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A QE surprise

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Stephanie Flanders | 14:11 UK time, Thursday, 7 May 2009

If you know you're going to do something soon, you might as well go ahead and do it. I suspect that's the reason the Bank of England's Monetary Policy Committee chose to extend its quantitative easing (QE) programme today, even though they didn't strictly need to make a decision until next month.

Today's move also maximises continuity. The market has been told that the programme will continue, before it had started asking itself whether it would.

As of this morning, the Bank was around £52bn of the way through the initial £75bn it set out to spend in March, so it has been spending at a steady rate of roughly £25bn a month. Under the original terms laid out by the chancellor, the MPC has another £75bn available to spend. But given the timing, if it had announced it was going to spend the full amount over the next three months, that would have been considered an acceleration. So the £50bn decision (over three months) enhances continuity in that sense as well.

The evidence on QE to date has been mixed. We won't get a clear steer on how the Bank itself thinks things are going until next week's Inflation Report. But the message of today's decision is that the MPC thinks there's more to do.

Though they fell sharply when the QE programme was first announced, and they have fallen again today, yields on government bonds are now around a tenth of a percentage point above where they were when QE started.

bank of england

You can read the data a number of ways. Bank officials will no doubt point to signs of increased liquidity in key markets for corporate debt. And, as I've discussed before, UK bond yields are determined by a lot more than QE.

I may have more on that later on. But whatever the reason, it's fair to say that QE's impact on long-term borrowing rates to date has been less than many of its proponents had hoped.

That suggests the programme has a while to run. Of course, the MPC can stop the programme any time, but it would take some pretty exceptional data for them to risk unsettling the markets. As of today, it's a safe bet that QE will be operating for at least another three months, probably longer.

There is nothing especially surprising in the statement itself, though note that the MPC has now joined those who see "promising signs that the pace of decline [in the UK] has begun to moderate". That said, "the timing and strength [of] recovery is highly uncertain". No news there.


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  • Comment number 1.

    .....and the pound went down.

    Which is not good news for consumer price inflation.

    Of course, we are hoping QE will lead to increased lending and increased exports, but we've had that discussion a few times already.....

  • Comment number 2.

    The QE story is not the story it is the continued daft decision NOT to raise interest rates. As long as the BoE keeps rates at zero there cannot be a recovery as they are progressively destroying money and that destroys all commercial decision making - we must have higher rates to be able to resume any rational commercial decision making.

    They missed an opportunity to raise rates for another month. They must raise rates soon, or by not doing so they are admitting that there will be no recovery in the next few years. (As it takes a couple of years for rate changes to work through to activity - so they say. And if this is wrong then their whole strategy is not at all well founded.)

  • Comment number 3.

    "promising signs that the pace of decline [in the UK] has begun to moderate".
    This is what passes for good news after billions have been allocated. Not all of the probelms were caused by greed, a good portion was caused by stupidity. They are still running the show.

  • Comment number 4.

    #1 Mr Tweedy ".....and the pound went down."

    ? Against the $ the £ has been rising and is still above $1.50 Whilst still at a low level, it has risen against the Euro to 1.13

  • Comment number 5.

    Maybe right, maybe not but, the impact on sterling will help keep inflation up and the longer term it will have a big impact pushing interest rates up. As with the gov. borrowing, we will be paying for it in the longer term. and how will everybody with mortgages feel when interest rates start to go up (even though they are all but zero now). I can hear all the complaining alredy.

  • Comment number 6.

    How does it go only governments can make paper worthless just by putting ink on it!!

  • Comment number 7.

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

  • Comment number 8.

    Seems any news from BOE drives the £ down again - When do we see the trough in this ?

  • Comment number 9.

    Once the QE "pound pump" is switched off, then, and only then will we revert to realistic economic conditions.

    P.S. #7 IR35_SURVIVOR
    Are you looking for a business partner ?

  • Comment number 10.

    @foredeckdave makes the point clearly... the pound is now rising. We needn't throw our hats in the air, but the worst is probably over. A collective sigh of relief might be more in order.

  • Comment number 11.

    Now here is a novel approach from across the waters.
    I wonder why nobody thought of it before now.

    'Obama vows to cut 'stunning' government waste

    WASHINGTON (AFP) - President Barack Obama on Thursday vowed to cut "stunning" waste in the US government budget, as he laid out details of his sweeping budget for the fiscal year 2010.

    "There is a lot of money being spent inefficiently, ineffectively, and -- in some cases -- in ways that are actually pretty stunning," Obama said, outlining details of his 3.4 trillion dollar spending plan at the White House.'

    Meanwhile Brown decides to respond by either

    a) continuing to put off doing anything - yet again
    b) announces a new quango to look into cutting waste and appoints a NewLab donor as Quango Chairman on 250k per year plus expenses, plus pension, plus car and second home, plus free rides in Miliband's Jet and with instructions to 'take your time and report back when I have gone'
    c) announces that he thought creating waste was mandatory for NewLab PM's and NewLab Think Tonkers (sic)
    d) throws mobile at TV as he realises that he has been outflanked and outsmarted twice this week.
    Once by Obama his hero - so he feels jilted and betrayed as Brown thought that cutting waste was not on anyone's agenda; and once by Joanne Lumley as he realises Joanne has set the clock ticking on his delay bluffery for all the world to see.

    'We will do whatever it takes as long as the Government doesn't have to do anything like cutting waste'

  • Comment number 12.

    No.4. foredeckdave

    The pound was approaching 1.14 against the euro but has fallen back to 1.12 today. I was about to start selling GBP to buy EUR but I was caught out by the quick reversal in the rate today.

    The pound is not much changed against the dollar, because the USA is engaging in its own QE. I find speculating GBP against the USD harder because of this.

  • Comment number 13.

    If the answer to all our problems is to print money then why is that not the default way of getting the economy out of any mess at any time? There must be some kind of potential downside to it, otherwise with Britains record of boom and bust over the years you'd think it would be commonplace.
    If there is a downside then how can we trust that the Bank of England's Monetary Policy Committee who did not see the problems that we are in now building up in the years up to 2007, understand the full risks of what might happen as a result of printing 125 billion in the years to come?

  • Comment number 14.

    In our business the first three months of this year were relatively weak in demand then towards the end of March we found demand beginning to pick up. Seasonal, we thought; but it has now surpassed last year and is growing across the board.

    Do I know why? No: and it bothers me as I like to feel we know what is happening.

    Why is demand rocketing whilst other people are being put out of work? It does not make sense. Sure, we have increased our imports to meet demand but that in no way suggests that the country has a sensible economic policy.

    Is this QE going to mean that the UK carries on spending and borrowing so that we can ensure that all those factories in the Far East and eleswhere get sufficient employment and profits to keep them happy? Can someone tell me the logic in that?

    We live in strange times and the situation is getting stranger. You know what it reminds me of; the Barber boom when the lunatic Heath let spending rip and we ended up with a ten year headache and it wasn't from him playing his piano.

    I suppose when the Far East can no longer meet our insatiable demand prices will begin to go up, and up and up as money chases goods. Inflation, here we come.

  • Comment number 15.

    I am disappointed to see that we are printing money again. The pound is always getting hit (just when it''s getting off it's knees) against the Euro. Every time it begins to climb to a decent exchange rate the BOE always to do something to send it tumbling again.

    This government will do nothing to help expats, we are the forgotten people.

  • Comment number 16.

    I think HMG is only interested in managing the enormous mountain of debt that will be issued over the next 3 or 4 years (possibly more). If market liquidity was the priority of the BoE, then Corporate Bonds would have been purchase at a rate similar to the rate of purchase of gilts.

    Effectively the BoE has lost its independence through the effects of the credit crunch. It will take the BoE several months to be allowed to increase the Base Rate, possibly not until after the election in May/June next year.

  • Comment number 17.

    10. At 4:53pm on 07 May 2009, moneymouth77 wrote:
    @foredeckdave makes the point clearly... the pound is now rising. We needn't throw our hats in the air, but the worst is probably over. A collective sigh of relief might be more in order
    No, don't throw your hat in the air, it will get caught up on all those green shoots heading up into the clouds that are everywhere you look. All we need now is for the Jolly Brown Giant to clamber down and save the world...

  • Comment number 18.

