, we need better vocational arrangements for 18-21 year olds that leave them with marketable skills.
Too many graduates of second rate institutions will never earn the levels of income that warrant taking on GBP 15,000 - 20,000 in debt at the start of their working lives. Better third level vocational training would shift this burden and risk to employers, who in return can train staff specifically to meet their requirements.
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Thanks to the two members who wrote in reply to my post at #82
I don't actually think I am entirely happy about a nonentity like Brown taking us down the plughole without so much as a by_your_leave.
Is anyone else?
Peoples' Revolution Now!
GC
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#91
Whether or not an oil company makes a profit is certainly dependent on the wholesale oil price but it is even more dependent on what is known as the "lifting cost".. That's to say the actual cost per bbl of getting the stuff out of the ground..
In some fields that is actually as low as $5/bbl whereas in others it can be as high as $30 or more.
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If we the taxpayers are to support the banks, then all share trading in these banks must be suspended until the debts are repaid, and all or any profits must be paid directly to the treasury , not to shareholders as dividends or to directors in the form of bonuses. At the moment the banks will take taxpayers money , pay profits to their shareholders who we are subsidising and will still be paying inflated salaries and bonuses to the very directors who nearly bankrupted them in the first place.
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There are over 7 billion of us on this planet and finite resources. A wise person/company would be buying up these cut price stocks. This whole recession thing does not make sense to me because as soon as we feel confident again to go out and buy, we will be short of basic necessities. Things won't have been built. The UK has a housing shortage and nothing is being built at the moment. It's a recipe for boom and bust. Money will make serious money over the next few years and commodities must be a great target for medium to long term investors. Instead of giving us all a very ineffectual 2.5% VAT reduction, spend some money Mr Brown on building infrastructure and homes.
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# 78
I'm starting from the assumption that the government needs to borrow more money, and the question is do they raise all the money required now, or spread the borrowing over time. My conclusion, given that the US is selling Treasuries for silly prices, is that we raise everything now, as interest rates (that would be fixed for the life of the gilt) will be lower now than if we leave it.
If you're suggesting it would be better if we didn't need to borrow at all, I completely agree. I've just taken it as a given that the government is going to borrow the extra money, and I'm just suggesting the best (or least bad) way of financing it.
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Oil$39.95 -- check.
Still waiting for the Chancellor's revised growth forecasts for 2009.
Booking Space available at 31/03/2009 or 1/04/2009.
Please book early.
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Why do you say, "But even the Tories ... ".
Surely the central point that the Tories have been making is that government policy should be directed at the twin problems of (i) excessive private sector indebtedness and (ii) banks' reluctance to extend credit.
Addressing these problems is surely more important than the fiscal stimulus announced in the PBR. A fiscal stimulus, worth just over 1% of GDP, compared with a deterioration of the public finances worth 5% of GDP, is a minor palliative.
The key to the economy's economic stabilisation is a gradual de-leveraging of the private sector, which certainly requires automatic fiscal stabilisers to operate and interest/ exchange rates to fall, and stability in the credit markets, so that insolvencies don't further destabilise what is already a parlous situation.
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#90 moraymint
"Yes, but the Greeks' disgust at politicians' ability to find billions to pour into the banking system at the drop of a hat, whilst defending years of non- or under-investment in health, education and other social services is a strong cause for them taking to the streets. Ask them."
I did. I live in Greece. The riots are the results of systematic failures (some of which you mention) which pre-date this crisis.
To point to Greece, as some have, and draw the conclusion that this is a result of the crisis, is incorrect.
I could go on, but this is not the place.
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Guy Croft - but Brown 'saved the World!'
Hmmm, sounds less of a PM, more of cross between and Evalngelist and a Bond Villain these days.
Sign me up to your movement - happy to pitch in wherever. I can certainly start by diverting the 40 to 50% of my wages I don't see even before I pay tax on anything I buy with the remainder into you revolution fund
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I note that eminent scientists have confirmed the existence gigantic black hole in the middle of our universe.
It is believed that further investigation will prove that the black hole is not in fact black at all, but when viewed through rose tinted spectacles takes on a brownish hue and so will be classified as a 'Brown Hole' and is vastly larger than first thought.
It has been theorised that the core of this Brown hole is made up of an unimaginable quantity of a toxic organism known by the initials CFD.
CFDs are a very complicated molcules that in certain forms can voraciously absorb on all available matter, breaking it down into a worthless vacuum. Many scientists believe that the presence of a mysterious substance referred to 'money' accelerates this process.
Brown Holes usually take many millenia to evolve to this size, but this one appears to have grown at unprecented speed, and dates from around 1997. Scientists believe that it may have already absorbed several billion times it's own weight in hot air generated by nearby politicians.
Meanwhile, in other news, Gordon Brown and Alastair Darling today predicted that the British economy was better placed to cope with the current economic crisis.....
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@ 94
"And, as I noted before, higher nominal yields actually mitigate the worsening of the pension shortfalls too, as higher future yields translate to a lower present value of scheme liabilities."
yes, but only to the extent they are holding equity. you say the government should sell 30y gilts cheaply now while pension funds are still willing to buy them. but if those pension funds are the ones holding those 30y gilts when the market reprices inflation expectations, their assets (or at least the fixed income component) will presumably drop in value by exactly the same proportion that their liabilities do.
personally i am still very bearish on equities, although I expect in the short term they'll continue rallying up until obama's inauguration. i don't think they are discounting the very real risk of a trade war with china. if china refuses to play ball, and keeps propping up the dollar, subsidising its exporters, etc, it is just going to set itself up as a bogeyman for the new administration.
obama has a clear voting record as a protectionist. once he has pre-funded his stimulus package, i can really see him waving a big stick at beijing and saying that china is responsible for the us current account deficit, and that the fiscal stimulus is supposed to help create jobs in the usa and not in china, etc. i can see direct intervention to devalue the dollar, and washington and brussels ganging up on china with regulatory and/or tax penalties on chinese exports.
smoot-hawley caused the second big leg down in equities after the 29 crash. i wonder if history will repeat itself this time.
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The Labour Party has saved the world. Gordon has saved the Labour Party
Darling has saved the banks
You see it not ALL DEBT you know, there is plenty of saving go on!
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As debt becomes unsustainable a clear choice will soon emerge: print money or raise interest rates. The latter seems unlikely for the credibilty of HMG policy - elections in May while the polls are still good for Zanu-NuLabour.
The choice is becoming very clear: ordinary uk citizens/savers VERSUS maxed-out scum. This government is firmly on the side of the latter and MUST be removed ASAP.
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Oh No!!...some of the gloomiest posters here are strarting to look for some sort of upbeat signs..... it MUST be bad!!
It's obvious the Govt. are going to chuck all those billions at any moderately large company they feel like and they are going to look for inflation to cure this by simply printing money----if the whole world (or most of it goes along) it'll be alright I guess... the seventies re-visited.
If they don't it will probably be more like the Weimar Republic this time.
I don't believe it's possible to "engineer" solutions now (though this Govt will obviously keep on trying)---
He may as well redistribute his savings by chucking them off the cliff at Dover in a howling gale...and hope some needy people in an inner city might find them .... as pursue this foot-down flat out , 'doing anything is better than doing nothing approach'; he is pursuing at present.
Of course the political agenda and timeline is determining things not the economic one , hence the leaden thump of him saying "we are the party of action...and everyone else is the party of inaction".
But when the submarine is wallowing in stormy weather, charging around opening the watertight hatches while undoubtedly counting as 'action'..... might.... just .....not necessarily be the best course ofaction.
And possibly even vastly inferior to NOT opening the hatches...aka...'inaction'....
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"Maxed-out scum" is a bit of a broad brush with which to tar every borrower 'Ponzi isn't?
Blame the candy store owners - not the kids encouraged to gorge themselves
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Vote for me!
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Guycroft - and anyone else interested in effecting the change we need, get on board with Rebuild Britain!
We need as many viewpoints and as much support as possible. In 10 days since we established a googlegroup under the Rebuild Britain banner, we have 25 members and rising - i estimate that as between 10-20% of the regular posters on this blog, not bad by any standards.
Shortly we will have a professional website up, and then we can start reaching out to other blogs, organisations, groups of people and individuals.
The googlegroup is currently debating core principles and strategy - pitch in, everyones view is both welcome and necessary.
Government of the people, by the people, for the people? A real democracy? Maybe its not just a utopian pipe dream - and even if it is, for the sake of a few clicks, what harm can it do?
At the very least, intelligent, well intentioned people of Britain debating economic and political issues, as we have seen on Pestons pages in the last few days - can anyone rightfully say that is a bad thing? And as an extension of the debate - actual co-ordinated action, which may or may not effect real change, but is their any harm, for the sake of a few clicks, in at least trying?
Don't listen to the cynics and the naysayers. Check my previous posts for how to get involved.
Rebuild a better, fairer Britain?
YES, WE CAN!
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jfh " 101
"The banks are not lending because they do not have the money to lend."
not true. the banks have plenty of cash available from the bank of england, who is accepting all sorts of crappy assets as collateral for loans right now. indeed, the rate cut means that banks can borrow cash from threadneedle street even more cheaply than ever.
moreover although cutting deposit rates is harsh on depositors, i doubt it will discourage them from starting to put lots of cash into our banks. in the current economic environment, everyone is going to start saving like mad (indeed, this is the core of the problem - that people are saving, ergo not spending). i don't think 1-2% difference in deposit rates is going to make much difference to whether people choose to save money or not (although it will influence where people choose to put their savings). that decision is more to do with people's medium-term income expectations (or should i say fears).
more importantly, people will also start paying down their debts like crazy now (especially if they have no choice, as they are unable to keep borrowing to roll over existing debts). repaying debts is essentially the same as saving, and has a similar affect on a bank's balance sheet as people putting money on deposit (i.e. it increases the ratio of cash to risky assets), but with the added bonus that it also shrinks the overall size of the balance sheet.
the reason banks are not lending is because of solvency concerns (i.e. fear of losses on their loans). everyone expects a recession, which means more bad debts will appear among existing loans (particularly corporate loans). banks have already overlent, overstretching their capital adequacy, and they now need to shrink the size of their balance sheets to make sure that they themselves don't risk going bankrupt. the last thing they want to do is create yet more loans that may go bad on them as the recession really bites.
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So, "Gordon Brown has told the Commons his party has saved the world". If this is salvation - what would damnation be like?
If this government is the answer then what the ???? was the question?
