Boxed in
The more money they create, the more the Bank of England's policy makers must wish they had better things to spend it on than government debt.
Of the extra £175bn the Bank has created through its QE policy since March, around £173bn has been used to buy UK gilts. That's no great surprise. But it is far from ideal.
When the policy started, the chancellor authorised the Bank to buy £150bn worth of assets, of which "up to £50bn" could be private sector debt.
It's fair to say that limit has not been reached: as of now, the Bank's Asset Purchase Facility (APF) has spent just £2bn on commercial paper and corporate bonds.
Why buy mainly gilts? The justification was three-fold. First, by boosting demand for government bonds, you lower the interest rate on that debt, and since that (risk-free) rate sets the floor for rates across the board, you should lower the cost of borrowing for firms and households as well.
Second, by buying only risk-free public debt you prevented the Bank from taking a lot of private sector risk onto its balance sheet (a particular concern earlier in the year when there was so much uncertainty about what all that securitized private debt was worth).
But the final, and most telling, reason was that there simply wasn't enough British corporate debt out there to buy. The Bank would have swallowed up the entire market in a matter of weeks.
I've mentioned before that a number of observers have called for the Bank to extend the range of the APF: notably the IMF, Martin Weale, and Danny Gabay of Fathom Consulting.
The emphasis on gilts has put the Bank rather out on a limb relative to other central banks - notably the US Federal Reserve, which has been able to purchase a much broader range of assets under it's "credit easing" policy.
But, as Adam Posen, the newest MPC member, pointed out in his speech of 26 October, it's a function of British companies' disturbing dependence on the banking system for its funds. In his words:
"[T]he financial system in the UK doesn't seem to have a spare tyre for the provision of capital to non-financial businesses when the banking system has popped a leak".
That lack of a corporate bond market, he said:
"[R]eveals a major long term structural problem in UK financial markets which could be of potential harm as the UK economy begins to recover".
In its statement today, the MPC pointed to evidence that its policy was working. And the evidence is there: gilt yields are undoubtedly lower than they would have been without QE, and bigger companies are using that opportunity to issue debt on a larger scale than in the past.
But, as the MPC themselves note, the key question for the recovery is about the banks: whether they will ultimately provide the credit to finance a healthy recovery.
This has been a recurring theme here - I won't belabour the point. Just to note that, if the economy is recovering, now is the moment of truth.
Until now, the commercial banks have been able to say, with some justice, that the lack of lending is due as much to low demand from firms themselves as to insufficient supply by banks.
As a rule, companies don't want to take on a lot of new debt in a recession. But once things are looking up, they will be going to their banks for more working capital, or loans for new investment.
If the banks are demanding much tougher terms and/or limiting the amount they will lend at any price, now is when that constraint on the recovery will kick in.
We will wait and see - and so will the MPC. But in the meantime, many economists who supported the QE policy are left feeling a bit queasy that so much is being rested on an asset with such an uncertain relationship to the broader economy.
Thanks to QE we do not really know what the "risk-free" rate of interest is over any length of time into the future. All the city knows is that money is (almost) free and there's an (almost) unlimited supply of it.
We talk about it being hard to spot the impact of the Bank's policy (and that of other central banks). But in a sense, that's crackers. You can see the impact of easy monetary policy everywhere.
Across the global economy, cheap and plentiful money is doing wonders for asset prices. It's also making it easier for governments - especially the British government - to borrow an enormous amount. It's even causing headaches for emerging market governments, as they struggle to cope with shedloads of incoming investor cash.
But I'm sure the MPC would like to be able to point to more visible effects of its policy closer to home - for households and businesses in the real economy.
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All this (almost) free and unlimited money certainly is not getting to businesses and individuals in the form of commercial loans or mortgages. Whatever the signs might be for the movers and shakers in the City, in the REAL world credit is still either being withdrawn or prohibitively expensive, unemployment and repossessions are still rising and many companies are on a knife-edge. It's high time the MPC got out of London and started looking around at what's really happening. Above all, it needs to tell the banks in no uncertain terms to start lending at reasonable terms again NOW instead of "repairing their balance sheets" (a.k.a. taking the mickey with blatant profiteering) Caledonian Comment
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Rule 1. When in a hole stop digging - pity the Bank hasn't yet stopped digging!!!!
Stephanie wrote:
"Thanks to QE we do not really know what the "risk-free" rate of interest is over any length of time into the future. All the city knows is that money is (almost) free and there's an (almost) unlimited supply of it."
Sorry Stephanie, you know that this is not true and we are living in an absurd aberration of an economy.. The economy is totally out of control and the regualtors have abrogated all responsibility, and any sense that their education and experience gave them.
We do know what a 'risk free' rate of interest is (as many sensible commentators have said) and that is 5 to 6 percent. The idiocy of these banking fools is that they have once again been taken in by a ridiculous analogous argument to the 'affordability' argument for income multiple of mortgages - what they are doing is absolute madness and can only lead to the complete breakdown of society and the total destruction of money. Money is not 'FREE' - for if it were assets would be free too, and why work - just thieve.
Stephanie (or anybody else) - do you really believe that free money is a rational way to run an economy?
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It is somewhat amazing that all these educated folks don't understand the way the economy works. It is not a top down system, it is a bottom up system. We have made everyone whole except the people who actually drive the system, the consumer and small business. The political desires to have big companies create many jobs is great for the media and the specific area of location but that is not the national economy. One has to laugh at this foolishness and how they do not understand the economics of a household. It must be that governments/banking and big business/media are so intertwined that they are in a delusional state and believe what they tell each other and are very confused when their passing of money back and forth amoung themsevles does not boost the economy. The serfs don't matter until the food runs out at the castle or weakness invites invasion. If people don't have money to spend and feel insure in their employment the economy will not move forward. Giving money to banks and buying currency is thinking that riding two dead horses give you a better chance of winning the race.
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I have been an investor in UK corporate bonds for several years and it has always appeared odd that so few bonds are issued for private investor consumption by UK corporates. Ready buyers now include the UK government so why is the demand not tempting corporations to exploit this market as opposed to being held to ransom by banks?
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"The justification was three-fold. First, by boosting demand for government bonds, you lower the interest rate on that debt, and since that (risk-free) rate sets the floor for rates across the board, you should lower the cost of borrowing for firms and households as well."
...so we take it that when the QE machine stops - the rates on the high street will rise - just like 1989
"But the final, and most telling, reason was that there simply wasn't enough British corporate debt out there to buy. The Bank would have swallowed up the entire market in a matter of weeks."
Not true Stephanie - there was plenty of corporate debt (banks) but the Government already took all of that in - you mean non-financial corporate debt.
I am sure you are also aware that many corporations are shunning issuing corporate debt and are re-financing through equity rights issues off the back of the new stock market QE bubble.
"Until now, the commercial banks have been able to say, with some justice, that the lack of lending is due as much to low demand from firms themselves as to insufficient supply by banks."
That's because borrowers are much more savvy than they used to be - they know what's coming down the line, higher interest rates, higher taxes and public spending cuts - all of which will hurt the SME's. They (like me) are taking this opportunity to pay down as much debt as possible - it's called "battoning down the hatches - a storm is coming"
"Thanks to QE we do not really know what the "risk-free" rate of interest is over any length of time into the future. All the city knows is that money is (almost) free and there's an (almost) unlimited supply of it."
Maybe this is the end Stephanie - a world where money is free to borrow and there is an unlimited supply - no longer are we held to ransom by those who have ammassed it in the past. Normally this is on a national scale and therefore won't last long - but now we're on the international scale and it might just go on forever.
Could this be the end of debt in all forms? - are we heading for utopia by mistake?
...now that would make me laugh...
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Stephanie, I still have difficulty seeing QE as anything but printing money (A la Mugabe) or debasing the coinage (A la Henry VIII). I would be grateful if you could explain in a future post why this is not so.
In the meantime, with all this printed money enabling our government to live fabulously beyind its means, I await the inflation which surely has to be inevitable. I confidently expect the RPI to be positive by the time December's figures are posted in two month's time.
How long before the £10 coin and the £100 note?
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I note that the UK treasury issues gilts via the Debt Management office, only to have the Bank of England buy them back.
Why one would ask is this the case, why can’t the treasury borrow directly from the Bank of England?
Well oddly enough the Maastricht Treaty Article 104(1) forbids this, the purpose being to prevent debt happy governments causing inflation in the Euro Zone.
Given that so far the Bank of England has spent £173 billion buying gilts and only £2 billion buying commercial paper, it is now abundantly clear that Quantitative Easing is a method of funding Government without officially breaking the rules.
When Quantitative Easing pauses, (I say pauses as opposed to stops, because if it has been done once it can be done again), how will the government fund its debt?
I find it difficult to believe that any investor would buy fixed interest Government debt, predominantly because there is a significant risk in the Bank of England watering down the real value of such an investment by more quantitative easing.
But of all the things that have surprised me the most, is why the above has not been voiced by the various economic and political commentators.
Can a conspiracy of silence on this issue, actually convince institutional investors that all is still well in the world of funding government debt?
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2. At 3:59pm on 05 Nov 2009, John_from_Hendon wrote:
"Money is not 'FREE' - for if it were assets would be free too, and why work - just thieve."
See my earlier post - maybe Proudhon was right all along. Although I don't know why you would need to thieve if money is free - it's free, whoopee!
Maybe I'll be a little down as I have money in the bank - but I'm up for a change, and a real one this time, not from red to blue. The best things in life are already free so maybe money can join them.
Anarchy rules!
P.s. it's not true when you're in a hole stop digging, if you keep digging long enough you'll reach Australia who have beaches and sunshine and jobs apparently!
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so this is it then, why do they keep telling lies about lending to small business, this is blatantly not true. All this has elucidated is that they are focusing on the big companies and the big banks, everyone and everything else is the casualty, they are not Churchhill making the decision to leave the wounded behind at Dunkirk.
And dress it up anyway you like the value of the pound in my pocket HAS gone down, because things are dearer fuel had crept up 10 pence a litre in the last month alone, and so much for the energy companies who were coining it in before all this happened being brought into line, the bills are getting dearer,
the think its all over, it is now, they are trying to avoid panic by telling us the truth that due to the banks the country is now bust, because it is much worse than what we were led to believe by the fraud carried out on a global scale
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Good post by writingsonthewall.
You Asked "Could this be the end of debt in all forms? - are we heading for utopia by mistake?" If all the debt disappears so does all the money in circulation. Debt isn't going anywhere.
The printing of money today just creates inflation in the economy. It cannot do otherwise. Interest rates will have to rise and the result will be further carnage. Quantative easing as they call it at best simply postpones reckoning and at worst means we are in for far harder times ahead.
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Money is slowly losing its modernist clothes - credit has become debt, QE has replaced prudence. The Bank is demonstrating the blindness of an expert when authority replaces knowledge. What world of money will emerge from this? Perhaps one that looks beyond institutional and industrialised forms of capitalism to provide stability and security.
The bottom up view is one where value will remain locked away until our confidence in each other is restored, not our confidence in a single institutional form (ie. banks).
Just as the conventions of mass production and consumption are being challenged by more locally connected, organic forms so our conventions of money are increasingly being challenged by the new economic avant garde - and with it perhaps the creation of a more sustainable and individually accountable system of money.
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Quantitative Easing is a handy way for our wholly owned Bank of England to lend money to British taxpayers. Mervyn buys UK Government Bonds in the market with his invented money. Our Bank then collects interest on our own bonds that it owns, from the Treasury. Our Bank then registers that interest as profit in the Bank. Merve the swerve than pays that profit back to the Treasury. Which cancels out the interest charges. So miniscule-cost borrowing!
Moreover, the Bonds that are now owned by our own Bank of England are assets belonging to our Bank. Which assets add up to most of the so-called debt that's been incurred buying up shares in British Banks.
Large chunks of those Banks are now destined to be sold to private investors over the next four years, and probably for well in excess of what we, in effect, "paid" for them.
It's a sort of three card trick where we, the British taxpayers, take bank shares from investors and then sell them back to them. And all the while simply paying interest on them to the Bank of England, which we wholly own ourselves.
So maybe a debt. But not as we know it!
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Stephanie.
Maybe I am being a little naive, but can you tell me what would possibly compel the banks to loan money to Joe Public, considering the fact that they getting 1/2% money from the BOE (public money)then turning it into gilts and walking away with 4+ points with Zero risk.
The only QE that is taking place is to the banks bottom line and insuring that our government has an unlimited slush fund to keep on borrowing against. The result leaves the British public up the proverb ale creek in a barbed wire canoe, while the government and the banks stand on dry land shouting encouragement.
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Dear Stephanie
Hope you don't mind but it appears to me that those in charge have little idea on how to run the economy, if they did this silly need to bail out the banks would have been prevented. May I suggest running the UK economy like your own personal financial affairs? A few rules:
1. Pay all bills within 30 days (this happens on the continent; they have come out of recession before us)
2. Write a cheque that bounces and you may go to jail (as in Australia)
3. Pay off you debt as quickly as you can (this government seems unable to control its own debt)
4. Watch your finances and change your bank if you don't get decent value (our government should be forcing interbank lending via LIBOR at low rates)
5. Don't put all your eggs in one basket (as the UK seems to have done, not much manufacturing - just service industries and finance)
6. Don't be greedy (don't wish for a bigger car/house/bank balance - be like the folks on, say, Vanuatu!)
I could go on ...
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I wish I knew how to create money ... apart from the old fashioned way of working like a dog to create something that someone else wants, that is.
If BoE can spread the word amongst the UK's small companies, we'll be the richest country in the world in no time flat.
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One can't help notice the number of advertisements (from different companies) inviting people to sell their unwanted gold jewellery.
What a pity Gordon sold most of our reserves at the wrong time at the wrong price!
As the Bank of England is reduced to a policy of 'Print-and-Spend', splashing money around like there's no tomorrow, perhaps now would be a good time to think about REAL investments for the future - you know, something for a rainy day?
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Steph
I am getting as worried now as much as when no one could see the crash coming but some off us could.
What Government and the power that be including the Journo's can't see
is, waiting to see the signs of recovery before we stop printing money is a blind stupidity.
For the economy to turn the corner the ordinary punter will have to have confidence in their situation.
They will then go out and start making purchases.
So you want me to go out and spend?
My first thought is how safe is my job?
If I have my job how much will I be left with after the Labour hand has been dipped into my pocket for the extra to pay of this Mother of all debts?
You can't answer that question.
The Government won't answer that question because they want it to come to light on the Tory watch.
We are being asked to make important investment decisions with a massive piece of the necessary information being kept from us for political reasons.
So will I invest in something that could seriously threaten my financial situation without knowing how much extra tax I am going to be forced to pay for Labour incompetence?
No
Due to the massive mess we are in and the fact no one will tell us how much it is going to cost us. We will not spend so the country will not grow as it should.
They will keep printing because we are not showing signs of coming out of recession and round it will go.
WE NEED HONESTY IN HOW MUCH IT IS GOING TO COST US AND OVER WHAT TIME PERIOD.
Only then can we make our spending plans for the future.
You and all of the other opinion former should be relentless in getting the answers to these questions.
People will not spend until they know it is safe to do so.
As long as you allow Labour to get away with not spelling out the cost then picture will remain incomplete and we will not spend.
To sum it up before I spend any more money in your restaurant can I see the bill please so I know if I can afford it?
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The BOE can buy my debts if it wants.
writingsonthewall
P.s. it's not true when you're in a hole stop digging, if you keep digging long enough you'll reach Australia who have beaches and sunshine and jobs apparently!
The only problem re digging to Australia is, things get a LOT hotter the deeper you go, and meltdown occurs before you actually get there.
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So long as the international debt rating agencies don't see a problem with the level of QE and the countries growing debt burden, there will be little downside to QE. The problem will come when the B of E has to unwind the practice.
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Stephanie
What measures would possibly induce the banks to loan money to Joe Public or small business? When you consider the fact that the BOE is throwing a seemingly unlimited amount of new money (Our money) at them for a mere 1/2% interest, which they immediately use to purchase Gilts for which they they receive a risk free and guaranteed 4+ points. The banks are making money with our money with Zero risk, making the government and the banks deliriously happy. Meanwhile Joe Public and small business is up the proverb ale creek in a barbed wire canoe, with government and the banks standing safely on dry land screaming at us the paddle faster.
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#8. writingsonthewall wrote:
re Proudhon - property is theft (more or less). Free Assets do not mean they are not still somebody's property! I'd better look it up. Grab my copy of Manuel and Manuel - French Utopias P-J P. essays 'Anarchism and Order - What is property?' put aside for bedtime reading - and anyway did Marx not point out that 'property is theft' is self refuting! The line seems to come from (in translation) 'property is robbery'.
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#5 writingsonthewall
''Could this be the end of debt in all forms? - are we heading for utopia by mistake?
...now that would make me laugh...''
What a wonderful thought!
We have the technology and knowledge to do it...just the governance we need to work on it seems.
There is a certain poetry about the idea that the rampent desire for money and the requirement for money to maintain the system gets so out of control that all money becomes... well what it is ...arbitry bits of paper...and atomic level indentations on computer hard drives effectively wiping out all debt.
We could all start again afresh from the leveraged developing world to the couple who went a bit crazy with the credit card which they used as an emotional walking stick during a bad patch.
Think of the human misery that could be eradicated if we printed the whole world out of debt and started again trading on a basis of good governance and tangible goods from a new level playing field without all this damn legacy debt and the mass misery that comes with it.
Keep printing boys.
utopia by mistake... fantastic... no less than the perpetrators of this white collar crime against humanity would deserve.
Nice one writingsonthewall.
Jericoa
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"Second, by buying only risk-free public debt [...]"
Public debt risk-free? Well, you might think so based on past performance, and on the fact that the government can just tax more. But as the FSA likes organisations to point out, that's not necessarily a good guide to future returns.
Suppose that the government were to borrow so much that the interest payments alone were bigger than GDP. Then no matter how much the government taxed, there would be no way to repay the debt. So that establishes clearly that there is an upper bound to how much public debt is risk-free. Of course, the real level at which the debt cannot be repaid is much lower because the country's population has to be sheltered, fed, maintained in good health, educated, defended, transported, kept warm, etc. This consumes a huge portion of GDP in itself, meaning that much less is available for repayment of public debt.
But there's another factor. Suppose that the people decide that the government took on vastly more debt than they had a mandate for. Perhaps they might decide that they didn't feel obliged to pay that debt back, particularly if they didn't get any benefit from it because they weren't a shareholder or creditor of an insolvent bank. Perhaps a political party could become very popular by saying that, as a one-off measure due to the excesses of an out-of-control government, it promised to default on, say, 50% of all gilts with a maturity of greater than 5 years issued between 2007 and 2010 (but also promised to repay all future debt in full). After all, parliament is sovereign - it can do that. It would hurt those who lent to the government, but then they were counting on the government imposing punitive taxes on the population to pay the money back, so the electorate might not feel that they deserve too much sympathy. It would probably spike yields for a while, but the nation might still be better off overall.
So in summary, your assertion that public debt is risk-free is wrong on two counts:
(1) The UK might not be able to afford to repay the debt.
(2) The electorate might decide that it's in their interests to vote for a government which promised to default on the debt.
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QE by definition is inflation. The impact on prices comes later with a time lag depending on which part of the economy the inflated money hits first.
Check out the Brent crude monthly average actual and forward curve prices
Month, 2008, 2009, annual % change
Aug, 113.03, 72.83, -36%
Sept, 98.13, 68.24, -30%
Oct, 71.87, 73.28, +1.0%
Nov, 52.51, ~80, +52%
Dec, 40.35, ~80, +98%
Gold/silver prices are forward looking and telling us a big message. CPI by early 2010 should be interesting. Be prepared.
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I find this article absolutely staggering. I feel truly astonished at how completely upside down these people's thinking is.
Nothing..I repeat nothing..in that article addresses the core problems. Where, or what, if anything, is supposed to be addressing debt DEMAND? Don't they get it? As Ghostofsichuan in #3 mentions - it's bottom up, not top down.
It does not matter how much base money is available, not one iota. It does not matter if the bank of England is buying gilts or buying corporate bonds. Well, actually, it does matter: the corporates would have to be completely insane to be taking on debt in a time like this (hence no available corporate debt)
It's amazing. They've lost themselves in a complex network of interdependent financial artefacts and derivatives, and blinded themselves with mainstream economic thinking.
The solution is completely the opposite direction: TAKE CONTROL OF THE PRIVATE BANKS AND FORCE INTEREST RATES DOWN, WHILE LIMITING THE REDUCTION IN MONTHLY REPAYMENT AMOUNTS ON EXISTING LOANS TO BOTH ACCELERATE DELEVERAGING WHILE INCREASING AVAILABLE CASH, WHICH CAN BECOME THE SUBJECT OF INCREASED INCOME TAXES
Now, anyone got a problem with that?
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There is another solution too, but it involves everyone clubbing together and shedding the prevailing institutions:
a) Support and use social lending, cease to use banks
b) Don't pay back any debts and refuse to hand over property
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Re: 26
I've got a better idea. Force interest rates up and enforce minimum repayment levels of unsecured debt to ensure repayment within three years. Confiscate and auction all assets where income is insufficient to achieve this. But .. let's be reasonable .. let's give people a year's warning that this will be brought in. And .. ratchet up repayment levels over another year. And .. open soup kitchens.
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Stephanie my head hurts. We seem to be creating a virtuous circle of printing money so that Government borrowing can be maintained and the banks can make obscene profits from cheap money. When exactly do we get off this La-La Land playground and get on with the business of addressing the real economic issue, which is that Government spending in Prudenceville is way out of kilter with the ability of the economy to absorb it? Some time soon the Government have to take the medicine to stop us drifting into a Mugabe like utopia, where a cup of C*sta coffee costs a million quid. As to asset bubbles caused by QE the evidence is accumulating. Where I live house prices are back to 2007 levels.
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"Across the global economy, cheap and plentiful money is doing wonders for asset prices. It's also making it easier for governments - especially the British government - to borrow an enormous amount. It's even causing headaches for emerging market governments, as they struggle to cope with shedloads of incoming investor cash."
So, all this make-believe QE money, printed against the collateral of my future taxes, is 'doing wonders' for the casino kids of the markets.
It's making it easier for the un-elected surrender-monkeys of this goverment to sell my country off to the EU while lining their own pockets and pensions at my expense.
What it's not doing is giving me a headache; with not even a pinch of incoming investor cash to get my small business out of the clutches of a bank that doesn't give a flying whotsit if I live or die, as they declare a profit and walk away with a big fat bonus.
The bankers, economists and politicians still haven't got it ......... but maybe soon the real people will take a chance to stand up and make them see the truth.
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The End is nigh we don’t have the money the bankers are just putting it into stocks
Doomed
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Im really quite disappointed the way the media seems to have just rolled over and accepted QE, this evening on the 6 o clock news the view was put across that the Bank hasn't gone far enough and should have printed 50bn! What about the view that it is monumentally reckless for a change?
We were told at the height of the crisis that the era of cheap money was over, that we should have seen the problems in the housing market / debt levels (even though they were so obvious many ordinary people warned for years), and that we will learn lessons and not let this happen again.
Surprise surprise a year on and we have the powers that be falling over themselves to keep the cost of borrowing at an all time low (what about the end of cheap money?). We have money being printed out of thin air at an alarming rate. We have almost no real banking reforms to prevent another crisis from what I can see, and we have another ridiculous house price boom underway only this time with 0.5% interest rates and 200 billion of QE, why is this happening without any real challenge?
Really what are you supposed to teach your children about money now? Recklessness is the only way to survive in this insane economy.
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There is a huge confidence-trick being pulled somewhere.
£1.5T has been frittered away on public sector splurges over the last decade
£500B of personal wealth has been destroyed with pension raids etc.
£200B of QE has magically appeared, 99% of which is used to buy public debt, which is being used to prop-up the busted banked with uncounted liabilities
There's millions idle, but hidden from the dole figures
The the UK was a company, the auditors would be rubbing their eyes in disbelief.
Something very, very peculiar is happening, buying bullion gold really is the only logical response.
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Boxed in is a good description. What happens when the bond markets are weaned off the bulk-buying of the BoE? Would gilt prices be subject to downward pressure raising the cost of public borrowing at a time when taxes are going up. If gilt values fall, the value of the Asset Purchase Fund may fall with HM Treasury ( not the Bank of England) bearing the loss on the fund when Bank of England is forced to sell the gilts they have amassed. What then for the pound's value?
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Credit crisis? I am going to start issuing loans for repayment in silver.
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The investment banks have been making profits by transferring money from one arm of the Government to another. The fact the new money is being laundered back to the Government via the investment banks does not change the economic reality of this process. the Bank of England is financing the Government’s debt needs via printing money in the manner of the Weimar Republic and Zimbabwe...... Someone just appeared on "the World tonight" saying easing is working as the stock market is up 50%.... and he was supposed to be an "expert"!
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#22. Jericoa wrote:
"utopia by mistake... fantastic."
If this is the end of debt, it is also the end of credit (one cannot exist without the other). However it is not the end the ownership of assets and liabilities. It is just that the assets and liabilities can no longer be value in monetary terms. It is the death of money. (And without money, the end of the essential underpinning of the vast majority of economic theories!)
This is the cataclysm that the Bank of England is approaching and this is why rates must rise and QE must be reversed. The destruction of money is unthinkable - but a possibility when money becomes worthless - this inevitably leads to an apparent hyperinflation - but as things are demonetised life goes on through barter. (The problem is that those whose wealth is reckoned in monetary valued assets and liabilities find their world turned upside down.) Unless the fools running our country realise this PDQ we ain't seen nothing yet. The are already drinking in the last chance saloon.
So I beg to differ, this is not utopia, this is dystopia! And worse still, dystopia by design (or downright ignorant stupidity!) And make no mistake this is where we are going, to hell in a handcart!
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Sorry to be late to comment - been a little busy.
Good to be in the company of intelligent blog comments which is more than can be said for journalists, the government and MPC members.
Definition of QE: 'describes an extreme form of monetary policy used to stimulate an economy where interest rates are either at, or close to, zero'. NOTE THE WORD 'EXTREME'.
Of course, if QE is so good in terms of making debt free as Writings (see #5) eloquently commented why haven't we been doing it since we've had a modern economy?
I've already commented numerous times on the 'Governement free debt/interest etc' and its getting boring.
Mmm - what are the unintended consequences - just inflation? or currency devaluation as well? what happens to gilt yields?
Heard Blanchflower on the radio today urging more QE because we're in a global recession. He seems to have forgotten that only the US and UK are actually using QE - so why isn't everybody else - another question being missed by media commentators......
I would suggest that we move immediately to set an inquiry into the negative effects and costs of QE instead of this 'half-baked (so called) expert comment made by Treasury officials and BBC commentators.
Lunatics and asylum come to mind......a dark room is needed right now.....where's my straitjacket?