    #9 Merv has offered £1,000,000 for a 10% stake and 2 gressers just called Gordon and Alistar and
    Said that they would take only 5% for a £20,000,000 as long as I went a brought 20,000 land Rover D3's 500 RR's and 15,000 LDV vans for a start.

    and some bank shared to make it look like there was a recovery going on

    Apparrently they would pay me next year as there current presses are at full stretch, also they would have a word with Ms Smith and the plob would not be making me a visit.

    whats the offer for 1% then ?

  • Comment number 19.

    #11 The do nothing party on waste, ur NewLabour

    hum its better to do something rather do nothing at PMQ's soon

  • Comment number 20.

    13 mugwhump

    The consequence will be run away inflation and the effective erosion of the savings of those reliant upon them to live.
    Be afraid, very afraid!

  • Comment number 21.

    Surely the governor of the BOE isn't making these strange decisions off his own bat. He couldn't be so incompetent, is the heavy hand of Brown resting gently on the back of his neck and interfering with his thought processes? It seems that he and Brown are determined to hold the value of the pound at near parity with the Euro whatever the cost to the country, if it helped exports it might be permissable, but who is actually exporting at the moment? There may be some twisted logic in Brown's dark little mind that compels him to push Britain ever closer to banktrupcy, perhaps the same force that drove Napolean and others like him to destruction , it's just a pity we are getting dragged along with him.

  • Comment number 22.

    #14 stanilic,

    It's not just your firm tht are experiencing either the same problems or decreases in sales and not understanding the reasons. That is not a fault of your management information systems, it is a consequence of a worlwide depression. A depression is far more than just a prolonged turndown in trade. All of the assumptions that have under-pinned the economic system are now open for review and are being stressed to breakingpoint.

    The politicians and economists keep talking about the problems as being systemic. However, there has been no real move to revise the system. All of the worldwide actions to date have been designed to prop-up rather than update the system. Therefore those of us in the real world are left to flounder about within the grip (tyranny if you like) of the 'old' failed system. Therefore we are left with fewer and fewer sureities. in reality your guess is as good as mine or any so called expert as to what will happen tomorrow or the day after. However, life, inclding businesss life has to go on.

    Therefore, some firms will do remarkably well without knowing exactly why whilst others will do everything 'properly' and fail. Are your sales increases a blip or will they be sustained neither you or I know. All you can do is to go with it and call the shots as you see it today. Traditionally he brewers grow fat when unemployment rises. However, in the UK as unemployment has risen, more and more pubs are closeing ( I blame te smoking ban :)).

    Stability will not return until we actively address the problems of the system itself. Concentrating upon the banks will not do this as they can only facilitate wealth and value they cannot produce it themselves.

    So my only advice is hang on and have faith in yourself. The experts no longer have th ability to advise. Unfortunately they also appear not to have the will or ability to change!

  • Comment number 23.

    all this talk about banks and finance problems worries me, cos I keep coming back to the same query.

    Last time I borrowed money from a bank, I had to pay it back, with interest. Now that as a taxpayer I have lent money to the banks, why do I have to pay for it as a taxpayer. Why on earth are they not giving it back to me with interest?

    Its the biggest heist ever

  • Comment number 24.

    "If you think you are going to do something in the near future, might as well go ahead and do it now". What kind of rational is that for trying to get the economy back on its feet, it this sort of feverish Government (Gordon Brown)inspired, we must be doing something, that is making the future so uncertain.
    We are commiting the same errors with Quantative Easing as were made on interest rate cuts. Interest rates were cut month on month, no pause to take a breath and check if they were working, now we have them at an historic low and can anyone hand on heart say they have made a blind bit of difference in getting the economy on the rise. Ask any of the finance experts and your answer will invariably be its too early to tell.
    Now the "panic" to do something rather then hold one's nerve is driving another £50 billion into the economy when the same experts will tell they do not yet know if the first £50 billion has done the trick.
    The Government still deludes it can turn the clock back and rekindle the fire under rising house prices, they actually believe the way out of the financial meltdown we are in is to repeat the mistakes of spend by taking on credit at Government and personal level. They want a repetition of the recklessness started in 2001 that led to the derailment of 2008.
    At times like this the "do nothing Conservatives" seem a much safer bet for this Country's future than the Corporal Jones antics of this Government.

  • Comment number 25.



  • Comment number 26.

    14 stanilic

    A minority are jobless.

    Another minority are in trouble with debt.

    A seperate minority are better off due to low interest rates.

    Big ticket sales are generally down, particularly house related, but the local big multiple marque car retail outlet says they are doing well, nothing to do with scrappage schemes.

    The majority have cut back on spending but seem to still be buying small ticket prices.

    Not a survey, just talking to people.

    Recessions take out some sectors and leave nextdoor sectors far less affected.

    Interestingly looking around some businesses that are doing okay are now investing in improving facilites.

  • Comment number 27.

    #12 MrTweedy

    It's interesting to note that the £ depreciates more quickly when the UK exchanges are open!

  • Comment number 28.

    I still find it astonishing that those in the government and the central bank (and their cheerleaders in the media) who supposedly know what they are doing believe that credit can be magically created by printing fake IOUs (i.e. paper money). This is absolute nonsense!

    What the politicians and their economic advisors have failed to grasp is that credit comes into existence through savings. The reason why the credit has gone is because the savings have gone. There is no way of getting credit flowing again without restoring the source of it, i.e. savings. And there's very little chance of that happening whilst interest rates languish at 0.5%!

    QE surprise? Yes, quite possibly - more than what people will have bargained for!

  • Comment number 29.

    I guess we'll have to change the phrase "shop 'till you drop" to "work 'till you drop"

    They always said you live to work (as opposed to you work to live) in this godforsaken country.

  • Comment number 30.

    Printing money you haven't got is forgery. The markets aren't fooled which is why the pound has dropped.

    Hitting the printing presses is a sign of desperation, usually the mark of an unelected leader who has run out of options. The Brown administration lumbers on....

  • Comment number 31.

    A couple of points
    The fundemental problem that we have today can be traced back to the US and Uk's fiscal and monetary policy response to to bursting of the Dot Com bubble in 1989- 1990. The expansion of the money supply and the easing of regulation on banks capital structures together with the lack of regulation of hedgefunds are the key factors that drove the asset price bubble.booms are caused by an expansion of money supply and hence credit - recessions are caused by contraction of the money supply.
    Whilst the BOE main target was to manage inflation through interest rate management it seemed to have overlooked that its primary objective was to maintain the value of our currency and this it clearly failed to achieve.whist I agree with the current policy of QE this policy is also clearly at odds with the BOE primary objective.
    The sub prime problem, bankers bonuses CDO's and CDS's and unsustainable property and equity price inflation are all symptoms not causes of the problem.
    QE is probaly the correct policy response as its function is to dilute the value of all pounds on deposit and in circulation. The value of asset prices measured in these diluted pounds should rise however the value of the pound relative to other currencies all things being equal should fall. The value of the pound relative to the dollar is difficult to determine but could be calculated on the basis of the relative dilution of each currency as a result of both administrations undertaking QE. The pound against the euro will fall untill concerns about the eurozone economies out weigh concerns about the Uks economy.It needs to be remembered that with QE the BOE is not printing money but diluting the value of every pound in circulation and on deposit. Any debts we have that have to be paid in pounds are as a result deminished whereas any debts we have in foreign currencies are increased. I would appreciate it if anyone on this blog that has analysed the budget in detail can explain why the budget forecasr was for 175 billion of debt yet the gilts to be issued ie the govenments cash requirement is 225 billion ie 50 billion more than the debt - the difference is greater than the previous years total debt figures

  • Comment number 32.

    Good neutral summary of the situation Stephanie - thanks. And some very revealing comments from readers. The Bank of England's policy might be counterintuitive but it is not either (1) inflationary or (2) reckless.

    Indeed the total amount of money in the economy (around £2 trillion) is only vaguely related to what the Bank of England's does. The Bank has issued about 5% of this money itself (half in cash and half in bank reserves, roughly). The rest is commercial bank IOUs circulating around. Consider your own liquid assets. How much is in physical cash and how much is in your current account at the bank? Nobody at the Bank of England issued that current account balance, it was created by your own confidence in your bank's ability to stand behind the number on that ATM screen.

