Cautious good cheer
When Mervyn King does cautious optimism, you can keep the emphasis on cautious.
The Bank's new forecast for the economy is rather more upbeat than it was in August, and to judge by the "backcast" for GDP, it expects some upward revision of not just that disappointing third-quarter decline in output, but some earlier ones too (though not the kind of dramatic change to the picture predicted by the likes of Goldman Sachs).
Lest we get carried away, the governor insisted that the risks to the GDP forecast were on the downside. As he repeated many times at the press conference, the big picture was that the UK and other advanced economies faced "a long hard path" back to where we were. That has not changed.
The Bank's best guess is that we won't get back to the level of GDP before the
recession hit until at least the latter half of 2011:
And yet... even the Bank accepts that there is something odd happening in the labour market - and it's odd in a good way.
As the chart below from the Inflation Report shows, even before today's news, employment had fallen by much less than the fall in output would have led you to expect.
The October jobless figures only make the point more starkly - by either the quarterly ILO measure or the monthly claimant count, unemployment has risen by the smallest amount since the recession started last spring. This is not what anyone would have predicted even six months ago.
As the Bank points out, we can't declare a bright new world just yet. It could be that more onerous consultation arrangements and so on are making it harder for firms to lay off staff quickly. The largest rise could be yet to come.
But as I have said before, there has clearly been much more downward adjustment in wages and hours than in the past - including a sharp rise in part-time employment, as seen in today's data.
That has not done anything to help young people, as the figures show. And the squeeze on incomes is bad news for families who were already struggling - and for demand economy-wide in the future.
But given the long-term cost of being out of work - for individuals and for the economy - the slowing rate at which people are losing their jobs overall has to be cause for good cheer, however cautious.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~42~RS~)
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To Ms Stephanie Flanders
I have now read two of your articles and posted the following on the ‘Boxed In’ article, and now I post it here:
Ratings agencies (Fitch more recently) have suggested that if the Bank of England undertakes any more quantitative easing, the UK will lose its AAA credit rating.
Quantitative easing is way of funding government without breaking section 104(1) of the Maastricht Treaty.
Mr Stheeman (The head of the Debt Management Office) gave evidence to the Treasury Select Committee in early November and confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts
The current quantitative easing will likley see the Government through to Easter 2010.
The Bank of England has signalled a likely end to quantitative easing, so the UK doesn’t lose its credit rating and the decline in sterling is halted.
If the Government cannot rely on quantitative easing to fund the Public Sector in 2010, around 1 million public sector employees could lose their jobs and/or pensions/services/benefits will have to be cut or extinguished.
I noted one comment that tends to sum up what many people seem to think namely: ‘It’s definitely a train not a light’
What do you think?
Regards
John Dempster
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This is still much ado about little. It will take several quarters of statistics for any conclusions can be drawn and probably over a year before anyone can say the recovery is sustainable (until the next implosion!)My confusion is about where will the growth (if it is here)be coming from and to where are we recovering - reduced public expenditure, resumption of growing indebtedness, export led growth ha, ha), trickle - down from renewed bonuses. Perhaps QE is funding another bubble. Most likely is the respite before the other side of the hurricane.My comfort point for the end of recession is when there are regular substantial fall in the unemployment totals. This can be accelerated by targeted public works and enhanced benefits for the seriously poor funded by taxing the highly paid and high CO2 producers.
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Essentially, QE means that HMG is printing money to pay for a deficit that can't be funded through normal borrowing. In turn, QE is undermining confidence in sterling, which is reflected in the weakening of the credit rating. This in turn means higher interest rates, which in turn will dent economic viability.
So it's a viscious spiral with only one solution - which is that cutting public spending is imperative.
This year, government is set to spend 49% of GDP whilst raising only 35% in tax. Taxes are going to have to rise massively, and there will need to be very deep cuts in spending, and yes, that does mean huge job cuts.
This mess is the consequence of simple incompetence - spending has got out of control on the assumption that revenue growth would never falter because of the abolition of "boom and bust". If we survive this at all, we shall do so in a permanently weaker and poorer state.
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Hi Stephanie,
Having read Adam Posen's recent speech that QE does not influence inflation in a monetarist mechanistic way, I am intrigued as to why QE ( 200 billion sterling) is built into the growth projection as an unqualified assumption. IF the QE boost was excluded or regarded as impaired what then for growth and prices? The key judgment made today by the MPC appears to be that the expansion of the asset purchase QE programme ( 175 to 200 billion?) should reduce the margin of deflationary spare capacity and " bring inflation back to target more quickly." Given the evidence which Mr Posen and the BoE recites about disfunctional credit, how does that work? Is it just by creating an artificial asset value bubble?
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"Cautious good cheer"
Oh so what are we cheerful about Stephanie? Are we appluading the fact that only an extra 30,000 people lost their jobs last quarter?
I know you were a student once - don't you remember you weren't an unemployment statistic until September? - assuming you didn't walk straight into your BBC job.
Maybe we should cheer the BoE's new found optimism - although their QE actions seems to contradict this view as well as the statement made by Merv in this article:
Bank of England Governor Mervyn King said the U.K. economy faces a “hard path” back to health and he has an “open mind” on further bond purchases, signaling officials aren’t ready to withdraw stimulus yet. "
http://www.bloomberg.com/apps/news?pid=20601085&sid=aOlKPg363wrM
Stephanie, you're trying to point out the brightly coloured bits in a sea of puke - it's still puke, no matter how many carrots and peas there are within it.
Tackle this question Stephanie - when this recession started (or rather the credit crunch) many anaylsts and Economists pointed out that traditionally the longest and most severe slowdowns in history were started by a lack of credit - crunch, squeeze whatever.
So why has history now been forgotten? What has changed? Are we simply playing a game of 'hope over reality'?
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Dempster (Post 1) - Well put!
Gordon Brown is delaying taking action so the forthcoming collapse in employment, caused by the forthcoming slashing of public services and public sector layoffs (to help to balance the books and spiraling debt), will not occur on his watch (so he can try to avoid the blame for it).
Take a look at http://poweromics.blogspot.com/2009/09/challenging-poweromics-and-looking-for.html also. It doesn't take a rocket scientist to work any of this out, but the Government and mainstream media seem to struggle ! .... Is this because they are incapable, or because they prefer to ignore the blindingly obvious so they can 'spin' something completely different to reality?
You may want to look at this link if you're struggling to answer the above question ... http://poweromics.blogspot.com/2009/09/bbc-part-of-conspiracy-preventing.html
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One reason that you didn't mention is the cost of redundancy. A lot of companies will do everything they can to avoid redundancy because the cost to them is too great. This suggests that the labour market is not really as flixible as the government would have us believe.
I know of companies that have done prepack administrations simply to avoid redundancy costs.
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The following has been lifted directly from the Bank of England web site:
'The Bank's Financial Stability Role'
'A stable financial system is a key ingredient for a healthy and successful economy. People need to have confidence that the system is safe and stable, and that it functions properly. The Bank's role is to contribute to maintaining the stability of the UK financial system.'
Now if by failing to act to prevent the financial crisis and by then introducing the Quantitative Easing policy, which has de-stabilised the Gilt Market, they cause hardship and loss to people resident in this country.
Do they have liability for the consequences of their actions?
They admit they have role to keep the financial system stable and Quantitative Easing, has likely adversely affected the Gilt Market according the Debt Management Office.
To The Governor of the Bank of England
I John Doe (hereinafter referred to as the claimant) believe that the Bank of England (hereinafter referred to as the defendant) owes me a duty of care in maintaining financial stability in this country, and that they have failed in that duty, in that the financial system is not stable, and this instability has caused me loss, the extent of which I detail on the attached pages.