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I have just picked myself up off the floor.I nearly died laughing. Crash Grodon has just claimed his party, which really means him in his mind, 'has saved the world'. Barking isnt the word. ROFL
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It all brings to mind the classic punchbowl analogy. The cliche is that central banks' role is to "take away the punch bowl just when the party starts getting interesting." Sadly, Greenspan didn't take it far enough away and got us to drink off our hangover in 2001, the punch has now run out.
Things are starting to feel pretty ropey.
That the current policy appears to be little more sending our kids out on a desperate search for more booze is saddening.
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Uhh. Darling has said that a recession is likely. No sh*t Sherlock. Would never have never guessed. You couldnt write comedy script like this mob. Did they land here recently, where did they leave the spaceship.
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Uphios
Won't the Canadian dollar be affected badly by the US slowdown? Also, aren't small currencies to be avoided?
Nice going on the Yen, I did a combination of Euros upto the spring and dollars thereafter. Any thoughts on
1) gold
2) a bombed out house at auction (50%+ off) bought with no debt
Second your thoughts on the population. I love it when people fly on a hundred different planes to Bali to discuss global warming, or ladies with chinese shoes, african jewels, driving german cars on russian oil moan about climate change.
If the above example is extreme, how about the fact that most of Europe and America is far too cold for human habitation without climate damaging temperature control. we should all live in the tropical highlands.
I agree on the problem of climate change, but the debateis way off. It should focus on population ONLY. We get up in the morning and go to work usually selling something that enables someone somewhere to pollute more. Uness the population goes down, pollution never will.
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121 benagyerek
The seems to be money to borrow.
Things seem also to be picking up. The local big car dealership says it has had a busy month after one quiet month.
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GORDY IS RUBBISH
He has fallen off the diet wagon again i noticed. Must be eating too many fried Mars bars and drinking too much 'Iron Bru'
Come on Gordy, focus man. Yoo Ken Dwo it. Loads more spinning and wrecking to be done.
Gordy for El Presidente of our banana republic.
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# 114
"you say the government should sell 30y gilts cheaply now while pension funds are still willing to buy them. but if those pension funds are the ones holding those 30y gilts when the market reprices inflation expectations, their assets (or at least the fixed income component) will presumably drop in value by exactly the same proportion that their liabilities do"
You're correct, but that's the whole point of the de-risking that's been going on in pension funds over the past few years. Pension liabilities closely resemble the cash flows of bonds. Pension obligations, typically, involve paying regular amounts of money to scheme members until they die. These liabilities can be valued as the discounted cash flow of bond interest payments (and return of principal at maturity). The discount rate used is typically that of investment grade corporate bonds. Using yields on government bonds is even more prudent. Yields tend to be lower, and hence the discounted cash flows (liabilities) higher.
Schemes then buy bonds of similar maturity, thereby matching their assets and liabilities. That's the aim: when bond yields rise, the future cost of pension provision (liabilities) falls, and the value of assets falls by the same amount. The scheme stays in balance. The scheme is not aiming to make a "profit". The strategy is one of risk (and loss) minimisation, not maximisation of returns. If the scheme wishes to earn returns in excess of its liabilities in order to reduce future contribution levels, then it will add equities and reduce bonds. However, whilst this offers a chance to enhance returns, equally it adds to the risk of failing to meet liabilities and hence having to make higher contributions in future.
In recent years, schemes (more correctly, their sponsoring employer companies) have sought greater certainty of future contribution amounts via asset-liability matching, rather than look for potential higher returns from equities but risking losses and the consequent need for additional future contributions.
What drives this risk minimisation approach is the realisation that, for many old established arrangements, the pension scheme is bigger than the company sponsoring it. For instance, BA's pension scheme is over 5x larger than BA's market capitilisation, Effectively BA is a large fund manager that does a bit of flying on the side. The whole US auto bailout is really driven by the same thing: large welfare and pension commitments, built up over many decades, that are no longer sustainable.
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Is it not time for those running the banks to have their annual remuneration approved by shareholders before it is paid? Suspect that is the last thing anyone at the top would wish to countenance.
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can anyone tell me which one of GB/AD strategies have actually worked?.....of course not, because they are only designed to keep a lid on the catastrophe until after the next election when GB/AD will be opposition MP's sat on the benches smirking about what a mess the tory government is in...!
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So Blanchflower has resigned from the MPC.
The arch proponent of lower interest rates has seen that the lowering has had little effect other than to damage the currency and encourage the wastrels. He is leaving the sinking ship before the blame game starts.
New Labour has forgotten Gresham's Law and we will all pay the price.
Oh and Uphios, if you are long Yen and live in the UK presumably you sold sterling so you are short.
If you do not appreciate that currency speculation works in pairs you had better be careful if you have sterling liabilities.
You are exactly the type of speculator I would hunt.
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Raises a few interesting points!
Firstly the cross party agreement on the need for some sort of arrangement of this sort. Remarkable things must tbe bad to stop politicians squabbling!
Secondly the role of the banks who, despite the shouts of "Off with their heads", are clearly seen as being presently the best,maybe only, way to actually deliver Government policy. I have no doubt that if this Government felt it could do without the banks they would.
Finally prospects. In a financial sunami of this scale it will be not only the inefficient and outdated and even the delicate and young who go under but also the mature and relatively efficient. Those who say let things take their course seem content to let this happen but maybe they just see this as a recession similar to previous ones. It's not and to let such destruction happen would be catastropic for decades to come! Risks are being taken and costs incurred, but so far, in the context of the situation, they are not unreasonable though I wish personally it wasn't quite so scary!!!
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#54 nickough - You don't think that the BBC's business editor has just this blog as a means of spreading doom and gloom do you? Why, he's got news bulletin's to fill with speculation and hyperbole.
What worries me, and I sense some others too, is that journalists - based on little understanding and less evidence - are having an effect on the decisions taken by households (I admit Mr Peston's impact on the City to be slight...at least I hope so!). He is talking this economy down quite effectively to gain good copy. This piece he produced here is a classic of the type.
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126. At 4:11pm on 10 Dec 2008, courteousnewcitizen
CADdollar, I see two advantages to the looney, Canada has buckets of natural resources and the praries so can self sustain and more if things get really bad, if thing surprise and pick up it will be the US first and Canada has the largest trade agreement in the world with them. They may not emerge as my first choice but they are top of the list at the moment.
Gold - I bought loads at 220 and got shaken out for a loss at 210, can't bring myself to pay todays prices for it now.
House is a good move but for me only when we see the first of the green shoots. I bought too early on the upturn in the 90's and it didn't cost me anything but I could have delayed for at least 18 months and got the same deal. Wait until it's clear is my view on property.
timetoponder at 102 has got me a little wrong.
NIMBI I'll accept, sceptic is more appropriate.
I used to subscribe to 'save Africa' when OXFAM were going to cure world hunger in 10 years back in the 60's. When that didn't work we were going to teach them to fish, well today those fishermen have traded their rods for RPG's and call themselves pirates, mainly 'cos the world's trawler fleets stole all their fish!
Meanwhile, Greenpeace are saving the planet by bouncing their 6 ships and a helicopter around the plant mostly pressing the flesh on a continuous world cruise. Really 'green' mode of transport 5 motor powered ships and a helicopter!.
Until someone makes a bold move on over population I will continue to affect only what I can affect, which will be for the benifit of me and mine.
Politicians, there is not one I know of, in any country, for any party that I would vote for. As far as I am concerned politician is an acronym for 'proffesional liar'.
Well done on the Euro by the way.
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132. At 4:50pm on 10 Dec 2008, sosraboc
Laugh, I nearly cried! Hunt away sosraboc, hunt away.
If you did not understand the irony of my post I look forward to crossing swords with you.
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#129
AAA rated MBS
Perfect long term assets for pension funds eh what?
Ever stopped to ponder how many private pension funds are holding MBSs CDOs and CDO squared s because they were supposedly highly rated by the credit rating agencies.
No one comments on this.
Join Brown, the glove puppet and me in the handcart and we can all go to Hell together
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Woolworths is dangled over the PRECIPICE
TIME NEW LABOUR WAS DANGLED &
DROPPED.
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As a former strategy manager at Rio, I have to say Robert has fundamentally missed the point - Rio is a classic case of having developed the perfect takeover defence. In a bid to secure 'independence at any cost', its senior management ensured the company was loaded with so much debt and such a poor acquisition that it was effectively worthless. Whether management knew they were betting the company to secure independence, or whether this was a tactic to screw a higher bid out of BHPB, we will never know.
As a shareholder that has seen Tom Albanese wipe over 80% off the share price high, I do wonder if he and all the other expats running Rio from their expenses-paid non-dom London base will ever be held to account for this.
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Uphios- Canada is wholly reliant on the US grain belt for food, as is a large portion of the planet
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140. At 5:10pm on 10 Dec 2008, ejSwede
"Averaged over a ten-year period (1986 to 1995), Canada occupies sixth place among the world’s major wheat-producing countries, preceded (in order of importance) by China, the European Union, the United States, India and the Russian Federation.
In terms of international trade, however, Canada is the world’s second largest exporter of wheat; with annual exports averaging some 20 million tonnes, this country accounts for about 21% of the world market for wheat exports."
Source ;- Canada Government statistics.
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Blaming the Worlds pollution/unsustainablity problems on population alone is grossly unfair, as the vast majority of people do not/have not benefitted at all and most of the Wolrd live in abject poverty. That is just an excuse to cover for our own greed but they will suffer even more as a direct consequence of this crisis and through no fault of their own.
Of course population is a huge problem but not one that can be dealt with overnight, it will take one maybe two generations, even if we start now!!
We know the west has lived beyond its means both in terms of the economic crisis but also in terms of World resources and we now have an opportunity to accept far less in terms of consumerables. We don't need much of the stuff cluttering up the high street, bought on a whim, for no good purpose. It generated energy to produce it, it burnt up fuel getting here, from half way cross the World and when we become tired and bored of it will cost even more money and pollution to dispose of it.
We threw ourselves on the scrap heap by demanding cheaper and cheaper goods and those at the top of business took us at our word and sourced abroad, employing some poor devil scatching a living, working long hours, in dreadful conditions to feed our addiction.
No good crying now those jobs, those skills built up over many generations have all gone.
Now all the buildings are smart penthouses, loft apartments no one wants!!
The west has only itself to blame and only it can pull itself out of the mess it got itself into. Its not the fault of Governments alone, big business has an enormous responsibility to shoulder. It is responsible for putting small businesses on the scrap heap.
Big is disgusting, its unwielding, its ineffecient, its impossible to manage effectively.
we need to get back to small manageable size companies, where we know where the top is and who is responsible. Large conglomerates hide behind all kinds of different names and guises so no-one really knows who owns what and no-one is actually responsible. Its only when they hit the buffers it all comes out of the woodwork.
rying like babies.