    And this intervention today (like the US's equivalent policy) is just about countering part of the contraction in outstanding "bank" money. A bit more explanation here:

    Incidentally, this (as well as relative interest rates in the US and EU) explains why the pound has not been mullered (to coin a phrase) by QE. Some good comments above from foredeckdave and glanafon; LibertarianKurt, read around the definition of M4 and reserve banking a bit - savings aren't needed to enable credit, only faith in the future. Now I admit there is a question about how much faith people have in the future, but it would be a lot worse if the government stood by and did nothing...

  • Comment number 33.

    No.32. inoncom wrote:
    " would be a lot worse if the government stood by and did nothing..."

    It's ironic that we got into this mess in the first place because the government stood by and did nothing......
    The government did nothing to prevent the asset bubbles and over-indebtedness; instead it encouraged the situation, until it burst into a crisis.

    The government allowed the ship to drift onto the rocks; are we now to praise the government for lowering the lifeboats and sending out an SOS?

  • Comment number 34.

    No.15. jono0336

    For many years the GBP was worth 1.47 EUR
    Now it's worth only 1.12 EUR
    This equates to a depreciation of 31%

    In my day job I have to hedge sterling against the euro and the dollar, as I have to pay some of our suppliers in those currencies. Even a swing of half a euro cent makes a difference.

    I see you have similar concerns, as you have to convert sterling to euros.

  • Comment number 35.

    Is this 'Fun Boy Three' [GB,AD, MK] central banking?

    "It ain't what you do, it's the way that you do it, that's what gets results"

  • Comment number 36.

    No.35. tonyparksrun

    And not forgetting the hit single: "The lunatics have taken over the asylum"

  • Comment number 37.

    Message 26 glanafon
    Message 22 foredeckdave

    I accept all that you say. We are in the Department of Nobody Knows. Perhaps we should sack all the economists and employ Mystic Meg. But then the mists would never clear.

    Yet for confidence to return we need the clouds to clear. At the moment commercail planning can only be short term. This does not bode well for investment or employment: both of which the economy now needs.

    It is almost as if we have got the economy that best serves the spivs and ne'erdo-wells.

    Anyway must go now as I have some expenses to invent.

  • Comment number 38.

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

  • Comment number 39.

    37 stanilic

    Most people in trouble will have fallen by the wayside within 6 to 12 months of the onset of the storm, excluding the public sector cuts which have been deferred for 2 years basically. So you have decline and growth in different sectors, even within the private sector. Some large businesses are probably due to have continual purges over a couple of years because restructuring is often slower to avoid throwing the baby out with the bathwater. Imports will continue because manufacturing has been in decline here. Even if the equation has changed in terms of viability then most of those still operating here will be twitchy about expansion, and startup from scratch takes time, so imports have to continue. The key thing to me is I do not believe in stability, I subscribe to the philosophy that stability is simply a transient between decline and growth or growth and decline. Therefore if you are in growth there is no reason why you should not stay in growth. The thing I watch out for is stability because if you have been in growth and enter stability then you are already set for decline.

    Note - In the last recession we had effectively a total freeze on payment from customers, no slacking in demand for services, but a freeze on payment from blue chip corporate customers hoarding cash or without cash, up to 18 months, ridiculous, unviable. At the same time in other sectors things were bouyant, that is the info we got from an insurance outlet we regularly dealt with at the time who had contacts across the board. We stopped trading then because there was no point, and changed sectors - we now retail direct rather than supply IP. The whole recessionary thing is localised and it just depends where you are. There is still only a single percentage figure fall in the economy. The long term problem is the public accounts. The housing market is still needed to get things going but prices still have to fall, the banks are saying that with the deposit criteria, the banks controlled it on the way up and they are controlling it on the way down.

  • Comment number 40.

    So... First the government give billions to the bankers.

    Then they borrow billions into existence, causing inflation, making the salaries and savings of your ordinary joe worth just that bit less every year. A stealth tax on everyone.

    Then they say that your ordinary joe has to work another 5 years to pay for it all.


  • Comment number 41.

    #39 glanafon You still doin it wrong.

    When you have ordinary contractions (such as the ones that you refer to) then things work more or less as you describe. When you have systemic meltdown then things work differently and more slowly. For evidence look at the systemic meltdown of wholesale energy trading. The trigger was Enron, but it took a couple of years for the last of the players to fall. At around that time there were other things going on that could have actually speeded up the "natural" collapse process (California power blackouts and the aftershocks of 9/11).

    Look at what is going on now - western governments have basically bet the ranch on "saving" banks. It won´t work because it can´t work, but it kicks the can down the road. There are no more ranches left to bet, so governments respond by fiddling the accounting rules so that banks don´t have to report losses - but the losses are still there. US stress tests are more evidence of this kind of jiggery pokery.

    The media are active co-conspiritors in all of this and they just ignore things that don´t fit the story. How much do you read about globalisqation these days? Not a lot, because it does not make good reading. Look at Latvia - completely bust, riots in the streets. Why? Because the whizzo guys in London and Washington are making the Latvians apply the opposite policies of those that they are applying? Why? never explained.

    The Chinese are not about to buy up all of this newly created debt. Look at 30 year T bill rates, on the rise even though Benny is busy with his own QE program. How can it work? Itg can´t so just ignore it.

    Look at Ukraine - completely bust, but not about to dance to the tune of London and Washington. They are busy looking back to Moscow. All invoices will be returned - "address uknown."

    The Western oligarchs know all this, that is why they were so keen to stir up trouble in Georgia last year - teach the Russians a lesson, when the class they should have been in is the one that teaches the Russian ability to resist intimidation.

    Collapse comes slowly - in the UK today I guess most sectors that are doing OK will ultimately have some connection to defence, or security, or supplying goods and services demanded by the rich. Of itself this another sign of collapse - a disproportionate obsession with security and a small elite of super rich. (Obviously in a country of 60 million people there will be exceptions, perhaps significant exceptions - but the trend is as stated)

    Meltdown is coming - the only positive stories are lies, and an official policy of telling lies is yet another sign of collapse.

  • Comment number 42.

    How about another warning from history

    "To preserve [the people's] independence, we must not let our rulers load us with perpetual debt. We must make our selection between economy and liberty, or profusion and servitude."

    Thomas Jefferson, President of the United States of America,1801-1809

  • Comment number 43.

    #39 glanfon

    Interesting. I hadn't stopped to consider the relationship between stability and stagnation.

    In turbulent times it is human nature to seek 'calmer waters', But I accept that stability is merely a rest stop. The prolem is that most organisations rely on very poor information sources for their medium to long term planning. We have tons of data, both public and private, but very little true information. The 'information' that is presentd to us is massaged for either political or commercial ends. Hence business decision making is flawed.

    As you say the big worry for the UK is the public accounts. Radical changes in public expenditure do have to be made. However, I view this as a true opportunity to re-examen what we are trying to achieve with our social expenditures and how we implement them. Wolesale cuts (a la the Conservatives) is merely a short term fix to a long term problem - expenditures will inexorably rise again! Labour have been caught by the beaurocracy that it helped to invent e.g. CSA and Tax Credits (good ideas stymied by beaurocratic incompetence). However, I am not calling for the privatisation of all public services - the idea of private sector competence is really a myth. We need a new system of public sector management. During Thatchers time many of us argued strongly via the then Training Agency that the gross introduction of private sector management techniques would not work - and it hasn't!

    If this whole debacle proves one thing it is that change has to be made now. The problem for me is that whilst we provaricate about making signifciant change the door is left open for extreemists and quasi-intellectuals to distract us.

  • Comment number 44.

    #41 they do not like me blogs about printing money , which fits into your theory to. The public must not be told the truth. They might get ideas about there station.

  • Comment number 45.

    tao-das # 31

    inoncom # 32

    There is confusion here. Too many people confuse wealth/prosperity with money/credit. Wealth is what is produced. It is factories, workshops, machine tools, ships, buildings and so on and so forth. Money is the means by which wealth can be measured. Simply printing money - or to be more precise - tapping out numerous zeros on a computer keyboard does not increase production and therefore wealth: all that that serves to achieve is to increase consumption over production. Consumption in itself is not wealth creation; it is wealth destruction.

    Production or increased production and, therefore, economic progress can only take place via REAL savings. If real savings are to be replenished, then consumption has to be curtailed.