Love John
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The BBC lunchtime news was like a Labour party political broadcast. Bad news dressed up as good news. Sure, unemployment's rising - but at a slower rate than before, folks. Sure, we're still in recession - but the figures were maybe wrong folks. Sure, Mervyn King's pessimistic - but isn't he always, folks. The fact remains that the Government and the Bank of England have failed dismally in their efforts to persuade banks to lend again. Business and individuals are still being starved of funding required to operate normally. So after the pre-Christmas splurge, we will return to a very hard January, February and March. And unless and until the banks stop withdrawing their support for the wider economy - they're STILL cutting overdrafts - and start lending properly, the figures will continue to show stagnation and unemployment will continue to rise. Caledonian Comment
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Whilst I don't want to be accused of talking down the economy, it's worth pointing out that the public sector hasn't yet entered its inevitable recessionary period.
Also, quite a lot of the jobs cuts being made by the big corporations are being delayed to 2010 or even 2011.
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3. At 2:51pm on 11 Nov 2009, Friendlycard wrote:
"So it's a viscious spiral with only one solution - which is that cutting public spending is imperative. "
....or raising taxes - let me guess, you work in the private sector perhaps?
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Unfortunately i feel the world of reporting is dominated by the politics of who can say what these days, the phrase "Cautious Good Cheer" on a day when its reported a further 30,0000 people have lost their jobs, 14,000 of which in Wales, raising Welsh unemployment to 8.7% and total unemployment in the UK to 2.4m, is a sign of optimism. When Lady Vardera talked of seeing a few green shoots, she was slated for this, even though it now seems to be clear that the general reporting of the economy was too glomy earlier in the year.
Frankly i suspect, things are getting better seems of little comfort to those where things can't get any worse.
I personally will not be happy until a large proportion of that unemployed figure is back in work, and people on reduced hours back to normal working weeks
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7. At 3:06pm on 11 Nov 2009, JHarvey765 wrote:
"One reason that you didn't mention is the cost of redundancy. A lot of companies will do everything they can to avoid redundancy because the cost to them is too great. This suggests that the labour market is not really as flixible as the government would have us believe."
In my current company they got rid of all the permanent staff first (redundancy) and retained all the temporary and contract staff. This is because they got the expensive redundancies out of the way at the start - leaving them with the 'free option' of getting rid of more later - should things get worse. Doing it the other way around leaves risks that you cannot afford to make the cuts needed and stay afloat.
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Post 5 (writingsonthewall) - well put too!
I particularly loved this ... "Stephanie, you're trying to point out the brightly coloured bits in a sea of puke - it's still puke, no matter how many carrots and peas there are within it".
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Dempster - I agree with your analysis. The treasury and BoE are obviously deliberately seeking to reflate asset values and create controlled inflation through their monetary policy (both conventional and unconventional). They fear deflation far more than inflation. The problem is controlling it. The trick which they may or may not manage is not to damage the UK's credit rating thereby pushing up yields on gilts. If they fail, the yields on gilts will shoot up, debt service costs on government debt will become unaffordable and we will have to say hello to the IMF. Alternatively the BoE can continue its QE exercise to purchase government debt and we can say hello to hyperinflation. Like you, I cannot see how the BoE will get away with any more QE beyond the £200bn figure without damaging its credit rating and therefore there will have to be massive cuts next year.
I think that it was a NIESR report earlier this year which mentioned that it bwould take 20 years to get the UK's finances back on an even keel. That pre-supposed interested rates on government debt of 4-5%. If rates significantly go beyond this, we are talking about a whole new scenarios - The UK could find itself paying 15% or more of its tax take on servicing debt interest. Historically, that usually leads to default.
On a related point, I think the BoE and Treasury are misleading the public in relation to the purpose of QE. It has not resulted in more credit becoming avaialable to the SME sector (although admittedly it has made capital available to the big corporates which can access the capital markets and bond markets). It has however been a very useful way to fund government debt.
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Most economists, even with their poor models, can see that the rise in asset prices, e.g. stockmarket, is a result of the government bailout money ploughed into the banks.
Many see the next crash coming.
Confirmation of the Marxist analysis that the credit system merely transforms the underlying profitability crisis in production and does not solve it.
20 years since the death of state capitalism, now the death of the social democratic & liberalist versions of capitalism.
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14. At 3:36pm on 11 Nov 2009, leanomist
Why thank you :-)
I have a much better phrase which sums up our voting choices - unfortunately it won't get past the moderators!
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Has anyone else noticed how civilised and on-topic this forum is without JadedJean?
Although I have to say (regretfully), I almost miss his/her crazy rantings!
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16. At 3:45pm on 11 Nov 2009, duvinrouge wrote:
"20 years since the death of state capitalism, now the death of the social democratic & liberalist versions of capitalism."
Is the plan to keep changing the name so the dumb-dumbs don't see it's still Capitalism and think they have got something new, and more importantly something that works?
If the world is falling for this trick, then maybe it deserves what it will receive in the end - a return to slavery.
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It is good to know that we may again achieve the pre-recession level of GDP by the end of 2011. However, will this not be in depreciated pounds? When (if ever) are we likely to achieve the same level of GDP in real terms that we had achieved before the recession?
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Post 17 - I can imagine ... and would love to see it! If you post it as a comment on the Poweromics blog (e.g. http://poweromics.blogspot.com/2009/05/democracy-what-democracy.html ) - I'll make sure it's published ... having made reference to many of your insightful comments on it before!
I've also posted a petition questioning the voting system (and the level of real democracy) in the UK on the 10 Downing St web-site too ... http://petitions.number10.gov.uk/peopledemocracy which I hope people will sign to register/demand change ...
As Edmund Burke famously said, 'For evil to flourish, all it needs is for good men to do nothing' ... and lest we forget how true these words are.
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Nos 4 - was interested to read Adam Posen speech at least what I understood of it.
Isn't the point of QE or mirage money that eventually banks will lend so when it happens were being told we don't get inflation ? Some one explain to me in layman's terms because I thought that was the point of QE to help banks to lend. And when all this made up money comes out what will happen in terms of inflation ?
Where is the value when something is just plucked off the virtual money tree ?
Is QE a form of delusion then and therefore a delusion upon a delusion ?
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Post 20 (Michael) - a good point well made too.
I think this post http://poweromics.blogspot.com/2009/08/printing-money-inflation-and-spin.html supports the point you make too.
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I think chart 3.6 is very revealing.
Note how much unemployment is out of kilter. There is a lot of employment out there which will eventually feed through with the various private and public sector schemes designed to keep the unemployed employed and this is before the inevitable public sector squeeze.
I note that UK gilt yields are rising even with more quantitative easing and expect it to spike when QE ends along with other schemes like the old bangers subsidy ends and the like.
NIESR have already stated that they think October saw a fall of -0.6 in GDP which makes it hard for the 4th Qtr 2009 to turn positive and then we're into 2010 where we may see an acceleration in rising unemployment, pound falling, gilts rising and inflation rising.
Calm before the storm anyone?
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# 20 - a similar point can be made in relation to the value of all assets which are denominated in sterling. Whether it be the stock market or the housing market, should the effect of the depreciation of sterling not be factored in to any assessment of the drop in value?
# 22 - as I mentioned in my ealier post, QE is not working if the intention is to increase bank lending. What it is doing is driving down yields and making more funds available at cheaper prices in the bond markets but only the big corporates can access this.