We cannot deal with population overnight but we can and must deal with our addiction to consumerism, profits, money etc
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As I understand it, Banks, Insurance companies and others were misled into buying "toxic assets". This led them into a shortfall of funds, just to keep afloat, never mind to lend.
Credit is the "oil" that ensures that business machine works. If there's no oil, then the whole machine comes to a sudden, and expensive stop. End of UK plc. So, the banks need cash in order to resume credit (revolving?) to companies. This helps keep jobs. People in jobs then have money to spend.
Problem is, ever since Mrs Thatcher's days, UK plc has become more and more a "service economy" (employing bankers and the like) and less a producer economy. Result: any extra spending power that companies and their employees, etc have is likely to be spent on imports! (One could just hope that exporting countries might revive their interest in the UK's service provision, I suppose ...?).
Funny old world, the way what goes round comes round (as they used to say in Northern parts).
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REVOLUTION!
Is that what has just happened? Have our financial lords and masters just been toppled?
Now that is the question...
The reality of the world is that money runs it. Those who can create money from nothing (bankers) say what goes and what doesn't, and there are only a few men at the head of the banks, you know their names already. When they say stop, everything stops. Even the governments of nations are beholden to these people. Is there a government out there without a national debt?
By loaning billions to the banks at almost usurious interest rates, have the government caught the men behind the curtain in their own net? Is that why Barclays didn't step in? Now, that would be the perfect irony, economic genius and a truly revolutionary act.
Have the government just now replaced the bankers with the people?
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After a boom we used to wonder if we would get a soft landing or a hard landing.
Well we are getting a crash landing.
This is because the boom was not recognised and interest rates were set too low over the past five years
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apologies uphios
I had considered it might be ironical, but it is a word form so rarely used I discounted it. Mea culpa.
Funnily enough the lights have all gone out on this sector and I am writing by torchlight, I hope it is not an omen
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Brown has no idea what to do... but neither Cameron or Clegg are a credible alternative.
I think it is time for a Government of National Unity to lead this country out of the mire (led by PM Peston?)... bring in Vince Cable, David Davis, Ken Clarke as seemingly the only politicians who have a clue how to run the economy.
Anyone want to second a petition on the Number10 website?
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"139. At 5:09pm on 10 Dec 2008, J-PMSurrey wrote:
As a former strategy manager at Rio, I have to say Robert has fundamentally missed the point - Rio is a classic case of having developed the perfect takeover defence. In a bid to secure 'independence at any cost', its senior management ensured the company was loaded with so much debt and such a poor acquisition that it was effectively worthless."
As I understood it, Rio Tinto was largely owned by the Rothschilds. The bankers. Which means the debt will also be owned by... the Rothschilds. So, even if you bought the company, they would basically still own it.
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Rio Tinto? Bunch of cowboys if you ask me. Or was that Rio Lobo?
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I stand corrected, albeit by 13 year old stats - and averages at that
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"Very sharp recession"
What's all this then? Why only a few months ago all the forecasters and the governemnt were telling us that growth was just slowing and we probably would not go into technical recession.
So when someone says "very sharp recession" (which analysis I agree with) then does this mean that the consensus is that we are right royally stuffed (in an economic sense)?
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For those advocating higher interest rates, ponder this.
As the rates go up, the house prices WILL CRASH BIG TIME.
Will this fall in house prices off set the gains you make on your savings from higher interest rates?
Hmmmmm, didn't think so as in most cases the house is your greatest asset.
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I am a natural conservative supporter, my family have been in business since 1910. When David Cameron was elected leader I felt he was a future prime minister, however this current downturn has found him sadly wanting.
Gordon Brown and Alastair Darling have shown leadership which I am greatly impressed with. The Japanese experience proved throughtout the 90's that caution is reckless in a recession and national bankruptcy can result from thrift.
The only sensible course of action is for government to increase spending to take up the shortfall from the private sector. The public finances depend on growth in the economy more than any other factor.
Interest rates should fall further to encourage enterprise and avoid saving or we could very well follow the Japanese downturn which lasted 10years
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142. At 5:18pm on 10 Dec 2008, timetoponder
I agree with most of what you say except for 2 things.
Opening para, no one ever said it was going to be fair. In my experience the world is not fair on any level. I saw a song thrush killed by a hawk today. Not fair said the Thrush.
And last para, the rest as you list them are playing with the dressing, without takling population all efforts are doomed to failure (IMO).
I'm a white UK citizen. Lucky sperm Warren Buffet would call it. The strange thing is I actually envy the people of Africa. Not the ones who are starving of course, but the nomad types looking after their goat herd, subsitence living, I could go for that.
Instead I get as close as I can by self sufficency on my paid for small holding in leafy Sussex.
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1 . Congratulations to Gouchomarxist1 #6 for getting in the top 100. A big thank you to Robert for blogging nearer his getting out of bed time!
2. How stupid have we been over the past few years
3. We are very trusting to hope the guy who drove us into the mire, will remember the way out! Like I said 'How stupid have we been'
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# 147
Doesn't a government of national unity need , well, unity? Where do you see unity in approach from our political munchkins? They're all up to their usual tricks, scoring daily points off each other. Far from a government of national unity, what we really need is for all politicians to stay as well away from economic matters for the longest time possible.
And I had to laugh at the "Brown has no idea what to do...", followed later by a suggestion of Peston for PM. Peston IS Gordon Brown. He faithfully reproduces every new story, policy etc helpfully fed to him by No 10 and the Treasury. Why do you think RP has had so many "exclusives" in recent months?
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Recessions and wars hurt most people but not everyone. Wars have proven VERY profitable for some people in the past and many fortunes could not have been made without depressions and recessions of the masses.
Who were the big winners from the last few years while the crisis is building up, who stand to gain much from the credit crunch and this recession?
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Using the Treasury market to cover the customer funding gap will only move the freeze in the wholesale credit market into the sovereign credit market, because the underlying fundamentals of the end users of that credit have not changed, only the conduit, and lenders of that capital are not stupid - they can see it.
This policy threatens a crisis of confidence in Treasury bills with all the implications that follow for the cost and stability of government funding.
The leverage in resource industries is insane and its deflation will produce a new crop of failed states, but that is less important.
The important issue is if the government over-rides the capital markets' assessment of who is and is not an economically viable credit risk, it will be seen to have assumed the entirety of that credit risk itself.
How plainly does this have to be spelled out?
The only alternative is to consider the customer funding gap permanently closed and permit the deflation arising from that event to take place. Primarily this means accepting that house prices will halve peak to trough. Harsh for recent speculators, but better than the alternative for all of us.
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Capitalism has a beautiful self-correcting mechanism - and that beauty is in full bloom right now
What our governments are doing is tinkering with a beast that cannot be tamed
The only way to control Capitalism is to change they system
When we no longer rely on Capitalism it will no longer control us
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JayPee28bpr - come to think of it, have you ever seen Brown and Peston in the same room?
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153 itsbutterupnerth
Gulp
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Hang on Robert... Despite all the doom and gloom, Switzerland seems to be doing fine despite the glitch from UBS & Credit Swiss.
The average person still thinks the problem is elsewhere and carries on business as usual.
Perhaps this small wealth /spend orientated economy is the model that everyone should be thinking about. However, my brain has been brought up westbound and I wonder how long after everyone's gone bust we can carry on as normal before our monies run out ? In a years' time it will be interesting to evaluate the entire mess of winners and loosers.
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#153 itsbetterup
"Interest rates should fall further to encourage enterprise and avoid saving or we could very well follow the Japanese downturn which lasted 10years"
And when the government have spent all the money and it hasn't worked we could very well follow the Great British downturn from which our children may never recover.
Just trying something different doesn't necessarily mean it will be better.
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"So although the global economic mess was largely generated by the financial excesses of the richest countries, notably the US and (in a supporting role) the UK, no country will be wholly insulated or protected."
Robert
Could you let Yvette Copper know so she can change the cassette in her tape recorder?
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Mr Peston
I understand (maybe incorrectly) that there is a clause in the finance bill to remove the constraint..
That has existed for 164 years.
'That an Account of the Amount of Bank of England Notes issued by the Issue Department of the Bank of England, and of Gold Coin and of Gold and Silver Bullion respectively, and of Securities in the said Issue Department, and also an Account of the Capital Stock, and the Deposits, and of the Money and Securities belonging to the said Governor and Company in the Banking Department of the Bank of England, on some Day in every Week to be fixed by the Commissioners of Stamps and Taxes, shall be transmitted by the said Governor and Company weekly to to...'
Now, forgive me for being a wee bit pedantic here, but didnt the 'Ground breaking' G20 economic summit agree to TIGHTER fiscal control?
Forgive my presumptiveness I am just a half formed numpty..
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#153 itsbetterupnorth wrote "Interest rates should fall further to encourage enterprise and avoid saving or we could very well follow the Japanese downturn which lasted 10years"
They cut interest rates to zero and saved bankrupt financial companies, as will we. They saved money instead of spending, as will we, because their trust in their government was less than their trust in self reliance. What we are doing is in no way different. It is the same script "How to survive an asset price collapse without declaring losses", page by page.
We will get it worse though. The Japanese had a greater cushion of savings when it began. That was not the problem, it was the mitigation. You should listen to your conservative instincts.
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What this whole situation has clarified is how highly dependent the UK economy (and others) were on the confidence and wealth induced by the house price boom and easy credit leading to excessive spending. Factor into this all the industries that depended on it.
The government realises that this fuelled their '10 years of good economic growth' and that their is nothing else to take its place. Caught between a rock and a hard place, all they can do is pump in vast sums of our money and talk tough. They cannot 'make' the banks lend to people, especially as it was the very same government that told the banks that their carefree lending caused the problem in the first place! They are however being crafty - drip feeding in little life lines every couple of weeks to try and stave off the inevitable recession.
Sadly I think that we have only just begin to see the effects of this downturn. Just think how desperate businesses must be to be cutting jobs JUST BEFORE Christmas, think also of how job cuts are going to spiral out of control in January 2009, watch this space.
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Purple Haze all in my brain,
lately things don't seem the same,
actin' funny but I don't know why
'scuse me while I kiss the sky.
Purple Haze all around,
don't know if I'm comin' up or down.
Am I happy or in misery?
Whatever it is, that girl put a spell on me.
Purple Haze all in my eyes,
don't know if it's day or night,
you've got me blowing, blowing my mind
is it tomorrow or just the end of time?
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The banks have turned away applicants for loans/mortgages based on Credit scoring branding them as "High Risk." , they want larger deposits for mortgages.