    We all cant sit in the wagon at the same time and expect to move forward; someone has to get out and push it.

  • Comment number 46.

    No.41. armagediontimes

    The rate at which unemployment is increasing in the USA is now slowing down. A slow down in the rate of decline is the same thing as an improvement. Therefore, the economy is improving.....

  • Comment number 47.

    #17 "All we need now is for the Jolly Brown Giant to clamber down and save the world..."

    Shouldn't that be the "Not-So-Jolly Brown Giant" throwing his printer of his desk....

  • Comment number 48.

    #34 "In my day job I have to hedge sterling against the euro and the dollar, as I have to pay some of our suppliers in those currencies."

    Be glad you do not have to hedge against the Far Eastern currencies !! That will give you enough ulcers to last a lifetime !! Without the government moving a finger, the RMB has been rising against almost every currency in the world, especially the currencies in the "basket" it is pegged to !! I think the most relieved man in UK right now must be the ex-Woolies hedger !!

    Meanwhile, the Dixon/Currys/PC World man must be buying hair restoration tonic by the gallon even as he rips them out by the handfuls !! Every time he thinks he's got it right, along comes yet another QE to blow his carefully made calculations to hell !!

  • Comment number 49.

    #46 Mr. Tweedy - Yeah, sounds plausible to me. By the way I have just seen some braying sheep on the TV saying that oil is now $58/bbl, up 8% on the week and that this is good news because it indicates rising demand which in turn indicates economic recovery.

    Alternatively it could indicate growing nervousness regarding the value of the US$.

    The second explanation fits with the facts (rising long term T bill rates) and the first explanation fits with the global lie.

    What are you waiting for? "The patient is dead -therefore there is no further deterioration in his health...this could indicate recovery"

    Welcome to planet voodoo.

  • Comment number 50.

    Mr Tweedy #34,

    '...hedge sterling against the euro and the dollar...'

    Far to complex for me but out of interest, what process do you go through to do that ?
    ( how do you arrive at your decision )

    Is it

    a) a personal reading of the economic runes and movements

    b) technical analysis (TA) using charted info

    c) a constantly rebalancing two account system to maintain original value parity

    d) something completely different ?

    I had a look at some FX charts today and using yesterday's closing figures, it appeared that there might be a slight twitch that

    The dollar is slightly climbing against the Euro
    The pound is clawing back against the dollar
    and I have no idea what the pound might do against the euro

    But of course I might be reading these all the wrong way round and the opposite could be happening for all I know about FX, as it isn't my game and I don't monitor them.
    A bit like the BoE MPC really :)

  • Comment number 51.

    No.48. ishkandar

    Our Asian subcontractors charge us in USD.
    We also have customers in USD, which gives us a some amount of natural hedging.

    Also, a "natural" rate for the GBP against the USD is around 1.60
    The rate of GBP buys 2.00 USD was never going to last.
    Therefore, the current rate of 1.50 against the USD is workable, although the GBP moving from 2.00 to 1.50 is still a 33% depreciation.

    I am glad I don't have to worry about sterling against the yen and yuan.

  • Comment number 52.

    41 arm n leg times

    Its sunny, are you worrying about rain or worrying about drought? : )

    If it gets worse then - the worse it gets the more wealth is stripped away from those who have it. Further those with money always have the problem of where to put it. Just having money doesnt mean anything, it is preserving its value which is difficult. Havent you noticed how many people are tied up in trying to keep money having value. Its hilarious. If things change for the worse all that happens is a new set of values and threashlods are introduced. I don't think it is over yet, I havent called it as 'up' all I am saying is there are areas that are doing okay. But you are painting yourself into one outcome in a interactive dynamic environment which can float in almost any direction, eg lets say FX is low, but then somebody elses FX dives so the null point returns.

  • Comment number 53.

    If the Quadruple entry bookkeeping for QE was NEFS Based (Net Export Financial Simulation) then wed have

    Bank of England :
    Debit Financial Representative of Real Wealth Account $300
    Credit Commercial Banks ($300)

    Commercial Banks :
    Debit Bank of England Account $300
    Individual Customers Accounts ($300) ... this last entry means money in your bank accounts !

    i.e. hows about if there is free money need to get the economy going - hows about we get it for a change ?

  • Comment number 54.

    No.50. strategycall

    I have mainly used forward contracts, and also maintained a large cash balance of EUR. I made a large currency gain in 2008. However, now the rate has been low for quite some time, my hedges are starting to run out....

    This means I must speculate by buying EUR when the rate is moving up, and selling back to GBP when the rate is on the down. I also try to read around the subject a little, to see where people feel the "stops" are and the "resistance" is. The technical charts are a bit of a confusion to me.....

    So far, during the past year or so, the dollar has been weak, and then sterling depreciated, but the dollar then gained when the stock markets crashed and everyone bought Treasuries. The euro has remained relatively strong throughout, but I have more financial exposure to the euro.

    Everything is now much harder to predict, as the ECB has been forced to cut interest rates. I "feel" the pound will gain a little value, but the BoE will probably try to keep it weak in order to help Britain's magic exports and attract buyers for gilts...

    I'm not keen to lock into forward contracts at today's exchange rate. Therefore, I mainly look to buy EUR at close to 1.14 and sell at 1.10, but bearing in mind that between Christmas and February, the GBP against EUR has moved between 1.02 and 1.15 and then back to 1.06 in mid-March.
    The pound tends to gain when there is no financial news from the UK, and then falls when there is news. Also, if the stock markets fall back come mid-May then sterling may follow suit.

    However, most of it's guess work (given the meddling of central banks and currency traders)....or maybe I should say "reflexivity" rather than guess work.....

  • Comment number 55.

    51 Mr T

    I can rememeber costing US stuff at 1.43USD to the GBP in the early eighties, which is not that far away in terms of todays FX. However we look to be lower against mainland europe. So is it because the UK and USA are in worse shape or because the eurozone locks the countries into one another leading to less flexibility.

  • Comment number 56.

    #51 MrTweedy,

    I would take a fairly broad 'workable' band for the GBP/USD, say 1.60-1.75 and I think that it will soon move back to that band. However, my interest is purely personal as have to transfer money from the UK into local carribean currency that is fixed to the USD - then pay bills here in both local and USD (headache!).

    The 30% fall really curtails the social activities!

    My transfrs are really small beer bu the fluctuations hurt just as much - sob!!!

  • Comment number 57.

    No.53. GlenisDevereux

    You forgot to mention the additional required entries:

    Bank of England
    Dr: Taxpayer $300
    Cr: Financial Representative of Real Wealth Account $300

    Dr: Bank $300
    Cr: Her Majesty's Revenue and Customs $300

    All in all, we still don't resolve the crisis, as the taxpayer has to pick up the bill....

  • Comment number 58.

    56 foredeck

    There have been a number of longterm forecasts for USD at circa 1.50 to GBP (late 2009) whether they are right or not is another matter. Sun is free, lifes a beach.

  • Comment number 59.

    No.55. glanafon

    It is because the US and UK are over-indebted and Germany and France are not.

    The Bundesbank lost control of the German economy twice, and is now very risk averse when it comes to fiscal deficits and general credit creation.
    The French seem to follow the German lead.

    Hence, the Germans put pressure on the ECB to keep interest rates up, and not spend money on fiscal stimuli. Having said that, the German government is paying for German companies to work 4-day weeks, and unemployment is quite high compared to the UK but the welfare system is better. So, this is the Germans' real fiscal stimulus. The Germans are the world's largest exporter and tend to save rather than spend. Therefore, they have large cash reserves relative to Britain and the US.

    The IMF will bailout the eastern european countries; so this is less of a concern for the EUR at present. Even Eire, Spain and Italy don't pull down the value of the euro against the pound, as those countries are having to pay higher interest on their government debt compared to Germany (each country within the eurozone still has its own separate government bond market).

    Export currencies have gained (euro, yen and yuan) and import currencies have fallen (pound and dollar). However, the dollar is still the world's reserve currency, which means it remains up when it should be down like the pound.

    We once said "sound as a pound" now we say "down like the pound".....

    All this causes consumer price inflation in the UK, as our imports cost a lot more.

  • Comment number 60.