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Stephanie, would you like to conduct a sweepstake on the size of the RPI inflation numer for Dec 2010. I'd like to bid for the ticket that says 6.8%
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No 8 "P.s. it's not true when you're in a hole stop digging, if you keep digging long enough you'll reach Australia who have beaches and sunshine and jobs apparently!"
Don't be too sure about that. The Aussie government is taking a very tough stance on illegal immigrants !! If you dig through to Aussieland, they might just set their packs of dingos on you and then where will you be ?? :-)
PS. They *DON'T* tie their kangaroos down, sport !! :-)
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#39 ishy
"PS. They *DON'T* tie their kangaroos down, sport !! :-)" Nah Bruce they SHOOT the bu****s!!!
Why are we not begining to try and calculate just how high inflation is going to go once QE is suspended?
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No 14 "6. Don't be greedy (don't wish for a bigger car/house/bank balance - be like the folks on, say, Vanuatu!)"
FYI - There are plenty of greedy people on Vanuatu - Home of the Francophone Hedge Funds !! I know cos a mate of mine works there !! And he's not going back to France except for short holidays. Why should he when he can get all the 4Ss he wants - Sun, Sand, Sea and...err...I forgot what the last "S" stands for !! :-)
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No 15 "I wish I knew how to create money ... apart from the old fashioned way of working like a dog to create something that someone else wants, that is.
If BoE can spread the word amongst the UK's small companies, we'll be the richest country in the world in no time flat."
No problem !! Just ask Robert Mugabe !! He knows all about this !!
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No 16 "As the Bank of England is reduced to a policy of 'Print-and-Spend', splashing money around like there's no tomorrow, perhaps now would be a good time to think about REAL investments for the future - you know, something for a rainy day?"
Yeah, buy RMB !! They are appreciating significantly against the quid !! Or should that be the quid is depreciating significantly against the RMB !!
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No 19 "So long as the international debt rating agencies don't see a problem with the level of QE and the countries growing debt burden, there will be little downside to QE. The problem will come when the B of E has to unwind the practice."
The rating agencies are no longer "flavour of the month" !! International investors are keeping a very gimlet eye on the level of British debt and are discounting the quid accordingly. They are also *NOT* buying Gilts !!
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No 23 "Suppose that the government were to borrow so much that the interest payments alone were bigger than GDP. Then no matter how much the government taxed, there would be no way to repay the debt. So that establishes clearly that there is an upper bound to how much public debt is risk-free. Of course, the real level at which the debt cannot be repaid is much lower because the country's population has to be sheltered, fed, maintained in good health, educated, defended, transported, kept warm, etc. This consumes a huge portion of GDP in itself, meaning that much less is available for repayment of public debt."
Isn't that the economic gospel according to Robert Mugabe ?? Perhaps "lessons have been learnt" by G. Brown esq. from R. Mugabe esq. !! Farming in Atlantis looks better and better by the day !!
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No 25 "Now, anyone got a problem with that?"
Yes, can you get your caps-lock key fixed soon ?? :-)
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No 27 "I've got a better idea. Force interest rates up and enforce minimum repayment levels of unsecured debt to ensure repayment within three years. Confiscate and auction all assets where income is insufficient to achieve this. But .. let's be reasonable .. let's give people a year's warning that this will be brought in. And .. ratchet up repayment levels over another year. And .. open soup kitchens."
Oh dear. it's all so complicated. In the old days, it was so much easier. They just took the last government out and shot them, after having a bit of fun torturing them, of course !!
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No 31 "We were told at the height of the crisis that the era of cheap money was over, that we should have seen the problems in the housing market / debt levels (even though they were so obvious many ordinary people warned for years), and that we will learn lessons and not let this happen again."
And you actually believed them ?? Hahahaha !!
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No 33 "What then for the pound's value?"
Somewhere between the cess-pit and the sewage farm !!
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No 37 "He seems to have forgotten that only the US and UK are actually using QE - so why isn't everybody else..."
Because they are too busy digging themselves out of the recession !! (See why them and not us)
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No 40 FDD "Why are we not begining to try and calculate just how high inflation is going to go once QE is suspended?"
The last time the manure met the rotating object, inflation reached 15%, but that was when we still had gold reserves !! I'd say it'll be much higher !! Any bets on lower ??
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#38 - If QE was being applied so that the money actually cascaded down into the wider economy you might well be right about inflation in the future. But if the banks continue to hoard it and don't increase lending, we'll have stagnation without inflation. Caledonian Comment
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QE=Bonkers
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Here's an uncomplicated economics management problem that next doors cat explained to me.
Money supply is growing. That growth can be measured against GDP as a percentage.
OK puss, i've got that.
That's why GDP is a useful number. If growth in the economy as a percentage, is less than the percentage growth of new money, then inflation will make up the difference.
Wow, puss, you are one smart four paws, everything is really cool then isn't it. Lovely.
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Blanchflower: Bank is trying to create inflation
http://www.mrscohen.com/personal/-/news/markets-companies-and-funds/content.aspx?ID=366549
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Here is the really interesting little viper inthe grass............ http://seekingalpha.com/article/171622-more-fodder-for-inflation-deflation-debate-higher-gasoline-prices
Of GAS & hot air. http://www.sysopt.com/forum/showthread.php?t=204568
04-26-2008 - http://www.sysopt.com/forum/showpost.php?p=1443658&postcount=9 - http://www.sysopt.com/forum/showthread.php?t=200648&highlight=commodity
We may very well see a significant oil price spike, it was evident from futures trading a while back, the speads being set. This happened before, remember, when your petrol tank became twice as expensive to fill. Traders manipulate markets, they do this with guile, knowledgeand insight, it is the game. The game. Fixed price contracts are such a bore if your living is earnt sitting in the middle between supplier and customer. Mark that to market. This is though good for government revenue - they are on percentage.
lnvariably, people, including your wonderful selves, learn by their mistakes. Putting it politely, as English tend so to do, we ain't perfect. Far from it. The true mark of superior individualism is the ability to make fewer mistakes. This is a proof of intelligence, ability and.............. above all insight. Understanding, grasping the mechanistics of what goes about us or is proposed and attempted.
Ergo........... , mistakes are a fact of life.
You should remember that in the morning when you are lookig in the bathroom mirror and grab the shaving foam instead of deoderant...... Above all, mistakes breed caution. Morons are therefore cautious. l hope you follow. Genius is insight. HE DID WHAT.................. Next time one or other states they have the answer, ask them how hard they worked to find it. ie Ah so says, so we must say he says its so! Then ask what are they after for themselves AND why they should have it.
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The point of it all is panic, that confusing, sickening, gut wrenching panic of disaster during which time anyone focused and intent upon their own intent, will wipe the floor. With you!
Welcome to the 21st Century! Long may you profit.
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http://www.sysopt.com/forum/showpost.php?p=1485537&postcount=
there may actually be people who worship this data http://files.myopera.com/herosrest/albums/805954/mush.jpg They don't actually really understand it, but it looks good to them.
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If inflation is under control (and it may not remain so for much longer), isn't the advantage of buying government bonds that it helps reduce the crippling debt the taxpayer is currently suffering? Surely, this would be a helpful by-product of QE irrespective of the stated aim of pumping money into the economy. Perhaps a devalued currency in the short term may even help support UK exporters. What is there to lose?
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Stephanie, the overwhelming view of the people posting comments is that QE is inflationary. For myself, I liken what is going on to the antics of John Law in Paris in the early 1700s. His money printing got the French economy going again and then ruined it with hyper inflation.
You are far better educated in economics than any of us. You also appear to support Quantative Easing.
Please can you post an objective analysis to explain why QE is not inflationary.
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If the BBC and general press hadnt fallen for the Labour Spin of calling "Printing Money" QE Then perhaps we would view it for what it is. The desperate attempt by a failed Government and a situation more suited to a banana republic. Unfortunately, our "financial press" like the spin just as much as the Government.
QE ! Bah Humbug. It Is simply PRINTING MONEY and we have duped again hook line and sinker.
Fianancial journalists owe it the British public to display and explain things for what they are, not simply pander to the Goivernmenmts cover ups.
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#59Adel Helmy
But how about the Perfect Storm - ramapant inflation with a constantly devaluating currency?
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QE might just, only just, help the situation if the money goes where it can do some good.
However, pouring it into the Government's coffers to hide their spendthrift ways will only make things worse.
The bank bailouts and QE are creating more debt to fight a debt crisis; doomed to failure.
You can't put a fire out with fire.
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Post 38 & 55 I tend to agree with your thoughts. I'm not sure 6.8% is right though.
I fully expect it to be over 4% and maybe up to 5%.
If we add in the following all these will act to push up RPI.
1) The inflationary aspect of QE as more money chases a limited amount of goods.
2) A resurgant household property market (remember it is easier to swing to relatively high growth from a fall) with 5 buyers to every seller if you believe the press today..
3) GBP 1 = EUR 1. This will add 20% to the cost of imports from Europe once people start buying again.
4) The price of crude oil has risen considerably in the past few months and as the effects of the drop in prices from July 2008 to spring this year start to work their way out of the figures this will help push things up.
5) Once we hit spring 2010 the effects of falling mortgage rates from September 08 to March 09 will be out of the system and this won't help keep inflation down anymore.
A nice bit of inflation to reduce government debts and help those with huge credit card debts and mortgages to feel better about themselves.
Stagflation here we come!
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#60 Henry_Quimper
QE can be none other than inflationaery. The 'trick' would have been to stop QE and cool the economy by a subtle mixture of interest rates and taxes when the target for QE had been achieved.
If you have faith that either the Bank or the Treasury could either define when QE had reached its optimum target or work in concert to control the inflatioanry pressure then just maybe there will be a positive outcome. History of both august bodies seems to suggest that their ability to do either is at the same level as their ability to make pigs fly!
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Henry Quimper said:
" Stephanie, the overwhelming view of the people posting comments is that QE is inflationary."
This is not so is it. The overwhelming view is that the money is simply being hoarded by private banks.
Logically, if the vast majority of money is deposit money that arose from issuance of loans, and if the majority of people are trying to pay down debt (debt deflation), and money that does not make it into circulation cannot be inflationary, and money that does goes into reducing debt, and hence the quantity of money, there can be no inflationary effect.
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1. QE and zero interest rates are not a rational long or medium term economic policy.
2. There is a huge risk in short term use of these policies (and we are now past the short term!)
Are we to wait until we have a major bubble burst before action is taken to sack these idiots. So far there are two obvious bubbles of irrational exuberance in two important market that have been directly created by these insane policies - the equity market and the housing market. Both will correct at some point in time.
In the thirties depression these printing money policies were not stated for a couple of years into the depression - we have seen them start far sooner. This distorts the markets and fools us into believing that everything is fine - a deliberately created bubble economy no less!
Without these stupid policies we would have seen a far steeper decline of not 6 or so percent but perhaps ten or more. But we would have been over the problem of the decline by now, and if money was now injected into the economy at the base of the down-swing it might help accelerate the upswing.
Instead we have not seen the vital revaluation of assets that should take place and needs to take place in the economy lessened and delayed- BUT not prevented. This is the absolute folly of these stupid policies. House prices are still more than twice what they need to be and the price of money is nugatory. Equities are for too expensive and the yields are far too low (as a direct consequence of QE etc.)
By the way, why people will not borrow even though the banks have the money and it costs nothing is that borrowers are making a rational decision that assets are overpriced and borrowing money to invest is paying far too high a price.
Also the whole pensions industry is critically endangered (as a direct result of QE etc.) I would not be at all surprised if some pension funds default on paying existing pensioners' annuities.
We must, as matter of immediate priority, cease QE, recover the money so far wasted and put rates up to five the six percent.
We must permit asset prices to fall and then and only then can we start supporting the economy.
Basically The Bank (Mervyn King, the MPC and the Treasury) has moved far too early and this is a critical error of timing. Fire the men and get back to sanity!
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#67 - JFH
"So far there are two obvious bubbles of irrational exuberance in two important market that have been directly created by these insane policies - the equity market and the housing market. Both will correct at some point in time."
Ermmm....the housing market is in the process of correcting is it not? The equity market, yes, driven up by institutional speculators, but not actually contributing anything to the real world, true.
"We must, as matter of immediate priority, cease QE, recover the money so far wasted"
What's the rush? This QE doesn't have any effect at all, apart from to underpin bank's balancesheets.
" and put rates up to five the six percent. "
No way! This would just make life a lot harder for Mr.Fred Bloggs on the street (and his wife too)
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No 62 FDD "But how about the Perfect Storm - ramapant inflation with a constantly devaluating currency?"
Well, we'll have to subsist on a handful of dried maize a day as they do in Zimbabwe !! :-)
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Nobody is explaining the rationale behind assuming that QE is inflationary. There is no reason why it should be.
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No 67 "Also the whole pensions industry is critically endangered (as a direct result of QE etc.) I would not be at all surprised if some pension funds default on paying existing pensioners' annuities."
Actually, in some ways, inflation *helps* pension funds in the sense that their income from investment will grow while the pensions paid out will be limited to the numeric amount stated in the pension agreement !! Of course, the pensioner will *NOT* be able to buy as much with his pension as he thought he would but that's the risk of paying into a pension pot !!
This happened in the late 70s and a lot of pensioners were hurt by the 15% inflation until it was brought under control !!
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To clarify the points raised above concerning the statements of Pierre-Joseph Proudhon in his work `What is Property'; he actually meant that to use property to exploit the efforts of others was theft. He never applied the word `theft' to personal property. Since he was a skilled artisan, a printer I believe, this is wholly logical with his own social and economic condition. In other words he was opposed to proprietorship not property in itself.
With regard to foredeckdave's Perfect Storm in Message 62 one can only remark that he succintly describes the position in which the Weimar Republic placed itself in the Twenties.
Once again one is reminded that during the Nineties we saw the death of State Socialism, now perhaps we are seeing the death of Social Democracy. Rather than suggesting that Marx was right as WOTW would like us to think in his economics agenda, I would suggest that this proves Marx was wrong in his political agenda. Perhaps we are returning to an older, less scientific radicalism which allows the views of the libertarian Proudhon to be expressed.
At the present time we have the British state and its nominees in the City hanging the real value adding economy out to dry in the cold winds of recession. If this policy does not end forthwith then we are dealing with the very stuff of revolution: our economy is being stood on its head as a matter of public policy. This is the Bedlam Economics of vested interests defending the desert they call peace!
Yet there is nothing on the political horizon to suggest any difference will be forthcoming.
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No 59 "If inflation is under control (and it may not remain so for much longer), isn't the advantage of buying government bonds that it helps reduce the crippling debt the taxpayer is currently suffering?"
Err...exactly how does taking non-existent money out of one pocket and putting it into the other help the government debt ?? Please enlighten me !!
"Perhaps a devalued currency in the short term may even help support UK exporters."
Err...what percentage of UK's balance of trade come from exports of locally manufactured goods ?? And how much more of that devalued currency will we have to pay for the latest incarnation of IPod or IPhone or computer ??
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No 64 "Stagflation here we come!"
Stagflation only occurs when there is sufficient home-grown assets to back up the economy. When there is an over-hanging burden of toxic "assets" whose value, or lack thereof, is yet to be determined, it'll be inflation all the way. If we are VERY, VERY lucky, we may not slip into hyperinflation !!
If we are not so lucky, then it's - Zimbabwe, here we come !!
Perhaps relatives, friends and charitable persons abroad might send food parcels to Britain then !!
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On the subject of National debt. I once sat one desk away from a chap who was trying to sell off Peruvian debt - we were running down a bank, closed by the BofE. My bank, and others, lent this money on the belief that countries do not go bankrupt - we did not get much, if anything for the Peruvian debt. I do wonder if the belief today is that G8 countries do not go bankrupt. If it is, don't believe it.
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No 72 "To clarify the points raised above concerning the statements of Pierre-Joseph Proudhon in his work `What is Property'; he actually meant that to use property to exploit the efforts of others was theft. He never applied the word `theft' to personal property. Since he was a skilled artisan, a printer I believe, this is wholly logical with his own social and economic condition. In other words he was opposed to proprietorship not property in itself."
Misquotation is not new !! Thousands of preachers have thundered - "Money is the root of all Evil" - when nowhere in the Bible says that !! What is actually said is - "*THE LOVE OF* Money is the root of all Evil" !! Rather apt for this blog, isn't it !! :-)
Take heed, all ye bankers and receipients of massive bonuses !!
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#68. FrankSz wrote:
"Ermmm....the housing market is in the process of correcting is it not? The equity market, yes, driven up by institutional speculators, but not actually contributing anything to the real world, true."
Glad you ashed that: I disagree, the housing market is absolutely at too high a multiple of earnings and thus has more to fall, but QE and free money are stopping this correction from happening indeed house prices are now going up.
On the question of equities not be part of real life - so your pension is not real life - tell that to a Church of England priest whose fund is only in equities! Annuity rates are still higher than the interest rates and yields at current levels and the pension providers are gambling on a return to rational rate levels of 5 to 6 percent PDQ.
"What's the rush? This QE doesn't have any effect at all, apart from to underpin bank's balancesheets."
I disagree QE effect so far is to reflate the equity markets and drive down yields to irrationally low levels. Money is piling into equities for the lack of anywhere else to go - that is a bubble!
"" and put rates up to five the six percent. "
No way! This would just make life a lot harder for Mr.Fred Bloggs on the street (and his wife too)"
Sorry but the state of the economy is such that the fallout will inevitably hit the man and woman in the street - it is not of question of whether it is a question of when. It is my analysis that the QE and interest rate cuts were a year (or more) too early and we have not yet had the downturn!
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#71. ishkandar wrote:
"inflation *helps* pension funds"
Provided that they are well funded and are not already over committed to paying annuities they no longer have the funds to pay!
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#70. FrankSz wrote:
"Nobody is explaining the rationale behind assuming that QE is inflationary. There is no reason why it should be."
QE is inflating asset prices (House Prices and Equities) or havne't you noticed.
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Stephanie, you seem to have a bit more grasp of reality than your colleague Mr Peston and will recognise that for all the posturing going on by economists the simple truth is that the British Government has now resorted to printing it's own deficit.
98.9% of the "QE" (how easily we slip to using euphemisms like this, and "Downturn") has gone to that purpose, and what's the bet on the next £25bn? With the last price signal gone the State will even further reduce the productivity of its spend, leading the country further into ruin.
The UK won't go down because of the technical effects of £200bn of Printy Printy, but because psychoogically the State has crossed a line and once crossed they'll find it easier and easier to carry on, especially if Labour win the election.
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So, the Market would have fallen but was propped up by QE.
Hmm, okay, how does this help the British economy create wealth for the medium to long term ?
We need manufacturing Jobs and products to export !
Hey ho.
Somebody tried to explain to me the Elastic band theory of Stock market expansion, I didn't quite understand it, but the upshot was to keep out of the Market whilst it is over priced (such as now).
Wish I had listened to him years ago !
Anyone want any old B&B Shares ? (Framed as talking point)
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What's to say ?
Stock market bubble with no profits ala 2000-20001 with the dot com boom.
Low interest rates, money being printed via QE and house prices rising again.
Economy lagging behind all competitors.
End result is obviously inflation and then higher interest rates, then we actually get the reset button pressed but in the process all that has actually happened is UK debt has bubbled probably twice over.
Higher interest rates will be forced by external economies regardless of what happens in the UK.
We are doomed.
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Credit Card interest rates at 16%, Building Society interest rates at 1 or 2 %... Both of these figures show a measure of the risk that either people with cards will default or people's investments won't get great returns with any slack from either being mopped up by banker's bonuses.
We need the 10p tax rate back to give some cash to the poorer people in society, or a modern day Robin Hood giving out cash NOT QE for the City folk and expensive Government services, pensions etc.
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I have £12k 'spare' [I will still have a crisis fund] and my outstanding mortgage is £12k which I am paying interest on at 2.75%.
Based on all the above should I pay off my mortgage tomorrow or not?
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The fact remains that many people appear to be paid for doing something which adds no value to process. That many people get paid for doing things which are several times removed from providing an actual product or measurable service.
Under stress the whole fantasy economy developed in the last few decades is just a house of cards and can fall. If you are not adding value, if you are not near the action of actually providing something, then a job can go overnight. This is what is in process. Things with no stress tested foundations are an experiment when the stress comes along. How many activities current in the economy have ever been stress tested.
The tide is going out, it doesnt matter how much is pumped in to try and raise levels. It is wholely nonsensical to talk about jumping a gap which still remains the image talked about. The situation is one essentially of denial I am afraid. This is back to the underlying activity that has been in place for decades - Manufacturing steadily slipping away. Poor strategic thinking, short term profit taking. The roots of this malaise are back witrh the start of the use of housing market manipulation some 40 years ago which provided easy profits and suckered any entire population.
It doesnt matter how much local 'growth' is generated if the tide is still going out. This situation is the result of decades of steady destruction, it is not going to go away in a matter of quarters so my suggestion is - get used to it.
A few less fantasy jobs in the public sector would help, undercover litter police, riverbank health and safety inspectors, street football managers. The idea that the solution to a miniority problem is the overbearing surveillance of all, everybody in the population. Perhaps into the mix should be added economists who influence policy but consistently get it wrong. How many of these economists are genuinely independent. All part of the same dislocation from reality. A virtual empire. You wouldnt dream of these sort of activities if you were on a desert island facing survival. You can by all means decry the desert island scenario and say it is in extremis, but it is no less extremis than the pairs of undercover litter police driving around in brand new cars in brand new uniforms following dogs back home however long it takes.
So keep pumping the money to the banks, job nearly done, money nearly gone. Because one thing is for sure thats the only point it will stop, when the money has gone. It is just a floatation device dwarfed by the real problem. Every effort is being made to defer facing reality, but I am afraid it is most unlikely to acheive that objective. Sooner or later the majority will have to face the fact that they have had a lifestyle propped up on profit taking and things are due to be somewhat bumpy.
As all developed countries are acting concertedly in trying to prop up the scenery things will not move forward will they. All that is achieved is a bizarre status quo and collective deferment. The whole culture has to change and values reset. Does anybody think this is likely to be fun for those who have previously won in an artifical environment, that they will quietly go into that night. That they will not try to throw a double six and get out of jail free. That they will not try and sit on the community chest.
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Glanafon - an excellent summary of the position.
Like I once asked on this blog - if I drop enough litter in the supermarket car park that it creates a job for someone is that good for the economy or bad.
Nearly all our Fantasy Economy is based on dealing with other people's litter - the problem is that there are less and less people in the car park to drop the litter in the first place.
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10. At 4:56pm on 05 Nov 2009, Joe King
....but doesn't economic theory dictate that commodities in abundance have no value (like air)?
At this rate there will be notes everywhere and they will become worthless - inflating away all the debt of the world, only possible because all countries are printing money this time.
(let me dream for a while - I was enjoying it)
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I think rising house prices are a myth.
As someone who has been thinking about re-entering the housing market I still see falling prices. Look at Land Registry data rather than vested interest PR and see the number of houses listed on rightmove that haven't sold and the number re-listed with lower prices to get a better idea of what is really happening.
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18. At 5:45pm on 05 Nov 2009, DevilsAdvocate wrote:
Haven't you seen that film where they go through the centre of the earth? - it's a documentary, not fiction - just like Mary Poppins and the run on the bank!
This afternoon I will be buying a spade and proving you all wrong.
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85 glanafon
Excellent comment, well written.
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22. At 5:59pm on 05 Nov 2009, Jericoa
After reading your post I realise I am not mad (or that there are two of us who are, which means we're a cult / religion / society, not an individual madman).
I'm fully behing QE now - lets rip those presses into full gear and flood the world with sterling.
Hurrah!
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I echo the words of comment 60. Given the current volume of quantitative easing what is the estimated increase in inflation (RPI and CPI) that can be expected and by when?
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" I think rising house prices are a myth."
Of course it's a myth.
I'd like to see a graph somewhere showing absolute number of house purchases and the price distribution by month.
Better would be some graphs of M4
LIKE THIS ONE: http://www.marketoracle.co.uk/Article8004.html
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62. At 09:01am on 06 Nov 2009, foredeckdave wrote:
"But how about the Perfect Storm - ramapant inflation with a constantly devaluating currency?"
...that will go nicely with the 'strong financial headwinds' and the 'steady course' the UK is steering from it's 'well positioned' place in the sea of nautical Ed Balls.
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63. At 09:04am on 06 Nov 2009, bill wrote:
"You can't put a fire out with fire"
....or rather you can't put out a fire by dousing it in petrol...
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66. At 09:14am on 06 Nov 2009, FrankSz
....but where do you think the stock market bubble came from - is that not inflationary?
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72. At 10:08am on 06 Nov 2009, stanilic wrote:
"Once again one is reminded that during the Nineties we saw the death of State Socialism, now perhaps we are seeing the death of Social Democracy. Rather than suggesting that Marx was right as WOTW would like us to think in his economics agenda,"
Sorry - was I wrong? - is this how Capitalism is supposed to work?
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Writingsonthewall - do you have a job?
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#96
No,
a) deflation/inflation refers to rises and falls in the general price of goods,services or in other words the value of money. A blip in the stock markets does not say much about this.
b) What stock market bubble? There was a blip 2 weeks ago and the DJ is back down again.
c) The QE money that banks/institutions held onto went briefly into some stocks/commodities, but unemployment, deleveraging and money deceleration continue. The money is concentrating into the balance sheets of the banks and the government, while the capillaries of the economy contract and wither.
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97 WOTW
You are a true Marxist: you take a partial quotation out of context and then criticise it.
I was trying to convey the concept that Marx's political analysis was wrong whilst his economic critique of capitalism has some validity. I am at fault for failing to make the point clearly.
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Franksz - you have made clear in several posts that you do not see QE as inflationary.
I don't know your background but I have put mine on the line several times. I am not as well qualified as Stephanie, but I do have a degree in the black art of economics.
QE either is or is not printing money. I happen to think that it is precisely that - printing money. A number of governments have done this and I cannot think off hand of a single example of such a government that has done it and it not led to hyperinflationary disaster. Pontificating about the new money going on deposit with banks wildly misses the point. The money has been created and put into circulation in such a way that the Bank of England has no control over it. Sooner or later it will get into the wider economy and then it hits the fan. Do you want to see Tescos shut every hour to put their prices up? That's where we are heading and I am afraid for our future.
I'd love you to be right, but I'm afraid you have it wrong.
I respect Stephanie and I hope she will post something objective analysing QE and showing what she anticipates the inflationary effects being.
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WOTW - I presume no reply because following being constantly on the BBC financial blogs all morning you have gone out for lunch? My lunch is now over but I might catch up with your response when I have a cup of coffee later.
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85. At 11:24am on 06 Nov 2009, glanafon wrote:
If what you say is true, then surely the same applies to those in the private sector who get paid for doing very little (or getting it wrong).
Investors are tasked (through the market) with the efficient allocation of resources - which the Capitalist model see's through the conduit of profit - it's a similar story within banking.