All of a sudden the tax payers money has come to their rescue and the Government wants them to start lending-I find it to difficult to fathom as to what has changed positively i to make thn the common man's life, overnight, em low risk?If at all anything has changed, it is for the worst, with redundancies all across the board.Surely the sudden availability of funds to the banks cannot make the borrower low risk. The banks should be prudent to whom they lend and not base their decisions on the availability of funds- If they do, it is going to be the final nail in the coffin
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What matters this time is that through all the multi media channels and learning medium we do not allow those that are manipulating the conveyor belts to force us into a massive war.
We must look our so called leaders in the eye and grab the strings that contort their actions to prevent them from falsely reducing the population, exploiting untamed natural resources, building economies from death and plundering wealth from so called enemies.
If there is anything we have learnt, it is that all wars have evolved through religion and/or wealth control. Not because brother hated brother.
Let Greece be the precipitant of reclamation
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And in other news.....
Woolies holds its final closing down sale tomorrow.
http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5320013.ece
But just one sec... Didnt Mr brown say NO?
"Meanwhile, Gordon Brown, prime minister, said the government had brokered arrangements with the company to "ensure that it will continue to trade through Christmas, and employees will continue to be paid"
http://uk.biz.yahoo.com/27112008/399/potential-bidders-eye-woolworths.html
i dont know about you Mr PESTON... but there comes a time when an ENTIRE organisation BBC has to stand up and say enough is enough.
This cynical hypocricy has to end. Really.
I dont even live in the Uk and it is obvious to me - Do any of you think you are fooling the world anymore?
Merkel laughs at us. And many EU leaders are getting tired of the UK rhetoric and posturing.
Mr Peston. You are intelligent. You are an excellent generalist. I know you have a position, family and mortgage.
I also know you will always be able to support your family
I know KNOW you are in the same position as the majority of the investment bankers, when in the system, dont rock the boat.
But I sense, just sense, you have integrity.
Soon, worms must turn
Are you the solution or the problem?
I suspect you are a solution......
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49#
Did you over sleep today AC?An election eh, do you think the FUBAR RBP 2010 will loose their deposit?
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150. At 5:35pm on 10 Dec 2008, ejSwede
There are some later stats on the web but they all basically point to Canada producing 12% of the US's grain output with 10% of the population of the US. They are grain richer.
Even the BBC has spotted Canada's oil today. http://news.bbc.co.uk/1/hi/world/americas/7762226.stm
Though the story is not quite correct. US's Green River is said to be the worlds largest oil sand reserve, larger than Saudi's reserves but not politically acceptable to mine it, at the moment. Last I heard oil sand is costing Canada about 47 dollars a barrel to produce so at todays prices they are now making a loss (oops!).
Add to this Canada's gold reserves, Uranium reserves and their lumber and they are not in a bad position for the second largest country in the world with on circa 30 million population.
Yen, I will be out of on the coming drop below 130 to the pound, just not sure yet where to get into next.
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Here, in the bare dark face of night
A calm unhurried eye draws sight
- We see in what we think we fear
The cloudings of our thought made clear.
That is the concept we are about to encounter, for those who recognise the quote and understand the context.
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# 132
Thanks for sharing your informed judgement of David Blanchflower's decision not to seek a second term as a member of the MPC.
DB lives in the USA. He travels to Britain each month for MPC meetings. He's been on a three year sabattical from his "day job" as a Professor at a New England college. I guess they'd quite like him to go back to work for them.
His MPC term expires at end-May 2009, and he will serve until then, so if he's deserting the sinking ship he clearly feels there's only a small hole in it and he's plenty of time to have another drink or two before heading for the lifeboat.
Blanchflower has actually been proved right. He noted that a housing crash was looming and that interest rates needed to fall to prevent a recession. He was outvoted, and his prediction has now come true, albeit very much enhanced by the collapse in confidence in the entire banking sector globally.
I somehow doubt he'd share your view of the effect of his policy advice.
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The City pages have a story today about Woolworth's closing down sale.
May I pass on a whisper about another retailer?
I was told that Tchibo are closing their UK operations.
This amazed me. If ever there was an retail operation that seemed a success it was Tchibo.
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170. At 7:39pm on 10 Dec 2008, PetersKitchen
Best thin Iran can do right now is invite the Russians along for some 'joint navel exercises'. Otherwise I can see Israel doing a pre-emptive on those nasty land grabbing Iranian's and getting US/UK involved in another shock and awe for WMD, no regime change, no oil grab.
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# 172
Don't you think RB2010 is a bit Python-esque? You know what I mean? Straight out of Life of Brian and the 10 "Fronts" all fighting for Judean liberation. The UK 2010 version has RB2010, UKIP, and BNP all competing to be the nicest version of British supremacists.
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Here are the current political, economic and /or religious conflicts around the world.
This does not include Iraq or N. Korea which will probably be used as a catalyst for the next ''world War''. However, studying the list below you will be hard pressed to disbelieve that this next global war has not been instigated already. Just like previous w.wars, the 'legal' start date does not actually define the actual start date.
I challenge anyone to correctly number the conflicts below waged under the 'war on terror' program.
This is not just a recession it is a re-alignment of the worlds wealth to accommodate the 'new' capitalists
Afghan War (part of America’s world-wide War on Terrorism)
Al-Aqsa Intifada (Israeli-Palestinian Conflict)
Algerian Civil War—(1992-Present)
Basque Separatist Conflict—(1958-Present)
Burma (Myanmar) Civil War—(1948-Present)
Burundi Civil War—(1994-Present)
Congo—(1998-Present)
Chechnya (Russia)
Kashmir Conflict
Liberian Civil War
Nepal Civil War—(Feb. 13, 1996- Present)
North Lebanon Conflict (2007)
Northern Ireland Conflict—(1969-Present)
Philippines Conflict
Ugandan Civil War
Bougainville War of Independence—(1989-Present)
Cabinda (Angola) Separatist War—(1984-Present)
Chad-Central African Republic Border Conflict—(Aug. 7, 2002)
Chittagong Hill Tracts War in Bangladesh
Hmong Insurgency in Laos—(1975-Present)
India:
Hindu-Muslim Sectarian Violence—(1947-Present):
Naga Rebellion—(1952-Present)
Mizo Rebellion—(Feb. 28, 1966-Present)
Naxalite Guerrilla War—(May 25, 1967-Present)
Tripura Rebellion—(1979-Present)
Assam Rebellion—(1980-Present)
Bodo Rebellion—(Mid-1980s-Present)
Indonesia:
West Papua Rebellion—(1965-Present)
Aceh Rebellion—(mid-1980s-Present)
Ambon Ethnic Violence—(1999-Present)
Sulawesi Sectarian Violence—(1998-Present)
Kurdish Rebellion in Iraq—(1991-Present)
Kurdish Rebellion in Turkey—(1984-Present)
Namibia: Caprivi Uprising—(Aug. 2, 1999-Present)
Oromo Rebellion in Ethiopia—(1973-Present)
Shiite Muslim Rebellion in Iraq--—(1991-Present)
Somali Civil War (state of anarchy)—(1991-Present)
Tuareg Rebellion in Niger
Wars or conflicts currently at a ceasefire:
Angolan Civil War—(1975-April 4, 2002)
Cambodian Civil War
Zapatista mexico Uprising—(Jan. 1, 1994- Present)
Congo-Brazzaville Civil War—(1997-2000)
East Timor War—(1975-1999)
Egyptian Muslim Rebellion
Second Eritrea-Ethiopia War
Fiji Civil War
Georgian Military Revolt
Guinea-Bissau Civil War and Intervention—(1998-1999)
Haiti Coup Attempt
Kosovo War—(1998-1999)
Madagascar Civil War—( June, 2002-July 7, 2002)
Peruvian Civil War—(1980-2000)
Saudi-Yemen Border Conflict—(1998)
Senegal Civil War
Sierra Leone Civil War—(March, 1991-2002)
Tajikistan Civil War
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# 176
Why? What's so good or special about Tchibo that you rate them so highly? Isn't it all a bit random? Everything from office supplies to crockery, ski stuff. What do you think when someone says Tchibo? I had to go find out who/what they were! Hardly a household name, ie lack brand awareness I'd have thought.
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Maybe the Queen should be forced to sell off her £20 Billion art collection. Her face is on our notes. She should take some responsability?
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166 WerringtonSilent
Dropping interest rates may have an impact eventually but whilst there is dislocation between the BoE rate and LIBOR it makes little difference.
Further - The issue is not interest rates, the issue is loss of capital. That is quite clear from the fact plenty of money is still about and available providing the computer says yes. It just says no to more people than before.
Consumers faced however obliquely with redundancy will also not wish to face the loss of money or blackballing. It is looking after number one.
Growth will be subdued whatever steps are taken because borrowing will not occur whilst there is the fear of loss of capital.
There are however a large number of conservative, with a little c, consumers who are careful with their money and they are still spending. They look for a bargain and are not persuaded by gloss and floss. They habitually save before they spend. They are slow to make a purchase, ie they do not usually impulse purchase. They were scorned in the bubble.
That is the new environment. A more 'traditional' market. 'Growth' can only occur when the property market stablises and when the cull is complete giving survivors room to expand.
I can see no reason why the so called flat growth likely to follow a drop is bad, it is to be expected. The fact - when it comes - that it is there is healthy.
Whilst spending on the pubic sector obviously helps economic activity it clearly does not help the private sector a great deal, other than by leakage. The public sector does not ultimately provide growth, the public sector lives off taxation. If the taxation take is fixed at 43 to 46 pence in the pound - which it has been for years - and the economy shrinks and does not grow significantly for some time it is absoluterly inevitable that public spending has to drop, probably by a move to means testing more services. That preserves the concept of a standard of service and can be sold as a 'fair' solution. The most controversial area this can be introduced is in the health service by lifestyle criteria thresholds for healthcare ie quit the poor lifestyle then go on the waiting list. Or part NHS part private top-up to access services. Catergorise intervention as essential and non essential, two tier.
Economically the problem we are now facing is a severe imbalance and correction has to take place. Smoothing the correction is helpful to a point and should occur however the great danger is interference in the correction which can do as much longterm damage as interfering in the economy to produce an artifical boom.
The critical thing is confidence, that is a perception, and takes time and a critcal mass of agreement amongst consumers has to be reached. Interest rates cuts can be detrimental because they can advise a problem pending, nothing to do with the numerical impact ofthe rate. It is all about perception.
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#171 traducer
"Mr Peston. You are intelligent. You are an excellent generalist..."
That's ok then, cos he's no balanced journalist!