    MrTweedy #54,

    Thanks for that. A far from easy task particularly when the health of the company is a dependancy. As opposed to the relative relaxation of making a decision when the downside only affects oneself. Which in turn still gives the scary moment when the finger hovers over the button, and even after making the 'best decision' within the info available, the questions still emerge as to the 'what ifs' etc.

    As you indicate, 'reflexivity' is the key based on the best info that one can possible pull together.

    However, slightly differently but same subject; if it is ok with you, I will post (tonight hopefully) an outline of a theoretical constantly rebalancing two account FX system as mentioned above and ask you to pick a few holes in it for me.
    It is probably 'old hat' to you but I'd still appreciate you giving it the once over if possible.


  • Comment number 61.

    #51 "The rate of GBP buys 2.00 USD was never going to last."

    That was too good to be true and I made a few *necessary* US purchases while it lasted and which, even after postage and tax, cost less than buying the same items locally. Especially since the items were made in the US (mostly books and *legal* software) !!



    Dr. Local bank $300
    Cr. Bank in some Caribbean island $300

    Then run like hell !! :-)

    #55 Way back when, before the quid went really funny, it was worth $4 !! Hence, "half a crown" (in pre-decimalised currency) was also known as "half a dollar" !! Sorry, being a BOF (Boring Old Fart) again !!

  • Comment number 62.

    No.60. strategycall

    Post the information and I'll take at look at it sometime next week. It may help me.
    I am no expert in currency dealing, having been pushed into it by the sudden fall of the pound. My company has some foreign currency suppliers and now I must hedge, whereas for many years previously there was no need.

    Large multi-national companies have specialist treasury departments who add up all the currency assets and liabilities of all their subsidiary companies at month end, and then cancel them out by borrowing in a particular currency or taking out a forward exchange contract to purchase currency or by keeping cash reserves in different currency combinations.

  • Comment number 63.

    59 Mr T

    That all sound reasonable. I suspect Germany may have a continuing problem. They trade in 'quality' and 'percieved technolgy' (ie deliberately incorporating technolgy as visual elements) on many products and those characteristics are being eroded by the catch up of the low labour zones. German cars in particularly have been cleverly marketed on those points for decades. They are however also very good at inhibiting other countries in the supply chain by the use of DIN stds which are adopted default as British Stds due to a lack of foresight here but inevitably favour the writers.

  • Comment number 64.

    62 Mr T

    This all sounds tricky mate. Your worry is obviously big adverse movements. The problem is on a trading platform like FX that there are a very high number of very knowledgeable traders, some with very big wallets. I don't need to tell you to take care. I have alarm bells ringing all over. On any trading platform big players wait until the price has moved in their direction - as they see - it then pounce, and work on an overall consistency of correct decision making, they are not bothered about dropping the odd ball, though they would prefer not to. You are working 1 against 1000s so good luck, I don't envy you having to learn from scratch. Can I just say if you have a good track record it could be you are making the right decisions or it could be because you are coincidentally getting it right over a short term, only time tells. I would take it very, very, steady. I have not worked with FX so don't think I am talking down in anyway, but I have worked on trading platforms, and I doubt FX has less sharks. You only steadily accrue at somebody elses steady loss. I would suggest you keep it simple and explain that is the strategy to those asking for the FX performance. I do hope you are not offended in anyway by this comment because it is not intended to. Above all Good luck.

  • Comment number 65.

    All you currency prophets should bear in mind that everyone is engaged in a race to the bottom - everyone has signed up to the devaluation by stealth deal, and everyone is hoping that everyone else is too stupid to realise what is going on.

    The US$ is going to tank - when this gets underway they may or may not revue their money printing wheeze.

    The British are desperate to destroy sterling - but currency destruction is a big boys game, and they are not real players. So they may not get it as low as they imagine.

    The looks unlikely to survive. Club med (or the PIGS to give them their modern catchy new name) are only to happy to weaken the . This should leave them in (un)happy conflict with the Germans. Internal tensions should do for the Euro. The Euro is no more real than Barbie and Ken. Why do we have a 500 note - why because the Italians insisted that it was necessary for their economy, apparently there is a large firm in the south who do a lot of high value transactions in cash. Meanwhile everyone else throughout Europe needs to erect signs saying they do not accept 500 notes.

    The only real currency is as it has ever been - gold.

  • Comment number 66.

    65 arm n leg times

    You can't have the argument that sterling will bomb but it won't go as low as some of the bombers want, because that means it has some value to somebody. Gold is just a trade. You still need somebody to trade with, otherwise what do you do with it. Beaurocrats decide they need a 500 eu mote, so what. If the old world and the new world are in trouble then the sun rises somewhere else, maybe the 3rd world, or even the even older world, but so what, they just run into the same problem and pretty rapidly. Equilibrium has to return. Values reset. Most of what people do has little to do with the basics, which you have pointed out before indirectly with reference to your previous generation. We are still better placed than the sort of economy that used to trade in severed hands aka belgium congo. If things move to power blackouts another of your forecasts, my reaction is about time, then people may value energy instead of wasting it.

  • Comment number 67.

    #58 glanafon

    "Sun is free, lifes a beach." Too right Mon! It's 4 minutes walk to the beach. Average temperature 30/31c. Great ammusement when the local weather forecaster says "put another sheet on de bed it's going to PLUMMET to 21c tonight"!!

  • Comment number 68.

    Ho hum. The Bank creates some more inflation. The Fed is doing it, they all are! The message is get out of fiat currencies.

  • Comment number 69.


    Just to support glanafon's remarks. I've never traded commercially. I have a friend with whom I used to work in the 70s who was responsible for setting X rates between subdidiary companies across Europe for a US internat. I'm sure that he explained how he did it but it still sounded like a cross between maths and voodoo to me!

    Hats off to you Sir. Have a good weekend.

  • Comment number 70.

    re #57 Well if they are going to take it off us in taxes and interest for no service in return... (just to balance the numbers and keep the books tidy) eventually, why is it such a bad idea for us to be given it for nothing in the first place in the meantime. We do not have crisis of real stuff - it's only the bookkeeping that's the problem - it's about time some of those bookkeeping entries came out way for a change instead of to the banks. See for how this NEFS can become a permanent feature of our economy and can fix the Credit Crunch for the Whole World

  • Comment number 71.

    #66 glanafon - Nah you still doin it wrong. The deal here is that everyone knows one way out is to inflate away debts and have an export led recovery. This means you need to destroy your currency - but it´s a competitive game, there are costs and not everyone can win.

    The British don´t really need to bear the pain because they can´t win anyway since there is no widespread export potential in the economy. Although they may win if the Germans lose the argument in Europe, and if the US stops printing money before they reach the point of no return.

    Competitive currency devaluation is just protectionism by any other name - they just hope that people are too stupid to realise. But of course everyone will realise and that is the real stupidity.

    You are technically correct about gold - but it does have a 4000 year history of being a store of value.

  • Comment number 72.

    71 arm n leg times

    The fact sterling is separate from the euro is a strength for the UK. If exports are not responding to a low FX, which is what UK manufacturing is saying, and the French are grizzling about sterlings value, ie UK export threat, coupled with the fact that the exporting countries are deep in it, it tells you that international trade is depressed.

    I agree with you up to a point and that is that there has been an economic landslip and things will not migrant back to where they where, but I have never said they would. I have never seen what has been going on could continue. However the fact that a great number of people will have to be less wealthy doesnt bother me as such, because it is inevitable. It will have repercussions on all sorts of expectations but trading will continue.

    But I think you are underestimating the problems on mainland europe. Germany will be hard hit because they have lived on exporting - they have been heading for trouble for some time, France will be hard hit because it has set itself up as a distribution centre and distribution will drop. I see this as the Mayan 2012, the end of the way things have been, but not the end, that is just a doomsters delight.

    A reduction in unsustainable activity is needed and being sustainable means higher costs for the same or substitute activities so it means being less wealthy. The curent drop in activity is a step in the right direction in terms of climate control. Learning to work within that envelope could be good.

    It really is quite simple do you want an Easter Island outcome or a New Zealand outcome, because New Zealand nearly ended up in the Easter Island scenario but they pulled back near the brink and set different ecological values. It is easy to burn a forest to drive animals out to kill. It is more difficult to do things in a sustainable way. It is essentially a cultural problem not a trade problem. That is why I think you are too gloomy.