# 18 - on JJ, I agree it has all become very civilised. I was half expecting JJ to post following a recent post on this (or maybe it was the NN blog) which included a link to a report on the utterances of the Chief Rabbi about Europeans being to materialistic to breed. I thought it was right up JJ's street - but so far, JJ has not returned.
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WOTW - I know you don't like public sector/private sector comments but I think that one reason why the job market drop doesn't match output drop is that the public sector have not taken any action over their level of employees.
Another reason is that there are fewer companies involved in something that 'outputs' and even in the private sector many comapnies operate based on govt grants for training etc so again they are unaffected.
BUT underlying all this is the simple fact that service companies generally provide services to companies that make something - as these companies reduce and service companies increase we become a country more and more that is simply paper shuffling whilst our balance of payments position gets worse and worse.
How many real jobs exist in this country where something is produced?
How many people does this country really need to continue to function?
What do we do with all the people who are not really needed - at the moment the answer is we pay them and that keeps the money going round and round but is that a long term solution?
I am an accountant for a manufacturing company - do they need me - I think the answer is probably yes at the moment - one to deal with HR, bank requirements etc where only I have the required skill set in the company but also to help set prices etc. Even the Chinese have accountants.
If everybody sat down and asked that same question would the answer always be yes - i'm not sure it would, I'm not absolutely sure its a yes for me!
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WHY OUR ECONOMY IS SCREWED UP - http://files.myopera.com/herosrest/albums/901109/conumdrum.jpg
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11. writingsonthewall wrote:
".....let me guess, you work in the private sector perhaps?"
Yes, and I'm proud of it.
But the point I was making was that we are going to need BOTH spending cuts AND tax increases to bridge a huge chasm between income and expenditure. We're on watch from the markets - we either live closer to our means, or we see our rating cut, the pound slide even further, and interest rates rise.
Currently, the gap is 14% of GDP. Assume that we need to get that down to 3% (the level defined by Maastricht as 'prudent'). Doing it entirely through tax increases would mean pushing up taxes by about 31% (11% as a % of 35%). That would be a disaster - businesses would leave in droves, and individuals' disposable incomes would crater.
But neither can we do it all through spending. Here, we'd have to cut spending by 22%. Again, not feasible.
So we need a combination of both. We could put the UK onto a sustainable trajectory with a 10% cut in spending and a 10% rise in taxes. It's not a very palatable option, but not impossible. And spending far more than we earn in taxes, and then simply printing the difference, is a recipe for disaster.
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The innovation at #27 is conservatively worth............... Trillions.
It also digs some of our friends abroad out of a li'l hole.
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Merv has contrived to blow 200 bn - the only result of which is to reflate the (unsustainable) housing bubble and equities.
Zero interest rates have led to a totally irrational exuberance in the domestic budgets of mortgage holders who are, as we speak, getting themselves into more debt (or not reducing their debt) and spending the cash on current consumption. This will stop, as will QE and then there will be one hell of a price to pay (in unemployment and inflation) and Merv is not such a fool as not to know it! Yet, in his accustomed way, is scared to frighten the horses. Isn't there a hymn about a bleak mid-winter! It is the poor that pays the price and the City and Merv don't give a damn!
Dave boy your (and your successor's) legacy has already been blown! Even Merv said this in code today! He has done what can be done at the wrong part of the economic cycle it is the recover that needs helping, but what he has done is to cushion the collapse leaving nothing to help the recovery what an idiot! He has ushered in twenty years of stagnating decline - the only group saved are the bankers this is a disgrace!
2 Pounds to the Euro anyone!
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Adjust property value, derivatives respond.
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24. Rugbyprof:
"Calm before the storm anyone?"
Exactly. I think the markets realise that, realistically, nothing is going to be done before the election. But they will expect immediate action thereafter. And i just can't see any government doing what is necessary.
Our politicians are being less than honest about this. The deficit is GBP 175bn. Mr Osborne's 'tough' proposal at the conference would save just GBP 7bn. Mr Brown plans to realise GBP 16bn, but that's a one-off sale of assets that cannot be repeated year after year.
Think of it like this. We need to cut the deficit by at least GBP 150bn. That equates to GBP 5,900 per household. This is going to get very unpleasant.
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So, this year the government has printed £200 billion to maintain public expenditure: and took the hit on the value of the £ (while presenting this as good news for exports). It couldn't borrow the money this year - and surely will not be able to either borrow it or print it next year.
With central & local government spending at roughly £650bn this implies prodigious spending cuts and/or tax increases will be necessary if ends are to be made to meet.
The problem is that either, or both, will lead to a further squeeze on demand and reduced investment/profitablility in the real economy: and this, in turn, could lead to a reduction in tax revenues and or increased spending on "automatic stabilisers".
Could someone do the rudimentary maths to estimate the likelihood and scale of this risk. It would be far more interesting than the regular reporting of the latest set of figures that are "less bad than expected" as of these straws in the wind were green.
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In addition to my comment (#24) and GRIMUPNORTH's (#26) I'm not sure if people get the inefficient allocation of resource going on in the UK economy right now.
Recovery takes place when investment of financial and human capital is allocated for wealth creation (i.e. producing goods for both export and domestic consumption (economic definition), not misallocated on schemes that have political ends.
As a business we've had our best years in the last two years and are profitable. We expect growth in 2010.
Are we looking to hire? NO
Are we looking to optimise productivity with current staff? YES
Are we looking to borrow money? NO, we are paying off any debt we still have as quick as possible
If our bank (its one of the nationalised ones) comes knocking on our door with £500,000 to help with growth would we take it? NO, NO and NO.
Are we looking to hire in 2010 if our growth of 50% is realised? STILL NO.
Are we looking to rebase abroad? For the first time YES and we are technically a service company.
If anybody wants to understand what is really going on in the economy then I suggest Mervyn, Gordon, Alistair, Stephanie and Uncle Tom Cobleigh have a private interview with me so they can get it....
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Nos18
Someone who knows jaded_jean suggested he had forgotten his password - laughable and more like the beeb have stopped him at least till he moves home gets a new ISP and starts up again. Making comments that countenance Afgan woman's rape, that the mentally ill are 'poison' and being 'agnostic' on the holocaust and that Hitler wasn't looking for war - well now what a charming fella.
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An intersting point on the markets that I picked up recently. While many suspect that the increase in the FTSE 100 is at least partly sue to QE, there is another factor. Only around 30% of the earnings of FTSE 100 companies are made in the UK - the rest are the result of overseas activity. Therefore, even for those that argue that markets reflect the underlying economy, the rise in the FTSE 100 does not necessarily reflect an increase in confidence in UK plc.
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At 5:21pm on 11 Nov 2009, GRIMUPNORTH77 wrote:
"How many real jobs exist in this country where something is produced?"
For the last 30 years, the two key pillars of our REAL economy have been:
- North Sea Oil
- Arms manufacture
Good old BP and BAE! But now their star isn't shining so bright:
http://www.optimumpopulation.org/blog/?p=1388
Regrettably the finance sector is NOT a contributor to the REAL economy, and therefore will NOT earn us out of this mess:
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/07/is_double-dipping_the_new_green_shoots.html#P82320971
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Oh dear Steph, being consulting via your connections with too many of the incumbent ' experts' who allowed this to happen in the first place!
You would be better of doing your own bit of free thinking rather than reporting the views of various leveraged parties, you could do alot worse than looking into the questions posed by #1.
Your post is a bit out of touch with reality I am afraid, the jobless figures dont look so bad because of more flexible working practises many people are working 4 day weeks rather than being made redundant, if you pro rata the rate of short time working into the overall unemployment figures you would get something closer to reality, and closer to what was expected I suspect.
Not to mention the seasonal effects (as others have pointed out) of 30,000 temp post office workers to name but one!!