Did any one notice that "Roberts Peston's famous blog" was name-checked on the news at six ??
Doesn't seem to have produced a rush of new blood....
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Of course, it could be pure coincidence. Yet people feel wars that dont affect them directly cant happen anymore - there is historical data on that isnt there?
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Can Pallab Ghosh contribute on the enormous black hole at the centre of our economy?
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So the German finance minister has called Crash Gordon’s most recent financial policies both “crass” and “breathtaking”.
“The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking," he said.
Great, we’ve finally found a politician who will speak some common sense. Pity he's over in Germany.
The only questionable part of his statement was in saying it could take a generation to pay off the UK’s debts, it could be several.
Interesting to see that other countries are starting to laugh at us on the day Crash’s hubris reached an all time high. Oh, for an election to rid us of this megalomaniac. The other lot aren't great, but any change will be better.
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Post 179 Peters-Kitchen.
I have to challenge you on at least 3 points there.
1) NI. As an Englishman, I decided to work contract for a South West Ireland company. They needed me, I needed the money/experience.
Finding myself amongst SERIOUS IRA support and being a royalist, I was a little concerned.
Sufffice to say that, having a reasonable IQ and good historical knowkedge of the 'problems' I ended up best of friends with a few of them. One would be classed as good friend and deserves respect.
They dont want to continue agression.
Lets just say, that being subjected to IRA songs for the first three months of my tenure, on my last day, I did some unofficial overtime and reset the windows start up melody from the default to a short version of ¨God Save the Queen'.. Revenge is sweet.
I know hmong tribesman, i have spent much time driving around without a compass.
one of my good friends is a gorgeous PNG girl.
Those 3 conflicts, I can absolutely state are non starters in your list.
You can add several.
Tamil. South Thailand (bhuddist/muslim).
Many Sth American and African missed too.
I am disappointed in you for your poor googling.
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Dear Robert
You are now habitually blogging on bad news stories with, presumably, some ulterior motive in mind. Its a distressing habit of BBC journalists and a feature of the unbalanced news culture across the BBC that has been raised on countles occasions by independent observers.
The movements and changes you mention at a global level are ripples and not tsunamis. They also represent statictical measurements that are usually corrected downstream.
Also there are also many positive UK business stories that your blog is simply ignoring. You are I fear (and I am not a fanatical supporter of the current government) moving towards promoting a biased picture of the UK economy and the state it is in. As you well know, rumour can lead to reality as people, through fear of the unknown, react on what they hear. Perhaps you can help us all understand the process by which you aim to achieve a balanced and neutral view of business events. Business, by the way, in case you have forgotten your raison d'etre as business editor, is not just about economics.
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183 houseflogger
My main reaction is why is that what economists or bankers or politicans have to say suddenly so interesting. It is not as though they have shown so much wisdom or knowledge to date. They are the primary reason we are here. Why is what they say suddenly pertinent. And in particular why is the depressive talk of this group of people whose reputations, jobs and lavish lifestyle are under justifiable threat seen as being so profound. You have two economist and you have three opinions, same for bankers and politicans, and it is never their fault.
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No. 183. Houseflogger.
I have read many of your posts and respect your perspective.
However, even you must admit that Mr Peston works for the BBC.
It is derigueur that they portray balance. Millions around the world read his ponderings.
Never has he mentioned the R word until government did.
He treads a fine line. It is OUR hobby to dissect and disseminate.
I know you find him negative.
I know your market needs confidence to be high to run well. But his job is to portray a picture that is... understandable.
So he uses rhetoric to a small degree.
This is because what he is reporting HAS to be understandable to people who dont speak good english.
And here I include mostly the english white kids in outer London. (joke).
Ordinary peoples lives deped upon this stuff. And yes, it isnt good for your business. But it is real.
I personally, am not in favour (now) of the recession/depression scenario. Yes t will be bad. But land has a value. Once floored, confidence will return - in measure.
This is a levelling not a depression.
The West goes down a bit. The East comes up a lot. Eastern Europe will come up a bit (more conservative banking practices).
However you call it. The 'West' will have to make do with less.
And that is NOT a bad thing-.
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#182
Good point about base rates and Libor.
In my opinion not enough coverage is given to the lastest bank scam of surreptiously switching all their business customer loans (formerly at a fixed percentage over base rate) to the same fixed percentage over LIBOR.....Simultaneously keeping all their savers on the usual pittance over base rate, then pocketing the difference.
Is there no end to their devious crookery??
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@ #142 timetoponder, #154 Uphios
I agree with you both (your differences are as nothing compared with the opinions of those who believe the current system has no other problem than it's been poorly managed!)
The present world financial/economic system in general promotes human suffering. Only a very few people in it have never experienced physical want. And though comparatively poor, I am one of these lucky ones, who has never gone hungry a day in my life. We are the beneficiaries of the system.
Some people suffer a lot periodically. During the boom part of the cycle they may prosper, but then the inevitable systemic bust occurs and they suffer. I foresee the possibility that I and my loved ones may fall into this group soon.
Many, if not most human beings know little except suffering. They are either directly exploited by the system, or "supported" under conditions so bad that death would seem preferable. Others simply fall through the cracks.
And this is the system we wish to repair??
For whose benefit?? Ah, the present beneficiaries of course! I've admitted I'm a member of this elite (for the moment), so enlightened self-interest would suggest I work restore the system.
But I can't do it. It's simply unfair. (Fairness applies, or should, to human actions.)
As for the issue of overpopulation, is it true that the importing of Western pharmaceuticals and medical intervention has reduced infant mortality rates in countries without providing means or incentives to reduce the birth rate? Has any of this been funded by World Bank or IMF loans (or that portion of them that actually makes it into native hands)? Has someone profited?
We need a new financial/economic system that promotes universal human well-being, not selective suffering. I don't know what it's called, or if it even has a name yet.
As for how many people the planet could support, this must depend on what it can sustain with renewable resources. (And what we agree is an acceptable standard of living!)
But aren't these the issues which really need addressing, as opposed to how big the bailouts and interest rate adjustments should be?
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#175
Blanchflower abused his position, speaking regularly against the committee he was on. Whatever happened to collective responsibility.
If he was really a man of honour he should have resigned months ago.
His irresponsible spoutings contributed to and exacerbated the problems and I am glad he has gone. If we want North American professors, we should listen to Nick Taleb’s views. Blanchflower was a mistake and good riddance.
A man in his position has the power to be a self-fulfilling prophet, big deal. He will no doubt speak up against Obama’s views in due course when he wants to raise his profile again.
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#182, I agree interest rates are not really the issue here, my comment #166 was directed at someone who believes otherwise.
I agree with much of what you wrote. There will be no return to what we saw in recent years, because it was not normal. We borrowed the whole last decade of economic growth instead of earning it and must now either repay our debts with interest or default. No windfall of productivity growth is on the horizon, so we face an unpalatable choice and both options end with loss of unearned "virtual" wealth and a return to much slower economic growth from a much lower base than we presently occupy. The correction underway is inexorable.
Some things can be done to soften the blow, but bank bailouts and propping up builders and car companies manufacturing into a glut are not it. Government assistance should be reserved for truly critical services. All the suggestions we have heard so far play to power and popular sympathy, not to anything that would suggest any objective contingency planning is taking place.
You are right to suggest a lack of confidence and fear of loss of capital are key issues, and I would add they will never be solved without balance sheet transparency and full declaration of losses. This is the real reason Japan never recovered, nothing to do with interest rates as another person suggested.
Based on the government's deeds, not words, there is nothing to warrant confidence (as I explained in #158, their meddling is undermining confidence in their own solvency) and the future looks bleak.
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194 werringtonsilent
I was nay disagreeing with you, just commenting.
Some people do not see it. They are entitled to their opinion and may be right but I doubt it.
I do not think the future is going to be that bleak but it obviously depends if and how badly you are affected and it is unavoidable the numbers are large. I was hit in the last recession, many were not, it is somewhat arbitary, that is the problem with a recession, which is why a government which wants to promote a meritocracy has to limit recessions as its number one priority.
The biggest problems are likely to be in the third world.
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#121. benagyerek wrote:
"not true - the banks have plenty of cash available from the Bank of England,"
Don't think so. The strings attached are not nice - the Government bonds carry a 12% voucher. Tricky to lend at a few percent when you have to borrow at 12!
Savers will go overseas (e.g. Germany where policy will keep savings rates up.) Indeed currency speculation against the pound has made lots on money, more money than annual savings income in just the last few days!
By the way the UK Government is now rated lower than McDonalds! So when all of this borrowing flows through, not only a negative move in currencies will hurt the UK but because of its low rating the UK government will have to pay a higher coupon.
The market is forcing the effective interest rate up, but lowering the rating of UK government stock and devaluing the currency - unless the coupon is a lot higher the UK will be unable to get its bond issues away quite soon. We cannot re inflate the bubble - the market will not let us and that (re inflating the bubble) is exactly what is being discounted by the exchange rate and the yield expectations.
Sorry rates do matter, and the market sets them, not the Bank of England. It is decreeing through the exchange rate devaluation that the UK will have to raise rates one way or another - in other words the policy has already failed as the market is already discounting its failure.
The rates do matter argument also can be seen in the saving rates being offered in the UK market. Banks would not be offering double base rate as a savings rate if they did not have to.
The whole Gordon Brown policy agency might have worked has no countries started to break ranks - but that has happened and the policy has failed. The gigantic attack of hubris in the Commons today also showed that the policy has failed. (Sorry Gordon you have NOT saved the World!)
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192 papanca
I cannot disagree with your comments about inequailty in the world. If you have connections there you have my sympathy. Realistically the only thing an individual can do in the west is set personal standards on imported goods and the ethics of a corporation that they deal with. And long term try to influence government policy. There are a large number of people who do that and the figures are gradually growing. The internet is the most powerful information dissemination tool available and is having an impact with the western consumer. Efforts are in place in devloping countries by individuals eg microbanking, activists, attempts at introducing democracy, attempts to reduce exploitation. Until a realistic alternative to capitalism is found there is no other solution to economic activity. If capitalism is therefore the only mechanism then management is critical. What are you suggesting replaces capitalism - if you have an functional answer many would be interested.
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"186. At 8:49pm on 10 Dec 2008, chemengrules wrote:
So the German finance minister has called Crash Gordon?s most recent financial policies both ?crass? and ?breathtaking?."
Just a word about the language.
In German, "krass" means blatant, glaring, gross, rank.
In English, "crass" means gross, obtuse, stupid, coarse, unrefined.