    The culture will change but it will not do so whilst there is no impetus. Impetus is a good thing. Any attempt to return wholesale to rampant consumerism will fail longterm. This current situation is like the feedback loop with the bank bailout. Something had to be done, there was resistance, the longer the resistance went on the worse it got because there had to be intervention. Sooner or later people get the message. Fighting is pointless because more damage results. It is like the houses in the UK, they still exist even if the owners go bust. Not much money about then they are open to v low offers. Money is just a distribution mechanism, a rationing system. It is important that the current pain is spread as wide as possible both within countries and amongst countries. If it is too localise then nothing changes, we go thru the loop and everybody says I'm okay I got away, lets get back to the party.

    I have seen no evidence that the pain is totally localised so far, all wealth is being affected to some extent, and the Germans and French will also suffer in an interconnected global economy. As far as most people are concerned gold does not exist, and even some that buy it never see it. As for the USA it has to change, simple as that, and the longer it doesnt the worse it will get for it. I don't know why you are so locked in on a meltdown, it is a reset of values.

    You have discussed the unemployment figures. The issue is one of fantasy. The definition of unemployment is arbitary and set as a social convenience. Why else do you think more effort is taken to make sure claimants are not active in the black market than is taken to get people back into work. The JobCentre is an economic police force. The system will break down if the unemployment figures rise too far and they will have to redefine unemployment into another form of work. Those are the deconstructs that will occur, but your position is all is fixed, its not.

    The main preoccupation of anybody with wealth is trying to preserve it and they need somebody to trade with to do than, whether it is gold or paper or clay tablets. As a developed country with a long history of stability the danger is the UK is seem as too attractive. If tough steps where taken the debt could be sorted probably in a decade, jus close down a big chunk of the public sector. And anybody looking at the Uk knows that is a plan B so then plan A looks better. Where would you be putting money. Answer - there may well be a queue there already as everbody has done the same assessment. So on to the next on the list, and the next. A lot of the current problems relate to the low labour zones and the resultant imbalances. If people can't afford the imports the problem reduces.

  • Comment number 73.

    Although I think it's morally wrong (equivalent to a stealth tax) and can do no good for the country, I wouldn't mind QE if we knew that an equal amount of money would be destroyed as soon as inflation picks up. Sadly that won't happen as even the conservatives support printing money and propping up failed banks.
    inoncom, message 32 said that it is a reasonable policy that is not at all inflationary, good news so let's just print a lot more. After all there is so much evidence that QE promotes job and wealth creation and a sustainable and balanced economic growth.

  • Comment number 74.

    #73 The_judge_of_it,

    The consequence of QE is logically inflation. If you print more money than there is wealth to support it, the value of the currency becomes less, imports cost more, rices rise and an inflationary spiral is created.

    However the hope is that QE will stimulate the economy sufficiently to offset some of the inflationary pressure. The BoE is then supposed to step in and use its experise to squeeze out of the economy any reamining damaging inflation. In theory it could work. However, despite your claim that QE "promotes job and wealth creation" that is yet to be proved (please tell me in which economy this has proved to be true?). The other great unknown is the skill of the BoE to know when and by how much and for how long anti-inflationary measures should be taken. Their track record does not fill one with confidence.

  • Comment number 75.

    #72 "A reduction in unsustainable activity is needed and being sustainable means higher costs for the same or substitute activities so it means being less wealthy"

    This is what I don't understand. As you pointed out in an earlier paragraph, things will never be the same. Therefore, the same or substitute activities will only lead back to those unsustainable activities.

    What is needed is a change in expectations. Less expectation of instant gratifications will be a good start !! The expectation that things can be controlled/solved by a flick of a switch or the popping of some pills !! The Expectation that any kind of food is available in the supermarkets without consideration of the season, cost of production or transportation. The expectation that products can be bought simply by demanding higher remunerations for one's own labours without due consideration to the worldwide pricing of such labours !! The expectation that when something breaks or is out of fashion, just throw it away and buy another !!

    The expectation that the Nanny State will provide from cradle to grave without due consideration of where the funds are going to come from to pay for such provisions !! The expectation that high levels of health and social security can be provided without the means to pay for that through exports.

    Say what you will about the Germans but their policy of concentrating on value-added and high tech products have taken them up the food chain and rather insulated them from the rest of the general manufacturing countries. This is a lesson that the Chinese are learning the hard way and has resulted in millions laid off from their low/no tech manufacturing that other, cheaper labour countries are muscling in on !! They, too, are pushing hard up the food chain !!

    If Britain wants to survive by manufacturing, then it, too, has to concentrate on high tech, low labour intensive sectors. There is no alternative because the dole is far too attractive and makes low tech, low labour cost sweatshop production damn near impossible here !!

    "The system will break down if the unemployment figures rise too far and they will have to redefine unemployment into another form of work. Those are the deconstructs that will occur, but your position is all is fixed, its not."

    No they wouldn't !! If unemployment gets too high, the government will simply increase the school leaving age and wipe out much unemployment at the stroke of a pen. It will also create pseudo "educational opportunities" that operates in the same manner. I know of many who complained that they have all the qualifications for employment but still can't get a job. The problem with these people is that they don't have the *qualifications* !! They simply have the *certifications* and diplomas without any real practical knowledge or experience !! But they've all been on government sponsored "certification" classes and have the bits of paper to prove it !! It is just a means for the government to fiddle the unemployment statistics !!

  • Comment number 76.

    #73 "inoncom, message 32 said that it is a reasonable policy that is not at all inflationary, good news so let's just print a lot more. After all there is so much evidence that QE promotes job and wealth creation and a sustainable and balanced economic growth."

    Absolutely !! Just look at how Zimbabwe QEed itself into a massive job creation. Why, supermarkets need lots of armed guards in case their food is looted. And to buy any thing other than food staples, you'd need to go to one of those hordes of "money changers" to get enough of the "right money" to pay for your purchases.

    As for wealth creation, why, there are more trillionaires in Zimbabwe than anywhere else in the world !! Quite what you can buy with a trillion Zim $ is a different kettle of fish altogether !! In fact, the kettle probably cost 100 trillion for starters !!

    Oh, the joys of solving problems through QE !!

  • Comment number 77.

    "Suspicious package found in road" - BBC news headline

    Could this be Our Glorious Leader dumping his latest "Grand Plan" to combat recession and save the world ??

  • Comment number 78.

    Stephanie, what worries me is that the private asset purchases will be the less significant in terms of the MPC trying to boost GDP. In fact, much of the commercial paper and corporate bond purchases have been used to refinance corporate debt owed to the banks. The MPC are trying rightly to steer purchases away from banks lest they hoard proceeds. We need to know from whom the gilts in the secondary market are being purchased and what are the purchasers doing with the money. With the bad budget news gilt premia could rise, operating against the objectives.Are the purchasers using central bank money to invest in higher risk assets? If the inflation report doesnt give us this data, will you get it?Its all very weird if you think about it. We're relying on non bank market participants in sovereign debt to create an inflationary boost - ?

  • Comment number 79.

    MrTweedy #62,

    Ref my post #60 I think that the following ACCA briefing gives a good 'back to basics' intro and overview for the commonly based fx risk reduction strategies
    (as opposed to the multiple speculation strategies which can of dubious merit)

    I might tend to favour the slightly more expensive fx Options route as they can be allowed to lapse if the currency moves the wrong way. As an alternative to spot contracts with their mandatory take-up - which of course do have value in that certainty can be fixed.

    Choices, choices, choices. It can't be an easy ride being an FX manager.

    However you will already be well versed in managing risk and will have your own approach and the documant below may well all be 'old hat' stuff for you anyway.
    So no more to be said really other than good luck !

    ACCA document here (with worked examples)

  • Comment number 80.


    Does anyone else get the impression that, like so many specialists these days, our 'economists' aren't seeing the wood for the trees?

  • Comment number 81.

    JadedJean # 80

    Yes, I do. However, it is not so much the mainstream economists who can't see the wood for the trees, it is the government and their hirelings at the Bag Lady of Threaneedle Street (B.L.O.T.S), who seem to think that the economic mess they created in the first place, can be all sorted out by simply printing up more fiat paper money tickets.

    What is astounding - although, I have to admit, unsurprising - is that these "experts" have no idea whether it will work or not. This is a classic example of statism groping about in the dark, blindly searching for a non-existent solution.