The government is borrowing 10 billion upwards month on month and printing 10 billion upwards more. that is a big fiscal gap to fill by any concievable 'fragile' economic recovery even by the bank of Englands reckoning. The fundamentals underpinning it all are just too weak, especially in the UK.
Do you really think recovery will be such that by the time they have to stop printing (and borrowing)the withdrawel of that stimulus will not have a negative effect?
You dont have to crunch any numbers to see the truth of what i am saying, you just have to stop regurgitating the incumbants leveraged and self interested view......please.
Jericoa
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Friendlycard #28 AND #32
AGREE.
My only comment is not sure about acceptance of tax rises or benefits cut (see the recent furore over childcare vouchers for example).
Having put all my savings into the business and earned peanuts for the last several years - the thrill of paying more tax as you can probably tell doesn't fill me with happiness.
I believe economic commentators are also missing the fact that many SMEs and self employed (that are left anyway) have reduced their efforts over the past 12 months.
This 'effort gap' may well be lost in any recovery if we get higher taxes because the more effort-reward will be perceived to be not worth it - it's a drag factor. If anything taxes have got to be cut (e.g. see Germany's planned stimulus) and we know we can't go there. It's what anybody who has never worked in the private sector doesn't get........
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Two pieces of good news. Wages and hours are taking more of the strain of falling output; and the Bank of England is showing a realistically wide range of possible future paths of GDP. The second will help firms and consumers to build the appropriate degree of uncertainty into their planning, and so aid healthy recovery. What I doubt is the likelihood of the Bank's least unlikley GDP path being realised.
QE seems to have postponed the realisation of substantial losses in the housing and stock markets. I wonder how much of them are still to come, however carefully the bank and Treasury tread in draining off QE?
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Something does not add up. Either the unemployment figures are wrong or the economy is a long way out of recession. It is impossible for an individual to get an overview of the country as a whole, so I can only go an my own anecdotal evidence.
This leads me to believe a) We are a long way out of recession and b) Shopkeepers are making price increases stick. The latter I see as evidence that serious inflation WILL bite us.
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# 37 - your link on North Sea oil was spot on. What is disappointing about the current government is its failure to recognise this. It has failed to introduce tax changes to promote investment in North Sea oil and gas so that we can maximise the benefits of the industry to the UK. One effect of the "credit crunch" and drop in oil prices from their peak has been to reduce greatly the levels of investment in the North Sea. An effect of this is that the decline in production of oil and gas will be much more rapid than it might otherwise be. The worst case analysis that I have seen suggests that with current investment levels, the UK will only be able to meet 11% of its own gas requirements within a decade. One problem that few outside of the industry recognise is that even a temporary halt in investment will have a premanent affect. The basic point is that a lot of the infratructure (pipelines, etc) required to get oil and gas onshore is old and won't last forever. If much of the remianing oil and gas is not recovered in the next few years then it is unlikely that it will ever be recovered as the existing infrastrucure will have been decomissioned and it will not make economic sense to build new pipleines etc to get the oil/gas onshore.
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On the unemployment figures, my guess is that employers and employees are taking a much more flexible approach during this recession than previous ones, e.g. introducing 9 day fortnights etc. While this might limit unemployment, it also means that there is a fair amount of slack in the workforce if we see a recovery. This will mean that we may see a slower increase in employment with any recovery.
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Hi Stephaine,
just saw your piece on the 6 o clock news re the unemployment figures and there's something that the current figures just don't record, namely unemployed people like myself who have received either a payoff and/or a pension from their previous employer which is enough to prevent them
signing on for benefits at the job centre. I believe there must be somewhere in the region of 200,000 people that fall into this category, still looking for work but just not appearing in any Govt figures. We are like the forgotten people of this recession with no benefits provided and no assistance given at job centre's to get back into work, even though, as in my case I've worked for 29 years and have paid tax and Nat insurance all through this period.
Just wondered if you've investigated this?
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Marking-to-market virtually eliminates credit risk, this is widely understood. What was not known was the risk reduction occurs by eliminating credit, full stop. :) That's what it does.
#27 #29 #31 are an interesting proposition. I can think of no better place to celebrate them than the ground floor St. Mary's Axe. http://www.essential-architecture.com/LO/001-gherkin3.jpg Friday 13th, ToT 1600. Discussion of theory and practical implementation of a property revaluation's effect at reversing, stabilising and envigorating the existing derived mortgage finance market. Those who have the topic nailed already, may prefer to consider the distriburion of prime numbers and the DD Wobble Effect.
http://files.myopera.com/herosrest/albums/700510/BILL.png
[Unsuitable/Broken URL removed by Moderator]
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I understand very well that Mervyn King the BofE and the media including their econonomics editors have responsibility not to undermine the UK economy with statements which may damage 'confidence' there is also an 'over-riding' responsibility on all and sundry to be accurate and impartial.
I do not see how Mervyn King/ BoE can be regarded as having provided a 'forecast' - in fact his/the BoE statements are so vague, ambiguous and inconsistent as to the real position, direction of the UK economy, to be worthy of nothing but ridicule and skeptism.
According to Mervyn King's forecast statements, diagrams and figures - just about anything can happen - Well we already knew that didn't we? This is absolute buffoonery!
Has Mervyn King considered resigning his post at the BoE?
The world changed in terms of its capital, resource and other markets and dynamics in 2008/2009 and on top of that the UK now has a poor internal economic structure - much weaker than in 1978-1982, 1990-1992 'recessions' because of the level of debt and lack of UK having an 'internal regenerative capacity' - i.e a 'driver' component to its economy.
The UK economy is now in a holding position that is supported, pumped and primed with QE until the general election. This is an artificial construct for the Labour government to continue clinging on to power.
QE is a good thing as is obviously necessary in last resort - but there is an old saying 'it's not what you do but the way that you do it' and the current labour government is 'living off immoral earnings' with QE and numerous people have been jailed for that over last 100 years or so - the Labour government could turn a cream tea party into a sleaze orgy with a skunk spiff to follow the scones!
Passing off QE support for a 'recovery' is obviously misleading and false. The current UK economic depression is long term because of the level of debt and weak UK economic structure. Businesses have squeezed employees with wage cuts etc and the current unemployment figures can get a lot worse if the costs to employment/businesses start to rise in 2010/2011:
Higher taxes
Higher fuel and energy costs
Inflation
Weakening pound
Intrerst rates will increase as some point to control inflation and ... yes... the EU may yet intervene.
The question is and which the BofE have 'evaded' in their forecast - Is what happens next year after the next general election when public spending is cut, unemployment rises further, taxes rise, inflation rises, interest rates rise?
This is less than a year away and the BofE should be able to take an overall view of the economy and make a sensible overall forecast without writing nonsense.
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Why is it impossible to find Mars bars on Venus?
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Actually the employment change compared to GDP change makes perfect sense.
As I've mentioned before, firms have been firing external suppliers and contractors first. This was the main cost.
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#47 - She eats them.
Mark to market accounting with FAS157, nowadays Topic820, is the biggest regulatory blunder in history. The greatest destruction of wealth that has ever occured. All done on a whim.
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People need to wake up - because a lot of people aint going to get no justice tonight.
There is no improvement, only continued decline masked by a giant propoganda attempt to convince people that truth is lies and freedom is slavery. Orwell was a prophet, and his prophecy is coming true before your eyes.
GDP numbers, unemployment numbers and all other macro economic indicators have been twisted beyond meaning. Only a high priest of sophistry could impute meaning from this twisted farago.
Look at gold prices, look at the US$ index - meltdown is coming. There is no way out. Prepare to defend yourselves because no-one else will do it for you.