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Post 200 - Don't suppose many readers but here goes:
On a previous thread I suggested that instead of the VAT cut the government should have tried to fix the housing market by:
1) Removing all stamp duty with an announced phased reintroduction
2) Providing the banks with reasonably priced MIGs for new mortgages
3) Public funds purchase of repossessions at market value paid to lenders but not any of the normal fees with the option for the previous owners to stay on paying the govt rent at the cost of funds to the govt, but remaining liable to the lenders for any shortfall between the value of the sale and the mortgage in effect as an unsecured loan
The theory being that stopping the housing market undershooting would allow the banks to draw a line under their housing market liabilities and thus restoring confidence in the banking sector and allowing banks to lend to each other and to other businesses.
Hopefully the new proposals are along these lines, specifically with respect to guaranteeing bank lending.
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Speaking for myself, my future does not look bleak, I have no debt, I am wise to the games and I expect to be laughing all the way to the - haha. But collectively we have difficult times ahead if the government lands itself in an old-fashioned national funding crisis. I doubt many of us stand to benefit from that, so fiscal and monetary restraint should not be a politicised matter and it is a shame it is.
The biggest problems I think will be in the advanced developing countries which will find themselves slipping swiftly down the ladder all the way back to developing world status. The story of next year will be the spectacular failure of the decoupling theory. It was flattery. Rather a lot of much lauded "progress" worldwide has been built on selling the same stuff scraped out of the ground for ever more money year after year. The illusion of permanence of wealth built on phantom credit should unravel with speed.
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#152 Houses are overvalued. Prices have considerably further to fall yet. I am not convinced that the level of the floor will be greatly dependent on interest rates. The banks do not presently have the funds to lend. That there are those who wish to borrow at low rates is beside the point. If credit is in short supply its price should rise. That is the only way the market will, eventually, behave rationally.
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german komandant look ugly
all in a game of war! war!
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Just watched Robert on BBC news. I must say that I was shocked to hear him say, whilst expanding on the Woolworth story, something along the lines of "I have heard that company xxx may be closed down..."
Rather dangerous little throwaway comment was it not?
I sometimes get the feeling that Robert is used by people with their own agenda, but latches onto their "tips" and uses them to raise his own profile without thinking through the consequences.
I work in aviation. Were I to have the kindly ear of a high profile journalist and, heaven forbid, a grudge against any company in the aviation industry,a misplaced comment about said company suggesting they might be in trouble would more than likely sink them.
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# 193
There is no collective responsibility obligation on the MPC. They are appointed to be independent. If you think about it for a second, this is obvious. MPC minutes are published 2 weeks after every meeting, including the voting, which is rarely unanimous. The contributions of each member are attributed to them. It's about as far away from secretive Cabinet government as you can get.
Another MPC member, whose name escapes me, has been equally vociferous as Blanchflower, except he kept urging, and voting in MPC meetings for, rate rises. I assume you don't want him to resign on the basis you agree with him.
Sorry, but you should maybe take some time out to understand the way the MPC functions.
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I am somewhat surprised at the reaction to GB's gaffe today in the Commons as though it is a revelation. Did no one listen to his comment about the Mumbai atrocity - " I think I speak on behalf of the world "etc etc. We face an uncertain future governed (?) by a party and leader with only one objective - to do anything which can lead to their election. Nothing really new in that desire from politicians except we have an economic disaster on our hands. The market reaction to the German Finance Minister's demolition of Calamity Brown's plans will be more than interesting.
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199 m1cheal
The key issue is that nobody will voluntarily enter the property market whilst there is the risk of prices falling, they cannot afford the risk and nor should anybody expect it. It does not matter a jot what is done to interest rates or vat or stamp duty, it is price stability that dictates entry. The situation got way out ofhand when first time buyers got priced out and the bubblebankers developed the buy to let market to replace them. That was a big warning bell. As the market will overshoot there is then likely to be a scrumdown. It will be damped down by traditional ratios rather than bubble ratios. As soon as the market moves the current 25% deposit preference will disappear because that is only there due to the fear of a further price drop eroding equity. It is unlikely to come before the GE. Several years looks likely but who knows. There will be considerable pent up demand by then with people who want to move, and people who want to enter the market. Survival till then is the issue for some.
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# 196
German interest rates are set by the ECB as part of the Eurozone. They've been below BoE rates for years, until this month, when BoE dropped rates by 100bp and ECB by 75bp. There's a whole 25bp in it: BoE at 2%, ECB at 2.25%. Both will be at 1% by end-Q1:09.
Not sure what point you're trying to make on currency speculation. Basically, if you simply sell GBP and buy EUR, then you risk any extra interest income being lost on currency movement, though you can also gain as is the case now, with EUR balances worth more in GBP terms. However, if you're so risk averse as to be investing solely in cash, then it makes no sense to take the much bigger currency risk, as I think you highlighted.
Alternatively, you can hedge the FX movement by selling EUR forward, eg deposit cash in EUR for 3 months and take out a 90 day forward FX to sell EUR buy GBP. However, forward FX rates are priced to allow for differences in relative interest rates, so all you do with this strategy is give up your extra interest income.
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196 John from Hendon
Your rationale would point to GBs position unravelling fairly soon - in the first quarter of 2009 would seem likely. The honeymoon of being saviour is due to be over and unless progress is forthcoming the public mood is likely to swing. The crisis support given to the incumbent by the public cannot be sustained. What banking problems and corporate problems are due to birth in the spring, there still has to be stuff in the pipeline.
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Today is the first time I get the impression the German government has woken up and realises what is really going on. The UK has lived out of other peoples pockets and is now unwilling to pay back. Germans are generally largely unaware of the fact that Britain has lived excessively on debt over the last decade. I remember people telling me that they believed the UK was an economic role model because of the apparent growth of its economy. When I arrived in this country I immediately realised something wasn't right. Everyone spent, spent, spent and borrowed like crazy and thought it was great. Now all this comes back to bite and people and government try to escape the inevitable punishment.
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Dear Robert,
It's no great surprise that the German astronomers have confirmed by analysis that there is a black hole at the centre of our galaxy. This has been posited for many years, as for all other galaxies of which ours is quite minor. At least they confirm the good news that such singularities agglomerate universal matter into the state that can allow and support life. Let's hope that human life is not the highest form that the Universe and its black holes have produced or, indeed, will.
It's also no great surprise that there is a black hole in the financial heartland of our economy, largely overseen by G. B. as Chancellor and fed by the Banking Leaders.
We citizens will be inexorably sucked into this just as matterr and energy are to the universal ones, never to re-emerge.
Professor Stephen Hawking has an idea that small black holes can 'evaporate'. I hope he's right. Our galaxy's b'h is apparently 4m x the mass of our Sun. I don't suppose it will 'evaporate' in any hurry.
It would be nice to think that the financial black hole [or in a worldwide context perhaps I shold say, "holes"] will 'evaporate' too. Are they small or has the last eleven years allowed too much 'mass' to accumulate?
Thank you Mr. Premier, I applaud your desire to dissipate this problem. It looks a lot harder than doing so to the Taliban and Al Qaeda and a lot more expensive. Can we start a count of the lives lost in this campaign from now?
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# 205
Interesting article on Bloomberg about Merkel. It paints a very different picture to the one you suggest. Bloomberg suggests Merkel has been frozen out by Sarkozy, who preferred to meet with Brown prior to the EU summit. Merkel is portrayed as the odd-one-out in terms of resisting fiscal stimulus when everyone else is going for it.
I couldn't care less about who snubbed whom. The real concern should be that a lot of politicians (the article is full of quotes) are clearly more bothered with point scoring than actually getting on with the job of managing their way out of the mess.
The link to Bloomberg is here:
http://www.bloomberg.com/news/regions/europe.html
Story is entitled: "Sarkozy Winds Up EU Term as He Started, in Rift With Germany"
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MartyB1976 wrote:
Maybe the Queen should be forced to sell off her GBP 20 Billion art collection. Her face is on our notes. She should take some responsability?
The national art collection is the property of the UK, not the Queen.
And selling it at auction won't work in the current climate as auction houses aren't meeting the reserve prices.
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@152
Sorry there is no easy way out of this mess, but house prices have to fall, and the faster the better. GB is now going to keep as many people as he can in there homes, which may seem to some a good thing, and with interest rateseing so low, theres a good chance it will work for awhile for many. But that will also mean house prices will fall at a much slower rate. leading to a much deeper depression.
Interest rates should of gone up, especially when the banks where not going to lend at nowhere near the 2007 rate. that way house reposesions would have happened much quicker, leading to a faster fall in hosue prices to there natural level. this is so important that this happens so we can start the buying of homes again at afordable prices leading to jobs once again been created. everything snowballs from there, i know it may seem bad but its the best of 2 evils. GB and AD way is the way to lead us into a much deeper mess than what should of been. there putting there political future in front of the nations. Russian roulette springs to mind.
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@ #197 glanafon wrote:
"192 papanca
I cannot disagree with your comments about inequailty in the world. If you have connections there you have my sympathy. Realistically the only thing an individual can do in the west is set personal standards on imported goods and the ethics of a corporation that they deal with. And long term try to influence government policy. There are a large number of people who do that and the figures are gradually growing. The internet is the most powerful information dissemination tool available and is having an impact with the western consumer. Efforts are in place in devloping countries by individuals eg microbanking, activists, attempts at introducing democracy, attempts to reduce exploitation. Until a realistic alternative to capitalism is found there is no other solution to economic activity. If capitalism is therefore the only mechanism then management is critical. What are you suggesting replaces capitalism - if you have an functional answer many would be interested. "
Thanks for your concern and suggestions. I agree with you that no system governing the lives of millions of people can go unregulated and unmanaged. Even a "system" governing the lives of two or three people requires maintenance! I understand too the arguement what is wrong with capitalism is that people in power mismanage or abuse it. I understand, but am not convinced.
The question for me is whether there are problems with our financial/economic/political system that are not simply the result of how it is managed, but are inherent in its presuppositions and its structure. If its supposition is that greed is inherent in human nature (and I agree with you that it seems to be the driving force behind our Western commodity markets), and greed is *not* inherent in human nature, what are the consequences? If the model of capitalism and fractional reserve banking are structured around the assumption that endless exponential growth of consumption and debt (and assuming debt should actually be repaid!) what are the implications? Is the sum of human happiness to be attained by "profiting" materially in ever-increasing amounts from such a system?
I have no answer to the question of what system could replace capitalism. However, as long as I try to find an alternative with the same presuppositions and structural characteristics, I doubt I will ever succeed in designing a system consistent with what I value and what I believe is true about human nature.
I'll get back to you with my proposal (but it may take a little while)!