However, considering the waste of resources (employment, training, machinery, property) which is currently occuring - we can safely say that they have failed dismally in this task - and yet paid themselves (through dividends and profits) - quite handsomely in the last 10 years in expectation of future profit
What you seem to be indicating is that we need an analysis of all workers to establish who is actually productive and who is a parasite. I am all up for that, but there will be wails of derision from the usless masses who would fear for their established position (like the bankers who threaten to move abroad if they're taxed heavily)
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88. At 11:45am on 06 Nov 2009, StephenBlencowe wrote:
"I think rising house prices are a myth."
....oh that's just the start of it - I haven't got enough room to write all the bending of the facts that's going on at the moment. My sister just bought a house which has been 'sold' 4 times already!
....and even though I say 'bought' - I actually mean 'subject to survey and contract'.
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98. At 12:14pm on 06 Nov 2009, GRIMUPNORTH77 wrote:
"Writingsonthewall - do you have a job?"
yes, it's writing on blogs, a useless but very well paid career!
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No 81 Supercalmdown - "Anyone want any old B&B Shares ? (Framed as talking point)"
Calm down !! Imperial Russian Bonds are rising in price !! It seems that their print quality is excellent and there are collectors willing to pay big bucks for them, if only for interior decorations !! Perhaps, one day, B&B share certificates might have some value too !! :-)
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99. At 12:16pm on 06 Nov 2009, FrankSz
...what do you think happens with the money that will be made on the recent stock market rises? (and I'm not talking since last Friday, I'm talking about the huge bounce from 'ground zero' in October last year)
Extra money in the Economy always leads to rising prices, I think you're just getting confused about timing.
Once there is additional money sloshing around some peopel loose all sense of 'value' and start overpaying......I don't know, lets suppose houses.
As someone who mentions the DJ - I presume you're in the states and should know better than anyone what an over-inflated housing market looks like. In the Uk (being much smaller) people convince themselves there simply isn't enough room (and scarcity pushes the prices up) - but in the US there's no excuse as there is very little (if any) restrictions on house building - like the draconian planning laws we have here.
Eventually the stock market bubble will find it's way into the real economy and raise prices - it's just that nobody know when, and by what degree - but it will happen eventually.
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Henry Quimper
"A number of governments have done this and I cannot think off hand of a single example of such a government that has done it and it not led to hyperinflationary disaster. "
a) Japan did it and there was no inflationary effect
b) http://www.moneyweek.com/news-and-charts/economics/lessons-from-japan-why-quantitative-easing-wont-lead-to-inflation-42730.aspx
Deflationary spiral. Debt deflation. Read up.
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The impact of QE and fiscal stimulus is still unknown. However, we already know the impact of not using stimulus packages from the condition of the market in Ireland.
In Lloyds Banking Group, we expect a high level of impairments to continue in Wealth and International throughout 2009, particularly significant provisions against our Irish portfolio. Commerical and property prices have been depressed for some time although the unemployment rate did fall slightly in October for the first time in almost two years to 12.5%. Essentially Banks need to loan more money but to the right customers and buy wise investments in gilts etc. which are cheap at the moment.
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100. At 12:28pm on 06 Nov 2009, stanilic
I only took that comment because it was the one I disagreed with - I was happy with the rest of what you said.
However, whilst Marx's political agenda may be wrong, I only think it's wrong in how we recognise it (like a new world of Communism) - what it now looks like to me is in fact 'historical communism' returning.
- for those who do not realise it, early man were all Communists - the human race could not have survived if it had competed with each other in the early days.
...."back to the dark ages" - is probably a more popular description.
P.s.
If I were a Marxist then surely I wouldn't take a paragraph and criticise it, for Marx took the 'very large philosphies' of the dialect of Hegel and the Materialism of Feuerbach and combined them in his critique of Dialectical Materialism - which is very different to what I did.
...therefore your accusation of a 'typical Marxist' is a self defeating argument in the case above.
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Ah yes - the miracle of QE working it's magic - just watch those insolvencies......errrr...reduce?
http://news.bbc.co.uk/1/hi/business/8346170.stm
This is where the long slow drain comes from, not from Government policy but from the continuous and steady collapse of the real economy.
As several people have pointed out - the Economy is 'bottom up' and not 'top down' - and right now the top has got heavier (through QE) and the bottom has fallen out.
....now how many Pyramids were built upside down?
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No 85 "As all developed countries are acting concertedly in trying to prop up the scenery things will not move forward will they. All that is achieved is a bizarre status quo and collective deferment"
Since they are using *REAL* cash to do the propping up, this scenario will stop when the *REAL* cash is gone !! Already, various blocs are talking about using a new international reserve currency or creating a new one !! This will leave devalued national (or "trading bloc", in the case of the Euro) currencies floundering and sinking when no one will accept debts denominated in them !!
The new Japanese government is already floating the idea of accepting only US debt denominated in Japanese Yen !! The idea is to defend themselves for intentional and/or malicious devaluation by the debtor country in order to "inflate away" the debt(s) !!
This is also why Gilts are so not "Flavour of the month" in the international markets, especially when the interests are so ridiculous low !!
When the effects of Queasing hits and Britain's credit has maxed, inflation will hit with a vengeance !!
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#107 Writingsonthewall
"Extra money in the Economy always leads to rising prices,"
Correct, but you would need to show that rising stock markets have led to extra money in the economy. As I showed you in the link above, M4 (in circulation) is declining.
"Extra money in the economy" - I know you mean, when you think about it, money in circulation, as of course a nation of people with share certificates under their pillows does nothing for prices at all, does it now?
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#107
"Eventually the stock market bubble will find it's way into the real economy and raise prices "
Hasnt yet happened to Japan though has it?
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In the space of nine months the British government will have exchanged £200Bn worth of IOU's for £200Bn of freshly printed cash. That's equivalent to fifteen months salary for every single person on the state payroll...police, nurses, teachers, doctors, bin men, mp's.....the whole lot!
WHAT A WASTE OF INK!!!!!
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No 101 "Do you want to see Tescos shut every hour to put their prices up? That's where we are heading and I am afraid for our future."
When that happens, the entire senior management of Tesco will probably float off gently on a pink cloud in the direction of Bangkok, where their biggest hypermarket exist !! Still plenty of money to be made out there !!
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Hyperinflation my bottom.
At worst the UK will switch to Euro, but you are being desperately optimistic if you think we'll switch from a deflationary nosedive to a sudden explosion in circulating pounds due to returned optimism coupled with excess lending! HA!
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Preliminarily Unorthodoxy.
A market exists insuring credit. It is a huge hedge industry - it is invisible and profitable. A - because it is benign. B - because it generates significant fees.
Underlying the Insurance(hedge) market is the credit industry of derived finance.
Underlying the derived finance market is property.
The property market contains two components.
A - Property for sale.
B - Investments. Debt financed investment by the property owner.
Property for sale prices (values) the investment properties. Here lies the fundamental flaw that must be resolved. I could post a treatise on this topic. It would do no good. Until you grasp the nature of the proposition, it is anethma. Once the idea is grasped, those who can influence it, will do so immediately and rest not, until resolution.
The hedge underlying the underlying is a leverage. It is vast. To change an accounting measure valuing those hedges is insane. It is insanity. It is what happened. It is the reason orthodox economic response is futile. The symptoms of economic problems present as orthodox economic boom/bust bubble corrections. That is not what has happened. A revaluing exercise of derivatives, was half cocked and today is its result. Step outside the conventional wisdoms. A gnome went to work with his axe. It was very sharp and we, all of us are being extremely blunt. Is their actually an economist in the house. The problem exists because property values declined - 95% of those property values were incuded in a revaluation that should only have affected property for sale. The devaluation of property prices was a response to the devaluation of the hedges underlying the credit finance, which caused the lack of credit available for finance. An incomplete and unbalanced equation is in place, it will correct itself. The component in play is time, the contract length of all finance in place before the revalution occured. Revaluing property not for sale resolves the problem. The problem that exists is one of scale.
Value the property market now. Compare that figure to jan 2008 and 2007 and 2006. There lies the problem. It is root.
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#110 writingsonthewall
What do you have in mind when you refer to Marx's political agenda?
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Personally I'm not so worried about the numbers - as far as quantitative easing goes. For me it is more about what sort of economy we are injecting this money into and whether the timing is right.
At the moment we are seeing a market that is behaving so erratically we are left with no alternative than to conclude that our 'economy' is in the hands of some very strange people indeed. On a day that BA announces a loss and while it is facing the prospect of strikes shares in BA rise...! Similarly RBS - surely the most toxic of 'national assets' at present is also showing a rise in its share price. These things could not be possible if the Market was in the hands of rational people. An irrational market suggests irrationality within the economy as a whole. Perhaps now is not the time to be handing a further 25bn over. Perhaps better to take time to investigate who is benifiting most from all this irrational behaviour.
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No 108 Frank - "a) Japan did it and there was no inflationary effect"
Totally different circumstances !! In Japan's case, they had a massive, and I mean MASSIVE, savings by their people to fall back on !! Their queasing was soaked up by their peoples' savings and, therefore, there was no direct effect. However, the indirect effect was that they had more than a decade of stagflation.
In Britain, there was hardly any savings to speak of and what little there was, was used to pay-down personal debts. Furthermore, any national reserves (like gold) was used up long ago. So the effects will hit us directly in the not too distant future.
In addition, Japan is a major manufacturing and exporting country and, thus, have foreign income from those activities. Britain manufactures very little and exports even less. So we have little foreign income to buffer us !!
The current deflation is mainly due to the British exporting inflation through its imports of cheap foreign goods. When that slows or stops, inflation will rear its ugly head and then.....oh, man !!
Even so, this time around, Japan has used up their peoples' savings and any queasing will hit them hard too !! Only not as hard as it will hit Britain since they have their exports buffer and we don't !!
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I may be barking up the wrong tree but
According to BoE reports huge amounts of financial and non-financial corporate debt was due to be renewed across europe in 2009
See chart 28 in here [Unsuitable/Broken URL removed by Moderator]
$600bn was in the financial sector. $200bn in the non financial sector.
I have no idea what proportion of this might be in the UK but it won't be insignificant.
So my guess is that all this QE liquidity is just taking the place of previous wholesale borrowings and bonds that enabled the spree from 2004 onwards, the 'foreign money' lurching back to wherever it came from or somewhere else, perhaps.
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No 110 "- for those who do not realise it, early man were all Communists - the human race could not have survived if it had competed with each other in the early days."
Two years ago, they found someone in Switzerland who would disagree with your statement. He was found in a glacier and he had several stone spear head wounds in him. It looked like he was running for his life and they stabbed him and he fell into that glacier. The scientists carbon-dated him back quite a few tens of thousands of years. Of course, if you slaughtered all the others, they will not compete with you. Strange form of non-competition, if you ask me !!
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110 WOTW
Thank you: you have caused me a merry chuckle which has cheered me up no end. I am ten miles away from my notes on Marx so I will not pursue a discussion on his Theses on Feuerbach.
The early socialists, no doubt inspired by Rousseau, postulated early man as living naturally, hence their adoption of the word social-ism; namely a return to our original social condition. I feel your use of the word `communist' is going to cause you difficulties when in common use.
I do sympathise with you in this regard as I agree that humanity is by nature a cooperative animal. I also, like Kropotkin, abhor the prevalent Social Darwinist perspective that each individual must necessarily compete with one another.
I think you would be better off using the word `socialist'. This is again a word which has been subject to much abuse but you could always qualify it with another word that could be more descriptive. Anyway; it is none of my business what you choose.
No doubt something better will appear in due course for the simple reason that since we are being forced to relive the history of the last two hundred years, the advantage is that we can start our political theory all over again as well but this time with the benefit of hindsight.
By all means keep writing on the wall.
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Preliminarily Unorthodoxy. Contracted (termed) finance (loans) amounts, were not revalued. FAS157, did not mitigate its impact upon existing financial arrangements. It wouldn't, would it, who would de-value a contracted loan by 30%. Who would reduce the amount of your loan to balance the adjustments to value they were making. It was a cock up. Any one trying to adjust (reduce) a contracted (termed) loan amount arbitrarily would be marched outside to the nearest wall and shot for even thinking that way. Accountants have a very peculiar mindset. The mess that has been caused involves solutions offered by more accountants - the auditors.
I give you Mr Robert H. Hertz, Chairman, Financial Accounting Standards Board. SuperGnome. Instigator of Gnome Gate. The worlds greatest regulatory blunder.
IASB will now double down and finish the job.
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For some bizarre reason the mods think that a link to a Bank of England quarterly report is unsuitable.
Strangely it was referred to by Robert Peston about a year ago here http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/12/2009_is_pay_back_year.html
Here's the link again
[Unsuitable/Broken URL removed by Moderator]
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119. At 1:54pm on 06 Nov 2009, duvinrouge wrote:
"What do you have in mind when you refer to Marx's political agenda?"
I don't believe there is one - but I was reacting to stanillic's comment - which I presumed meant 'The coming of Communism' - or 'Workers of the world unite' - somehow people find it easier to assume Marx was a 'trouble causing revolutionary' - because nobody wants to hear the bad news he brought.
When you analyse things - what is politics? Surely as Bill Clinton said "It's the Economy stupid" - politics is simply a way of presenting it for the masses.
I don't want to get into a big argument with stanillic about the motives of Marx - all I want to point out is his unchallenged critique of Capitalism which everyone wants to ignore - despite it being the root cause of our troubles today.
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114. At 1:26pm on 06 Nov 2009, FrankSz
Japan - Not yet.
I agree there is a possibility of deflation continuing for the next 10 years, but as this is painful to the Capitalist I think policy will ensure they rather have hyperinflation than deflation (and they've made that clear already)
Lots of people want to agree with your outlook - but historically fiddling with the money supply usually ends up being inflationary.
I mean apart from Japan - is there any other examples of deflation in an expanding money environment?
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123. At 2:26pm on 06 Nov 2009, ishkandar
Maybe he was an alien - or it was a tragic accident!
I'd like to see you survive the harsh world of early man on your own.
One discovery does not contradict the thousands of settlements that have been found all over the world which show that people lived in small 'communes'.
...and the presence of Stonehenge indicates that they were able to achieve great things without the need for 'profit motivation'.
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I see insolvencies are up 28% on a year ago and US jobless rate is now 10%. It must be all those 'green shoots' the pundits keep seeing - would hate to be in a REAL recession!
Ha
Ha
Sob
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124. At 2:26pm on 06 Nov 2009, stanilic
...and I feel you have confirmed what I have understood about Socialism. It's only Communism but using a different word as not to offend the Capitalist 'boo-yas' who will immediately conjour up 'Stalinism' and 'Maoism' as examples of the latter.
These are just words - the simple fact is that 'no man is an island' and therefore the promotion of individualism is a path to destruction. We cannot survive alone and over the course of the next 10 years this will become a reality for many.
I have already had to sub a number of friends and relatives in order to keep their heating on this winter and keep the bailiffs from their door. I know that one day this will benefit me, but for now (unlike a Capitalist) I do not need to charge interest or insist on payment of the money.
Lets not get into 'the after capitalism life' especially as most people still think we're going to get through this. From looking at the news over the course of the year I am doubting this more and more. The crisis is in the present and not the future - so lets not start arguing about possible future crisies of politics.
You'll notice Fannie Mae just asked for more bailout money (I think it's the 4th time now) - which is a model for RBS.
Man was foolish to think he could control the beast of Capitalism - but he didn't, and now he's going to pay....
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writingsonthewall, your 128 - 'I mean apart from Japan - is there any other examples of deflation in an expanding money environment?'
The world economy today. In its entirety. For reasons filled with good intent, modesty and minor self interests, the recent data available for analysis originates from the rear end of a dog and finishes back there a a'il lower down.
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I need advice. Why are so many (HMG, Darlin,Browns clowns, even dipsy Dave and the Haig advocating the banks will not lend when so few see any opportunity for expanding and investment and as borne out this year so far with company capital investment in nergative territory.
Is this a political mantra beyond reality and fodder for the masses?
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ps - A very close review of the Japanese situation is called for. That economy is constipated, that is their problem. It may resolve shortly, Pepto-Bismol should relieve pressure at both ends and a currency revaluation might flush away the detrius. Even the BoJ and Govt are having major squabbles which threw a spanner into their stocks last friday. If l was clevering the currency carries at the moment it might be time to unwind. Something, somewhere, has to give. We are all to bright to be sensible.
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98. At 12:14pm on 06 Nov 2009, GRIMUPNORTH77 wrote:
"Writingsonthewall - do you have a job?"
yes, it's writing on blogs, a useless but very well paid career!
WOTW - in actual fact you are employed in the financial services industry according to one of your earlier posts - so what key role do you have that enables you to spend the day on BBC blogs - are you heading up the FSA? Alastair Darling perhaps? Gordon Brown? Mervyn King?
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130. At 2:51pm on 06 Nov 2009, EmKay wrote:
"I see insolvencies are up 28% on a year ago and US jobless rate is now 10%. It must be all those 'green shoots' the pundits keep seeing - would hate to be in a REAL recession!"
EmKay - you're just reading the wrong stories, according to the OECD we're all 'recovering'!!!
(although the workers at Fijistu, Diageo, BA, Threshers, Opel and just about every bank in the world - might disagree somewhat)
http://news.bbc.co.uk/1/hi/business/8346570.stm
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132. At 2:54pm on 06 Nov 2009, herosrest
Come on herosrest - we're not at the end of this one yet.
Lets meet here in 5 years time and see who's right. I am quite happy to be proven wrong on this because to me none of the following are any better or worse than another.
Hyperinflation
Deflation
Stagflation
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WOTW
How about the USA?
The only thing that got them out of deflation was militarisation into WW2
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Thousands upon thousands of businesses and families with already crippling debts are being made redundant or losing their businesses and would quite happily punch the lights out of the nearest politician or reporter trying to tell us we are on our way out of a recession thaks to QE.
This has been the economic equivalent of the Normandy Landings and casualties are still mounting. QE is like medical supplies that never make it to the front line...useless, pointless and ineffective to all but the financial system.
We must let these people in to the safe harbour of QE somehow. Suspend debt repayments until the business or mortgaged property is sold for whatever it fetches and then wipe the rest clean.
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And by the way "apart from Japan": that's quite a big "apart from". It's the world #2 and been in the doldrums for about 30 years.
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No 122 "So my guess is that all this QE liquidity is just taking the place of previous wholesale borrowings and bonds that enabled the spree from 2004 onwards, the 'foreign money' lurching back to wherever it came from or somewhere else, perhaps."
Well, the kings and captains have folded their tents and departed. Now we'll see what scraps they have left for us !!
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127 writingsonthewall
Most Marxist end up finding something to disagree about and I was worried you were divorcing economics and politics, but I can see you know what you are talking about.
There are many out there searching for good explanations of the economic crisis; the Marxist explanation is standing up well.
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No 124 "I think you would be better off using the word `socialist'. This is again a word which has been subject to much abuse but you could always qualify it with another word that could be more descriptive. Anyway; it is none of my business what you choose."
Just don't qualify it with the word "National". That has rather unfortunate connotations !!
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135. At 3:24pm on 06 Nov 2009, GRIMUPNORTH77 wrote:
"WOTW - in actual fact you are employed in the financial services industry according to one of your earlier posts - so what key role do you have that enables you to spend the day on BBC blogs - are you heading up the FSA? Alastair Darling perhaps? Gordon Brown? Mervyn King?"
Ah yes, you would love that wouldn't you - then you could moan about public sector waste.
Unfortunately I am very much in a private sector company - proving it's ultimate innefficiency to you all. I'm here, getting paid for my job and I can still manage to keep up with the retired, jobless and paid political promoters on this blog.
I would also point out that I am an extremely fast typist so what takes you 15 minutes to write - I will have done in less than 20 seconds.
....just imagine what I could achieve for society if I were doing a 'proper job' which was productive - rather than the pointless number crunching I'm doing at the moment.
Sadly - as you should be aware - the market does not allow me to make that choice - and the benefit to society is lost. I am also not alone in this - hence the millions of pointless and wasteful tasks being undertaken on a daily basis - all for the 'dream of bettering oneself'.
Socialist envy or Capitalist greed - how can you tell?
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138. At 3:36pm on 06 Nov 2009, FrankSz
Point taken - but the federal reserve was only invented 16 years before and they didn't go in for much QE in those days.
If things were left as they were (no Government intervention) then I agree we would see a much needed deflationary period (to unwind the boom of previous years) - however the Governments around the world have made it clear they are not going to let that happen at any cost.
....and maybe they will start WWIII in order to prevent it such is their distain for human life over profit making.
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Quantitative Easing involves the BoE creating electronic deposits in the BoE accounts of those institutions from whom it has acquired bonds (in the case of the UK, principally UK Govt Bonds/gilts held by banks). When those banks thereby replace securities held on their balance sheets (i.e. the gilts they have sold) with 'cash' (ie the newly created deposits in their cash accounts at the BoE), the idea is is that they will go out and lend more money, through the usual deposit muliplication principle.
In itself, QE through open-market purchases of existing gilts (ie gilts which have already been issued by the Govt and acquired by banks) doesn't represent a means for the Government to fund its activities. If QE were to consist of the BoE buying newly issued Gilts directly from the Government, that would clearly represent a totally different equation - effectively the BoE would be bankrolling the Government (and even that arrangement would simply be left-pocket-right-pocket from a public sector vs private sector perspective). However, my understanding is that direct purchases of gilts from the Govt by the BoE is not permitted under EU law, so I am puzzled by some of the commentary which suggests that QE is somehow a means for the Government to fund itself.
Clearly the practice of QE keeps gilt prices artificially high (or yields articificially low), and therefore makes it more attractive for the Government to try to issue paper, but it does not represent a direct means for the Government to bridge the fiscal deficit - that can only be done by a combination of (a) increased taxation (from higher tax rates and/or economic growth) (b) reductions in public expenditure and (c) allowing inflation to erode the real value of the debt. And obviously the trouble with (c) as a "strategy" for addressing the fiscal deficit is that the threat of inflation makes it very difficult for the Government to issue the paper it desperately needs to issue in order to fund itself while it works on strategies (a) and (b)...
I understand that in the UK some 99% of QE has involved the purchase of UK gilts, in a programme representing some 14% of GDP. This contrasts with the US where only 33% of the QE programme has involved the purchase of US Treasuries (the balance being corporate bonds) in a programme representing less than 4% of GDP. Why does this matter, if QE involves the purchase of existing securities? I suppose because it means that corporate debt rates in the UK do not get the benefit of 'artificial' demand from the central bank, and therefore i rates for corporates might arguably remain higher than they otherwise would have if the BoE were purchasing corporate debt, consequently "dragging down" the real economy. However, it's a relatively subtle point - after all, corporate rates are anchored off the base rate which does reflect the impact of QE. In any case, whether the BoE is buying gilts or corporate bonds, the direct impact of QE comes from improving the liquidity position of the institutions (banks) from whom the central bank is buying the bonds - the money doesn't flow into the "real economy" in either case, as far as I can see, as the central bank isn't purchasing the bonds from the issuer (even in the case of the Fed's purchases of corporate bonds in the US, as far as I am aware these are secondary market purchases, not direct participations in issuance).
Why isn't QE working? If banks don't on-lend the newly created deposits (as seems to be the case right now), but instead simply shore up their capital bases, QE doesn't work. No additional lending (and no inflationary pressure either). The danger, of course, comes when confidence returns - banks start to get the confidence to lend at competitive rates, and borrowers start to borrow at those rates. If the £175bn of newly created deposits at banks are multiplied by those banks into a wall of cash (credit) into the real economy in an uncontrolled way, the potential inflationary consequences are obvious. As this spectre emerges there will be one safety valve which comes into play to head it off (so that in practice hyper-inflation is unlikely to develop) - increased interest rates, with all that entails (economic contraction and job losses). The irony is that one of the few sectors of the economy to thrive in a high interest rate environment is... banking.
So what is to be done? The soundest policy is surely debt reduction before interest rate rises cripple us.
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writingsonthewall, your #137 - The scale of it......... :) I am optimistic, it always helps. I wish to live free in democracy ant the worship of lucre is today a serious threat to my desires. The game's afoot.
Check my #52 on 'Not out of the woods yet' -
The forecasting group believe house prices will be at least 5% lower at the end of 2010 compared to now. http://www.iii.co.uk/articles/articledisplay.jsp?article_id=10059168§ion=Markets
What is going on with house prices? http://moneywise.co.uk/news-views/2009/11/03/what-going-house-prices
What are your views on our Fenengi?
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#145
I don't think there will be any kind of recovery (for years or decades), and I think that QE is not having and will not have any effect.
There will not be any 'turn around' until everybody feels comfortable taking on more debt. This is just not likely. There would have to be a collective spell of insanity.
What is going to happen is a transformation, a slow one, away from the previous systems of household debt and underpinning the economy, of the USD as reserve currency, and as oil as the main energy supply. Public spending and state control will rise, and unemployment will be compensated for by state projects.
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142. At 3:44pm on 06 Nov 2009, duvinrouge wrote:
"There are many out there searching for good explanations of the economic crisis; the Marxist explanation is standing up well."
It's very sad that people are searching but the answers are already written for them - they simply don't want to hear them.
There is no credible explanation (apart from Marx's) to explain this crisis from the root cause. Believe me I have tried both Austrian school and Monetarist pricing theory and both are like discussions between doctors suggesting sewing up your nose to 'stop the flu'.
The problem with Marxist Economic theory is that the Capitalist has done a good 'PR job' by associating it with Communism and then by association - Stalinism - i.e. Dictatorship.
I am hoping as the people realise that most of what they are told are lies - they will revise what they have been taught before and discover the truth about the 'Economic miracle' of Capitalism.
Personally, I believe Marx's manifesto was to prevent his guilt - he just explained to us where "it's all going to go wrong" and in desperation had to come up with a utopian solution - an afterlife if you like, to provide some hope. Otherwise his works are that of a doomsday prophecy - not a nice thing to leave the world before you're buried in Highgate cemetery.
What comes after Capitalism is another debate for another day - my prime concern is how much longer we have before the eventual logical collapse comes and to try to educate people that there is no point attacking the symptoms of the problem.
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#144 WOTW
This goes back to something I was thinking about earlier, namely that as automation improves we all head into non-jobs or unemployment.
With automation as it is, contributing to the "real" economy, doing or making "something" useful is largely about ideas, intellectual property, decision making and governance.
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And WOTW one last thing if I may, take a look at these two graphs:
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/11/12/twelve_month.stm
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/stockmarket/3/twelve_month.stm
If QE was boosting the FTSE, how come the pound is rising (against the dollar)? It's clear to me that large investors (banks) are just moving from currency X to security Y and vice versa depending on how nervous they are about currency.