Consider that the US has now committed in excess of $23 trillion to bailing out its financial system. Consider that ALL domestic US debts could have been wiped out for less than half this amount. Ask why this option was not chosen. Ask why this option was never even discussed.
In the US 0.1% of the population own 6% of the nations wealth. Ask what other society has ever avoided economic catastrophe with such wealth imbalances. The UK is lock step with the US in terms of economic and foreign policies. Little Brother will be crushed in the same avalanche of debt that will wipe away Big Brother.
The Europeans won´t save you. Look at Spain, Ireland, Italy and Portugal. Ask how long the Germans are going to carry this burden, and ask why they would want to add to it by taking on the UK and it´s "because I deserve it" mentality.
Look at the argument about childcare. Is it a good idea? Eating food is a good idea, but people starve even though they know that eating would be beneficial. When you aint got no money you aint got no choice, so who cares whether something is a good idea. Look at the people arguing in favour of continued childcare - Broadly speaking they are the same people who acquised in giving all and more of the nations money to a few banks. These people are not sane and yet they still retain proximity to the levers of power. That means that the general population is not sane -because any sane group of people would act to remove the exercise of power by the insane.
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39. Rugbyprof:
You make some very good points.
Essentially, we're in a bind. If we cut public spending, we get a downwards impact on demand. If we go on borrowing at these levels, interest rates go up. If we go on printing money, sterling slumps and inflation soars. And if we raise taxes then, as you rightly say, we get the drag effect.
I think one does need private sector experience to understand this. And I would add that we're in a global economy. If taxes are pushed too high, companies won't invest here. Bright entrepeneurs, who might otherwise have started new SMEs (which are the lifeblood of the economy) will start their businesses overseas instead.
Capital, innovation and management are global, and countries have to compete to attract them. This doesn't seem to be understood in the UK.
Bottom line is that the world is competitive. It doesn't owe us a living. We don't have a divine right to be one of the world's richer economies. We have to earn a living like everyone else. And part of that means living within our collective means.
I'm quite sure that no politician is going to tell us this ahead of the election. After it, we're either (a) going to get a very nasty combination of spending cuts and tax hikes, or (b) going to try to muddle through, which could be lethal, because running deficits and printing the difference is viable only as a very short-term strategy.
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If QE has contributed to a bubble in British home prices, I'm certain it was intentional. Here in the US the government is moving heaven and earth to prop us the housing market, most recently extending the first time home buyers credit and broadening it to include non-first-time buyers. Steve Keen gives a very nice explanation on how these home buyer credits can prop up housing prices by $200K or more (his discussion is re Australia, but it would apply to the US just as well):
http://www.debtdeflation.com/blogs/2009/11/04/its-the-leverage-stupid/
My guess is they're trying to "de-tox" all that toxic waste (CDO's and such) by artificially elevating home prices, while they temporarily repair banks' balance sheets by flooding them with printed money. Which implies the banks are *still* bust, in spite of all these green shoots.
#18, 25, and 35:
This is just a theory, and I hope I'm wrong, but I don't think we'll be hearing from JadedJean any time soon:
http://news.bbc.co.uk/2/hi/europe/8341489.stm
His/her last post was 10/27, and Dr. Levi-Strauss died 10/31. I recall another poster mentioning that JJ was an anthropologist who lived in France.
#37: HawkeyePierce
You forgot drugs. :) North Sea oil is declining, but Afghanistan opium production is increasing:
http://en.wikipedia.org/wiki/Opium_production_in_Afghanistan
And since it looks like we'll be there for the next 100 years, I'm sure BAE, et al, will be doing well too. The wonders of a diversified economy!
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I believe industry is in a tougher position than any one realises, business runs on finance, it's tougher to come by and asset values are down. Government will have to reign back, receipts will continue to dimish. The support for the economy was neccesary, no other choice but it has not been as straight forward as it is put across. Banks in trouble are in trouble, hence the guarantee schemes and there may be a surprise before years end. Everything banking is driving up the cost of finance, the opposite of what is required. People, generally are far more cautious with expenditure, those able to, business as well, will be reducing exposure to negative equity and waiting, praying. That is a frame of mind that no nurturing or public speaking bravado can overcome. Human nature, talk-talk politicians are simply doing that, talk-talk and everyone knows it. The economy contracted, it continues. I see a reason why, it is a very logical reason from the circumstances that exist. December and January will be interesting times, there is no more help to come from government, hopefully baby is able to climb out from the plug hole.
l don't see how anyone can reasonably look you in the eye stating the economy is going to grow, it is paper profits and numbers on balance sheets that are growing exponentially. Some sectors, financial and electronic trading, commodities futures etc seem to do very well. We will see, there is a nasty, nasty bunch of bad news still to come and ducking it is pretty pointless. All the bad news and further setbacks are in the public domain, you just have to dig them out from the oceans of self interest and lobbies that try to paint the sky green and the sea orange. The fields for these 10 new nuclear generators should already be being dug up and prepared, not in an endless paper chase of Whitehall empire building, i'm not knocking the civ's they do their thing and hold the place together but this ho hum, make do and being treated like a mushroom is due an airing. I would like to,at the moment, run into some of the politicians and the double speak going on and simply tell them, to their face, you are lying. You are lying to everyone.
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FaustKnits
Personal fan of Steve Keen myself.
RE JadedJean - while I'll be damned.
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#53
I work in a bank and here's an odd thing - CEE banks are propping up their Western parent companies, rather than the other way round, though God himself will fry in hell before they admit it. The Western banks had to write down all these bad assets, but CEE, especially Poland, CZ, SK, didn't really bother.
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Make herosrest (#47) PM and Armagediontimes (#50) his Chancellor. You've got my vote boys.
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no.53
Try getting on question time...maybe we should all go!!!
Politicians...poor puppets, one has to almost feel sorry for them, i think they actually mean well but in their struggle to satisfy some psychlogical 'need' as a professional politician (why else would anyone do it!!) they all seem to have missed out on the real life experience outside of the mercilessly lobbied and manipulated tri-partite political bubble. As a result we are ruled by a professional political class that are as ineffectual as they are deluded, easy prey for those whom wish to apply legal and financial leverage by stealth without the manipulated even realising that is the case.
These guys actually think they are running the show!!!
I am not being too harsh am I?
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Friendlycard (#51)
I believe your analysis to be correct. And you're right about earning a living - I sense too many in the UK believe that to be the case, living off the last 300-odd years of global trading which is about to come to a reality face-off.
As for the commenters here - pretty much right in most cases.
The problem is we're having to blog here on what is, let's face it, a substandard commentary from a supposed BBC economics expert and she's not the only one.
Just read through SF's entry again and you can see the holes in what is a rather facile explanation of what's going on. I know she's trying her hardest - but that's media for you with Government help.
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Until we get increased demand in the economy employment prospects especially for young people looks very bleak. I see no grounds for much optimism.
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Shouldn't employers be encouraged to hire people (through lower taxes, especially on employing under 21s), rather than stopping them firing them, through long redundancy processes?
And what was the point of doing an outside broadcast from the BoE on the 10 o'clock News tonight? How much of my licence fee did that cost?
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Mervyn can see the green green shoots ofoAAAme forming ,the type that sprout optimisticaly from horizontal trunks that have been hewn down before the maaagic mushrooms and tentaaaaaaaacles of dry rot emerge to feed and profit from d caaamposition
The "for Keynes" silly QE'rs will carry on punmping andumping their unproductive dyddle doe into vacuAAA's holes whilst AAAwaiting the splAAAshback that indicates the begining of an eternal bond age for those Aye Aye and AyeRRs that cannot see to inkfinity and beyond ,with lord Upwardly mobile worming his way into the seat of power , hastening on the day.