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Hi.... no idea how to contact Robert directly but I've just picked up on this recent story..... it is another and more worrying indication of the depth of the problem and I think this one will turn very nasty in the future.
http://tinyurl.com/5fs5su (bloomberg.com)
(the net of the story is that 800 of the top businesses in the US are lobbying Congress very hard to be allowed not to top up pension funds at the moment, as a 2006 law dictates, but to be given a suspension for a few years)
I can understand and agree with suspending company pension fund contribution, in fact I can forgive them for being too bullish and putting more risk in stocks,but my fear is that they will get their suspension and renegue on the deal by never really topping up in the future when times are good.
At a minimum the employees retiring during the suspension should not see a difference, they should be protected.
Take a read and tell me what you think.
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If you want to see the true figures of our national debt growth in an easy bar chart plus an informative article see:
http://www.marketoracle.co.uk/Article7526.html
Gordon Brown has certainly bankrupted the country with his public spending, and no wonder the £ is crashing.
Your comments on it are welcome!
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evening all! This is one of your late night posters calling!
A few things to ponder....
I don't think the Euro is strong as much as Sterling being weak-investment is leaving Britain at an alarming exponential rate. Raising interest rates last month perhaps would have stemmed the tide, but it's doubtful now-too much confidence has been lost.
House prices are plunging at such a fast rate, I doubt if interest rate rises would make matters any worse-house prices need to come down still further until salary multiples regain realistic levels, and sensible lending can resume.
The LIBOR rate is now a phantom in the mist-banks aren't lending to each other, so how can there be an inter bank lending rate?!
Food shortages have already begun-check out the availability and price of fresh produce in your local supermarket. Then think about where it comes from!
Open your eyes and look around you. What, precisely has improved in the last 6 weeks? Apart from fatuous comments from deluded leaders thinking they are the new World saviours?
Politics is not going to put food on our tables, nor save this country. GB and AD are so misguided that in trying to curry world renown as brilliant fiscal managers they have destroyed the country they are supposed to be saving!
Yes, we need Dunkirk spirit, but at this rate, it will be the Germans and French flotillas on UK beaches rescuing the UK population from its government!
We are in a depression, not a recession.
There is civil unrest-look around you.
Her Maj must be in a terrible state!
Rebuild Britain 2010 is there for THE PEOPLE
Contributors and supporters are NOT looking for political renown-more one united voice singing in the darkness.
It is a proactive group aiming to spank the banks, pummel the politicians and make them all realise UK voters are not going to let them get away with it! Balanced with a cohesive set of proposals.
United we stand, divided we will fall.
Our children already have a massive struggle ahead of them environmentally-I for one cannot stand by and add economic fallout to their burden.
Time to act and take responsibility for yourself, for the sake of your children and your grandchildren. Don't fall foul of the 'someone else will do it' apathetic approach.
Better to try and fail, than never try at all.
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When one looks at where the problems sit it is firmly with the largest companies be they banks, retailers, or whatever. This is a great opportunity for funds to buy and fragment. It would be facilitated by a change in bankruptcy laws to allow a company to continue in business while bits are hacked off and sold leaving a useless remainder to be put out of it's misery. It would save more jobs and help with tax.
This recession is going to be very much tougher than we think now. We need to climb out of the box and quickly.
Do the fibre optics to every home.
Turn it around, the people who need shared ownership schemes are the existing homeowners.
Lower the building density to create big gardens for new houses.
Build cycle lanes under a scheme to enable every 11 year old child to cycle safely to school.
Come on. Construction is dirt cheap. Borrow the money for things physicsal that benefit us all.
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Now that the bonfire of the vanities is in full flame and the the city AAA's hole in colonoosion with its pollytitian friends in haye palaces is, no more than a monumental hoax and vacuaaas Ghecko chamber used to justify bonusses for consuming seed capital ,we shall have to follow Mugabenomics to be saved .
I knew that once Gordon Brown realised that ,he, single handedly had persuaded the bankers to turn over their own tables ,it would not be long before it dawned on him that he was the saaaviour of the world coming in glory to separate the wooly from the wolvies
How could he have been so blind uptil now!
I shall be sending Great Gordon 5 fishes and two loaves top help with his fiscal stimulus
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Sad really that so many people still have their collective heads in the sand. The sooner we face facts and accept that the World we have known since WWII has gone, and isn't coming back, the sooner we can build a future. I very much doubt we in the West will ever get back to the standard of living we have enjoyed for the last 40 years.
This recession / depression, call it what you will, was always going to happen and it was just waiting for the catalyst, in this case the sub prime disaster. Post War World growth has been predicated on cheap energy. We have built our economic castle on the sands of Arabia and now the foundations are beginning to look decidedly shaky.
Simply put, however long this recession lasts, as soon as growth begins again demand for oil grows and the price will rocket and that is without any possible geologically imposed restrictions on output. The price goes up, we go back into recession, and this cyclical bouncing along the bottom is set to continue until we can free ourselves of the dependence on oil.
Spending billions on anything other than severing the link between growth and oil dependency is simply a waste of taxpayers money.
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Five Fish Two Loaves?? post219
Brown should be BROWN BREAD.
WHEN WILL THIS MAN LEAVE OFFICE??
Once again PMQs was like seeing a semi
articulate thug trying HARD to be clever.
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#1, that's some conspiracy theory. The volumes seems a bit low:
Here is the volume for YESTERDAY,
http://www.nymex.com/lsco_fut_psf.aspx?product=CL
note Jan 2009 and Feb 2009 together is over what you claimed was the volume for this half of the year.
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A few questions:
1. What's happenning to our (im)migrant workforce now that the building trade has died? Are they still living in Britain? What's the effect on the rented housing sector? Until recently demand was growing pushing prices up and so propping up the house purchase market. If the migrants are leaving will that speed the lowering of house prices? In times of depression we fall back on basics - food, shelter and fuel. With 2 of these imported and the pound through the floor, inflation will be uncontrollable. Is there any hope of cheaper shelter in the longer term?
Will measures of inlfation bring back housing costs?
2. Can someone help alexandercurzon? 3 or 4 weeks ago s/he was one of the best commentators on this blog. S/he now seems to be growing a beard, hearding animals into the Ark, fortelling the end of the world and telling us to cast out the devil (GB). AND SHOUTING ALL THE TIME.
3. In recent blogs people have been talking about leaving the country. Where's the safe haven? Or where's the least threatened haven?
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ArmchairNo10 ( #223) Alexander is the male form of the name. Alexandra is the female. That aside, perhaps he shouts because no one is listening to him. It is a habit the English have when they are not understood.
By he way #30 somali_pirate_SP500 , your conclusions are probably right. The old times are over. #3 applepeach1's prediction could be preceptive.
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# 204
Minutes seldom show the whole story but my point regarding collective responsibility is that if you wish to speak publicly and strongly against the decisions of the group outside the committee, as Blanchflower has done, you should resign. His comments carried disproportionate weight because of his position on the MPC and that is why they received so much media coverage. The point of the vote is that it gives the collective decision, whether or not your views are the same.
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The German Finance Minister has blown the lid off Boastful Brown's claims to be leading the world out of recession. His comments here are spot on:
http://newsvote.bbc.co.uk/1/hi/business/7776718.stm
"He questioned the effectiveness of the decision to cut VAT from 17.5% to 15%.
"Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?" he said.
"All this will do is raise Britain's debt to a level that will take a whole generation to work off." "
Absolutely right! And the Treasury response: "A Treasury spokesman said: "There is a broad international consensus that a fiscal stimulus is the right thing for economies now." "
- but only if a country can afford it is the point. Brown squandered all our wealth during the boom years and our public finances are in a terrible state as a result. The UK Government now has a worse credit rating than McDonalds!
Brown is ghastly, awful and he has wrecked this country - he should go down as the worse Chancellor we ever had (apart from Barber of course).
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The Exit
There has been quite enough written about why we are in the mess that we find ourselves and, apart from learning how not to go there again, it is behind us.
It seems to me that if we are going to listen to the counsel of the "experts" who got us here in the first place we should do so with caution.
I believe that the way out of the current economic crisis situation requires some good common sense.
The Government and maybe the opposition are just electioneering.
Clearly if you overspend for years you acquire a debt that will have to be repaid or you must go bankrupt. That applies to a country as well as people. With a country bankruptcy comes with a price. Afterwards you will always have to pay more for any money you borrow; so it is probably not a sound long term option.
This means that we will have to repay our debts and to do so we shall either have to increase production or reduce consumption. Given that our biggest export, the City, is not going to do very well in the next few years, the reduction of consumption seems like the only option.
Therefor to pour money into the economy arbitrarily seems ridiculous.
Targeted spending to encourage those parts of the economy that have the ability either to sell their products abroad or to replace things that we import, seems like a sensible move.
It seems to me that government money should be directed at these two targets.
We need to supply this money in the simplest way possible, if we try to set up quangos to manage it it will never happen and it will also cost a fortune.
If my memory serves me right we have in the past given exporters favourable tax treatment and something along those lines would be a good start. The penalties for fraud could be draconian. We should have to accept that some people will get away with mal practice but we must accept this as speed is essential.
Import replacement is probably easier.
There are two main essential items that fit the bill. Energy and Food
The government can encourage the replacement of imported energy by immediately implementing feed in tariffs for renewables, both heat and power. At present the heat element will not come on stream until 2011. This is an example of government urgency!These tariffs should be available to all producers not just the big boys.It will have the added advantage of being green.
This action will spawn new industries to supply the hardware most of which comes from Europe at the moment.
Food is more difficult. Perhaps as a starter we could unravel the red tape that surrounds agriculture and direct the Single Farm Payments away from park keeping and towards food production.It is difficult to encourage farming with tax incentives as the marginal land which we need to bring into production is not profitable at present prices.
We need a way to increase prices without falling foul of EU regulations. The current devaluation of Stirling may achieve that on its own.If not we must ignore the EU.
How to pay for all this largess
First off let us dismantle part of the huge government machine that costs us so much and achieves so little except give ministers pet projects to play with.
Secondly let us push those hiding unjustifiably behind the benefit system back to work much harder than we are at present. The government's newly announced measures are not enough and again, do not come into force till 2011.That alone will replace the cost of non UK labour which is already going home because of our rotten exchange rate.
Thirdly we have to do something about the disparity between private and public pensions. We cannot afford a society where one section benefits from significantly better pension that the rest. Particularly when it is the rest that will have to pay for it.
Altogether this seems like a plan.
Brown must stop electioneering.
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Listen to Angela Merkel, not Gordon Brown. More water does not help a drowning man. Clear the (inevitable) damage of our 10-year borrowing binge out of the way as quickly as possible, and then try to start again - this time without being seduced by politicians who think they have invented the perpetual motion machine!