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144 WOTW - I'm an FD of a Private Limited Company and find this blog very informative although it is difficult to sort the wheat from the chaff. However I try to restrict my usage to break times and focus on work rest of time - what you are managing to do seems completely impossible in a normal day but I suppose is irrelevant to the reason I read this blog so I'm going to move on.
I also think that the view expressed is on the negative side of the common view but is where I believe we are heading - constant credit requirement and increasing asset prices to fun that credit requirment can not underpin an economy whether national or worldwide forever.
However at the moment the mirage is being maintained by talkingup the economy by politicians and others - I wonder what will be the straw on the camel's back or the event that will show the Writing really is On The Wall as we see it already?
I think if you asked the general public today the majority view (incorrect in my opinion) would be that things were getting better.
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There should be an almighty row about the arbitrary revaluations conducted under GAAP. An almighty, indignant scream of abuse at those foisting this nightmare on the world. Accountants have found a way to contol economies if they decide there is a problem. If 'they' decide there is a problem.
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150. At 4:10pm on 06 Nov 2009, FrankSz wrote:
"This goes back to something I was thinking about earlier, namely that as automation improves we all head into non-jobs or unemployment. "
I totally agree - and I believe Marx commented on such an idea. If we were not spending our time chasing profit all week we would have our 'neccessary tasks' completed by Monday afternoon.
We would then spend the rest of the time educating ourselves and ensuring that real progress is made - which of course sounds very dangerous to those who govern us - I mean we might realise we don't need them!
We're not restricted to education, there are many things we could be doing of real benefit. Have you ever wondered why you put a lot more effort and care into a hobby (unpaid) than you do into work (paid)?
....and they tell me people only work for profit.
The eventual outcome of this profit chasing is overproduction - which is why we get the deflation you describe as the world is awash with excess commodities. However by inflating the commodity which we use for exchange (money) they can offset this deflationary pattern (of course much enhanced since they ditched the Gold standard) - hence the aim of QE.
It's like giving us the money to buy the items we produced - but didn't need.
....just like the 'cash for clunkers' is trying to do with cars.
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151. At 4:15pm on 06 Nov 2009, FrankSz
...now I did wonder this myself - but do you know what I think is happening?
The US are printing faster than the UK, and in greater amounts - hence the fall in the dollar confidence.
If I understand it correctly the US have been printing for longer - but just a little more subtley.
...and don't forget the $ is the world standard - which includes oil prices - this makes it behave differently to other currencies.
If it gets dropped as the reserve currency I would expect to see a different pattern.
Don't get me wrong, at the start of this crisis I thought we were going into the great depression II and a long slow deflationary period. What's changed is the determination shown by central banks to stop this happening.
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152. At 4:23pm on 06 Nov 2009, GRIMUPNORTH77 wrote:
I agree with what you say (which is why I am writingsonthewall).
The most telling thing is the media say one thing, and yet everyone on here says something else - but crucially the same something else
There are disagreements about points - but I think it's safe to say that there is no belief we're in recovery, there is a realisation of how damaging QE will be in the future, and there is a general conclusion that the truth is being distorted by a web of lies - from media, politicans and others with a vested interest.
All we can do is sit tight and continue to point out the lies. Not knowing the truth is the frustrating part - but if you were Alistair Darling would you stand in front of parliment and annouce "we're doomed"?
...the consequences could be worse than the events themselves.
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Regards GRIMUPNORTH77, your 152. 'constant credit requirement and increasing asset prices to fun that credit requirment...'
That is the economic model, it simply requires growth, steady, measured real growth generated by low, tear inducingly low, interest rates so that principal is paid down and asset wealth is produced. Increased interest rates produce a profits stream that has been optimised and must be controlled. A mechanism does exist. Accounting rules are the product of accounting and it favours and protects a limited interest :) - talk about irony. Greenspan knew what he was doing, Clinton asked him to solve a problem and he did so. It has been a spectacular success but was hijacked along the way.
http://files.myopera.com/herosrest/albums/634358/jackbig.jpg
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Some great points above folks.
Stephanie - can we stop all this nonsense about the "real economy" please. You have started using it more and more, on your blog and on TV. There is only "the economy".
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OECD are stating that all economies are showing signs of growth.
1) Reduce something by 10% then increase it by 10% - you have less than you started with.
2) How is this growth being generated - is it govt funded growth that eventually will just melt away - can the growth be measured against the stimulus packages in each country/across the world?
3) I don't think I have heard one single commentator try and address how we move the world economy from one where there is too much credit (where we were) to one where credit is at a realistic level - sure the QE fills the gap but what happens next?
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There is a real economy. There is also a monetary economy which includes finance. At this time they are out of balance - the scale of problem which hit the monetary economy will balance into the real economy. The two are the opposite sides of the equation. The monetary economy was revalued but the real economy left to find its own adjustment. The devaluation which occured took place to a monetary economy several times larger than the real economy. Check the size of the derivatives market.
In spite of all else, this is not an orthodox or practical economic problem.
No economy in history has survived a 30% devaluation, this one occured to the derivatives(monetary economy) and is trying to balance the equation. The economic model was based on growth. That model is broken - growth cannot occur. It can be measured in numbers, numbers can tell you anything. Equations are simply true or false. Very clever minds or total ah so's implemented FAS157 - flip a coin?
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And I thought writing on the wall was a code phrase for graffiti. Never mind somebody has to crunch all those numbers. Are they imaginary numbers I wonder, the square root of minus one and all that. Or are the truely other dimension numbers like Ali D in da House uses in his forecasts, useful in a parrallel universe. Safety in numbers eh, wot a larf. Amazing how statistical certainty floats to either support an argument or discount it as suits, depending on position.
Grimup 159, You know the answer, eventually values has to return to real actions and trade. The issue is whether a business is still standing at that point. Somehow people who have nothing to do with business, usually HMG think that anybody can just wave a wand and an entire infrastructure can be sorted after an operational team has been disbanded. Doesnt happen.
The balance point of value will realign given time. Debt obesity is dealt with in the same way as any other obesity and there are many of the same problems. The end point is however either the early death of the patient or reduced consumption, sometimes damaged function results due to the obesity. The morbidly obesese seldom voluntarily give up consumption until things are in a very bad way. HMGs mentality is one of morbid debt obesity imho.
As for some attribuites of obesity - hilariously wikipedia states - 'Some research shows that obese people are less likely to be hired for a job and are less likely to be promoted. Obese people are also paid less'. Quite appropriate don't you think for the debt obese.
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I see a lot of debate re deflation vs. inflation. Can't we have both? I.e.,
deflation:
continuing deleveraging/debt payment
high unemployment -> low wages
inflation:
QE/high debt reducing confidence in currency -> devaluation
increased prices due to dependence on imported goods and oil
Perhaps the latter is not "inflation" as the economists define it, but it means higher bills at the grocery store and the gas station, which is inflation to me.
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No 129 "I'd like to see you survive the harsh world of early man on your own. "
The "harsh world of early man" as you call it is populated by family groups that were "organised" into "clans" and/or "tribes" mainly for the purpose of cross-breeding. In their primitive, instinctive manner, they had realised that incestuous breeding weakened the family group or that Darwinism took place and the weakened groups died out.
This does not mean that the "clans" or "tribes" did not fight over hunting grounds or the best shelters. Hunter/gatherers *CANNOT* exist in large groups because they will soon eat the area bare and have to be constantly on the move. Others will resist the moving into their territory !!
It was only when man learnt farming, that they gathered into larger groups that formed co-operative "villages" and then "towns" !! Soon the leader(s) of one village or town decided that they should control a larger area and thus began conquests and the rise of nations !!
So, no, that man they found was not an alien. He was probably from one group that wandered into the territory of another group and got killed for it !! Nature red in tooth and claw !!
"One discovery does not contradict the thousands of settlements that have been found all over the world which show that people lived in small 'communes'."
Your time scales are extremely skewed. As mentioned above, your "thousands of settlements" could *NOT* exist until farming was discovered !! There were tens of thousands of years between picking up a stone and turning that into a tool and settling down to farm !! In that time, they were probable bashing each other with stone axes or sticking each other with stone-tipped spears over choice hunting grounds or shelters !!
"...and the presence of Stonehenge indicates that they were able to achieve great things without the need for 'profit motivation'."
Stonehenge existed less than 5,000 years ago and long before that, the Egyptians were building their temples and cities. So did the Minoans and the Sumerians. The Moenjo-daro was already a city that was part of the very advanced Harappan civilisation in the Indus valley !! And the Chinese had nations of large cities, towns and villages properly organised into fiefdoms with unified laws !! All that was during the early Bronze age and the "profit-motive" was already strongly ingrained, not least so that some can lord it over others !!
BTW, were you there when they built the Stonehenge and did you chat to the builders and found out what they thought of the concept of "profit" ?? I would be most interested in what they *ACTUALLY* thought as opposed to what others imputed as their motives !!
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.. not long to go now ... the levee is about to break ... my only regret is that the wealthy will not suffer as they SO deserve to.
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glanafon, your 161. I am developing a healthy respect.
I 'con'ceptualise thee (birthing a conundrum). The bow is requires balance and poise, n'est pas.
http://www.sysopt.com/forum/showpost.php?p=1486911&postcount=105
http://www.sysopt.com/forum/showpost.php?p=1380833&postcount=18
Addendum - Some additional background. From the the linked page's section entitled - FIRST DEGREE
LORD DE SAINT-OMER, 1080-1150 feudal lord of Artois(Agincourt) region's fife St.Omer. The suzeraine (superior feudal lord) was Count William Clito of Flanders. Lord de Saint-Omer had two sons, Godfrey (born 1100) and younger son Odo (Eudes). Godfrey and Hugh des Payen were the two founders of the "Templers" in 1119.http://www.fluckers.com/family/daspit/stamand1.html
lf memory serves me well there was one hell of a conflict in the region (Saint Omer) during 1944. Ma'am http://i264.photobucket.com/albums/ii186/DutchPhil/queen_elizabeth_malta_robe.gif
http://www.sysopt.com/forum/showthread.php?t=190514&highlight=History+revealed
Nickname for a horny cowboy?.. Latex
The GAAP debate exists and is repeatedly trodden under foot. This must no longer be allowed. It is a practice corrupted in bias. Just like GAAP accountancy.
Reprise....... http://www.youtube.com/watch?v=cBiSKaAms5E
Finale - http://www.wired.com/images_blogs/photos/uncategorized/800pxwwii_memorial_kilroy_was_here.jpg
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Regards TheCynicalSasquatch, your #164. Oh, they suffer, listen to them bleet. Fools gold, they worship fool's gold.
You do seem to get around - http://upload.wikimedia.org/wikipedia/en/4/48/Bigfoot_Sightings_in_USA.png :) Seattle rocks, apparently.
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An interesting insight for the UK's, less contorted(perhaps) economic data, is that we are (perhaps) ahead of the curve rather than lagging......... A wave, an absolute tun of investment and speculation is taking place, Brazil, Argntina, and on and on and anywhere in fact other than............... the UK. This applies l would imagine, equally across the developed world to lesser more cautious degree. There are perfectly logical investment decisions taken by those based in UK which must dictate - invest anywhere but here at the moment and probably for a decade to come. RoI. RoE. RICS........ Where this placement of funds is made by Pensions and Mutuals, they are cutting our own throats, likewise dare l say finance in general......... What is taking place is plainly and simply ridiculous. There IS a very simple, clever, wonderous way to make these funds work at home and abroad at the same time. To sum it might seem magic, however, the financial innovation that has steered this country since the 17th Century needs desperately to come to her rescue now. Double your money.
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163 ish
The reason I am in Wales is so my wife can study mesolithic sites as her very serious hobby. I asked for Biarritz or Hawaii because our business is portable, but ended up saying Wales will do for a while. So I am on a hill overlooking an unspoilt valley - in the rain - for a while. You have no idea how many mesolithic sites there are in Wales, it is one of the richest areas in the world for them. Man Earth Stars Spirits. All interconnected as for them as far as we can see.
You should not discount the sophistication of the stone age, or the degree of interaction in the social network of the stone age. I doubt the old ways would have allowed the mess we currently face. They knew the land, that much is very evident. They lived in the landscape. They traded worldwide. Genetically they were identical to modern man. It is a matter of culture.
The current thinking is that stonehenge was in part a medicinal centre as the bluestones came from a location still known as a medicinal spring area. The presence of quartz in the stone almost certainly had religious significance which continued through to the druid era, before the modern world showed up in the form of the Romans and they were wiped out, genocide, to obtain access to what was then the world largest copper mine, known throughout the ancient world, situated on Anglsey - Holyhead being the centre of the druid world, Holy Head, get it. This site was also mined in the bronze age. Strange isnt it how positive history is to the Romans. The genocide of the Dacia tribe for their gold and gold mines is very much presented as a a small aside. A large part of that gold was spent on a a glorified shopping mall in Rome.
The Egyptian dynasty fell due to a climate change, the failure of rains in the Ethiopian Highlands. A warning, like so many failed cultures. They are everywhere.
When was the last time you looked at the stars, or have you a light pollution problem. It is a very recent thing not to look at the stars. 'He who is fixed to a star does not change his mind'. Leonardo da Vinci.
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I just had a scary thought I want to share with you:
There is a reasonable chance it might all go wrong (no matter what your stance)
And if this happens we'd be well off holding silver as currency
(gold is too hard to come by, verify and authenticate)
SO let us move towards metals, especially silver and gold, now
There is no excuse ladies and gents. We're economics bloggers. We had the foresight and a few pennies now and then and here and there to spare. Do it for your kids.
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I gaze and honour Boudicca, contemplate empires' deceits, long for a Bahia cocktail and a solution to the idiocy of fanatical greed. Rome brought us much and took very much more away. Cynical exploitation earnt a Parthian shot. It is an interesting tale, that period of Romes struggles.
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OMG - people are waking up (I hope) http://ftalphaville.ft.com/blog/2009/11/06/82111/wall-sts-unlikely-saviours-community-banks/
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Apos - one of the few and truly effective means of halting a gambling addict is to drag them onto the lawn and kneecap them. Private equity finance investing troubled banks is russian roulette with six bullets loaded and a hair trigger.
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Stephanie
'Of the extra £175bn the Bank has created through its QE policy since March, around £173bn has been used to buy UK gilts. That's no great surprise. But it is far from ideal.'
>>>>>>>>>>>>>
No great surprise? Far from ideal? Look at your postings earlier this year with 'investment in bonds, gilts and securities'
'We' ordinary UK taxpayers have been misled on an enormous scale by the governments actions, motives and spin regarding QE! I think the BBC have been 'taken in' on this, as well but much of the 'surprise' was due to the amount of HM Treasury spin and secrecy - but, was it not obvious that a giant rat was there to be whiffed!
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
146. At 4:04pm on 06 Nov 2009, ddelanom wrote:
I understand that in the UK some 99% of QE has involved the purchase of UK gilts, in a programme representing some 14% of GDP.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
This for me is the most important and worrying issue - Where is real UK GDP level if the current GDP figures are artificially and improperly boosted by QE (I said in a recent post that I thought that the UK economy GDP declined by 3-4% in the 3rd quarter 2009 and which looked cuckoo when the Treasury is getting excited about 0.1% - 0.4% improvement after ONS adjustment
>>>>>>>>>>
and the following post, I think, is truly brilliant....
>>>>>>>>>>>
7. At 4:31pm on 05 Nov 2009, Dempster wrote:
I note that the UK treasury issues gilts via the Debt Management office, only to have the Bank of England buy them back.
Why one would ask is this the case, why can’t the treasury borrow directly from the Bank of England?
Well oddly enough the Maastricht Treaty Article 104(1) forbids this, the purpose being to prevent debt happy governments causing inflation in the Euro Zone.
Given that so far the Bank of England has spent £173 billion buying gilts and only £2 billion buying commercial paper, it is now abundantly clear that Quantitative Easing is a method of funding Government without officially breaking the rules.
When Quantitative Easing pauses, (I say pauses as opposed to stops, because if it has been done once it can be done again), how will the government fund its debt?
I find it difficult to believe that any investor would buy fixed interest Government debt, predominantly because there is a significant risk in the Bank of England watering down the real value of such an investment by more quantitative easing.
But of all the things that have surprised me the most, is why the above has not been voiced by the various economic and political commentators.
Can a conspiracy of silence on this issue, actually convince institutional investors that all is still well in the world of funding government debt?
>>>>>>>>>>>>>
Most of the QE money has gone back into the banks (as I have reported on earlier posts) in the form of government lending and with fees and bonuses attaching to the 'trade'?
QE is really, really shocking! The resulting 'shock waves' to the UK will I think come in later 2010, 2011 and beyond (after the next general election, you can be sure) - UK GDP STATISTICS will fall off a cliff when the QE money stops but that is just a political con trick - the real worrying position is:
the UK imports more than it exports
the UK consumes more it produces
the UK borrows more than it generates (even with QE)
the UK government pays out more than it gets in taxes
UK banks have too much foreign overship and investment
UK bank bailouts means more UK tax money going overseas
Too much UK industry is owned by foreign investors
I'll stop there - I think my thoughts on this are well ranted but the position of the UK with these QE figures is worse than even I had thought!
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No 168 "The Egyptian dynasty fell due to a climate change, the failure of rains in the Ethiopian Highlands."
Which dynasty ?? There were quite a few of them. The last, however, was not really Egyptian. The Ptolemaic Dynasty was actually Greek. A leftover from Alexander the Great (one of my fave characters, hence my handle), his general Ptolemy started it and it ended with Cleopatra !!
"You should not discount the sophistication of the stone age, or the degree of interaction in the social network of the stone age."
By the late stone age, mankind had already discovered farming and were practicing it. However, Stonehenge was built in the early bronze age. Bronze tools were used to work those stones and the copper mine you mentioned would be of no use to the stone age people but invaluable to the bronze age people especially when combined with the tin mines of Cornwall (to make bronze, of course). The Phoenicians traded with them for the precious tin although copper was less valuable as it was readily available elsewhere. On the way there, they set up a way station in North Africa which grew into a nation based around the city of Carthage !!
"Strange isnt it how positive history is to the Romans. The genocide of the Dacia tribe for their gold and gold mines is very much presented as a a small aside. A large part of that gold was spent on a a glorified shopping mall in Rome."
It's usually the victors that write the history, if they can write at all !! Obviously the Romans thought that wiping out a small bunch of barbarians was justified in honour of Mars and for the Glory of Senate and the People of Rome (Senatus Populus Que Romanus - SPQR, or Small Profit, Quick Return as my accounting teacher taught us) !! :-)
"When was the last time you looked at the stars, or have you a light pollution problem."
When you are down near the equator and away from "civilisation", the sky can be crystal clear !! I have often sailed Eastwards out of Singapore and, at nights, lying on the roof of the cabin, the sky makes me feel very insignificant, indeed !! A rather humbling experience !!
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No 169 "(gold is too hard to come by, verify and authenticate)"
Not so !! Gold certificates need not be authenticated and one from a reliable international source is as good as the "real" thing. I think that both Standard Chartered (an effectively South African bank) and HSBC sell gold certificates that can be converted to gold ingots on presentation at many of their subsidiaries and/or branches worldwide !!
"SO let us move towards metals, especially silver and gold, now"
I've stashed some of mine in a (relatively) appreciating currency deposit. It has the twin benefits of a lowish (ans hence safe) interest and an appreciating value vis-a-vis the quid !! Others are in slightly more risky Red Chips !!
But 100g and 1kg gold ingots are a highly tactile (stop fondling that damn bar !!) and very portable form of wealth !! The 1 kg bar is currently valued at about US $34,000, although it will *cost* more due to fees and commissions !! And it weighs about the same as a bag of sugar !! Perfect for hurried departures !! :-)
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The secrete of QE'rs banking is to give away didl boe to those that will sit on it preserving its pristine purity for their ayes only ,that way it appears to be real "wealth" to those withoutit, that would consume it and theirbuy cause inflation.
The QE'rs [dangling their car rots in front of themasses]understand this very well, which is why it will rarely be given freely to those that kneed it [other than to banksters bottom liening ],unless of course themasses are willing to pay maw in intercest over a dicade than the capital sum borrowed and be effectively turned into durAAA'sell butterease that keeps the dydle doe coming and coming.
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Three years from now rig AAARMortgagis will set in and necaromAAA'sy will be the order of the day for the lords of the flies types[with their trussirs on back to front] who wish to fill their AAA's holes with the soylent green mAAAjority
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http://news.bbc.co.uk/1/hi/business/8347629.stm
Both RBS and HSBC operate almost identical numbers of branches in almost all High Streets in the UK and yet RBS manages to make £2.2 billion loss between July and September and HSBC seems to sail on nicely, thank you !! Why the difference ?? Why one and not the other ??
At a time when the government is supposed to flog off the bank, it is giving it an extra £33.5 billion to increase its stake to 84% !! Something does not compute here, Captain !! Perhaps Nellie Kroes, the EU Competition Commissioner should have a closer look at just what is going on !!
It is of no earthly use pumping another £25 billion into the banks if they just carry on making mega-losses and still pay their senior management mega-bonuses !! Someone somewhere is being taken for mega-suckers !! One guess only. Answers on a *postage stamp*, please (well, we've got to do something to help the poor ailing Royal Mail, you know) !!
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http://news.bbc.co.uk/1/hi/business/8347786.stm
"But the UK, still mired in a long downturn, is more cautious."
Err...Hellllooooo ??...Are we or aren't we ?? One moment, we're out of the recession and the next we "still mired in a long downturn" !!
Oh, what a tangled web we weave, when first we practice to deceive !!
Perhaps Ms. Flanders could find out where we are exactly since the government do not seem to have a clue and has disengaged mind from mouth !! Is the government still standing by their "proud" (read "arrogant") pronouncement that "we are best placed to come out of this recession" ??
The Chinese threw 4 trillion Yuan into their stimulus and put most of that into improving their infrastructure. Now they have something that their people can see, feel, hear and smell !! We have thrown nearly that much into out stimulus *DESPITE* having only *5%* that many people and what have we to *see* or *feel* for it ?? All we *hear* are platitudes and pronouncements and excuses !! Perhaps we should *smell* a rat !!
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Someone suggested digging to Aussieland in an earlier blog. May I suggest that they don't wait too long !! They might get upset if too many people swamp their little paradise !!
http://news.bbc.co.uk/1/hi/business/8346130.stm
BTW, the Aussie dollar is creeping towards parity with the US dollar, or should that be the other way round ?? Some quids invested in Aussie dollars in 2008 would have paid handsome dividends by now !! 'nuff said !! :-)
PS. Rio Tinto still looks good !!
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#162 FaustKnits
Yes I think we can to some extent. There can be a combination of forces on the currency.
DDelanom
Great post.
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#91 writingsonthewall
Now theres an idea lets start a religion based on the abolision of debt for everyone, thus freeing the world from living in penury to the financial and political elite.
Let all debt be wiped out, a fresh start for all endebted individuals and nations, a wiping clean of the soiled slate and starting again as a way to purge the world of slavery by credit card and begin again.
Let all credit /debt be wiped out,let us use technology and mechanisation to ensure everyones basic needs are met. All we need to do is convince people that god told us this and I think we will get quite a few recruits (isnt that how it works)?
Perhaps Derren Brown would consider being converted to our religion so he can do a few 'miracles' for us, denouncing his previous humanitarian rationalist position in favour of the new mystereous religion.
We are not mad writingsonthewall, it is completely clear to me that everyone else is barking!!
woof woof
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180 Ishkandar
Good points in your postings. Keep it up! Agree with you about Australia being in good shape.
The Aussies are only in a good state because of former PM John Howard. It looks like they have done what the UK did in 1997 and voted with their "social conscience" for Tony Blair alike Kevin Rudd.
God help them if Rudd does to Australia what Blair did to us.
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Credit was turned off - the reason for this was a revaluation of the derivatives market using new GAAP accounting rules. That is what happened. The revaluation was arbitrary, and it was not thought through. It was cocked up.
http://ftalphaville.ft.com/blog/2009/11/06/82106/us-consumers-failing-to-spend-data-show/
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In simplest possible terms, because the valuation applied to derivatives was a devaluation, eveything underlying those derivatives was also devalued. Because the domestic property market is valued by the market for property sales, the entire property market was devalued. That turned off credit. Equity was destroyed and the implications have not yet been fathomed. Collateral was destroyed. Refinance anyone? haha!
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Is it remotely possible that FAS157, will be applied to assets subject now to FAS166 &167? Push an automated accounting package button and see what happens.
This video is famous in its own way, a freebie on the Windows 95 cd. http://www.youtube.com/watch?v=FiIC5qcXeNU
Look what we have today - http://www.youtube.com/
Who knows how it all works, push the buttons, click, click, clap!
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If #186 caused a single person on the planet, a moments thought, well - i'm glad.
Hey what about this - http://www.google.co.uk/search?hl=en&client=opera&rls=en&hs=CbT&ei=t5r1SspKhqGMB9mE-ZQO&sa=X&oi=spell&resnum=0&ct=result&cd=1&ved=0CAkQBSgA&q=fas+157+freeware&spell=1
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There is a very simple fix - just like flipping a switch.
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#182
If the Americans had used their bailout money to pay off every outstanding mortgage and credit card debt it would have cost about 11 trillion, as it is this whole mess is going to end up costing them in the region of 24 trillion, so there is something in your idea.
As for QE I agree with many of the posts that think we will see inflation go through the roof in 18 months time, it really is all about pumping the economy with as much cheap credit as possible, thats the only game in town I'm afraid and its because the very people that got us into this mess are the ones in charge of getting us out, and its the only thing they know. We will end up as an economy with high personal debt AND high public debt. Sorry but there it is.
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Recovery from the great depression occured when the world started to re-arm for World War II. Until those factories and human Industry were thrown into productive endevour at home, all that happened was a tottering series of blunders to keep banks and finance from unwinding their coil and destroying the wealth of the wealthy who did not then and never ever will, understand how and where that wealth comes from. The processes underway today are destructive, self defence, an instinct to survive and they are futile. A negative practice of petty self interest by a minority who in ignorance and greed are trusting their advisors. The problem that was, was a perception of too much credit. The problem now is a very different beast and as happens with all armies for example - through history they go to war with the tactics of the last battles they won and walk straight into a Blitzkreig. Hey, what happened. Well, i'm not really sure but it's back to the drawing board. There can be no growth in a meaningful timeframe to resolve economic problems. There is a design flaw and it will prove to be a Fatal Error.
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Hi muggwhump, your 189. I will bet my all (for decent odds) that properly measured inflation does not occur during the next 18 months. That is inflation as defined here - http://en.wikipedia.org/wiki/Inflation I'll pencil it in my diary and post back in 2011. :)
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2010 - The year of the Mental Tiger.
Chinese banks extended a total of 8.67 trillion yuan ($1.2 trillion) in new loans in the first nine months, 75 percent more than all of 2008, Liu Mingkang, chairman of the country’s banking regulator, warned last month about the risks of such strong credit growth and told banks to lend at a more “reasonable” pace.