Money /capitaAAAl is fugitive and on its way to Eastern civilliesAAAshun.
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Conducting interviews with our government and Finance boffins is not the straight forward piece of armour polishing many seem to expect. It is l should imagine a minefield of trusts and respects. Taking a minister to task, might well lead to adoration here, in some quarters, it would however effectively bar further access to that individual somewhere down the line. Trust and regard go with the job, which is not investigative journalism, though there is the mother, the true Ma, of all stories awaiting some bright spark.
The Beeb are not crusaders, that is how it should be. They address the broad spectrum, do it better than well and report accurately. There's is not to wield the sword's, that is our job. How?........... that is the question. Embarrass say Gorbon Brown, and there would be hell to pay. He is actually a wonderful cuddly guy full of the joys of life and burboned by his charge of 60+ million twits who all know better than he. I truly wish the guy would stand up, lose his rag, blow away the cobwebs and then simply turn things around. It isn't actually that difficult to do.
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This is just a game of economic Pooh Sticks and the fact one stick come through the bridge before another is meaninless.
BTW post 56 Err I vote for 'Eros Rest - for the Ministry of Luv - meself. Eros being primordial god of sexual love and beauty, worshipped as a fertility deity. lol. Thats what we need.
Arm n a Leg Time would never be a member of a government. Much happier throwing logic bombs at them.
In view of the fact that the last figures I saw suggested that the the public sector employment was still growing at 2 percent, whilst at the same time the economy had shrunk by the best part of 10 percent, considering inflation, it would hint that a substantial overhang of redunancy is accumulting in the public sector. However much tax is obtained by stealth ot highway robbery it will simply not be possible to plug the whole hole. If Browns tax take has been running at 46 percent direct and indirect for years and years - a EEC (developed country) fairly typical figure - then very crudely to prop up the Brown circus it has to rise to unsustainable levels. Or perhaps some clowns have to leave the circus.
Hence decimation pending. From wiki - ''A unit selected for punishment by decimation was divided into groups of ten; each group drew lots (Sortition), and the soldier on whom the lot fell was executed by his nine comrades, often by stoning or clubbing. The remaining soldiers were given rations of barley instead of wheat and forced to sleep outside of the Roman encampment.
Because the punishment fell by lot, all soldiers in the group were eligible for execution, regardless of the individual degree of fault, or rank and distinction.
The leadership was usually executed independent of the 1 in 10 deaths of the rank and file.'' (This seems to have stopped as a policy, this group seems to be rewarded come what may)
The digestion of monumental long term debt and the marked reduction of the public sector is still not in process. Has not even started. More of a Pooh Log than a Pooh Stick. I cannot understand why David Cameron wants the job of clearing the blockage.
It is quite obvious what the problem is if you try to buy anything much specialist for manufacturing in the UK. It is not made here. It is sometimes not even imported and sold here, because nobody much is manufacturing here. It has to be bought in other countries directly and personally imported. QED I am afraid. Personally it would be almost certainly easier for me to do what I do either on mainland Europe or in the USA or possibly S America. I can only conclude that the UK is in a very poor position and it is down to sustained poor strategic thinking.
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God you lot are depressing.
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58 Rugbyprof
The problem is that only a very few blog here, a few more may read, the vast majority do not know where to seek the information. ''Who controls the past controls the future. Who controls the present controls the past''. George Orwell. I would suggest that in Orwell doublespeak Economics = Politics, like Peace = War, Freedom = Slavery, all points to that.
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#1 and others
It's often asserted by bloggers (see the very first blog #1 in this chain) that QE is a means of the BoE funding the Govt, as if through QE the BoE is "printing money" which is then used to fund Government, ie pay for public sector wages, infrastructure investment, etc. This is based on a mis-understanding of QE. While QE poses a number of risks, it doesn't represent direct financing of Government by the BoE and so it doesn't mean that, once QE stops, that the Government suddenly needs to find a huge quantum of new buyers for its debt - at least not directly. Read on if you're interested just how QE raises inflationary risks and impacts the Government funding challenge...
This mis-perception about QE arises because people think that QE represents the direct purchase of gilts by the BoE from the Debt Management Office (ie from the Government). This is not the case. QE represents the purchase of existing gilts (ie gilts that have already been sold by the Government) from the private sector owners of those gilts - typically, banks, insurance companies, pension funds, etc. When it purchases a gilt from such an institution, the BoE doesn't literally deliver cash to the seller, it electronically "creates" the money by providing that the seller's bank account is credited and by simultaneously creating a corresponding reserve (a credit) at the BoE for the seller's bank. Effectively, it's exactly like putting cash in the seller's bank account and then the seller's bank taking that cash and putting it on deposit at the BoE. It all cancels out, except the seller now has cash in its bank account instead of gilts on its balance sheet, and the BoE both owns the gilt and is "holding in reserve" the corresponding cash on behalf of the seller's bank.
What's the good of that? It replaces assets on the balance sheets of the previous owners of the gilts (banks/insurance co's) with cash. This improved liquidity is supposed to give those institutions (banks) the confidence to lend more or go out and spend money on other assets. It also maintains the price of gilts by creating 'artificial' demand from the BoE. Maintaining gilt prices maintains the confidence of all those other investors who own gilts, again ensuring that they keep spending and lending. And high gilt prices obviously mean low yields and more attractive conditions for borrowers.
Obviously there is a danger that all this 'cash' injected into the system stimulates inflation. That will present a risk to the Government as it will make it more difficult for the Government to sell gilts which it desperately needs to sell in order to bridge the fiscal deficit. But obviously the logic is that without QE we would face deflation - so the BoE is trying busily to balance the risks here.
My point is that withdrawing say, £20bn of QE, doesn't in itself mean that the Govt suddenly has a £20bn hole in its finances - which is what some bloggers seem to assume. What it means is that gilt prices will be somewhat lower than they would otherwise have been and the cost of funding the Government debt will rise - ie the interest rate required to sell Government debt will be higher. But it's important to note that a higher rate on Government debt means a BETTER deal for potential buyers of that Government debt UNLESS they think inflation will be worse as a result of the lower QE, which is unlikely. So withdrawing QE doesn't pose a direct and immediate risk to the Government funding equation - but it will make it more expensive for the Government to borrow and will add more and more interest costs to be paid going forward - ultimately by taxpayers.
The danger to Government finances is not from stopping QE and somehow creating an immediate corresponding hole in the Government finances, but of QE being over-applied, thereby creating the spectre of rampant inflation which destroys the ability of the Government to borrow. If this risk should arise (and it's perfectly possible, perhaps even likely) the Government will have no choice raise interest rates dramatically - with all the obvious implications for the real economy. Staglfation here we come.
Of course, the impact of stopping QE could be negative - higher yields and gilt prices can ripple through to lower confidence and less borrowing and spending, and lower tax revenues but this is hardly an objection to QE. Just as QE is designed to stimulate confidence and borrowing, stopping QE is designed to choke off excess inflation.
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Interesting that everyone is talking as if the recession is over.
1. It isn't.
2. It will get worse.
3. If more debt is created to fuel the existing debt, it will get worse still.
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re #62 - read burdoned for burboned.................. hmmmmm. (blush..)
:) http://www.sysopt.com/forum/showpost.php?p=1487683&postcount=12
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Some good posts tonight... I'm hearing commercial property and CC debt are the next black holes. And a word to the wise...don't get caught holding equities when the election takes place/QE runs out.
The obscured unemployment comments tie in with my personal experience in an SME.