  • Comment number 82.

    Quelle surprise (QE hell surprise)- nice one JJ

    A thought occured to me as I was posting a reply to MrTweedy pointing to the ACCA student documents. ie 'I haven't been a student for a number of years yet this site contains useful information for me - does that make me a student'

    Which raises a philosophical question - does one ever really stop being a student; or should one intentionally decide to cease to absorb and adapt new knowledge (to them) ?

    Perhaps JJ's economists (#80) and LibKurt's 'experts' (#81) assume they don't need to know any more than they already do - hence an inability to develop their thinking to meet current complexities.

    Yesterday's thoughts from yesterday's men who cannot see a need to develop ?
    Therein lies extinction.

  • Comment number 83.

    #72 glanafon. A few points:

    Sure the UK gets more freedom of action by being outside the Euro. The corrollory is that Portugal, Italy, Greece, Spain and Ireland do not enjoy the same flexibility. Hence growing internal tensions within the Eurozone. Eurpoean leaders are determined to maintain the line - the line can only be breached by popular actions. Who knows how it will be resolved - but attempts will be made.

    Governments are determined to get things back to the way they were. You have recognised the impossbility of this - but governments have not. They are going to be exposed as stupid and in some cases corrupt. (Look at the MP expenses furore) Those with power will not respond well.

    Sure everyone is going to be less wealthy - do you think most people have worked that out yet? The gap between rich and poor is going to widen. Do you think people will just sit back and accept that? You have vast swathes of people who believe they have a right to consume anything they want because "they deserve it" - It has taken a lifetime to get people to believe this, they will not readily abandon the great god of consumption.

    Unemployment figures are not fantasy. You recognise that the system will break down if unemployment rises to far. hence the need to fiddle the figures. This only takes you so far - people still know that they are unemployed even if the government classifies them as something else. You have probably reached the limit of people that will sit back in a haze of alcohol and drug fumes and passively accept that their boredom equates to disability.

    You are correct that the US needs to change and that the longer it resists the worse it will get. Problem is they are not about to change, and the overwhelming probability is that the "American way of life" will be defended to the death (probably literally).

    Afghanistan provides an object lesson in the futility of chasing something that cannot be caught. But they are not stopping are they? Rather they are increasing commitment. Why? Who has ever explained what it is that is intended to be achieved there? It is ego, a very powerful driving force, no one is about to admit that they are wrong, or that they have made a mistake. Democracy cannot save you - all the major parties follow the same policies.

    There is no chance of an alternative force arriving - if it did, it would likely be extremely right wing, and a new group of easier to catch enemies would be identified. But it won´t happen because those with power have no intention of relinquishing that power, and they will fight to keep that power - just as the powerful have throughout history.

    I have never sought to claim that the micro position is fixed - only that the ultimate outcome is fixed. For it to be otherwise someone with their hands on the controls will need to look up and admit that they have no clue - maybe banks, governments or mainstream media could tell the truth about the insolvency of the system - But no-one is doing that. They are locked into a position of telling lies - they will not stop. But you cannot change reality by wishing it all away or refusing to recognise it.

  • Comment number 84.

    LibertarianKurt (#81) "This is a classic example of statism groping about in the dark, blindly searching for a non-existent solution."

    Are you sure about that? Like John_from_Hendon you appear to either presume that there is more of a state than there is in practice in the UK (the executive which might have exerted control was devolved to market forces and understaffed regulating agencies long ago) or b) would like to see what little remains even less effective than it already is.

    What I don't see is any improvement in regulation or alternative to securitization to cover their risks. So why would banks be keen to lend?

  • Comment number 85.

    83 arm n leg times

    Europe - not a cohesive whole, fracture lines will develope. Germany is due a difficult time, they have been very clever at trying to stay up the ladder but their problem is the low labour zones will catch up very fast, there will not be any technology advantage or percieved advantage, their export game is due to face very severe problems. They have no real way out. The German car scrappage scheme is just another mad experiment to bring sales forward and pretend all is well, it wil make no difference. If the european far right rise it will most likely be there. There is continuity there do you not think.

    Power, is given by the electorate in a democracy. Even dictatorships have a limited life. You react to the expenses issue but that was a development of FOI, FOI is a child of the ease of digital technology. Anybody trying to turn back the clock will fail - the arguement for better communication is irresistable. When communication is easy how can anybody pretend it is hard. If people do not wish to use democracy then they get what they have wished for.

    Whilst it would be fair to say we deal with the more aware sort of people it is coming through loud and clear that people have some idea of where they are, ie worse off, some are saying they expect it to be a decade to sort their housing situation. I have little sympathy with people who think that they should live like millionaires relative to most of humanity for apparently doing nothing special. Most people are herd instinct.

    Unemployment - The issue is the unemployed are deliberately restricted in what they can do to stop black market activity which would undermine the legitimate economy. When the number of unemployed reaches a critical point then they will be used as a workforce, it has already been proposed, eg Millibrains loft insulation fitting claimant charitable workforce. It is dangerous because it destroys the boundary between work and non-work and raise many questions, but it is the likley outcome with high and rising unemployment. The issue is the control of labour rates and taxation. The real issue is the imbalance between wealth creators and the economically inactive. That can only be resolved one way. If taxation becomes too high people restrict their income - or leave - or take goods instead of money, ie barter (which is legitimate).

    The SS American Dream has crashed. The spaceship has been heading towards the Sun for some time and is now in the grip of gravity. The whole culture is based on gross exploitation and has reached the boundaries it would seem.

    Afghanistan - I think this is colossally stupid. The fact decision makers tend to try to support there own bad decisions simply says you need new decision makers who are distant from the original decision. And who can therefore disavow the bad actions.

    Right wing - well AH only got in because the mainstream thought he would be useful and could be controlled and let him in, guess they go that wrong. There is nothing new about attempts to control people.

    Change is here, it makes no difference if it is fought. Like the tide coming in it will come, anybody fighting it will damage themselves. Humanity has been here before. This is not actually new is it.

    The outcome is not fixed, it is dependent on process and processes and pressures are unknown, although some pressures are more likely than others. Why can people live on a fraction of the western income in other countries. I'm not bothered how bad it gets because we have something that people want, in fact the worse it gets the more it is valued because it is designed for this environment. That is the basis of trade. It seems to me too many people are busy producing goods and services that are easy to do without, that is why they are in trouble.

    I don't think it matters what you think, or I think, the game is process. Flexibility and ingenuity and optimism help. Perhaps the term postive is more pertinent than optimism which has overblown connetations. Pessimism is paralysis, don't go there. The most likely downside is the destruction of peoples illusions, but that is their baggage not mine. This at its heart is a cultural problem not an economic problem.

  • Comment number 86.

    strategycall (#82) All anyone (worth their salt) continually strives for is a better fit.

    It's an 'Unended Quest' ;-).

  • Comment number 87.

    #82 "Which raises a philosophical question - does one ever really stop being a student; or should one intentionally decide to cease to absorb and adapt new knowledge (to them) ?"

    Ancient Chinese proverb - There's none so old that they cannot learn and there's none so young they cannot teach !!

    Extract from an ancient Arabic wise saying - He who knows not and knows not he knows not, he's a fool, shun him !!

    PS. This old fool still learns something new every day (often inserted by force through a thick cranium)!! :-)

  • Comment number 88.

    #85 "This at its heart is a cultural problem not an economic problem."

    Absolutely true !! As pointed out in #75 above, it needs a change in expectations to make things better. A cultural sea-change, so to speak !!

  • Comment number 89.

    ishkandar (#87) "Extract from an ancient Arabic wise saying - He who knows not and knows not he knows not, he's a fool, shun him !!"

    I wonder how many are still prepared to look at the facts and seriously ask questions. Like, for example, what might C6p21 and CYP21 polymorphism have to do with any of this?

  • Comment number 90.

    JJ #86,

    Re your Popper ref and a 'better fit'.

    To fit or transcend, that is the question.

    I suppose that the prospect of being beaten over the head by a poker wielding Wittgenstein might have encouraged Popper to seek to fit in better in the interests of self preservation.

    My preference might have been to find the escape hatch in the fly bottle.