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No 183 "God help them if Rudd does to Australia what Blair did to us."
Somehow I doubt that Kevin Rudd will suddenly go insane and mess up Aussieland. He seems to have his head screwed on right !!
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Sorry, truly, thaat i'm such a bore :) venepuncture is me.
Everywhere you look is the 'FREE' market gone insane. "We had raised our systemic risk assessment because of the increasing correlations across markets. Equity analysts are saying that their markets are driven by the oil markets, oil analysts are saying that their markets are driven by the equity markets; everybody agrees on the Dollar correlation. The growing problem is that across asset classes everyone jumps on trading the correlation since it is a winning trade but the underlying distortions that it is creating in the real economy is making the correlation trade a time bomb in the making the same way that the sub-prime sandwiches were a time bomb. - Olivier Jakob at Petromatrix (it's a view - an opinion. He probably peels onions for a living. :( http://ftalphaville.ft.com/blog/2009/11/02/80836/a-ticking-time-bomb-or-the-mother-of-all-carry-trades/
The growing problem is that across asset classes everyone jumps on trading the correlation since it is a winning trade but the underlying distortions that it is creating in the real economy is making the correlation trade a time bomb in the making the same way that the sub-prime sandwiches were a time bomb.
Japan is constipated. China has a hard on. USA has 15 best practices and an accounting regulater who just hid under a mushroom, Germany's wealthy want to give their money to the government, Russia shrank by double digits, banks are running algorithmic trading at the speed of light, Hedge fund funds are on steroids, India just booght 200 tons of gold, Stock markets are following oil price like lemmings and the IASB are waiting in the wings to play World Domination (Dominoes for dummies-eec version) with a new set of asset revaluations.
This is where we are at - http://www.youtube.com/watch?v=_sNtC8aLEjc
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If you missed it, here it is again. Truly classic. - "We had raised our systemic risk assessment because of the increasing correlations across markets.
Equity analysts are saying that their markets are driven by the oil markets.
Oil analysts are saying that their markets are driven by the equity market.
Everybody agrees on the Dollar correlation."
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I actually can explain this, to anyone interested................. :)
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Oil speculation is creating demand.
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My understanding is that the banks are not hoarding the QE funny money. Banks are buying government gilts. The BoE is then buying these from the banks. Therefore the BoE is indirectly providing funds for the government to spend. The government spends in the real economy. Therefore QE is increasing the money supply and is likely to be inflationary.
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The BoE is then buying these from the banks.
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#189
let me get this right, on the one hand the USA could spend 11 trillion paying off everyones credit card and mortgage debt thus releasing millions from debt slavery and creating a lot of happiness, good will and possibly motivation to make a new start in the world in amore sustainable way.
Alternatively they could spend about 24 trillion proping up the existing financial architecture including the unreasonably wealthy financial institutions while keeping the voters in debt and misery.
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It's a neutered form of economic growth. The debt did not require paying off, it needs to be refinanced. That is a problem because of reduced equity. It is as stupid as finance can get.
G20 vows to spur fragile growth - http://news.bbc.co.uk/1/hi/business/8348121.stm
http://en.wikipedia.org/wiki/Tobin_tax
It matters not by order of significance, that a Tobin type tax move would impact short-term speculation, it would be possible and to all 'but' those engaged in the activity, should be a reasonablw constraint. It matters not of an imposition of 1% tax rate - it would be utterly ridiculous. One penny per transaction is all that is neccesary because it is the data that matters. What is vitally important today, is the provision of near real-time data and access to such, that accurately and comprehensively details trading activity. Even the people who know what is happening (hehe!) do not know what is taking place or how the most commonsense and logical ammendments to practice will actually pan out. Markets are there to be taken advantage of, government is there to regulate and encourage and ensure a general benefit.
What we have is a free market, people have dreamt of this for a very long time - it is in jeopardy, at risk from the stupidity of systemised greed - which despite Gordon Gecko's appeal to the dark side is an unsustainable path to oblivion. It is the New Frontier - it is the Wild, wild west - send in the Sheriffs and the Marshalls. Take, take, take until there is nothing left to take means there will be nothing left, the process is destructive, self defeating.
Regulatory attempts are immature and sadly quite pathetic. Honestly pathetic in regards the conduct of human nature. Ooooh look, educated, principlaled, high flying, astute, rolling in it, robber barons, hot off the gravy train of interest rates and desperate for the next financial killing. Never mind the mess, where there's muck there's money - Profit ho!. Catch them, lock them up. It is that simple.
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All credit to Gordon Brown and l assume, Alistair Darling. It is unfortunate that the idea was mooted or reflected into the field of taxation, a fee based approach might be more palatable. Freedom carries responsibilties, in a market place particularly, trust and a watchful eye should run hand in hand. The idea of universal trading data exchange may be ahead of its time, its day will come, in time l hope to save the concept of global free trade. Well done England, Ducemus.
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#196 Herosrest
I'd be interested in further explanation but go easy on the youtube links, I haven't got a sound card.
(hey BBC, why no subtitles on the video content on your site, think accessability, I might be deaf not poor :)
#200 Jericoa
perhaps that is actually, inadvertantly, what they are doing, injecting larger and larger amounts of fiscal stimulus, do I see anything being stimulated ?
Where's the money going ?
I see a population/economy massively in debt, do you see anybody paying it back ?
Maybe they are just printing money thinking that will get the banking system going when in reality they are just paying off everyones debts for them.
If that is the case then roll those press, 'Utopia by Mistake' sounds good to me.
With 3 that makes a movement (or a conspiracy :) rather than a religion, if I remember rightly you need 12 for a religion.
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Put more eloquantly than l ever could - "Given the importance of the consumer to our overall economy, it is amazing to me that we haven't done a better job in protecting them," - Sheila Bair http://www.reuters.com/article/ousiv/idUSTRE5A13WT20091102
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# 162. At 7:53pm on 06 Nov 2009, FaustKnits wrote:
I see a lot of debate re deflation vs. inflation. Can't we have both? I.e.,
deflation:
continuing deleveraging/debt payment
high unemployment -> low wages
inflation:
QE/high debt reducing confidence in currency -> devaluation
increased prices due to dependence on imported goods and oil
Perhaps the latter is not "inflation" as the economists define it, but it means higher bills at the grocery store and the gas station, which is inflation to me.
>>>>>
I think you are talking about Stagflation - ie stagnant economy with inflation. This is where I think we are heading since everyone will be too scared to spend money/cant afford to while QE (aka bonkers)and bank bail out debt will mean taxes goes up so makes it more difficult to make profit.
I think other posters have pinpointed 2010 as a crunch year when inflation will rear its ugly head but unemployment will still be high.
Predictions anyone?
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#201
Interesting post.
Would a virtual trade attract the tax, one where it is only a notional trade such as when you lend me stock to short ?
(percieved ownership of a position surely influences the value of that position)
When the trade itself (rather than things that are traded) becomes the trade then the market eats itself doesn't it ?
(note to self: must learn ferengi)
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Re: Transaction Tax from GB
This is unlikely to happen since other countries will find a way to avoid and become major financial centres.
Also, when this mess is over and debt back down to manageable levels (2030?) any sensible measures adopted to prevent the whole financial crisis will be seen as 'obsolete' and removed since politicians have a time frame of 'next election' and it will give another boom time.
Am I cynical or just a social realist?
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Regards BobRocket, your #201 & 203. As you know - A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. A simple example is a futures contract: an agreement to exchange the underlying asset at a future date.
Derivatives are often leveraged, such that a small movement in the underlying value can cause a large difference in the value of the derivative.
Derivatives can be used by investors to speculate and to make a profit if the value of the underlying moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level). Alternatively, traders can use derivatives to hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out.
A small movement in the underlying value can cause a large difference in the value of the derivative.
This is true in reverse. Revaluing the entire derivative market is a catastrophic piece of ingenuity. That is what GAAP FAS157 did.
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BobRocket, you 206. If you take a position, you are confident or hedge that position. You are honest, straight forward and conducting open business. Your trades may tip your hand, is that a moral position?
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No 203 "With 3 that makes a movement (or a conspiracy :) rather than a religion, if I remember rightly you need 12 for a religion."
I think you'd need 13 for a religion; one plus 12 disciples !! :-)
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#205 EmKay
the opposite of stagflation must be boom'deflation
a blooming economy with deflation.
a continuing deleveraging/debt payment powered by low unemployment and high wages and decreased prices due to confident long term investment in efficiency/energy production.
Why can't we have some of that ?
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The cynic in me is inclined to think that the whole point of QE is to keep the economy from collapsing until after the General Election when the new Government will have to make the difficult and unpopular decisions
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i'm stunned, sat in today. blch........ blch......... turned the world off and.............. England turned over the Kiwi's, we're in the final next saturday. Rugby League, 20-12. I am stunned......silly, silly me. "a bruising and engrossing match" - yowser!
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#208
As I understand it, futures contracts are straight forward title swaps, given back at a premium over time.
Derivatives are geared ratings of the market itself.
Spoofing title corrupts the market and those corruptions are amplified by the gearings which swings the derivatives.
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#207. EmKay wrote about a Tobin Tax
Of course it won't happen - it is just a bit of political chicanery to wrong foot David Cameron!
#211. BobRocket wrote:
"a blooming economy with deflation"
We just had that - a bubble and fuelled by imported Chinese deflation!!! That was precisely why Mervyn King got away with fiddling the figures and did not put up interest rates when he should have done! Any fool can have an inflationary boom Mr King! He was warned that imported Chinese deflation was making the UK's inflation indices almost useless for economic management, but did he listen - did he hell - he just kept of fiddling while our economy burned.
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No 207 "Re: Transaction Tax from GB
This is unlikely to happen since other countries will find a way to avoid and become major financial centres."
Methinks this speech is on par with "I have saved the World" and "We are best placed to recover from this recession" !! It appears that desperation is setting in and flailing and floundering seems to be the order of the day !!
All sound and fury that signifies nothing !!
The Americans have refused outright !! The Chinese are too polite to tell him straight to his face that it's sheer lunacy and the others are merely humming and hahing !!
Firstly, taxing trades have absolutely *NO* effect on risk taking at all !! Think of the apocryphal tale of a man putting all he has on one spin of the wheel !!
Alternatively, it can take just one trade to transfer one's entire wealth to another country !! So what price a tax on trades ?? Furthermore, how will he tax trades across national boundaries ??
Secondly, he's probably going for "soft" targets that he's heard of, regardless whether they are the true culprits or not, probably because he's too scared to try and discover the real culprits !!
Finally, he's probably trying to do something unusual that's not been done by the others in order to create the impression of leadership regardless of the rights or wrongs of those actions !! He's forgotten that blind "leadership", more often than not, leads over a cliff !!
The moment such a tax becomes law is the very moment that London *dies* as a major international financial centre !!
Unfortunately, his Götterdämmerung will hurt us all !!
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210. Ishkandar
not sure, how many did the bhuddists have to start ?
A movement is a collective drawn together by their beliefs
A religion is the same but with a collective imaginary friend(s) tagging along :)
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198. At 7:16pm on 07 Nov 2009, nick whinnett wrote:
My understanding is that the banks are not hoarding the QE funny money. Banks are buying government gilts. The BoE is then buying these from the banks. Therefore the BoE is indirectly providing funds for the government to spend. The government spends in the real economy. Therefore QE is increasing the money supply and is likely to be inflationary.
7. At 4:31pm on 05 Nov 2009, Dempster wrote:
>>>>>>>>>>>>>>>>>>>>
Interesting posts that I think are relevant .. See also ....
Government deficit and debt
under the Maastricht Treaty
Date: 30 September 2009
Coverage: United Kingdom Theme: The Economy
[Unsuitable/Broken URL removed by Moderator]
>>>>>>>>>>>>>>>>>>>
It would appear that the QE is used to construct a process to avoid conflict with the the Maastrict Treaty deficit and debt agreement and at the same time create a QE transaction that can be input (at least in part) to GDP statistics.
The result is mainly an increase in the money supply - the vast bulk of the money supply movements are unclear.
There are some interesting points:
The UK government may be already be close to or in breach of the Maastrict debt and deficit limits? At what point will Eurostat question the QE as an extension of UK government debt (as cash is a promise to pay and a bankers' cash (BoE?H M Treasury) is only good if there are enough reserves to pay/meet the banks' (UK government is our bank of last resort) that is the UK government's debts and liabilities?
The QE is needed to prevent the UK government breaching the Maastrict Treaty agreement on government debt and deficit limits - it was never intended to put cash into the real UK economy - it is a device to expand the supply of 'GOVERNMENT MONEY' - i.e. not the money in the real economy.
The secrecy regarding QE is to allow the UK government to work behind the scenes manipulating deficit ratios and the QE requires gilt transactions to bring in a third party (UK banks)to HM treasury and the BoE and the issue is short - v - long term debt and rates of interest on the gilts and bonds.
The Maastrict Treaty prevents the government from excessively printing and directly spending that money - the UK government has found a way around it and is trying to artificially boost GDP figures on the back of it and is probably succeeding to some extent.
The question is also - Is all UK government expenditure showing in UK GDP - e.g. expenditure on the war in Afghanistan - is that all included in our UK GDP figures that everyone gets so excited about?
Millions of ordinary people in the UK have been and are still being misled about QE as it is more about a UK government in a deficit and debt crisis than it is about that government doing anything remotely akin to stimulating the nuts and bolts 'real UK economy?
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#215 John_from_Hendon
what we had was ordinary inflation to start with covered by sleight of hand changing of measurables and subsequently sustained by mis-confident credit expansion.
Wages for the majority experienced downwards pressure towards the minimum and unemployment was/is very high.
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#215 John_from_Hendon
what we have now I think is deflation - continuing deleveraging/debt payment with high unemployment and low wages.
This is being hidden by QE (which is only shuffling numbers)
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Pea soupers and the salty swedish sea dog, parrot free version. Only disaster awaits...... Mind the GAAP.
Skim this stuff and the links, just guage the complicatednessly niftyness on the golf course by 3pm'ness of it all and then realise that the EEC and each and every other mo' on the planet have got their fingers into this pi and are re-concocting a concoction that has visited from hades. Amongst the brightest people on earth, are some of the most deranged and dilatory types ever to exixt - you trust them, you trust this ongoing evolutionary process, it is a conglomeration of code that is gobbledeegook. It is rubbish from a Cabal of idiots with a cause that gives them world renown and nodded privelage.
New rules by the Financial Accounting Standard Board, in the form of FAS 166 and 167, will force banks to put securitized debt back on balance sheets and retain continued exposure to the risks related to transferred financial assets, by eliminating the concept of a "qualifying special-purpose entity". http://freerisk.org/wiki/index.php/Securitization This is in effect now, this quarters accounts.
FAS 159 – The Fair Value Option - Optional use of fair value for certain assets and liabilities - Essentially a one-time election - On a contract by contract basis, company can designate specified financial instrument to be accounted for using fair value instead of the usual measurement technique. Companies may be able to reduce volatility in reported earnings caused by measuring assets and liabilities differently.http://209.85.229.132/search?q=cache:vIpIpsKhmrUJ:www.cbe.uidaho.edu/Acct592/CourseMaterials/FASB%2520Update/FAS151,%2520FAS157,%2520FAS159.ppt+fas157&cd=8&hl=en&ct=clnk&gl=uk&client=opera So 159 offered mitigation? hmmmm...........
FAS 159 (which greatly affects FAS 157 and FAS 133) - http://www.cs.trinity.edu/~rjensen/Calgary/CD/FairValue/FAS159.htm A huge controversy surrounding fair value accounting entails where to put double entry offset when an asset or liability is adjusted to fair value. These offsets are hypothetical in the sense that the gains and losses are unrealized and in many instances will never be realized. It may be known that they will never be realized in the case of items intended to be “held-to-maturity.” For example, FAS 133 requires that a commodity derivative contract be continuously adjusted to fair value with offsets going to current earnings. Periodic fluctuations in income (earnings) before its expiration date are strictly unrealized and hypothetical. Quite often it is known in advance that they will totally offset one another over time such that the ultimate effect is zero impact on retained earnings even though the earnings has fluctuated up and down for fair value adjustments prior to contract expiration.
FAS 130 created a special Comprehensive Income (OCI) equity account mainly for fair value adjustment offsets that are temporary until the ultimate gain or loss is realized. The existence of such a “special equity account” arose prior to the formal definition of “comprehensive income” in FAS 130 in 1997. For example, FAS 115 in 1993 requires that financial instruments be classified as “trading” versus “available for sale (AFS) versus held to maturity (HTM). Trading securities must be continuously adjusted to fair value with offsets going to current earnings, thereby creating hypothetical fluctuations in earnings. HTM securities must be carried at cost and are not adjusted for fair value. AFS securities are adjusted to fair value with offsets going to a “special equity account” which after 1997 became known as Other Comprehensive Income in the United States.
Fair Value Accounting - http://www.trinity.edu/rjensen/FairValueDraft.htm
FAS 159 Early Adoption Date Approaching – Factors to Consider - http://thecaq.aicpa.org/Resources/Accounting/FAS+159+Early+Adoption+Date+Approaching+–+Factors+to+Consider.htm
Design your own derivatives contracts - http://en.wikipedia.org/wiki/Fairmat - Financial Engineering is a growing market in which are continuously created new different types of contracts that private companies need to evaluate and hedge. User-friendly software develops advanced modeling tools for the pricing of any type of financial derivative contract, including complex interest rate sensitive, equity-linked, inflation-linked, credit-linked, commodity-based instruments. Financial modeling tools allow the user to develop from scratch new derivative contracts, evaluate them, and assess their risk, quickly and without writing any line of code. Cash-flows structures, dependencies and optionalities are easily described in a friendly visual environment. Several models for the underlying stochastic processes are considered and the valuation algorithms are automatically generated by the software. Pricing routines can be embedded into front office valuation systems using financial modeling or write pricing routines, targeting the most used programming languages.
http://seekingalpha.com/article/36346-subprime-derivatives-say-bernanke-will-be-wrong
If you think anyone, anywhere is getting GAAP accounting correct or that it is worth the absolute fortune of investment and development which is required and devoted to it, you must be from Mars. No one on earth gives a hoot about it, its mandated accounting - they just believe it works. By the time this is all finished, people may just have realised that it doesn't actually work and neither does anything else on the planet either, because of it. Accountants don't care - they really do not care and never did. If they had, they would do their job instead of enjoying a conflict of interest and they would not sign off dodgy accounts. The guys who actually allowed Enron, Madoff and the whole ongoing list of abuses of share holders are handed the job of sorting thr problm of Corporate mismanagement with a system of rules, a tombe of gobbledeegook as complicated and error riddled as programming software. This entire endevour, GAAP, is complete rubbish, it is balderdash. Right or wrong, good or bad, it was the prospect of, and then adoption into practice of, these rules, that caused the economic problems we are all laid up with today. It is an ongoing nightmare. There is no finer proof that the vanishing of FAS157. It is extinct - it is renamed TOPIC820 and people continue to tinker with it. The IASB - the international flavour of accounting are planning to value derivatives differently again.
There is no way to call the problem and no one iside its orbit is decent enough to face up to disaster of it. Life.. life on earth. That is debatable, it is all actually a nightmare. Silly people with a bit of clout and too many pennies.
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It is only when you get a modest grasp of the GAAP applied to Finance and derivatives in particular that an idea of what has gone wrong with our economies can be understood. The timing of the rules and their impact on business management behaviour and practices and the wave of losses and reduced investment and huge focus upon Capital is not a co-incidence. That a problem existed with finance is one thing but the chaos that has occured in trying to right a wrong in the midst of the insanity that is finance is insane, the world will not sit still.
The derivatives are being dealt with by a process that is taking years to implement and already, those so minded to - run free of regulatory shackles building new unregulated trillion dollar bubble empires of paper. People are stupid with their money, nothing can ever prevent that and nothing can prevent a gravy train taking advantage of it. When people behave iresponsibly and someone they trust or employ or proxy, stitches them up, it is time for them to suffer and grow up, not start embarrasing the nearest politician and regulatory authority. Stupid people are stupid, if they lose their money trusting idiots or scoundrels, everyone should just laugh at the fools, not insure them and turn our world upside down.
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The flip side of that coin is the gravy train, bad bosses and occaisional bad boy in big business and finance. Consider them, the way GAAP deals with derivatives, nail them to the wall. No more cloaks of secrecy hiding behind commercial priveleage. Bbbut..bb.b........ enforce that concept the GAAP has been imposed. I dare you. I double dare you. http://videodetective.com/titledetails.aspx?PublishedID=6097 Worth the advert, it is. JT at his best....... :)
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Logic always has an inverse, http://en.wikipedia.org/wiki/Inverse_function it is finances only test, its only measure.
It never measures up, reputation gets in the way.
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Message 212 GovernmentBoffin
The cycnic in me is saying that as well.
The worried and puzzled parts of me are asking how do we get out of this bind in which the value adding part of the economy is drying out, slowly dying whilst the City and their state continue living it up much as before.
I have a vision of Labour being booted out at the next election by a Tory victory with Dave coming in, trying to do something with the best of intentions and the whole lot imploding, followed by yet another Labour government intent on boiling, roasting, frying, and baking the books all over again.
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For those economists looking to move into a more "respectable" profession [:-)], according to the Chinese Astrology, the Year of the Tiger begins on 14th of February, 2010. Apparently, it portends "drama, intensity, change and travel" !!
The "drama" will probably be supplied by our government getting into ever more ludicrous situations as it desperately tries to hang on to power. It may also be supplied by other governments, especially in the West, that try to resist an inevitable change in circumstances (a bit like trying to stop an avalanche by sticking your hand out) !!
The "intensity" will probably be supplied by the ever more dire and mutating economic situation, locally as well as worldwide !!
The "change" will probably be a shift of economic power from West to East. That shift may or may not be accompanied by a shift in political and military power.
The "travel" will probably be by those with internationally marketable skills moving to where their skills are most appreciated (and remunerated, of course); pastures new and all that !!
All this will be greatly facilitated by a government that is flailing and floundering around and bowing to the shrill and strident calls by the PC brigade with knee-jerk measures instead of carefully considered and thought-out solutions to this economic mess !!
Overall, the outlook is that recovery may not happen as expected in 2010 !! So, dig in, roof over and hunker down for a tough year ahead !!
So, cross my palms with platinum (inflation, you know, dear chap) and I will tell your fortune !! :-)
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#219. BobRocket wrote:
#215 John_from_Hendon
what we had was ordinary inflation to start with covered by sleight of hand changing of measurables and subsequently sustained by mis-confident credit expansion.
I think we are talking about a national statistics office defined and published aggregate namely either the CPI or RPI. It is reasonable well established that during the last decade (up to 2007/8) the prices of Chinese manufactured products from jeans to TVs etc. has reduced in absolute terms - this is the deflation I was referring to. This exogenous deflation was added into indigenous inflation to produce an aggregate and it was this aggregate that was (and still is) being used as a target by the Bank of England. This is the statistical 'perversion' that caused me concern at the time and that was the direct cause of interest rates being too low to properly manage the British economy for the whole of the last decade and that directly contributed to the totally unsustainable asset price inflation that took place over the period, which in turn led to the worst excesses of the British Banking Crisis the country is now paying for.
#220. - I broadly agree with you on the present situation.
QE is yet another fiscal perversion that is distorting the market, interest rates and asset prices (house prices again!!! and equity prices) and when it is unwound there will inevitably be much pain. As I have written earlier I think the BoE got the timing wrong and has broadly wasted its fiscal stimulus powder - but perhaps that is always inevitable when absurd nonsensical policies are pursued.
(I think that there now is evidence for the BoE wasting its fiscal powder and this evidence is that potential credit worthy borrowers apparently do not want to borrow even at these negative interest rates - time will tell.)
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#210 and #203
Its not a question of numbers, all you need is a good idea hitched to something intrinsicly appealing to our basic savage programming e.g. like eternal life (no thanks) or virgins to serve you for eteniity (also no thanks).
Then all you need is a few 'miracles' to back up the position that all this comes from a higher authority, hence we would need Derren Brown to come clean and admit all his 'tricks of the mind' are actually 'miracles'.
The rest would follow, afew 100,000 martyrs later (also no thanks) the elite would have been kicked out and society re-structured to be in tune with our modern technology and understanding rather then the 21st century technology run by a combination of 12th century culture and timeless pre-programmed savagery we have at the moment.
As I have said before I am firmly in the camp of believeing either everything is a miracle or nothing is a miracle. I tend to go for the former, so no need for all this 'shamen' and 'martyr' stuff.
Utopia by accident is the only way to go..keep those presses rolling boys. In the interim I will try to help by refusing to pay any of my debts until the interest on them is wiped out:)
Buddism is not a religion by the way (a mistake many make) it is a philosophy.
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#226
Nothing wrong with astrology, many traders have been using it for years!
On a more serious note there is a scientific basis to astrology, it is pretty much proven that the moon phases influence human behaviour (la Lune - crazy etc). Is it really so 'way out there' to consider that the quantum level brain functions from where consciousness comes from are not influenced by changing gravity fields?
The moon is simply the most powerful of those, violent incidents increase during a full moon, even in prisons (just in case you think it is because the nighttime is lighter being the root cause).
There is much more to this world than dreamt of in a traditional rationalists philosophy dear ishkandar.
So lets look forward to the year of the tiger, it could be a lot of fun for those whom have mastered the skill of riding on a tigers back.
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No 229 "So lets look forward to the year of the tiger, it could be a lot of fun for those whom have mastered the skill of riding on a tigers back."
Might not be so much fun for the tiger if you go furry every time the moon is full !! :-)
That said, it could be used by the bankers to excuse their crazy (lunatic ??) risk-taking !! "Honest, Guv, it wasn't my fault !! It was the Moon what made me do it !!"
No 228 "Buddism is not a religion by the way (a mistake many make) it is a philosophy."
Neither is Confucianism and Taoism, which are also mistaken by many to be religions !!
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#230
That said, it could be used by the bankers to excuse their crazy (lunatic ??) risk-taking !! "Honest, Guv, it wasn't my fault !! It was the Moon what made me do it !!"
Are you suggesting free will does not exist? Wouldent that be a turn up for the books for all the religious, legal systems and basis for bankers renumeration if it turned out nothing that we do is down to ourselves.
Which is true of course because anybody who follows science knows that our brain knows what we are going to do up to 6 seconds before the conscious bit of it does...
But there again according to Godel and Einstein time does not exist either so where does that leave us?
may as well carry on printing money I guess and try to enjoy the ride on the back of the Tiger. :)
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Hi stanilic, your 225 - 'intent on boiling, roasting, frying, and baking the books all over again.'
It isn't the govt's cooking the book. The GAAP rules manage it all by themselves.