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glanafon, your #63 - Decimation worked though, the troops were scared more of their commanders than Spartacus and his revolting slaves who were defeated and crucified along the Appian way.
Public sector will be a huge headache down the road aways........ and generating inflation to fill the gap between growth and expenditure, abyss..... does not seem amiss. If growth is negative in the sense that the economic base(size) took a step backwards and is comparable to say 4 or 5 years ago but expenditure raced away from 2008, then there is a hiccup or two that l don't think anyone has properly mulled over.
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44. At 6:40pm on 11 Nov 2009, John Hughes-Narborough wrote:
Hi Stephaine,
just saw your piece on the 6 o clock news re the unemployment figures and there's something that the current figures just don't record, namely unemployed people like myself who have received either a payoff and/or a pension from their previous employer which is enough to prevent them
signing on for benefits at the job centre. I believe there must be somewhere in the region of 200,000 people that fall into this category,
=================
I believe there are considerably more, I am one 6 without work since a Government owned Bank replaced us with Foreign Nationals.
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No66.
I am sure your economic theory is totally sound within the context of accepted economic theory (which got us into this mess).
All facinating intellectual gymnastics it is too, but it still does not change the bottom line.
It is obvious we can not afford the huge goverment and standard of living we have become accustomed to which is proven to be built up of nothing but intangibles of the types you so eloquently describe.
lets accept the academic value of your post, How do you think the economy will be performing in the first quarter of 2012?
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For those posters who are thinking there will be massive redundancies in the Public Sector.
I wonder how many public sector workers will actually be made redundant rather than just allow natural wastage to whittle the numbers down. given the power of the unions, I think it highly likely that what will actually happen is that spending on activities rather than people will be cut drastically more than would be required if there were people cuts as well.
If only the 'expenditure' budgets and not the actual people are cut then the suppliers to the public sector will be hit hard thereby creating even more difficulty for the private sector.
I suppose we will find out after June 2010!
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62 'eros rest
---- Simple to turn it around -----
Have you ever engaged with Whitehall at a senior level simply to get Case Law routinely implemented in routine decision making, bearing in mind statue once passed is almost immediately extended by case law, some comments are that case law is 90 percent of law. Bearing in mind that adminstration is done largely in accordance with shortform bulletins issued from Whitehall. Or that some law is a pile of paper over a metre high. The reality is it is immpossible for anybody other than a few to know any field in detail so implementation is made by people who do not know what they are implementing. Further consider this - there is apparently no budget held by some government departments for maladministration liabilities. So they either get it right or do not acknowledge failures easily. This hints at serious inertia.
Perhaps you should go to the High Court, where there is a fast track which you have to negociate to get onto and effectively have to have the agreement of the other party to make representation in chambers to fast track. Fast is sort of 2 or 3 years, slow is 5 maybe 7 years or more. Or to spend 5k with a barrister you are likely to spend 30K on preparing a brief for the worthy.
So many of the things which appear in need of action impinge on law and postions are likley to be protected and fought in court. That is just the matter of law. Let alone policy decisions which in reality mean taking money away from groups of people. Just wait - lobbing against any cuts or action has only just started. Those that benefit from a status quo will act to try and defend the status quo.
Meanwhile, elsewhere, those without such restrictions will not sit still.
You are not talking of action, you are talking of trying to dismantle an entire culture without it ceasing to function. Bearing in mind intervention is unlikely to only take out the stuff intended to be taken out. That is the way intervention works. Good Luck.
In the US a few decades ago it was felt that the job of being at the top of a big automaker was not a job, it was not possible, the beast was too big to steer by any one individual. The need for increasing responsiveness in the management of big organisations has reached the point that decisions have to be made before the effects of the last decision has been effected. Dawrinisn in modern organisations demands ever increasing specialistaion to aid efficiency, increasing efficiency drive faster decision making, the feedback loop, or control loop, fails and efficiency fails suddenly. That is all you are seeing around you. The only way forward is cellular self determining management modules, ie small, networked. This process is fought by those in central authority, the last thing they want to see is neural networks. If a US automaker shows signs of managment problems then what problems affect a nation or global businesses.
Just a point of view
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#53 herosrest. You are in error. You write: "The support for the economy was neccesary, no other choice..."
There has been no support for the economy. There has been support for financial oligarchs cum kleptocrats. Consider that the US has committed in excess of $23 trillion in gifts, and wealth transfers to its "too big to fail" institutions and that this amount is more than double the amount it would have cost to write off all US household debt.
Who is meeting these costs? - why the over indebted US household sector since there is no other possibility. Unless of course the intention is to default on debt and have the Chinese pick up the bill. If this route is chosen expect life ending consequences.
We are facing catastrophic meltdown - now is not the time to regutgiate the propoganda from the insane.
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#63 glanafon. You are looking at something an order of magnitude more extreme than decimation!!
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70 'eros rest
I consider the economy present is what it should be in view of the long term underlying decline of the real economy, in particular manufacturing. All else being froth, bubble blowing by Brown. I dont really see what all the fuss is about. The froth bubbles popped and it has dropped back to what was really sustainably there, Brown's Ail has revealed Brown Ale, bit flat and not the Champers it was said to be. The problem is there will not be enough jobs for some and there will not be enough tax for some. But it is what it is.
Other countries represent a real problem in terms of high tech, other countries represent a problem in terms of low cost labour. imho, could be wrong. I would suggest globalisation, as such, is pretty much done, however. It has nowhere to go as a process.
Business is likely to split into small responsive flexible units or very large IT based admistrative organisations which have inherent flexibility and responsiveness problems. The first group has inherent novel technology limitations due to size, the second group has decision making problems inherent in it. The first group - if it focuses on flexibility and evolves - can survive fairly easily. The second group has to seek monopoly to overcome structual inefficencies but is limited by anti-monoploy national regulatory action. This is why its preferred place has evolved to be multinational, it is an attempt to diminish national based regulation, however with the size of a multinational decision making has to become the overarching problem hence the current failures.
So in business it is actually quite simple, you either sail on a big ship and know that it will hit a iceberg sooner or later and whether you get into a lifeboat is arbitary, or you seek a small craft and have to have the skills to navigate and avoid the big ships. The minute a small craft grows to any size it will be snapped up by a big ship, or will be targeted by a spotter in the low labour zone as a pirate opportunity. Its very simple, imho.
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I am earnestly serious regarding the folly (stupidity) of the GAAP FAS157 & FAS 159 accounting for derivatives through 2006 until now and ongoing. They are the culprit, regardless of motive and intent. It is ongoing, more trouble to come in Finance and then It starts on the Insurance industry. It is the cause of problems because it did something very daft, it frightened people when they looked at their 'new' balance sheets, in fact it panic'd people. No one had thought through its practice or implications until it was in their lap, it has many more problems to cause and quite frankly, simply is a grotesque horror story that must be recognised for what it is. Right or wrong, it killed credit - murdered it, why? is one story but more important is how and prime, stop any more damage. It just rolls along destroying swathes of wealth.
The easiest way to illustrate what l am saying is thus, October 28, 2009 - - Year-on-year US house prices declined more than 10 per cent. This was taken as a positive — August was the seventh consecutive month with improved annual rate of decline. US house prices are now at autumn 2003 levels.
That is the only GAAP that matters. Watch it close or chasm. It will foretell the future.
Autumn 2003 to Winter 2009. That is the extent of damage done!
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70 EmmKay
If a business is effectively wholely dependent on the public sector then it is the public sector, no difference. It doesnt matter how long the process is it will happen. The end result will always be the same. Many businesses are dependent on public sector expenditure. But if expenditure drops, the need for admistrators of said expenditure also drops.