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Robert
Firstly, I would like to complain about the way the article on German comments about the UK is written.
It is seriously misleading.
Why? The article confuses, wrongly, the difference between what governments are borrowing to spend on the fiscal stimulus versus what they have done to support their financial systems.
Yes, the German government has provided £370 bn in support to its banks through various means (direct capital, guarantees, etc.) in the same way that the UK has. (Except, we've had to do even more here: £600+ bn if I recall correctly.)
But the Germans have not borrowed money to provide a fiscal stimulus to the tune of £20++ billion. Neither is their national debt going to approach any where near UK levels of over £1+ trillion.
To try to equate as this report implicitly and unsubtly does government support for the banks with direct borrowing for spending is totally wrong. Certainly not the standard of reporting we should be able to expect from the BBC.
Also, the headline that 'Germany is out of step' comes straight from the Labour government: that they have been forced to say this speaks volumes. It also hides the very real nature of the German critique.
All in all, a bit of a whitewash on this extraordinary story in support of the UK Labour government from the BBC here. Not good.
Secondly, the decline of sterling really is becoming a crisis:
Investors are dumping the pound as quickly as they can run for the hills. Why? Because our recession is going to be worse than virtually any other major economy's and the government's record borrowing is both raising questions about our ability to repay and reducing our long term outlook for growth.
Worse: far from the deflation red herring, sterling's decline will be highly inflationary and may force the BoE to raise rates earlier than it would wish to bring inflation back under control. Basically, because of our dire financial situation, the international markets have the power to and are calling the real shots. It goes without saying that if the BoE is forced to raise rates, we face stagflation or worse. The utlimate economic nightmare.
Yet, after 10 years of the greatest boom in history, we should be better placed than many, not worse. The government have a lot to answer for.
Would be interested in your views on sterling. Looks like Osborne was right to warn: it's come true.
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Who to blame? Well normally blaming is not a productive activity but in this case I think history will be having a good look at the story and let’s leave it to history to apportion blame.
I don’t blame the poor people who were conned into debt to buy the tat and bling required for modern life, we are only human, we all knew deep in our hearts it could not last but carried on regardless.
I don’t blame the city chaps who made huge money on the backs of dodgy deals, including that nice young man from Nat West who advised me to put my only 12 grand in the world into a ISA which lost 2 grand in less than a year, they were only doing their jobs, and in the circumstances they were doing a good job.
I don’t blame the politicians who should have regulated the system, they aren’t turkeys, why should they vote for Christmas, who was going to vote for doom and belt tightening, but my golly I’m disappointed in them, and in all their self righteous pontificating.
I blame the system, and I will only be convinced we are not all doomed and going to hell in a handcart when one of you very intelligent bloggers (by the way who has time to read the 400 or so blogs which appear every day?) comes up with a new system.
A system which is independent of politics, above election calculations. Why is the bank of England apparently so useless. Where are the IMF in all this? Perhaps I should read their websites and find out but I haven’t time – got to go and chip the ice off the hen’s water.
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# 215
You're right to be concerned about this. There is a similar problem in the UK, where the FT reported that British company pension schemes are thought to be GBP 155 billion in deficit, ie their future pension liabilities are that much more than their assets.
A typical UK scheme will be 40-60% invested in equities. Let's split the difference and use 50% for this example. With equity markets having fallen 40%, then the typical scheme will have lost 20% of its value this year.
Does that matter? There are two ways of looking at this. The optimist would say that schemes set strategic asset allocation targets that allow for the vagaries of markets and all will be well long term. Remember most of these schemes are still in accumulation mode (ie contributions exceed pension payments). They won't be net payers of pensions for many years yet. Therefore a deficit now is not alarming. The pessimist would say that the strategic asset allocation decisions did not envisage the financial turmoil we've seen and hence cannot be relied upon to get the scheme back into balance longer term.
My view is that there is no way firms are going to eliminate these pension deficits short term. In fact, I suspect the bulk will, as you imply, look to further limit entitlements longer term, in order to reduce their liabilities. Some may up their "risk budget", short term at least, and try and find extra returns in order to reduce the deficits: basically allocate more to equities short term in the expectatuion of higher returns as we come out of a bear market. History would be on their side on this one, but there is also some risk of actually makign the problem worse if equity returns remain depressed (even worse if negative!). The problem will also further encourage governments to inflate their way out of the debt problem, as inflation actually reduces the present value of future pension liabilities (and so reduces the current scheme deficits).
The issue also highlights the growing discrepancy between private and public sector pension provision. Whilst private sector pensions have been badly affected by the current crisis, public sector pensions continue to be final salary based, index linked, payable at 60 etc, and essentially paid for out of the tax payments of current private sector workers. That is unsustainable.
I doubt RP will blog on it. Highlighting this issue is much too politically risky for his friends in government. However, it will have to be tackled sooner rather than later. "Dave" ought to be looking at it.
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# 225
And like I said, others have spoken just as much as Blanchflower about reasons to increase rates. Both have fulfilled their remit. They have both done what they have been asked to do, part of which is explaining, to as wide an audience as possible, what they think the MPC should be doing, risks to the UK economy etc.
Sorry, but you either don't understand the remit of MPC, or don't agree with it. If the latter, your criticism ought to be of the designers (GB/Ally D), not the people who operate it.
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I see the BBC have decided my former username "uttercantfromGB" broke the house rules.
Let no one say the BBC is not a dictatorship mouthpiece.
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# 226
For an alternative view, ie Germany as "odd one out", check out Bloomberg
http://www.bloomberg.com/news/regions/europe.html
Check the story entitled: "Sarkozy Riles Merkel Anew With Call for More Stimulus as His EU Term Ends"
The slant Bloomberg has is that Sarkozy has snubbed Merkel by meeting with GB prior to the EU summit, whereas the "tradition" is for France and Germany to meet to agree common positions before these things.
The implication is that there is more to this than just differing views on fiscal stimulii. Sarkozy is developing "form" on snubbing Germany. Is he trying to shift European alliances, and this is just one example?
See my next post too, for link to an interesting interview in Newsweek with Germany's Finance Minister.
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#229 "Targeted spending to encourage those parts of the economy that have the ability either to sell their products abroad or to replace things that we import, seems like a sensible move.
It seems to me that government money should be directed at these two targets."
Spot on.
Also, by bailing out the banks, GB converted private debt into more public debt. So now we are at risk of sovereign default, instead of the banks just going under. I am coming round to the view that propping up RBS and HBOS in particular was a big mistake. Deposits should have been guaranteed, but administrators sent in. The UK as a whole is paying a very high price for the Glenrothes by-election.
As for Osbo and the value of the pound, I think he was just being opportunistic. The big falls had already happened when he gave his warning.* The problems with the pound are (1) that it was overvalued before because of our asset price bubble. (2) the old fashioned balance of payments deficit. Neither of these problems has been addressed by either main party front bench. They still want to recreate the financial services "industry" which got us into this mess. At least Vince Cable for the Lib-Dems did see it coming, but, on their website, his party's economic proposals avoid the main issues too. They seem to be all about distributing wealth rather than generating it in the first place.
*One has to ask, were the hedge funds who pay for Osbo's office long or short on sterling?
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#231
"The issue also highlights the growing discrepancy between private and public sector pension provision. Whilst private sector pensions have been badly affected by the current crisis, public sector pensions continue to be final salary based, index linked, payable at 60 etc, and essentially paid for out of the tax payments of current private sector workers. That is unsustainable."
Yes public sector pensions are still final salary linked but many are run as funds with the employee making a (recently increased) contribution as does the employer. There shouldn't be large unfunded liabilities - it's the State pension that's the problem on that front. Most of us will be paid (a recently reduced) payout when we're 65 as many of the terms were changed only this year.
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Brown v Merkel appears a popular bout on here today, so check this interview in Newsweek with Germany's Finance Minister. It's worth noting that he's a member of the Social Democrats, ie ought to be closer to Brown/Darling than Merkel is.
This is the what politicians generally should be doing/saying. I wish this guy had more influence across Europe generally. He's just so much more honest about the limit of governments' ability to influence events than GB/Ally D.
http://www.newsweek.com/id/172613
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# 236
Most public sector schemes are unfunded. I don't think there's actually a segregated pension fund for the NHS, for instance.
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Interesting article I am surprised BBC and robert have not picked up on.
bloomberg article By Caroline Binham
U.K. Financial Firms Have Lost Confidence in Market Regulator.
(regions - u.k. & Ireland)
Sorry could not post the direct link - it was being rejected as mistyped
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armchairNO10
Alexander Curzon is i guy,well i was last
time i looked.
Noahs Ark?? Not such a bad idea.
I started using caps mainly to mimic pestos
emphasis on words and also i find
them easy to read on screen.
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# 239
Thanks for the link.
My question (and keep in mind I've worked in financial services all my career), is whether we should care what regulated firms think of FSA. Surely FSA's job is (or should be anyway) to protect the conumers of financial services, as opposed to get rave reviews from the supervised. As consumer protectors, FSA's (and its predecessors') performance has been lamentable. We've had systematic failure after systematic failure over the last 20 years. Think pensions mis-selling, think mortgage endowment policy mis-selling. In the current crisis we've had FSA telling us Northern Rock was fundametally sound, even as they knew wholesale funding lines to it were being slashed leaving it insolvent. We had the same with HBOS. Consumers, rightly, have no faith in it. FSA has simply sought to "stay on message" recently and, as a result, has simply deceived the people it was established to protect.
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I particularly enjoyed RPs 'analysis' on BBC News last night of Steinbruck's comments - lots of flabber being ghasted that Steinbruck could have flouted diplomatic conventions but nothing on the truth or otherwise of what he said.
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I can see nothing wrong in the German Finance Minister critiscising the policies of the Labour Government. The 2.5% cut in VAT announced in the pre budget report is most unlikely to revive the economy as predicted. It is simply adding yet further debt which future generations will have to pay back by way of higher taxes. When the Government's policies fail, as they are bound to, we will be forced to go cap in hand to the IMF to be bailed out. Who are the largest net contributor to the IMF in Europe - Germany. In other words they will be picking up the pieces for Darling's failed policies. The sensible way to unlocking the current logjam in bank lending is to go down the route proposed by George Osborne - i.e state guarantees. I see in the FT this morning Darling would appear to be coming round to that way of thinking.
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We should listen to the wise words of David Cameron, after there is the man with experience. He stood shoulder to shoulder with Norman Lamont at the Tory's hour of triumph on black Wednesday when the financial policies of his goverment were exposed.
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