We are human - the best of us are those making the fewest mistakes. I illustrate the point as follows. ATA Announces Results for Second Fiscal Quarter 2010 - http://ca.us.biz.yahoo.com/prnews/091108/cnsu002.html?.v=7
The world is truly being held to account and some are better 'AT IT' than others - On ATA's web is the following, which l offer as the quote of the year -
"...principles ( "GAAP'), ATA uses the following measures defined as non-GAAP financial measures by the U S Securities and Exchange Commission: net income (loss) excluding share-based compensation expenses and foreign currency exchange gains (losses) and basic and diluted earnings per ADS excluding share-based compensation expenses and foreign currency exchange gains (losses). The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned 'Unaudited Reconciliations of Non-GAAP Measures to the Most Comparable GAAP Measures' set forth at the end of this release. ATA believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses and foreign currency exchange gains (losses), which may not be indicative of its operating performance from a cash perspective. ATA believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to ATA's historical performance and liquidity. ATA computes its non-GAAP financial measures using a consistent method from quarter to quarter. ATA believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP net income (loss) excluding share-based compensation expenses and basic and diluted earnings per share and per ADS excluding share-based compensation expenses is that share-based compensation charges have been, and are expected to continue to be for the foreseeable future, a significant recurring expense in ATA's business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The table captioned 'Unaudited Reconciliations of Non-GAAP Measures to the Most Comparable GAAP Measures' set forth at the end this release has more details on the reconciliations between GAAP financial measures that are most directly comparable to the non-GAAP financial measures used by ATA."
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ORANGE is the new black.
http://www.faegre.com/showarticle.aspx?Show=10098 - Where to Find the Codification - FASB has established a Web site at http://asc.fasb.org for access to the Codification and related information. There is no charge to registration for the "basic view" on the Web site, which allows users to browse the Codification—and provides cross references from legacy pronouncements to new Codification citations.
A "professional view" also is available for an annual fee per user based on the number of users at an entity. The fee ranges from $850 for a single user, to $510 per user for 36 to 49 users, with special pricing available for 50 or more users. Among other features, the professional view offers enhanced browsing of the Codification, provides enhanced cross reference searching and allows access to legacy accounting pronouncements.
Impact on SEC Reports.............. oh mama............ sob........ sob......sobby sob sob. Orange is the new black.
While FAS 162 essentially kept the GAAP hierarchy intact, it reaffirmed that the responsibility to prepare financial statements in accordance with GAAP rests on a reporting entities’ management, rather than its outside auditors. The jails are overflowing now, but may well be going upmarket. http://files.myopera.com/herosrest/albums/634358/'cos.jpg - This should have people leaping through 22nd floor windows - "Most of the volatility in the company’s earnings is related to unrealised gains in the value of its derivatives. In the third quarter it reported derivative gains of $1.18 billion, against losses of $1.01 billion for the same period last year." 166, 167, 157,159, ................
With the issuance of the FASB Accounting Standards Codification came a single source of authoritative U.S. generally accepted accounting principles for nongovernmental entities—and a major change in the way CPAs view, research and evaluate the application of GAAP.FASB Statement No. 168, which becomes effective for financial statements issued for interim and annual periods ending after Sept. 15, 2009, replaced FAS 162, The Hierarchy of Generally Accepted Accounting Principles, which became effective in November 2008. When FAS 162 was issued, the GAAP hierarchy set forth in SAS 69 was moved from the auditing standards into the “home” in which it truly belongs: the accounting standards. http://www.calcpa.org/Content/25577.aspx
A defining moment in the history of U.S. GAAP (Generally Accepted Accounting Principles) was made on June 29, when the Financial Accounting Standards Board released FASB Statement No. 168, entitled, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting. FAS 168 represents the last numbered standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the GAAP hierarchy to set the stage for a watershed moment - the July 1 launch of FASB’s Codification (full name: the FASB Accounting Standards Codification TM.) The Codification will supercede existing GAAP for nongovernmental entities; governmental entities will continue to follow standards issued by FASB's sister organization, the Governmental Accounting Standards Board (GASB).
As noted in the Summary provided at the beginning of FAS 168: "Following [issuance of] this Statement, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The Board will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification."
Paragraph A14 of FAS 168 adds on this point:
The Board decided that this Statement should be effective for financial statements issued for interim and annual periods ending after September 15, 2009…In the Board’s view, an extended transition period is not necessary for this Statement because it is not expected to change GAAP and constituents have been able to access and use the Codification since January 2008. Respondents to the Exposure Draft were generally supportive of the proposed effective date, which was July 1, 2009. To clarify when this Statement should be applied and to provide additional time for constituents to update their financial statement disclosures, the Board decided to revise the effective date to interim and annual periods ending after September 15, 2009. http://financialexecutives.blogspot.com/2009/06/codification-nation.html
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4th quarter may well, really be, the years end. :)
Bon voyage................. the french have a saying - "quelle surprise".
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http://ukinnovate.com/
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Not a lot of people know this - Earl Judson Isaac worked at SRI (then known as Stanford Research Institute), during SRI's beginning years. H was the first person to 'crash' a computer, a behemoth at SRI known as ENIAC, by feeding it a complex mathematical problem it could not solve.
http://en.wikipedia.org/wiki/ENIAC - http://www.google.co.uk/search?client=opera&rls=en&q=eniac&sourceid=opera&ie=utf-8&oe=utf-8
The translation process becomes formidable and the most extensive checking often fails to eliminate clerical errors.
http://www.sysopt.com/forum/showpost.php?p=1487589&postcount=56
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WHY OUR ECONOMY IS SCREWED UP - http://files.myopera.com/herosrest/albums/901109/conumdrum.jpg
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If derivatives (CDS) are mis-valued, no one should be crying over the milk that is spilt. Pure stupidity has occured and it will continue. Our geniuses are fools.
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http://www.wordsoup.com/blog/Gnome.jpg
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Quantitative easing is not new, and every time has the same effect. A nice Scottish chappie called John Law conned the French regency into printing money in 1720. It worked. For a time that is. The French regent was thrilled. "If one hundred thousand livres can acheive this much, imagine what TWO hundred thousand could do!!!" Well the printing presses whirred and within a year or so the price of staple foodstuffs shot up by some 600%. Good Luck western world...you are in deepest doo doo! Buy gold!
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We are experiencing an economic dysfunction because an accounting error took place.
The symptoms present and orthodox problem, for a little while longer.
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Time to chill, http://www.sysopt.com/forum/showpost.php?p=1487598&postcount=2
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131. At 2:52pm on 06 Nov 2009, writingsonthewall wrote:
"I have already had to sub a number of friends and relatives in order to keep their heating on this winter and keep the bailiffs from their door. I know that one day this will benefit me, but for now (unlike a Capitalist) I do not need to charge interest or insist on payment of the money."
Are you suggesting that people who believe that capitalism is a reasonable idea (such as me) are entirely incapable of helping out their friends and family? Or that socialists are inherently more generous? I think that argument needs rather more justification than mere assertion.
If I lend money to a business to help them to use that claim on people's labour wisely and create wealth as a consequence, I don't see why I shouldn't share in the benefits of that extra wealth. I can then either use the proceeds of that wealth to my benefit or the benefit of others as I see fit.
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145. At 3:54pm on 06 Nov 2009, writingsonthewall wrote:
"If things were left as they were (no Government intervention) then I agree we would see a much needed deflationary period (to unwind the boom of previous years) - however the Governments around the world have made it clear they are not going to let that happen at any cost.
....and maybe they will start WWIII in order to prevent it such is their distain for human life over profit making."
I almost completely agree with you here. Credit's been offered at levels which the borrowers cannot afford, allowing a group of wealthy people to become even more ridiculously wealthy, but landing most people with unaffordable debts. While I agree that governments are trying by any means possible to prevent deflation, there is still a question over whether they can succeed. The obstacle which they have to overcome is that the attempt to sustain inflation will lead to vast numbers of people, currently at the limits of what they can afford, being unable to pay for shelter, warmth, food etc. which tends to cause social unrest. Maybe governments are hoping we'll just put up with it like the people of Zimbabwe appear to have done.
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149. At 4:08pm on 06 Nov 2009, writingsonthewall wrote:
"There is no credible explanation (apart from Marx's) to explain this crisis from the root cause."
I know almost nothing about Karl Marx's economics, but I don't think that you need very much economic theory at all to explain the current crisis.
1. Banks decided to start lending more to people than they could afford, because it was a good way to increase their perceived profitability. Sales targets were set so high that meeting them required, at the very least, distortions of reality in the applications for credit.
2. This meant that banks had lots of bad loans on their books which were labelled as good loans. Big bonuses all round - paid out of fantasy future mortgage payments.
3. House prices kept increasing exponentially, faster than incomes, until wholesale lenders to banks finally started realising that this couldn't go on indefinitely and started demanding their money back.
4. Banks didn't have the cash to pay the money back, and with expectations of house price inflation dropping dramatically, they couldn't sell their mortgages to raise cash any more because no one believed they were still worth what the banks claimed.
Why do you need Marx to explain that?
Anyway, after that we have:
5. Banks were put into administration, so that shareholders lost everything and their creditors lost money too. The banks were sold at a sensible price to new investors, and were no longer weighed down with large liabilities which could not be met from the assets which were worth much less than claimed. Prices of houses dropped to sustainable levels, a recession hurt those who had taken on too much debt, but soon after that those companies who had not borrowed too much started growing and taking on new staff and a new economic cycle started.
Sorry - point 5 is what should have happened. What actually happened was that governments decided for whatever reason that they didn't want banks to end up defaulting on their debts, so they used their AAA credit ratings to borrow loads of money against future taxes, and gave it to the banks' creditors to keep the banks from being bankrupted. Very nice for the banks' creditors. Very nice for the executives of said banks (including those pensioned off). Not so good for the majority of taxpayers who don't get paid a fortune, or who are made unemployed by the fact that the whole country's economy is weighed down by huge public and private debt.
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The problem that is faced is very simple - everyone involved has egg all over their face, once what actually happened, is realised. It's very, very interesting to contemplate. How high can the petard be hoisted?
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Market tip - The price of humble is due significant & long deserved gains.
http://www.sysopt.com/forum/showpost.php?p=1486997&postcount=204
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I'm not an ecomnomist, I don't work in the city of London. I do have a view: I can remember, when I was a child, control of money supply being used to control inflation. I do look at the current QE policy as being the 'Zimbabwe Option', but I'm not convinvced it is working. As someone who uses debt to fund a business, I see lots of business opportunities, which if I could take would then employ others and economic activity would then ensue. BUT and this is a big but, I will not pay the fees and interest rates being demanded by the nationalised banks which are meant to be injecting funding into the economy. RBS says we don't want to borrow. I would say I don't want to be ripped off.
The funding from QE desperately needs to come into the non-financial economy, at sensible rates. It is not rocket science (or is it?) for a politician to work out that we create wealth by taking a raw material and turn it into a product that someone abroad wants to buy, at a price that gives us a profit. To me our future at the moment looks like a country without profitable industry, living off government handouts funded by a process of printing money. Or have I got it wrong?
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154. At 4:29pm on 06 Nov 2009, writingsonthewall wrote:
"I totally agree - and I believe Marx commented on such an idea. If we were not spending our time chasing profit all week we would have our 'neccessary tasks' completed by Monday afternoon.
We would then spend the rest of the time educating ourselves and ensuring that real progress is made - which of course sounds very dangerous to those who govern us - I mean we might realise we don't need them!
[...]
The eventual outcome of this profit chasing is overproduction - which is why we get the deflation you describe as the world is awash with excess commodities. However by inflating the commodity which we use for exchange (money) they can offset this deflationary pattern (of course much enhanced since they ditched the Gold standard) - hence the aim of QE."
I totally agree. With improvements in technology, we shouldn't have to work anywhere near as hard for the same standard of living. But inflation comes from various sources, not just governments (though of course our government has a policy of creating 2% CPI inflation). Part of our problem is that people have become convinced to buy things that they don't need, to keep up with the Joneses, to have several foreign holidays each year, to measure their value as people in how much they can afford. I also find it plausible that part of the cause of inflation is that people demand that no expense be spared in providing medical treatments.
As I understand it, the Japanese got sick of working harder to buy stuff they don't need, which is why their inflation hasn't taken off despite all attempts by their government to make it happen.
I really don't see capitalism as the cause of these problems though. I'd say it's to do with people's materialism and lack of self-esteem. I don't see how state ownership of the means of production solves either of these problems.
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Regards, Russell Millner. Your 248. "As someone who uses debt to fund a business, I see lots of business opportunities,"
I have wondered for a while, how business that runs with large borrowing, is going to refinance with a diminished asset book. Some very big companys with property portfolio hedges are into quite a nightmare. whoops.ssssh.... commercial secret.. slap! Silly me. The banks kinda have both arms and one leg tied behind there back at the moment, government waving big sticks, year end fiddling and their bonuses to worry about - so there'll not be much sympathy from that quarter.
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Japan is constipated. China has a hard on. USA has 15 best practices and an accounting regulater who just hid under a mushroom, Germany's wealthy want to give their money to the government, Russia shrank by double digits, banks are running algorithmic trading at the speed of light, Hedge fund funds are on steroids, India just bought 200 tons of gold, Stock markets are following oil price like lemmings and the IASB are waiting in the wings to play World Domination (Dominoes for dummies-eec version) with a new set of asset revaluations. This years 4th qtr accounts will be a disaster, new rules and a year of erm... anti growth but l guarantee....... shareholders will get their money. New year and anyone looking to refinance will be up against it. This doesn't have to happen, what a world, eh! wodda world. This is where we are at - http://www.youtube.com/watch?v=_sNtC8aLEjc
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You hav to laugh......... :) http://www.youtube.com/watch?v=h0vW5O42cFA
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" When the policy started, the chancellor AAAuthorised the Bank to buy £150bn worth of AAA'ssets, of which "up to £50bn" could be private sector debtpartment store."
"PrivAAAte sector debt" was of course Gordoni's euphemism for the banks own off balance , Strategicaly Hyped Investment Tranches
They licked up eachothers AAA's holes which is what fAAAt cAAAts do with the help of the QE'er blanquette chequee boys on stirroids.
Never in the history of the chicken runs have so many chicken littles been plucked by so few for the crime of trying to cross the road with their wishbones intact , at the going down of the cock up at the quaaack of the overdraaaawn we will remember their doodle bugger doings.
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Banksters and pollytitians ,would their relationship be a tounge in cheeque lipposuction service on demand one, perchance?
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There is some debate about the origins of the current problem. I've posted this before but I think its worth posting again. The root cause was all the property speculation which was especially bad in UK and USA (also Spain!) which boosted all the banks and led to the derivatives repackaging and then the sudden crisis.
Best way to avoid in future is to tax capital gains on housing - look at this book for detail on it.
Boom Bust: House Prices, Banking and the Depression of 2010 by Fred Harrison (Author)
Its basic thesis is that the anglo-saxon method of using houses as future equity and speculation inevitably creates bubbles with an approximate 18 year cycle.
The solution?
Tax capital gains on ALL houses even your own house. This will take the steam out of the housing market and people will move as a matter of neccessity rather than speculating. This will take us to a more European approach to housing - ie it should be somewhere to live rather than a pot of future gains.
The problem?
Which political party would be brave (or dumb?) enough to propose this and how many people would vote for it? You see the problem.
My approach will be to try and exploit the cycle to increase individual wealth (greed or self-interest?) in the recognition that I really dont think our system will change.
Still recommend reading the book though even if it is a bit dry.
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The best wat to avoid this in the future is to sort the mess out now today, understanding it provides the fixes and tomorrows a dream, hassle free. Chap finance works, once it is properly understood. Keep accountants away from economies and teach basic derivative theory in first grade at school, because even the people using it - do not understand it.
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Ida know?.............. http://www.sysopt.com/forum/showpost.php?p=1487604&postcount=1
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Ida know? (II)..............http://www.sysopt.com/forum/showpost.php?p=1487605&postcount=1
Messed the first one up... Don't want anyone thinking i'm Anarchistic, i'm not even artistic. :)
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# 218. At 10:58pm on 07 Nov 2009, you wrote:
This comment has been referred to the moderators. Explain.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
The problem is that the moderators do not 'explain' and this was a very moderate post - anyway, an extremely sanitised/amended version of that post is shwon below and I think it is worth posting again - see:
Government deficit and debt under the Maastricht Treaty
[Unsuitable/Broken URL removed by Moderator]
The report states that:
'At end March 2009 general government gross consolidated debt at nominal value:
• was £796.9 billion;
• this was equivalent to 55.5 per cent of gross domestic product. The reference value for ‘excessive debt’ is 60 per cent.'
The QE 'jigsaw puzzle' is now coming together I think - it may be that QE is a device to enable the UK government to raise money/borrow cash without breaching the excessive debt limit of the Maastrict Treaty - depending on how the 'QE transactions' are accounted for.
This may be also why the EU have intervened recently and have told the UK government 'behind the scenes' that changes to the UK banking structure are required (or the UK will be penalised for being in breach of the Treaty) - this would help explain a lot of what is happening now to the UK government finances and the UK banking structure and sale/holding of British based banks by the UK government.
Essentially, Brown and Darling have lost control of the UK economy and are being told by the EU, very quietly and firmly behind the scenes 'what to do' and 'when' - particularly as the UK is perilously close to significant breach of the Maastrict excessive debt level - by all media accounts this crisis UK debt level may already have been reached and Brown is being disciplined by a EU Central Bank that is wary of the prospect of UK banking toxicity infecting the EU wider economy.
Ironically, it may well be the EU that is taking strident action to re-organise the UK banking sector and tackle the UK debt mountain - which is impressive really bearing in mind that the UK is not in the EU currency.
This may also be why the EU are relaxed about the UK government increasing the UK money supply through QE - they don't care really as this does not directly or immediately affect the EU central bank currency supply - and the QE will weaken the GB pound and this in itself will be inflationery and will inevitably lead to higher taxes in the UK as the UK government find it more and more difficult to borrow and borrow, to keep government expenditure and current levels.
Accordingly, the EU may simply be waiting to see if and by how much the UK government borrowing is excessive against Maastrict criteria and whether UK inflation shoots up which will mean that UK interest rates will have to rise to support the GB pound sterling.
Get ready for a very rough financial ride over the next couple of years and a prospect for a new UK referendum on Britain joining the Euro currency, as the UK economy is now in such a mess that any UK government, of any political persuasion, is going to find it very difficult to maintain stability in the UK economy going forward without the benefit of a stable currency and money supply like e.g. the euro currency.
The UK are reluctant Europeans it seems but I think that may have to change!
The point being that QE is and was never about the current government providing financial stimulus to real Britsih business - that was just spin and lies - it now appears that QE is and and has always been viewed by UK government as a manipulative fiscal device to avoid the primitive siuation of the government printing and directly spending that printed money. The UK government is doing this in a different way that conveniently creates a QE transaction for GDP on the way?
This is manipulative, fiscal power play politics of the worst kind and is 'under-hand' electioneering.
UK GDP now stands on a 'cliff' due to QE, as the true position of the UK economy is being shielded from public scrutiny.
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218 and 259
It looks as if the BBC moderators will not allow me to say anything more about QE - presumably the BBC are concerned in case my comments have a larger or wider effect on the interpretation of the UK's current economic situation, beyond this blog.
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Here is the future, virtual trading, just a moment away. Blink and you've lost a trillion, you have to be d'eft. Or is it daft?
http://www.vidoemo.com/yvideo.php?i=ZHFvb01HcWuRpdWEzWWs&xbox-project-natal-brittany-snow=
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If that looks like fun..... this should freak you out.
http://www.vidoemo.com/yvideo.php?i=SGx1V3NNcWuRpbGZqNjg&project-natal-meet-milo
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IT's all a game, isn't it?
"CDSs are “anti-social”, he goes on, because those who buy credit insurance often have an incentive to see companies fail. Rather than merely hedging their risks, they are actively hoping to profit from the demise of a target company. This strategy became prevalent in recent years and remains so, as holders of these so-called “basis packages” buy both the debt itself and protection on that debt through CDSs, meaning they receive compensation if the company defaults or restructures. These investors “have an incentive to use their position as bondholders to force bankruptcy, triggering payments on their CDS rather than negotiate out of court restructurings or covenant amendments with their creditors”, Mr Einhorn says." - David Einhorn
"...... investors “have an incentive to use their position as bondholders to force bankruptcy,"
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264 is a seriously cool number, remember IT.
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#263
'"CDSs are “anti-social”, he goes on, because those who buy credit insurance often have an incentive to see companies fail.'
only in the sense that a householder with new for old insurance might talk loudly in the pub about how his house is full of stuff and he is going on holiday tomorrow.
Where is the loss adjuster in all of this ?
By the way, I looked at the fairmat link, interesting for two reasons, firstly the business model and secondly in the sits vac they are looking for the usual techy and finance types but also people with good physics degrees, isn't that why aig in london imploded ?
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Having repeatedly pointed up how, since 2006 through 2008, GAAP has holed the world economy below the waterline, be glad now, settle back and enjoy the dash as our Titanic venture, Earth Inc. circles in ignorant bewildered confusion, builds up steam and rams the iceberg of revaluations head on in 2011, having had the bottom ripped out 4th Qtr 2009. Tha'r she blows..................
http://smallbusiness.uk.reuters.com/2009/11/06/accounting-boards-to-intensify-convergence-efforts/
Why, anyone, anywhere, would place the faintest of trust in an army of accountants, interested academics, 'holier than thou' regulaters who fail to enforce and a plethoric cacophony of elected /appointed forums, is a mystery..... the kind that has to be solved.
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Hi BobRocket, your #265. AIG is just one of those stories, quite incredible it is - sillyness, greed, bad timing, personlities and the self righteous, law makers with a mission, billions of dollars and on and on.... it is a real tale that will never truly reveal. But amongst commonly available stuff - The guy who built it up into the behemoth it remains, Hank Greenberg, flew close to the wind. A hard case business guy in a lucrative business. Business is business and there are no angels. Well, Insuranc always was and will remain a warren of oportunity, Elliot Spitzer tangled with Greenberg. Greenberg was ushered away from AIG and is still, l guess full of some spite towards those who remain. That was his baby, he built it from the ground up, it made him powerful and incredibly wealthy.
The business rolls on, is a pillar of US industry, like it or not and was not .......regulated properly, but that is business. The profit conundrum. Anys ways.. while all the combat was going down with Elliot Spitzer, Robert H. Heartz, FASB was beavering away on his God sent mission of GAAp. More anon. Greenberg hired in a gut named Cassano, ex of Drexel, Burnham, Lambert - (Michael Milken fame) - and the London office was set up and staffed to run a lucrative and potentially very profitable business.
Cassano knew the sales and Greenberg, did, really did know Insurance but he was ushered out before he put in place arrangements to hedge(underwrite) the exposures written in London and the rest is history. Many twists and tales, but basically, business did, what businesses will do, and this was banking business, banks all over the world. AIG tried to get off the hook buying out contracts at discount but no one wanted to play and Sam stepped in. Funny thing is, contracts which AIG held have turned gold now, paying back handsomely. No one involved with derivatives or securitized stuff seems to have a rational thoght in their heads. The GAAP revaluations of derivatives came along and it was really nothing more or less than a BLACK SWAN event. Utter shambles. A film in the waiting........
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249. striped-pad3
" I don't see how state ownership of the means of production solves either of these problems."
Communism/socialism is NOT about state ownership of the means of production.
It is about the democratic control of the means of production.
That is, humanity taking collective control and consciously determining our collective future, e.g. not wiping out a third of animal spieces, not having anyone starve to death, etc.
But just what that future is is for the people (not a political party) to decide through goverment institutions that are based upon direct democracy not voting for so-called representatives.
There is no blue-print, its for the people to decide.
Communism is about giving power to the people.
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It would be a good thing if people in general and politicians in particular started to realize that 'economics' is not a science but a form of primitive shamanism on a par with the belief in paranormal phenomena. There will never be a rationally based economy as long as economists keep clinging to outdated 18th and 19th century social, psychological and mathematical models. The 'law' of supply and demand is about the only truth economic so-called science has ever managed to discover and even that is easily manipulated because advertizing manages to create demand for supply even if there is no real need for what is being supplied. Mobile ringtones are a recent example that springs to mind. A good start would be the abolishment of the 'Nobel' prize for economics, as it serves no purpose whatsoever other than giving economists a totally undeserved sense of grandeur.
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#268
And on that note I suggest credit extension be increasingly democratic by encouraging the growth of 'social lending'. One advnatage would be transparency. It would become abundantly clear just from website statistics that certain projects of an unhealthy nature, a purely speculative nature, were becoming too popular.
You see, regulation of the banks such that leveraged asset speculation became restricted could cause one serious backfire: black market projects. True, credit would be less available to those who wished to gamble on assets, but nevertheless it would be available. People might be tempted to lose their savings and be *forced* into credit afterwards.
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No 268 "It is about the democratic control of the means of production.
That is, humanity taking collective control and consciously determining our collective future,"
Just how does one go about "collectively control" the production of cocaine or crack ?? It *IS* a product, after all !! And who decides and how ?? Perhaps the answers may lie in Animal Farm by George Orwell !! "...some animals are more equal than others..." !!
Theoretically, we could all be perfect and go to heaven. Practically, it is not so perfect. Show me one place that has absolutely perfect people !!
Failing that, we'd just to muddle through the best we can !!
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No 270 Frank - "True, credit would be less available to those who wished to gamble on assets, but nevertheless it would be available. People might be tempted to lose their savings and be *forced* into credit afterwards."
What was it, again, that they said was paved with Good Intentions ??
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The financial world still hasn't got it right.
The crisis has been caused by excessive debt,most of it uncontrolled. Creating more debt will make things worse.
You can't run a life or a business entirely on debt, which is what appears to be happening.
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#271
The people will decide if drugs are produced or not.
Most likely the peoples' councils will not allocate resources for the production of cocaine but might do for cannabis.
They might decide to allocate resources to track down and jail those who decide to produce cocaine.
Again who knows what will be decided and how these decisions may differ geographically.
No doubt some truly awlful decisions will be made.
Certainly no utopia!
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Hmmm - this morning sterling grows stronger against dollar and Euro - a sign the world does not believe us bloggers?
Not good news for our company as exporters - the weak pound is one of the few things that has kept our business going in a seriously shrinking market place.
We blog hard but I believe we are all helpless to stop what is happening to the UK but we will only become poor and have to reshape our lives - it is what is happening in US that really worries me?
I have three teenage children and I am in my forties - for them I really fear the War 'Option' as the most likely end to this - and if there is a War it will also solve the world overpopulation crisis and probably change our planet and our place on this planet forever - perhaps rather like letting the banks go bust this would be a good thing in the long term....perhaps we have overstayed our welcome.
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The Financial crisis simply demonstrates our flaw as a species - in the Developed World, not sure whether more primitive societies demonstrate this flaw or not.
We want things that we do not need.