    Ishkandar #87

    ref your PS
    You and me both mate. Long may it continue.

    ps Is the answer to JJ's C6p21 and CYP21 question that they both played a bit part in the Star Wars trilogy as distant cousins to CeeThreePiO (C-3P0) ?
    ref here

  • Comment number 91.

    strategycall (#90) "ps Is the answer to JJ's C6p21 and CYP21 question that they both played a bit part in the Star Wars trilogy as distant cousins to CeeThreePiO (C-3P0) ?"

    No, but I do wonder ;-) C6p21 is where the MHC is, and NCAH may help you zero in on what I'm driving at whichis all about brain-gender and hormones. Look out for short-people keen on power.

    As a related aside, what did Popper and Wittgenstein have in common which Quine (who was far more straight-forward and pragmatic) did not?

  • Comment number 92.

    JadedJean # 84

    There is no presumption here. A government controlled central bank equals the monetary CENTRAL PLANNING of a given nation's economy. That fact is inescapable. Why others cannot seem to grasp that fact has always been a constant source of bemusement to me.

  • Comment number 93.

    "There is no presumption here. A government controlled central bank equals the monetary CENTRAL PLANNING of a given nation's economy. That fact is inescapable. Why others cannot seem to grasp that fact has always been a constant source of bemusement to me."

    People do understand that. That's what GOSBANK was. But what country are you talking about? Surely not the UK, USA or Germany?

    We already have your anarchism do we not? Isn't that why we're in a mess?

  • Comment number 94.


    'what did Popper and Wittgenstein have in common which Quine (who was far more straight-forward and pragmatic) did not? '

    Well JJ, Quine would have composed a couple of compterised Venn diagrams detailing the overlap of similarities/dissimilarities between P & W vs himself and discovered that there may be an infinity of answers. Being a person who considered Philosophy to have no value other than what could be of a practical nature, he might have enquired
    'which of the infinity of answers, singly resolves the question you are trying to resolve?'

    Popper may have interjected with
    ' Ditto, and which theory are you proposing in support of your single answer from the infinity of answers. I need to know what is your theory so that I may attempt to disprove it. Which of course is where the philosophical value lies - in the attempt to disprove any theory - even this theory of disproof'

    And Wittgenstein, who by now has put the poker down says
    'Do you guys know about which you talk ?'
    ( he frequently mixed up his sentence order)

    'The imprecision of language is the limitation to the scope of understanding. Of that which we cannot speak, we must remain silent. Those who understand my propositions can now climb the ladder of understanding and leave them behind. Thereof.'

    Which goes to show that Philosopers tend to make a living by asking question rather than answering them.

    I see the wisdom of adopting their approach, which I trust you will accept as indication of my considered response to your earlier question.

    ps and no more please !

    pps and returning to the economics subject...
    ...its half past midnight so the far east and asian markets should be opening soon which should give an indication of where the FTSE is heading today....possibly.

  • Comment number 95.

    JadedJean # 93

    But what country are you talking about? Surely not the UK, USA or Germany?

    Any country that has a central bank, of course.

    When we recognise the importance of money in any given economy, then we must understand that it is the most fungible means by which voluntary exchanges are undertaken by individuals. But, more importantly, money brings into existence the cardinal calculation and comparability of the market price system. It is this measure which is based on individuals (ordinal) subjective valuations that makes economic activity possible.

    However, when an exogenous institution (i.e. one that does not participate in free-market exchanges of commodities, products, goods and services) such as a central bank intervenes or interferes with this measure (money) by artificially inflating/deflating the money supply and artificially lowering/raising the interest rates, then it distorts the price system. Therefore, economic calculation is rendered increasingly (but unwittingly) difficult by all market participants.

    Inflating the supply of money above and lowering interests rates below what the market would have done alters the inter-temporal (across time) structure of production. This makes businesses think long-term and, therefore, lengthens that structure of production. It misleads producers by making them think there is more capital available for their intended projects than there actually is. Conversely, consumers start to think short-term and in so doing, increase their consumption of consumer goods.

    This intervention by the government/central bank initiates the boom and when the inevitable bust happens (i.e. the central bank, whose main objective is price stability, raises interest rates and contracts the money supply); the mal-investments including securitization of mortgage loans by businesses/banks are revealed and so have to be liquidated.

    This liquidation process or, to be more precise, market correction results in business/bank failure and this in turn leads to the recession/depression. This absolutely necessary market correction must involve re-allocating reduced/scarce capital and now abundant labour to more efficient/profitable uses. It is a painful but necessary healing market process; the most visible signs of which is increasing unemployment within the private sector and falling prices of substantial financial (stock market) and non-financial assets (i.e. property).

    However, the government (as a political institution that is always seeking re-election) and the central bank tries to stop this necessary correction/re-allocation from taking place. In an effort to try and artificially prop up prices (most notably assets such as property), they in engage in fiscal (borrowing) and monetary stimuli. But, as history shows us (read about the Great Depression by economists/historians such as Rothbard), these interventionist efforts by government only serve to prolong the economic crisis instead of letting the free-markets naturally solve it.

  • Comment number 96.

    strategycall (#94) "I see the wisdom of adopting their approach, which I trust you will accept as indication of my considered response to your earlier question."

    No, the first two, had they remained, would have been deported having been on Germany's 'LEAST WANTED' list. Later, Popper, like Hayek, was much admired by Thatcher, for all the wrong reasons as it's turned out.

    "pps and returning to the economics subject...
    ...its half past midnight so the far east and asian markets should be opening soon which should give an indication of where the FTSE is heading today....possibly."

    Did we stray? Who decides what is, and is not accepted as 'economics'? Is that 'social fascist' pressure to be on free-market message perhaps? Speculators would have suffered a worse fate than deportation as it was considered worse than luftgebaude, it was considered bad for the economy as few had any control of it. See 6,11, 15 and especially 18 for topicality. They had a falling population just like us - hence the effort to encourage breeding and the family (a kind of mini-state).

    capice ;-)

    PS NCAH may well tilt brain gender and stunt growth.

  • Comment number 97.

    LibertarianKurt (#95) "(read about the Great Depression by economists/historians such as Rothbard)"

    You appear to have left out uber-anarchist/subversive. Now, you wouldn't be angling on the private creation on money by a secret-society of 'anti-racist' individualists would you? ;-)

  • Comment number 98.

    erratum (#97) "private creation of money"

  • Comment number 99.

    No.79. strategycall
    Thanks for posting the ACCA information; it was helpful.

    Glanafon and foredeckdave: thanks for your messages of support.

    For many years the pound was very stable at around 1.47 against the euro. However, sterling then fell quickly to around 1.11 against the euro as the recession hit.

    My company has some suppliers which must be paid in euros, against customers who are invoiced in sterling. Our customers do not want to be invoiced in euros, as they do not want the currency risk.

    When sterling falls I have to sell more GBP to buy the same value of EUR. I then have two choices - either put up sterling prices to customers to maintain my margin, or keep selling prices unchanged but take a reduction in margin and cut overheads accordingly (or do a bit of both, of course).

    When sterling first began to fall, I was able to hedge and lock in at an average rate of 1.30 At this rate I did not have to increase selling prices, as I was able to absorb the reduced margin. I kept a large EUR cash balance, plus forward contracts, which made a large currency gain in 2008 as sterling kept falling down to 1.04 against the euro. This gain offest my reduced margin. In other words, I hedged successfully.

    However, my hedges at this rate are now running out, and I am now exposed to the current exchange rate of 1.11
    I now have to accept this rate of 1.11, as it is impossible for me to buy EUR at 1.30 as I wish to. At the rate of 1.11 I will have no choice but to increase selling prices (causing imported inflation for the UK economy) and cut back on overheads (also a negative for the UK economy).

    The only way I can soften the impact on my margin is by making some currency gains by selling EUR at 1.11 and buying back at 1.13
    However, this is a game I could do without, as there is no guarantee the rate will move in my favour......

    I am hoping sterling will start to gain against the euro, but every time it begins to gain the BoE tramples all over my flower bed by announcing more QE.

    Never mind, at least British exporters are doing well, eh?......

  • Comment number 100.

    JadedJean # 97

    "Now, you wouldn't be angling on the private creation on money by a secret-society of 'anti-racist' individualists would you?"

    Money did not originate by state/government fiat; it originated in the free-markets because it started out as a commodity itself (gold and silver are the best known examples of this). Therefore, the creation of money should return to the markets where it properly belongs.


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