It may also be this 'flaw' that has led to us becoming the dominant species on the planet at the moment but nothing lasts forever.
It is this fundamental flaw that has grown in our society like a cancer and the Financial crisis is just a symptom of this underlying problem - and it will be this flaw that proves to be our undoing.
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271. At 09:13am on 09 Nov 2009, ishkandar wrote:
"Just how does one go about "collectively control" the production of cocaine or crack ?? It *IS* a product, after all !! And who decides and how ?? Perhaps the answers may lie in Animal Farm by George Orwell !! "...some animals are more equal than others..." !!"
Still falling back on your Orwellian definition of Communism I see - you must read more widely Ishkander.
I'd love to know why Capitalist 'more equal than others' is visibly obvious and almost accepted, but the Orwellian version isn't.
As duvinrouge stated, Communism isn't about a party or state controlling the means of production - which is where the Soviet Union and others went wrong.
You cannot force the issue - we must wait for Capitalism to collapse.
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I'm not a big one for surveys, but this is consistent with many East Germans I have met.
http://news.bbc.co.uk/1/hi/world/8347409.stm
One of the big differences that many ex-eastern bloc people say is that in the East the basics like Bread and Milk were always cheap - so you knew you would not starve.
However in the west the prices of these are dictated by the market, which is chaotic at times - not really a system one would choose when dealing with life's essentials.
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271. At 09:13am on 09 Nov 2009, ishkandar wrote:
"Theoretically, we could all be perfect and go to heaven. Practically, it is not so perfect. Show me one place that has absolutely perfect people !!"
Sparta - 540AD - perfection and equality.
Free men and women living in harmony.
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WOTW
All hail, WOTW. What say ye on te falling dollar and te rising markets? Be it the end of the world, or merely the dollar? Nay, be it institutionalised theft, as they move their wealth from cash to shares and back again in waves that leave all the pretty pebbles piled up at their own doors?
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It is a terrible feeling when you realise that the man driving doesn't know where he is going,still more worrying when he appears arrogant and dismissive of advice,then you suspect you're near a cliff edge,do you grab the wheel or jump!!!This is how I feel with our leaders and the direction they are taking us.QE is a short term sticky tape solution to a corroded gas pipe,there is a funny smell but no hissing.But deep down we all know how it is going to end,we just don't know who has the matches! The banks need to reveal their bad loans,Glass Steagle to be re-introduced and the real economy to be given stimulus in the form of tax breaks and incentives, a long term approach to taxation and profits and pruning away needless Government meddling.Taxes should be fair,simple to collect and at a level that nobody considers it worthwhile to try and avoid,the exact opposite to where we are.Although this from an average Jo,we would be better off with monkeys rolling dice,I am convinced they would not have got as much wrong!!
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243. At 5:43pm on 08 Nov 2009, striped-pad3 wrote:
Explain how you "create wealth by lending money" and we can discuss - otherwise I think you'll find you didn't create anything and therefore your share in it is essentially parasitical.
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245. At 6:18pm on 08 Nov 2009, striped-pad3 wrote:
Everything you listed as being 'causes' are in fact 'symptoms'.
The cause of the crisis is diminishing profit - it caused the last one, the one before that and the many before that - nothing has changed - only the people telling you that "it's been solved this time" have changed.
To answer your questions:
Ask yourself why banks started lending to those who could not afford it? - Why would they need to participate in such a suicidal activity?
The answer lies in the diminshing profit - banks have to find new markets in order to pursue their ever diminshing profit margin. It was the same leading up to 1929 - banks were lending to people so they could gamble on shares simply because they had exhausted all other avenues of profitable lending.
That's why you need Marx to explain the crisis. All other theories are aimed at the symptoms that come after the cause.
Does your Doctor stop you getting the flu by handing you a hanky? That is what Governments do to solve this particular 'flu'.
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Noel - 281 - I agree with your view of where we are heading but the problem to me is that any simplification would seem to require a massive reduction in people employed by the State which would seem to make the money being spent in our economy even less which would seem to result in more businesses going bust which would etc etc
We are in a mess and QE is numbing the pain but the problem remains.
We keep hearing people say we are getting better but how can we be?
The Government believe (or are acting as if they believe) if they can get people to believe things are getting better then asset prices will rise which will improve the credit situation and everything will be okay again. Meanwhile the City bankers and other financiers continue to make a fortune [many things are wrong about our current situation but this is the most sickening].
The government will not tell the truth nor act in the manner that is required because the truth is too horrific for most people to face - so we continue our journey towards the cliff edge.
The three little pigs story comes to mind - and we're the pig in the straw house.
What would I do? I don't have the answer but I don't think that there is enough pain in the current solutions to get us to a better place so I presume we are making the problem worse and the pain will therefore be much more severe when it ultimately arrives as it surely must.
So in my first paragraph I query your solution - but perhaps this is the kind of pain that we need to get the country back on an even footing but sooner rather than later.
Procrastination is the thief of time.
A stitch in time saves nine.
Never put off till tomorrow what you can do today.
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249. At 6:42pm on 08 Nov 2009, striped-pad3 wrote:
Everything you state is a credit to your thinking, you have identified all the symptoms of the crisis very well.
Now it's down to the cause - This is a very brief and 'light' explanation - you need to read the original to fully understand.
There is a good reason why there is a perpetual need to sell more and more stuff to we consumers - don't think overconsumption is a natural phenomenon. It's because all suppliers face a diminishing profit as technology replaces their workforce.
If you had an industry where it was heavily labour intensive, you can make a lot of money, simply because you are underpaying the workforce for the work they do. As technology improves the workers get replaced by machine - thereby increasing the profit further. It comes from the simple (and obvious) theory that the value of any commodity is effectively the labour that has been applied to it. Tin is worthless in the ground, but once it's dug out (by labour) it gets value, once it's refined (applying more labour) then it's value increases, once it's made into a useful item (more labour application) - it increases value further. No amount of trading the item increases it's value - simply because a trade adds nothing to the item.
Unfortunately your competitors adopt the same technology as you (which is why they're called competitors) and your profit margin is reduced. You and your competitors face the same costs to run that machine, electicity for example - which is why the profit is diminished.
This continues until there is no profit left in your industry and your market (the consumer) have no money with which to purchase your goods for 2 reasons - 1, many are now unemployed after being replaced by machinery and 2, those who are working are getting paid less and less in order to maintain the profit margin. (remember it's relatively less, so they don't notice).
The result is overproduction, the productive forces create more bits, bobs and gadgets than the market can afford and we get collapse as the world is flooded with commodities - which then lowers the price of everything - Capital destruction as the 'factory owners' have to face selling their goods for more than it cost them to make.
This theory still holds fast today - despite the financial industries efforts to complicate matters in order to confuse us all - nobody has defeated this and nobody can produce a counter explanation for crisis - and that's exactly why they keep happening.
What Marx wrote was 95% about Captialism, and 5% communism, but strangely he is always remembered for the latter in the West.
Now I'm probably going to get massacred by the Marxists out there for simplyfiying this theory too much, but it's important to understand the basics before delving into the original text - which is a tough read.
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280. At 11:58am on 09 Nov 2009, FrankSz wrote:
It be a crisis of Capitalism - have you not seen this before man?
I can only assume you were born in the last 10 years or so.
The rising markets may be related to the 1 Trillion dollars of bailout money the people of the world have kindly donated to the cause which has found it's way into the stock market (because there is nowhere else for it to go).
....it's also a bad idea to take one or two day's market movements as an indication of a long term trend.
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276. At 10:28am on 09 Nov 2009, GRIMUPNORTH77 wrote:
"We want things that we do not need."
A perfect summary in a line, but be fair to 'us' - why are we taught from such a young age that we 'need' these things which we actually just 'desire'.
I mean why do people buy Porsche's? Is it because it's a great car (well depreciation and performance beg to differ) - or is it because we want to be socially accepted?
We are given images and ideas daily that to 'be rich' is a good thing and without consequence, but the reality is very different. Idolising the wealthy is a false game as there can only be a few of 'above average wealth' in a finite environment (the Earth) - it's totally logical.
The next generation are going to be hit with a hammer blow - I heard a teenager talking about 'not being able to live without her mobile phone' - as anyone who was born before the mobile phone was invented knows - it not a neccessity and you can live without it.
The point is we are required to consume more and more in order to keep the system going - regardless of whether we need it or not.
People of an older generation will remember a time when there really was nothing and times were very hard - it's their experience we will need to steer us through these tough times.
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'Free market flawed, says survey'
http://news.bbc.co.uk/1/hi/in_depth/8347409.stm
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#282, 283 and others - writingsonthewall
You have alot of good posts on this thread, concise, backed up and insightful. Not least of which the comment on the parasitical nature of lending, the lender is the parasite not the borrower as modern doctrine would have us believe is the truth of it.
I wish there was a more tangible way to raise awareness than by posting on sites like this which, unfortunately, rarely touch the majority whom are spoon fed morally and factualy empty promises of ' restoring growth' and 'increasing the availability of credit' as the road back to 'the good times'!!!!!
Where are the Unions in all of this? Instead of irrelevent self defeating strikes for unsustainable and unfair pensions they should collectively concentrate their efforts on exploding the economic myth that has been peddled in the general population.
If anyone from the TUC is out there and want some pointers on how as a class you have been mercilessly exploited and manipulated by the political class including labour (among others)I am sure a few people on here could give you some pointers which may then lead to a strategy to come up with something that would serve your members, your members families and their future generations(and the countries)interests.
Lets face it when the crunch comes it will be people who are members of unions who will re-build the country, it will not be the bankers, political and media elite, you will find them residing in some tax haven somewhere at that point.
Thanks in part to QE there is still time to mitigate the coming re-structuring into a less painless affair, but not much and not unless some established organisation takes some kind of lead on it.
Alternatively continue towing the labour line
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8 out of 10 cats prefer Moustaches says survey.
It is ridiculous that somebody needed a survey to reach the conclusions it did - I wonder how much it cost?
Look at Pakistan results - nearly a perfect random selection
Survey one - two choices plus presumably neither - split about 25%, 35% , 40% for neither.
Survey two - three choices plus presumably one - split about 20,20,40 and 20.
In fact only splitting by country and ranking makes survey look at all interesting which could just be a random fact.
If combine all results then about 20% think fatally flawed, 40% think needs more regulation. At a time when the banking system is collapsing around our ears and bankers have been taking huge bonuses this is hardly earth shattering information!
Surveys - PAH!!
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289. At 1:46pm on 09 Nov 2009, Jericoa
...and it's not just the Marxist who condems charging interest on money lent. Islam also condems is and so did Christianity (until it was conveniently subverted by removing the concept and taking the words literally - do not charge usuary on money lent to your brother)
Interest is simply a way of ensuring those who 'have' can retain it and those who 'haven't' will always be without.
As for the Unions, you're being a bit hard on them. The Government operates a policy of divide and conquer - which is why you get so many people slating the tube strikers or the postal strikers. However rest assured - when these 'anti-union' workers all get the boot this year they will look at the situation differently and wish they had some solidarity as they sit alone in the dark.
I mean look how the public reacted to the recent post strike - we had a media all too happy to show the 'unhappy businessman' who is unable to make a profit because he might have to stop using the incredibly cheap post office and go for a more expensive courier. They were branded as lazy and the jealous private sector wailed about "we're loosing our jobs so why shouldn't they" - as they do on this blog regularly.
Private sector workers are often living in the dellusion that they have it harder than public sector workers. However the majority of PSW's are poorly paid for the work they do - this is because what they do is of some social use (and not just commercial) - and guess what....
...Economics doesn't and cannot quantify social benefits - and that comes from the classical Economists - not Marx.
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290. At 1:53pm on 09 Nov 2009, GRIMUPNORTH77
I agree - however how many 'business confidence surveys' are trotted out to show evidence of recovery?
What about the 'house price confidence survey' that the Nationwide produce which is picked up by media regularly.
Either we listen to all surveys - or none, we cannot pick and choose.
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292 - a survey/opinion poll is required to establish something that it is difficult to establish an answer yourself - for example market research when launching a new product can be useful.
What are people's opinion of the operation of a free market economy at them oment is not a difficult question to answer and does not require a survey IMO.
Again IMO 'confidence' surveys are a 'confidence trick' - often people's confidence in the future is determined by what they have already been told by the media is going to happen.
Opinion polls on Political parties performances are the worst of the lot - these tell a party not whether or not their policies are any good for the country's future but whether or not they are popular and will get them re-elected.
OPINION POLLS - PAH!
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http://www.sysopt.com/forum/showpost.php?p=1487608&postcount=316
It is important to accept that people will make a profit. Personal Freedom is a desirable goal that entails its own responsibilities and Free Trade is a worthy way of live that, at this time has gone insane. People are fighting over the distribution of wealth. It is a battle, taking place behind closed doors and is a disgrace of stupidity.
Here's a what if scenario, just for a chuckle. Accountants at the top end of the feeding chain, up their with the gods and their twins the auditors, might just be at it. There 'was' serious concern amongst SHAREHOLDER's about there investment returns. Not just yer Mutuals and Pensions businesses but the Life's a Beach brigade. This is not an unreasonable scenario. It's near truth. There was worry that it would all come crashing down AAND that investors were losing out to finance/banks because of all the money paid in interest to banks. It's not an unreasonable way to look at things back a few years. Toss in a salad, Enron and a running series of scandals that people who should have been preventing - didn'y - and l progress to the GAAP.
If someone wanted to reign in lending, cut back the interest payment streams to banks, who were 'out of control' - the derivative valuation that was done by FAS157 was a piece of genius - in that limited goal and it worked. Lending fell through the floor. I have the thought that this is the type of manouver an accounting or problem solving mathematical brain would come up with. Peoplr at the top of the chain, The Davos socialites, knew what was going to happen, before it happened. They discussed what would take place for years to come, before it had happened and discussed it openly as the facts of life.
Looking at our problems in that light is a refreshing experience, and it becomes possible to realise that what might just possibly have seemed like a brilliant sneaky prank, a whizz, has gone horribly wrong because the genius's with the great idea actually did not understand what they were doing and it is a cock up that no one ever is going to admit and therefore it cannot be sorted out. A schoolyard prank on a global scale that is a disaster in progress. Growth cannot be generated because of negative equity. Business is simply paying down its debt or has its head buried in the sand waiting........ for.... the auditors.
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Opinion polls are only any good if you ask unbiased questions of the correct target group.
I doubt if Nationwide ask 'do you think house prices are rising ?' only of people defaulting on their mortgages.
They will only do a survey that will reflect the answer they want to publicise (it is in their vested interest to improve confidence in the housing market so they ask estate agents - noted for their honesty and integrity)
Incorrectly targetted polling can sometimes give results that conflict with reality.
Anybody remember the opinion polls just before John Major won his election ?
The pollsters asked the standard question 'if there was an election......' and the results were coming back Tory loss.
They should have asked only people who were not at that time disenfranchised by Thatchers poll tax.
(people who agreed with the poll tax were more likely to pay it and be allowed to vote, people who were very anti-poll tax would be unlikely to have paid and so could not vote)
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People know - http://en.wikipedia.org/wiki/Black_swan_theory
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A good number of people now routinely lie to pollsters. It is a very clever move. I don't want people who are after my vote telling me what they will do for me. I wish them to do what l tell them to do. Funny old world, isn't it. :)
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295 - but why does anyone need to know what people's opinion is unless it is to affect their future behaviour.
If we are talking about political parties and getting elected then basically we are always going to have political parties who take the popular route rather than the required route - sometimes, for example right now and over the last twelve months, unpopular decisions are required for the good of the long term future not the short term vote.
Imagine if there were no opinion polls - the party in power would continue to do what they thought best for the country and hope that the country recognised this when it voted.
The opposition would set out their manifesto and hope the public thought it was good too - but noone would know until a vote took place so perhaps the right decisions might be made rather than the popular ones.
I know - I'm living in a little dream world but I wonder how many people think the same way as me......... (for those without a sense of humour that last little bit is a joke)
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Here's why applying arbitrary revaluations to Derivatives isn't very clever. http://www.zerohedge.com/sites/default/files/images/Liquidity%20Pyramid_0.jpg
Here is someone who should have twigged - http://my.opera.com/Zaphira/albums/showpic.dml?album=807290&picture=11641185
Here is the future - http://my.opera.com/Zaphira/albums/showpic.dml?album=807290&picture=12809432
Here's why it happened - http://my.opera.com/Zaphira/albums/showpic.dml?album=807290&picture=11605626
Here is what happened - http://en.wikipedia.org/wiki/Falsifiability
Here's it's 21st century take - http://en.wikipedia.org/wiki/Black_swan_theory
Underlying everything is........... profit, which as all decent people know is theft. Something for nothing. A tool used to motivate and reward. Nowadays, profit is the reward for making a profit. Those profits are n/x,000,000,000,000,000................ that's what they are. Zero sums. Zero people.
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293. At 2:30pm on 09 Nov 2009, GRIMUPNORTH77
I agree with everything you wrote - except this line:
"for example market research when launching a new product can be useful."
Unfortunately the opinion poll is just as failed in this situation. First of all the sample audience is wrong - as all surveys require a participant. As I never stop to answer questions in my street and I never answer my phone and then complete a survey - you never get my opinion (or people like me)
Also there is a big difference between asking someone 'would you buy this product' and them actually buying it, especially if buying that product is at the expense of buying another.
This is exactly why we get so many useless and pointless products in our shops. It's also why so many businesses will be going bust at the moment, because many people buy certain products in good times - but when the bad times comes they get dropped like a stone.
This is where advertising comes in - to convince people they need the product (rather than just desire it).
If Capitalism did not boom and bust (as it inevitably does) then there would be certainty for products and we would not produce goods which are solely 'boom goods' - which are inevitably wasted during 'bust times'.
The consequences are for the planets resources and the environment.
With regard to the survey,
I do agree that at times like these you will find more people agreeing that 'Capitalism is faulty' - however I would argue that the same people knew this when things were going well - but they lived in hope that it was fixed for good this time, which of course it wasn't. You will also find people will agree something is working simply because they are benefitting from it at that time - turning a blind eye to logic in favour of greed or social acceptance - a la the 'King with no clothes'
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It helps in this life to watch what people do rather than accept what they say they will do.
The Labour government were doing very well, exceedingly so, until this economic speed bump was thrown down. Have you noticed for example the investment and transformation in our schools, hospitals as , public transport in London 'is' transforming. The staff are useless but that is a generation thing, they simply are as dumb as bricks and filled with totally unjustified self importance. The economic problems were not caused by government. Those who believe such are either trying to replace those in government or are gossip led and lacking any understanding. The opposition are wining and dining industry leaders and finance chiefs from around Europe at 25 & 50K per head, club dinners, peddaling influence to the people causing this mess......... l would despair but ............ people are people. We get what we deserve.
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Here's a consideration.
In North Korea I understand they have a speaker hard wired into every house (living room) so you can hear the announcement of the 'great leader'.
Imagine if we could have the same with opinion polls / voting - then we might realise what people actually want (and not just the unemployed and pensioners that are in the streets answering the pollsters questions).
Enforced opinion - you can of course register 'no opinion' - which would help indicate what people are actually bothered about - but everyone must respond.
Still - an idea like this would be like.....Democracy and that wouldn't do in a Democratic society.
However it does show why state control might need to be a part of the implementation of true Democracy - it's just the current state system we have clearly does not have this as one of it's objectives.
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282. At 12:03pm on 09 Nov 2009, writingsonthewall wrote:
"Explain how you "create wealth by lending money" and we can discuss - otherwise I think you'll find you didn't create anything and therefore your share in it is essentially parasitical."
I don't create wealth by lending money. I got my money by having already created wealth, which I exchanged for money. I could either use that money to satisfy my desires by buying chocolate to consume, or I could come to some mutually beneficial arrangement with someone who wants to use _my_ claim on other people's labour to help or enable them to produce more wealth, some of which they can give to me to compensate me for the risk of losing my money and the fact that I can't eat as much chocolate in the meantime. They don't have to borrow my money - they can store up some wealth or their own first if they like. But I don't see why I should be compelled to give up the fruits of my own labour just because someone else who hasn't put in any work yet can benefit from it.
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Revolting - A serious step, evolutionary - Imre Lakatos (November 9, 1922 – February 2, 1974) was a philosopher of mathematics and science, known for his thesis of the fallibility of mathematics and its 'methodology of proofs and refutations' in its pre-axiomatic stages of development, and also for introducing the concept of the 'research programme' in his methodology of scientific research programmes. - http://en.wikipedia.org/wiki/Imre_Lakatos
Lakatos' contribution to the philosophy of science was an attempt to resolve the perceived conflict between Popper's falsificationism and the revolutionary structure of science described by Kuhn. Popper's theory as often reported (inaccurately) implied that scientists should give up a theory as soon as they encounter any falsifying evidence, immediately replacing it with increasingly 'bold and powerful' new hypotheses. However, Kuhn described science as consisting of periods of normal science in which scientists continue to hold their theories in the face of anomalies, interspersed with periods of great conceptual change. Popper acknowledged that excellent new theories may be inconsistent with apparently empirically well supported older theories.
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Hector Sants brings a whole new meaning to the phrase "Closing the stable door after the horse has bolted"
http://news.bbc.co.uk/1/hi/business/8351080.stm
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The government will not let banks fail. That is life. That is good. Now, if the best and brightest can get their underwear into twists like this - http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6907889.ece - what hope is their that the rest of industry is actually in worse shape viz-a-viy REFINANCING. The Financing Market of 2 years ago was destroyed by the GAAP changes imposed upon derivatives. That is what happened. Some people believe that was a good thing, l reckon they will steer clear of anything that vaguely resembles a lampost once the real real mess starts to unfold.
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The tag line for this blog talks about 'the moment of truth'.
What do the BBC know about truth?
How can you headline a story with this:
Jobs market decline 'set to slow'
When it contains a paragraph like this:
"However, reduced labour demand and lower hiring levels show there is no sign that the labour market is anywhere close to returning to proper health."
Are the BBC the same as all other forms of journalism? Pandering to the lazy reader who only reads the inaccurate (and confusingly reversely negative) headline and doesn't bother reading the rest of the story?
This is a tactic employed by tabloids as a way of lying without falling foul of the law.
It's good to see that we're being lied to at all levels these days - from the politics down to the reporters - a sea of lies in which we're swimming and not a boat of truth to be found for miles.
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Don't need a survey to see that there is very liitle understanding of marketing research or sampling in relation to surveys - or the art of questioning for that matter shown in the above posts.
writingsonthewall may feel smug about not answering questions but then that is about as much use as the post election car sticker that says "don't blame me - I didn't vote!".
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This country does not face an orthodox financial and economic problem. The process which caused problems destroyed the means of growth.
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308 - enlighten me - my opinions are never entrenched such as they can not be changed by a 'Black Swan' moment!
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Well, i'm finished fiddling with fate. So...................... next???
I know, l'll see if l can work out who was part of the development team that brought FAS157 & its casquade of implications to fruition. Hmmmm, l wonder who these guys are........
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312. Here is the story of the last few years, a well written insight to.......... Warren Buffett, where he comes from, what what he does is grounded in and the bigger fact of the game - the struggle over reward and who deserves it, that is taking down economies in the cross fire. These people are completely focused and insane in the most logical and best mannered way. Utterly, completely of another planet. The planet privelage, privelage to be stupid beyond all belief.
http://online.wsj.com/article/SB125730420370927171.html
At the heart of the relationship between management and shareholders is a profound conflict of interest. Managers, will always want to pile up cash to protect themselves in case they make mistakes. But that cash belongs to the shareholders, who may be able to put it to better use than the company's managers. The better the business and the more skilled its managers, the greater its profits, causing cash to pile up to unreasonable levels. TAX is just a dirty word, an inconvenience. Take, take, take until.........................
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No 279 "Sparta - 540AD - perfection and equality."
Sparta in 540 AD was a town in the Roman province of Greece, part of the, later to be, Byzantine Empire !! There were plenty of slaves there. Only the *elite* were "equal and free" !! Very Orwellian, actually !!
A bit like Soviet Russia. The elite had supermarkets and shopping malls while the rest queued for hours for anything and got sent to the gulags if they complained !!
This might also be Britain yet to come !!
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No 277 "I'd love to know why Capitalist 'more equal than others' is visibly obvious and almost accepted, but the Orwellian version isn't."
Capitalism isn't about equality; it's about opportunity !! That's why the Soviet-style states fell, one by one. When the Chinese reformists realised what would happen, they mounted a concerted attack on the hardliners led by the Gang of Four, shattered them, and started "Socialism with a Chinese face" - i.e. Red Capitalism !!
Guess which country is not groaning under the jackboot of debt !!
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No 284 "Never put off till tomorrow what you can do today."
The government has re-defined this to be "Never put off till tomorrow what you can put off until after the next election" !! :-)
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No 303 "But I don't see why I should be compelled to give up the fruits of my own labour just because someone else who hasn't put in any work yet can benefit from it."
It's called collectivisation !! The fruits of your labour has been collectivised so that those who don't want to work can still benefit from it !!
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What's the total number of dollars in the world versus the total number of Euros?
If one starts to tip against the other, how high will the prevailing currency go before the other one succumbs to hyperinflation?
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What an interesting world of little circles we live in. Here is some modern radical thinking: by pople who know everything. http://www.oxan.com/resources.aspx?URL=/occ/FiscalProfligacy_16ix09/OxfordAnalyticaFiscalProfligacy_Sep2009_Summary.pdf Top people these - bringers of light. It is astionding how things really do go round in circles. Second timw around this is for me, same conclusion.
Value is something very, very special - if you allow it to be manipulated there will be a price to pay. It is a very simple concept. Mark to another market, which is what is going on.
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Credit Default Swaps - the latest numbers are down somewhat, Quelle surpise..... http://www.zerohedge.com/sites/default/files/images/OTC%20Derivs%202.jpg
In Trillions of US Dollars.
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General government debt in percent of GDP, USA, Japan, Federal Republic of Germany.
http://upload.wikimedia.org/wikipedia/commons/thumb/b/b8/PublicDebtTriade.PNG/800px-PublicDebtTriade.PNG
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If you do one thing more in your life - read this
http://www.chinadaily.com.cn/world/2008-11/21/content_7229070.htm
Then wonder why China is going off like a Mental Tiger with investment levels that are not quite insane!
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No one knew or knows how to value this stuff still, because no one anywhere, defended value.
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http://news.bbc.co.uk/1/hi/business/8346092.stm
Cake and eating !! The Aussies are getting the benefit of the high earnings from their exports and they are still whingeing about a fall in tourism. The money they make from their raw resources exports are miles more than that from tourism, but they want it all !!
And they talk about "Whingeing Poms" !!
Gold has maxed; so has iron and other minerals. The new nuclear generators springing up everywhere can't be bad for their uranium sales !! Oil and gas are in high demand !! What more do they want ??
Still, for the Aussie dollar to go from 60 US cents in February to 90 cants now means a good profit for those who switched to Aussie dollars earlier in the year !! And all that without breaking out in sweat !! Whither go thou, Oh Sterling ??
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http://news.bbc.co.uk/1/hi/world/africa/8350228.stm
How to recycle US$ debts.
"At the same time, China is keen to invest billions of dollars of its foreign reserves. A lot of that money is tied at the moment to assets in the United States and to the weak dollar. Investment in new African projects offers a useful alternative."
China invests US$ debts in Africa. African use that to buy goods. Debts get into the international markets. Demand for US$ debts weaken. China had already "passed on" the debts when the US$ was higher !!
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From an article on www.wsws.org:
"The Wall Street Journal reported Monday that Morgan Stanley has concluded that the amount of cash circulating in the global economy is at its highest level by far since the firm began tracking it 30 years ago. This vast wave of hot money can find no profitable outlet in production, so it is being pumped into stock markets and speculation on commodity prices and currencies. The result of a colossal global asset bubble that must sooner or later burst."
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No 325 "The result of a colossal global asset bubble that must sooner or later burst."
Sounds about right !! The funny money created in the boom of over-valued derivatives wants to find a home somewhere and a lot of people are leery of taking that since much of that is in USD !!
Furthermore, the "hot" money needs to find a home which is (relatively) portable; just in case any one of these economies are in some difficulties !! Stocks, especially internationally listed stocks, are a very "portable" form of wealth !!
When the debts are being called in, these stocks may be dumped and the market will fall !!
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Little housing bubble, little asset bubble.
People in a certain age/savings bracket who think their pensions and savings are going to be eroded by QE are buying up property.
Poor fools.
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To nautonier
Now there are two of us
John Dempster Bolton England
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What are the BBC up to?
Under the headline "House prices 'to keep on rising'"
it says
"In October the balance of surveyors reporting price rises rather than falls rose to 34%, up from 20% in September."
It is just me or should that read - "66% of surveyors are reporting falls rather than rises?"
So a slowing rate of decline at best.
Are they being paid off by Nationwide and Halifax?
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FrankSz / Iskandar et al.
While the bubble is still afloat there is still time to deflate it in a controlled and systematic manner, rather than wait for the catastrophic bursting.
A form of Tobin Tax performs this function adequately:
http://www.huffingtonpost.com/ellen-brown/goldmans-profits-come-fro_b_349640.html
A little bit of pain over the longer term, to flush out the toxins in the economy.
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Recovery?
Well, look over the water - once you bailout, you simply cannot stop.
Fannie Mac / Freddie Mae, and now good old GMAC requiring more taxpayers dough.
Isn't it a coincidence how the non-Government owned / bailed out banks are making money and the bailed out ones are al loosing it hand over fist.
Does nobody join the dots anymore?
http://news.bbc.co.uk/1/hi/business/8351608.stm
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#329 hurrahforhedge
Ahah, the old trick of reporting 2nd and 3rd order dynamic changes. Similar to squeezing "good news" about the drop in the rate of unemployment increases.
As the body of our economy falls from the top of the skyscraper, they try to convince us to not worry about the ground geeting nearer as the rate of change of the rate of change in velocity has been decreasing for last 10 floors.
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314. At 7:26pm on 09 Nov 2009, ishkandar wrote:
"Capitalism isn't about equality; it's about opportunity!"
In a finite world, one opportunity taken is at anothers cost - or did you miss the class on opportunity cost in economics (or maybe you just thought it was solely an Economic ideal).
So much to learn...so little time.....
What you really mean is Capitalism is about exploitation - because your 'opportunity' is formed from the lack of it for another.
...so what happens when you find yourself as 'the other' in the next 5 years - are you going to change your mind?
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313. At 7:19pm on 09 Nov 2009, ishkandar wrote:
"Sparta in 540 AD was a town in the Roman province of Greece, part of the, later to be, Byzantine Empire !! There were plenty of slaves there. Only the *elite* were "equal and free" !! Very Orwellian, actually !!"
...and which history book gave you that knowledge?
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To my fellow bloggers
So far only nautonier has picked up on post No.7
I’m curious who believes that the inherent purpose of QE is to keep the Government funded?
And given that it can’t go on indefinitely what happens when it stops?
£200 billion per annum is the equivalent to the cost of employing 2 million people based on £50,000 cost + £50,000 wage = £100,000 per person.
Assuming by conventional gilt sales they can only raise £100 billion, then approximately 1 million public sector workers could be in risk of losing their jobs.
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335. At 10:04am on 10 Nov 2009, Dempster wrote:
"I'm curious who believes that the inherent purpose of QE is to keep the Government funded?"
I suspect that Liam Halligan of the Telegraph seems to agree:
"So our central bank prints money and gives it to the Government, which in turn gives it to the banks. This is the economics of Zimbabwe and the Weimar Republic. "
http://www.telegraph.co.uk/finance/comment/liamhalligan/6521350/This-financial-mess-isnt-even-the-end-of-the-beginning-for-UK-wealth.html
P.S. A note to you and Nautonier - Mods don't like links to pdf files, so if those docs on the Maastrict treaty were a pdf then their beef is with the format not the content.
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My, how the dollar has fallen.
from WOTWs link at http://news.bbc.co.uk/1/hi/business/8351608.stm
'In May, the Fed ordered the banks to come up with $74.6bn (£44.5m) of extra funds to boost their cash reserves.'
which made 1 pound worth 1676 dollars
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"HERE COME DA PAIN"
http://news.bbc.co.uk/1/hi/business/8352231.stm
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328. At 08:55am on 10 Nov 2009, Dempster wrote:
To nautonier
Now there are two of us
John Dempster Bolton England
335
And given that it can’t go on indefinitely what happens when it stops?
>>>>>>>>>>>>>>>>>>>>>
I share your views on QE - the very existence of QE shows that the UK government finances are much worse than is being revealed. We know other countries have QE but there are more tangible results for QE spending in other countries e.g. USA, Japan, Italy.
My posts at 218 and 259 were delayed in moderation as the BBC have edited my pathetic attempt to copy a URL web site for ONS maastrict figures as the UK appears to be either in or close to breaching the Maaastrict treaty excessive debt levels.
It is a mystery why this is not picked up along with QE in the main news headlines as this is of massive importance to the UK - as you have pointed out. It would appear there is no appetite in the media for the story amongst the rest of the headlines of 'gloom'.
However, Robert Peston has also mentioned the EU involvement in his review of the banking reforms with RBS/lloyds as the EU are starting to SHOW more interest in the UK economy due to the lack of leadership and the UK is drifting and lacks direction.
Rt Hon Gordon Brown and his incompetent government are being put in their place by the EU and it is only the fact that the GB Pound sterling is likely to take the brunt of Brown/Darling's incompetence that is delaying the EU from stepping in with economic sanctions against GB as the situation would appear to be sufficiently serious to merit such action.
To me this all points to the UK needing a referendum on joining the Euro currency, as the UK economy and financial systems are out of control and the internal economic structure of the UK economy is very weak. If UK government borrowing continues to increase substantially further and/or inflation sets in, interest rates may well have to be raised and when not if the pound slides as a result then the UK may be forced to join the Euro currency for stability.
I know many eurosceptics are against the euro (and so am I in principle), but I think that over the next two years that the UK government will be likley forced by events (not by the EU) to consider full economic and financial integration on the EU currency.
The position re Euro currency is being thrust on the UK by the dire state of the UK economy after 12 years of serious governmental mismanagement. I suspect rather than know that Brown/Darling are secreely reviewing this and would join the euro immediately if Labour wins the next general election - but would we get a referendum - Is this to be in the Labour party political manifesto? There is a lot we are not being told and the media are failing the electorate here
The next six months will be very interesting for sure but David Cameron still needs a referendum I think - on joining the Euro - after the general election and once the overall economic dilemna for the UK is properly analysed and understood by all and sundry. We cannot trust the current Labour government with a decision on joining the Euro - there must be a UK referendum on joining the Euro but only when the UK economy and its debt situation are propely understood and explained.
The choice I think will be much higher taxes or join the euro and have a slightly higher level of UK taxes than we have now. This will I think should be the 'tipping point' on choice.
But I share your views on QE - the very existence of QE shows that the UK government finances are much worse than is being revealed. WE know other countries have QE but there are more tangible results for QE spending in other countries e.g. USA, Japan, Italy.
All the time the government manipulates much of the UK headlines to keep QE off the agenda until we have another BoE interest rate decision announcement.
The media should be questioning the government more on the amount and timing of QE regarding the proximity to a general election, excessive debt levels under Maasatrict treaty and Labours' secret intention(s) on joining the euro currency.
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#336 Dempster
There are currently just under 6 million public sector workers in the UK, given that an incoming government is likely to make a 10% cut in public expenditure, all things being equal would imply a 600,000 reduction in the workforce. However making 600,000 people jobless costs money (redundancy, JSA etc.) so in order to pay for that there would have to be more losses, 1 million public sector jobs being axed is not outside the realms of possibility
Oh, and of course there will also be a 10% tax rise to pay for the rest of the government expenditure.
(although the newly unemployed will also contribute to that through increased VAT rates, fuel/tobbaco/alcohol duties etc.)
It is definitely a train not a light.
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This comment was removed because the moderators found it broke the House Rules.
It looks like The Times has a different agenda to the BBC.
http://newsvote.bbc.co.uk/1/hi/business/8351768.stm
Barclays profits fall by a fifth.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6910687.ece
Barclays profits triple.
Quite amazing!
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341
Sorry but I've messed up the URL again
http://www.statistics.gov.uk/Statbase/Product.asp?vlnk=3766
and then see
'Deficit and Debt under the Maastrict Treaty Statistical Bulletin - Sep 2009 (pdf)'
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UK has an increasing trade deficit (we can't/don't make sufficient numbers of good quality vehicles in the UK and even the UK scrappage scheme has most financial benefit overseas):
http://business.timesonline.co.uk/tol/business/economics/article6910786.ece
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At 11:08am on 10 Nov 2009, BobRocket wrote:
It is definitely a train not a light
I like that one, it’s definitely a train not light, made me laugh, it truly did.
And then I stopped laughing, because I’m standing in that tunnel, and what worries me more, is that I have a wife and three kids in tow.
So Mr Nautonier, Mr Rocket, & Mr Pierce, now there are four of us, perhaps one day there will be sufficient numbers to flag down the driver of that train.
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#336 Hawkeye_Pierce
Liam Halligan had the essence of the problem in the palm of his hand and missed it entirely.
QE is about trying to maintain the status quo, trying to prop up the economic system of both the UK and the western world.
This is the pertinent point.
'the Allies had placed their thumb on the energy jugular of the Nazi war machine, changing the course of the Second World War'
We are, and have been for a very long time in an energy crisis, control of the oil only slows and diverts the inevitable decline of a finite resource.
Unless and until we can free the atom in the form of nuclear fusion then we will be in crisis, there is just not enough stored energy to go around.
With sufficient energy all the problems of resource scarceness disappear.
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It isn't Joe public doing anything significant with asset prices. A few more houses in the UK might be being sold at a higher price, but only a few and only because some might be taking advantage of low pounds and some might be worried about the stability of their savings in contrast to future rent income.
But even this is a red herring.
The real problem is continued deleveraging. The total debt to GDP ratios are as unsustainable as they were before QE was introduced because all that is happening is that some private debt is being converted to public.
Unemployment will continue to rise, people will continue to be unwilling to borrow, and in short there is no future for the kind of consumerist, debt driven, capitalism that we had until the GFC.
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#342 Hurrahforhedge
Nice one!
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Dempster et al
Saw this the other day, and thought it could be worth a go:
http://hugyourbank.net/plan.php
Maybe it's just the latent activist in me.
Merry Xmas Mr Banker!
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I’m curious now about taxation.
Can you can increase the rate of taxation past to 50% of GDP.
And if you can will HMRC collect more or less money.
Assume you tax at the rate of 0% of GDP, clearly you will get no money in.
Assume you tax at the rate of 100% of GDP, again you will get no money in.
Why you may ask? Well, would you work all week to give all that you earned to the Government, and be unable pay for food, clothes or anything else for that matter.
Consequently there must be a point some between 0% and 100% tax rate the Government tax receipts will start to fall if taxation rates are increased.
There is no reason I can think of why the graph should not be balanced
Draw a conventional graph, on the vertical axis is the amount of money HMRC receives and on the horizontal axis is the rate of taxation of GDP.
The graph line will start at the intersection of two axis (0% of GDP) it will rise up and drop down again until it hits the horizontal axis at (100% of GDP)
Given that the simplest answer (all things being equal) is usually the correct one, then the rise and fall in the graph should match a semi circle the apex of which would be at 50% of GDP.
I wonder then whether 50% of GDP is the maximum level of taxation consistent with achieving the maximum amount of money taken?
If it is then the Government has only limited scope for tax increases.
Anyone and ideas?
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336. At 10:46am on 10 Nov 2009, Hawkeye_Pierce wrote:
335. At 10:04am on 10 Nov 2009, Dempster wrote:
>>>>>>>>
You are right about the .pdf file - Thanks!
Per Liam Halligan/Telegraph:
'Britain faces a 2009/10 fiscal shortfall equal to 13pc of GDP – the biggest in our peacetime history – with little sign of improvement. The Government will borrow some £200bn on taxpayers' behalf every year until 2012/13 at least – eight times above "normal" levels. In just four years, an extra £32,000 will be added to the existing sovereign debt burden of every British household.'
>>>>>>>>>>>>>>>>>>>>>>>>
My question is what is 'Brown's deal' with the EU? If the UK is now or soon to be in major breach of the Maastrict debt limits, obviously no one expects the EU to step in like a financial traffic warden with e.g. further financial sanctions on the UK - but surely it must be under discussion and kept a closely guarded government secret?
To cut through the chase - In crude terms, is Brown's deal with the EU, something like - 'Don't embarass me (any further) this side of the general election and we (the incumbent government) will bounce the UK into the Euro currency in 2010/2011 if the Labour party wins the next UK general election'?
Is this why the UK recently gave up its EU rebate as negotiated by Baroness Thatcher?
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350. At 11:53am on 10 Nov 2009, Dempster wrote:
I’m curious now about taxation.
Can you can increase the rate of taxation past to 50% of GDP.
>>>>>>>>>>>>>>>>>>>>>>>>>>>
Interesting point - but the government may already be close to 50% tax rate on average UK incomes - depends which income levels are used, marginal rates etc.
This is because we pay income tax on our main income and then we are taxed over and over again with VAT, fuel, alcholol duties, stamp duty etc
Big government, bigger and bigger taxes - logically the catastophe now unfolding will mean that the system will implode at some point because the tax base/numbers working and paying tax is far too small - not necessarily due to absolute, marginal, comparitively very high tax rates.
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It seems the last 20 or so posts are now realising the gravity of the situation.
QE - is currently keeping the country running, the BoE want to stop it (as it's damaging) - but can't (as it's more damaging). A real Hobson's choice. The consequence of stopping it is a sudden and absolute collapse of the bubbles being created because of it (stock market primarily)
Taxation - just when you need a low tax regime, you can't afford to have one! The fact is that the other side of the general election will be forced to raise taxation - which will stifle growth. It's not like there's mch choice again.
Public sector - Whilst most private sector people bemoan the inefficiency of the public sector, the consequences of up to a million jobs cuts is dreadful for the Economy. Even if you discount the cost of the JSA + bens. + redundancy (which is a lot to discount) - the speed and size of cuts will send us into a strike regime - and there's nothing better for bringing down businesses that to stop the post, bin collection, road sweeping, housing spend, education spending, health spending etc.
The situation is truly dire - it doesn't matter which way you look at it.
This is all a consequnce of not facing down the problems in the beginning and allowing QE to give us a false Economy to work from.
The actions of Government appear to have made things better, but I fear they have simply stored up an even worse disaster for us. Meanwhile the 'City' thinks it's all over and has resumed doing 'Gods work' and awarding itself nice fat bonuses to see them through these 'tough times'.
You could not make this up.
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So, from hurrahforhedge we have Barclays making a cool £5bn profit:
http://newsvote.bbc.co.uk/1/hi/business/8351768.stm
Meanwhile, from Dempster we have the shocking state of public finances:
http://www.statistics.gov.uk/Statbase/Product.asp?vlnk=3766
and then see 'Deficit and Debt under the Maastrict Treaty Statistical Bulletin - Sep 2009 (pdf)'
Clear evidence of Privatised Profit and Socialised Risk!
Fictitious Economy for now, REAL capitulation around the corner.
What we have is "exactly the opposite of what Adam Smith, and Ricardo and the classical economists defined as a free market. Classical economics defined a free market as one that is free of overhead charges, free of unnecessary charges of production, free of watered stock. Today a free market means that predators are free to extort any price from the public, they are free to deregulate, free to lie to consumers, free to exploit, free to load any company they want down with debt, and basically lead (us) to a world of debt peonage."
http://michael-hudson.com/interviews/080715FictitiousEconomy1.html
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The banks are not acting in the interest of their shareholders (us).
The government needs to shrug off anti-socialist name-calling and MANDATE that banks :
a) drop interest rates on consumer/home/business loans
b) fix monthly repayment rates so that deleveraging occurs faster
c) ..while giving everyone extra income at the same time
d) ...so that income taxes can be raised
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I think the majority on here agree things are going to get worse for the UK.
But who is in the worse condition - us or the US (the little us or the big US)?
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So Messrs Nautonier, Pierce, W’on the wall and Rocket
We’ve established that the purpose of QE is funding the Government.
And
We’ve established that likely around 1,000,000 public sector jobs will have to go when QE ends.
And
We’ve even managed to establish that tax rises or on the way, but likely limited to around 50% of GDP overall.
What haven’t we yet managed to figure out?
Well we haven’t managed to figure out why, if the average Joe can work this out, why haven’t the various economic and political commentators?
And
We haven’t yet figured out how best to fix the mess, have we?
How could we do it and be fair to all the people of this country?
If the private sector are the muscles of the country, then the public sector is the skeleton, and both rely on each other for their existence.
Why don’t we extend QE and get the pain over with? Next year BOE extends QE to £800 billion, pound falls to half its current value, BOE buys all gilts, Government then lives solely on its tax base.
We are all poorer of course because its now £2.00 for a litre of diesel and £2.00 for a loaf of bread, but as a country to manufacture in, its about as good as it gets.
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#340 (and others)
FLAGING DOWN THE TRAIN
Fascinating thread on here here's an idea (below) posted on Pauls Mason's blog minus some of my own typos I spotted after posting it.
''When it comes to repatriating wealth to the tax payers who propped up the system Goldmans (and others) are now benefitting from it all takes time, this that and the other needs to be resolved first etc etc.
In the meantime those same taxpayers are losing their jobs and staring down the barrel of tax hikes in the new year in order to keep Goldmans (and others)in profit or in business.
I wonder how long it would take for a 'Tobin tax' to be introduced and international agreement reached if everybody in the ranks of the much lauded election determining ''hard working family and small business' classes ripped up the contracts which keep us in bondage and refused to pay their debts until a Tobin tax or similar was introduced, thus threatening to bring down the whole system that keeps the elite elite?
A couple of weeks maybe?
Thanks to the leveraged media (not you Paul) that will never be allowed to happen because the true nature of the situation will never be allowed to be lodged in the mainstream psychy. Therefore that sort of simple (and potentially devastatingly effective) mass non violent action would never be allowed to gain the required momentum, yet it is an entirely reasonable and moral request on behalf of hard working families and small business.
If we all did it, it could change the world. The elite would be terrified of such a non violent mass action.
Anyone know how to write a good viral e-mail?
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#353. writingsonthewall wrote:
"It seems the last 20 or so posts are now realising the gravity of the situation."
But "the last 20 or so posts", like most of this blog, were posted by just a handful of people, congratulating each other on their insight and intelligence in the face of mass ignorance.
Meanwhile, those who actually know what they're talking about are doing so elsewhere...
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# 359 To RBS_temp
Well perhaps you could enlighten us.
Let us move forward and lift up this sad veil of our ignorance, and take our first step on the shinning path illuminated by your clear brilliance.
Now don’t hang back Messrs RBS & Temp go for it now is your moment, seize it.
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Jericoa / Dempster et al
The key problem in persuading the public hinges on this maxim:
"How can it be so bad, when everything seems so good"
Any attempt to try explain to the masses that there is a major problem in this country will be met by responses such as:
- yeah, but I can still afford to buy stuff from the shops
- I can still afford a plasma TV and Sky dish
- My house is going up in value..... etc. etc
The only thing that can adequately respond to this, and highlight that our predicament is actually being masked by funny money, is the following mantra:
"End First World debt"
This is the best slogan that I can think of that will resonate with people. We get the idea of 3rd world debt, but ignore it, because it doesn't affect us. If we can turn that around and say that WE are in even worse debt slavery, then there is a chance we can persuade them.
But alas, I sometimes feel like David Vincent in the Invaders, trying to persuade a disbelieving world.............
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#359 rbs_temp
you are correct in your observation however just what exactly are they doing and for whose benefit are they doing it ?
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To Messrs Nautonier, Pierce, W’on the wall, Jericoa and Rocket
Go on then even RBS-temp
It is possible that the truth is starting to filter out, albeit slowly.
Perhaps Mr Rocket’s train is closer than one may think.
Mr Steatham the head of the Debt Management Office appeared before the Treasury Select Committee last week.
And
Conceded that when Quantitative Easing stops, there could be a problem shifting gilts, and particularly those with a fixed moderate interest.
And more particularly gave evidence of cooperation between the BOE and the DMO when he said:
“As an example of the cooperation which we (The debt management Office) have with the Bank, what I describe as operational cooperation, you may be aware that the Bank lends out part of its gilt portfolio that they have purchased through us into the market in order to help facilitate the repo market, and that has been something which the market has welcomed very much indeed”.
Still he could be wrong of course, he may have little idea of what he’s talking about, but then again perhaps not.
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359. At 1:44pm on 10 Nov 2009, rbs_temp wrote:
"Meanwhile, those who actually know what they're talking about are doing so elsewhere..."
....you mean like in Government? - or do you mean smokey rooms in the city? or maybe some 'gentlemens club' in mayfair where hedge fund moguls discuss the Economy.
Who knows 'what they're talking about' RBS_Temp, we're dying to know. It seems the 'expert' are the ones who got us into this mess - oh and of course all those who believed everything they said...
Remember when it all started back in 2008 you seemed to believe it would be over quite quickly - well a year into recession and no sign of it ending.
....but then I guess we don't know what we're talking about do we - and it's all in our imagination....
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361. At 1:58pm on 10 Nov 2009, Hawkeye_Pierce wrote:
"Any attempt to try explain to the masses that there is a major problem in this country will be met by responses such as:
- yeah, but I can still afford to buy stuff from the shops
- I can still afford a plasma TV and Sky dish
- My house is going up in value..... etc. etc"
Ah yes - the blindness of ignorance and self interest. However so much can change so quickly.
A fuel crisis - sparked by anything (disgruntled refinery workers, haulage strike, french blockade of the channel ports) and within 3 weeks there is no food to buy in the shops.
An energy crisis - sparked by striking workers, spiralling energy costs, falling out with the Russians, and we're all sitting in the dark and the Plasma TV and SKY is no longer working.
A house price crash - caused by all those who postponed their sales this year returning to the market, the removal of stamp duty relief, VAT returning to 17.5% on new builds - and suddenly house value isn't going up anymore.
It doesn't take long for all the 'norms' to be taken away and that's when the panic starts.
I share your frustration but I have concluded that some people cannot be told, or warned of the impending disaster - they will only be able to see it when it happens.
Some people would rather live in denial than face the awful truth. Despite what RBS_Temp claims there is no brighter picture at the moment - in fact the opposite where the 'experts' think this stock market boom is in fact a recovery.
All the stats for good news are coming off the back of stimuli - the banks in profit, the record car sales, the reasonable retail performance. Each one now needs the Government to support them.
In the US (who are about 6 months ahead of us) the banks are coming for their 2nd, 3rd and 4th bailouts - rather interesting considering the first one was supposed to tbe the only one.
The problem with boosting areas in this way is that at some point they will have to stop, the Government will run out of goodwill from the public purse. The result is a worse decline and shock than if no bailout or stimulus had been done in the first place.
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Reflating the bubble - evidence
RICS today: House prices are going to keep on rising. (see news stories)
The only conclusion is that the fools running the madhouse don't give a damn about the country, society or anything other then their own pension (M. King 5 million pension pot!)
They pontificate and wring their hands about the risks of another bubble but now that there is incontrovertible evidence that they have created another one they will do nothing about it - these men are charlatans and take us for fools!
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How we got here
'The supreme function of statesmanship is to provide against preventable evils.In seeking to do so,it encounters obstacles which are deeply rooted in human nature.One is that by the very order of things such evils are not demonstrable until they have occurred: at each stage in their onset there is room for doubt and for dispute whether they be real or imaginary.By the same token,they attract little attention in comparison with current troubles,which are both indisputable and pressing: whence the besetting temptation of all politics to concern itself with the immediate present at the expense of the future'
There isn't a statesman left in this country.In 2 years time Blair/Brown and Darling will be run out of the country,unfortunately they will leave the l'addition with us,and the irony of it all will be it will be in euros!!!
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No 332 "As the body of our economy falls from the top of the skyscraper, they try to convince us to not worry about the ground geeting nearer as the rate of change of the rate of change in velocity has been decreasing for last 10 floors."
And soon reach terminal velocity whereby the rate of acceleration due to gravity is "cancelled" out by the wind resistance !! Still doesn't stop the body from going 'splat' when it hits the ground !!
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#364. writingsonthewall wrote:
"Remember when it all started back in 2008 you seemed to believe it would be over quite quickly - well a year into recession and no sign of it ending."
That is unlikely, as I did not create a membership on this blog until January 2009.
And my argument has always been - as it still is - that, for all its seriousness, this is "only" a recession and not, as many contributors to this blog have repeatedly claimed, the end of the world. There will be no civil unrest and Britain will not become another Zimbabwe.
The decline in GDP seen so far takes us back to where we were in - what? - 2006, at which time we were not exactly a poor nation. Unemployment has been this high before, Sterling has been this low before and inflation has been much higher than it will ever be in the aftermath of this recession. And all these things came about under Conservative governments, so it is not as though Labour has a monopoly on mismanaging our economy.
And, in fact, there are signs that the recession is coming to an end, if you accept the technical definition of recession. It is already at an end in much of the world, including the entire euro zone, and it is even possible that when the ONS revises its most recent figures we will discover that the UK too emerged from recession in the third quarter of 2009. Of course, unemployment and insolvencies will continue to rise for a while longer, but that is the nature of every recession.
One thing is certain. If the MPC were to take the advice of the most prolific contributors to this blog we would be in an even worse state than we are today.
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#278. writingsonthewall wrote:
"I'm not a big one for surveys..."
Except, apparently, those that support your own view of the world...
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