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errata
Post 79 should ref post 73
Apologies
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76 Arm n leg
Decimation being one in ten, an order of magnitude would be 100 percent. This may indeed be possible, only modern man thinks the Earth is beneath him. Good to see you are in an opto-mystic mood. lol
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64. At 10:49pm on 11 Nov 2009, Mark Saville wrote:
God you lot are depressing.
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Not at all, ,we are merely daaaaaaaaamping the unjustified euphoreAAAh caused by the QE'rs vascilaaating with the Nayshuns bottom line at this time in the uneconomic cycle.
And we cannot afford the mortgage interest increase that comes with the so called wreckovary [the yolke will be on us].
The only way economic growth will truly recover ,is if Britains ageing horn of trident plenty is decommishioned in the bankster /pollytitians bottom line AAA's signified with the iMPortall words "I'M F EE" atop a jolly roger
Rule BritAAAniAAA BritAAAniAAA RULES THE wAAAves [soon to be wAAves]
Britains on the never never never will be slAAAves [SOON TO BE SLAAVES]
For sum reason pollytitian/banksterrs can never resist aaa vortex [where the enticing curvaaature of spaaaace and time etc etc etc.......]when it presents itself with the tried and tested importall words "I'm free" and "frying tonight" yes they just have to go all the way even beyond the event hurrizone.
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glanafon, your 74. I was being idealist. I thought it, think it still and said it because it is fair comment. Thanks for picking me up on it, the matter is apotheososis, its practice cumbersome. Finance now runs at the speed of light, simple basic concepts mushrooming through logical derivations. The GAAP is a lumbering gargantuan attempt to protect shareholders interests in various ways. Just laugh. It is a civil Service wet dream.
The game has already moved on and left its detrius scattered about for the rest of us peering out from our slit trenches. Finance is power and it has morphed and changed, it started in the 80's as the traders moved out of their pits and believe me, if you want to make money these days, by the shed load, no questions asked go trading, go short. The banks and Insurance were in it up to their bottom lips and joy all round until a bunch of sillies wenOTT and loosed Mr. Hertz on the world.
Modern electonic trading, destroy the world and get filthy rich doing it. Finance is out of control, the accounting rules were a twice over magic bullet that backfired horribly and is staffed by apotheososis. They did nothing wrong ha ha!, it is all with our(their) best interests at heart. These people are clinically insane. Nut jobs, for the squirrels and their accounting is poison.
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armagediontimes, your #75. Eventually, even if simply by process of elimination :) the US will..... get it right. Be assured of that. Interesting political times there at the moment as the Presidency and various components of power feel their way around each other. The Yanks will get their show on the road one way or other, they have a quite brutal way of inducing reality. We have the problems and need to do what this country does very, very, well. Use its head and get down the Fox & Duck.
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Well done everybody for defending the mural high ground provided by the BBC message boards ,fortunately we can pith downwards from the commaaanding heights of freedom on those that would take away our rights and taunt them with "come and get it"and "say AAAAh",particularly at those that are paid twice nay thrice[when flipping double dipping tripping is inkluded] to defend them ,who would fight with their li[v]es to protect our right to be imprissonned without trial and
Our right to have our DNA PUBLICLY held despite commiting no crime , so that it may be planted later at the scenes of crimes to fit the innocent up ,if they that must be obeyed are ever disposed to so choose.
For obvious reasons DNA found at the scene of a crime is not primafacie evidence of someone being at the scene of a crime because it can be planted,it leading to the automatic investigation of the original dna possessor, who becomes guilty until proven automaticaly guilty.
"The big ideAAA" crew that allowed the self destructive banking system to prollifferate because they refused to ask "what if" of the knighted banksters of the AAApeocaaalapse on whoresback will just search for new trojan hobbywhoresies to wheel into town,they cant help themselves since they have not the heart will or inteligence to discern the differance between "appearing to do good", and "actualy doing good "which requires a wisdom that cannot come from university degrease.
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This out there in the wild and just made laugh, coffee went everywhere ****........... ho hum
"In the latest attempt to prove that nobody ever learns anything from history, the Bank Of England is practically betting the Devonshire farm that by putting the UK's economy on nitrous, it will recapture all the lost output during the recession, and that it will be able to time the stimulus exit perfectly, thus avoiding hyperinflation, or so thinks Citigroup economist Michael Saunders. We are fairly confident that the Weimar Republic also did not have hyperinflation as a policy end goal. Saunders was quoted by Bloomberg, that “Policy has been set to produce a boom to close the output gap in the next few years.”
Consumer led, of course. There is a generation on tap that think the same way as the top tier, they simply speak a different language and enjoy trips to Venus. Use them!
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SpartacusmartyrAAAs, your #85. Do you punt at Cambridge?
http://www.flickr.com/photos/56087830@N00/3673046868
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Thats it Hero,the central banks will woo the AAA's hole economy to the point of Aye aye aye ....then withdraw if such a thing be inhumanly possible whilst turning to the Bankers[bankers]saying over to you Jolly Roger.
Even if such an outcome were inhumanly possible ,it would not produce the patter of little feet,but it would get THE Bigfoot banking system out of trouble for another weak,and the weaks are a long time in pollytricks
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Those who got to grips with the (Mark to Market) concept last, were coping with the 1930's depression. As soon as 'mark to market's' implications and power of destruction were comprehended - IT WAS HISTORY.
BIG NUMBERS - If you are not sure of the difference, think of it like this.
A million seconds is 11 days. A billion seconds is around 32 years. And a trillion therefore is 32,000 years.
A couple of excerpts from http://www.bearmarketinvestments.com/over-1-trillion-in-excess-reserves-not-a-problem-according-to-goldman-sachs lifted from Θ lifted from Golden Sacks inc. (Who may or may not have a couple of handles on the bigger Renoir. It is worth the skim for the sheer scale of stuff.
-1 - 'Many market participants and economists worry about the large volume of excess reserves in the US banking system, which just crossed the $1trn mark on the way to $1.3-$1.4trn by next March. Some see this as evidence that the banking system is not lending enough while others worry about inflation implications.'
- 2 - 'Our lack of concern about inflation in the short run reflects the large amount of slack that is currently in the US economy. Suffice it to say that with the unemployment rate now at 10.2% and still likely to rise from here, bank lending of excess reserves would have to occur on a massive scale to prompt the changes in BEHAVIOUR that would have to occur to close the gap that now exists between GDP and its potential.
To put the point differently, excess reserves are not some secret sauce that creates inflation out of thin air, as many seem to imply when they worry about the inflation consequences without specifying how those consequences materialize. While it is always possible that inflation expectations could be influenced by the large volume of excess reserves, large changes in behavior are needed to transform those expectations into actual inflation. To facilitate those behavioral changes, lending would have to change on an equally impressive scale. And if this were to occur, Fed officials would be the first to see it – in their informal contacts with bankers, in the lending survey, on banks’ balance sheets, and eventually in the data on spending (retail sales, factory orders and shipments, construction outlays, and the like) that we all look at every month.'
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SpartacusmartyrAAAs, your 88 - The banks were hoist by there own petard. There is this wonderful PR image of angels in armani, actually look closely and on a rushed morning it is just possible to dicern the out line of fin and pointed teeth as they smile. A war went on, continues now actually, about who owns business, who gets what and the paranoia of greed, share/stock holders, not yer average Mutuals, mind you, greed from those who believe (need) more, more, more, injured by events like Enron and the continuing scandals. Regulation is caught in the middle and as all things money, no one is ever reasonable. Greed is an illness that must be seen for what it is. A purely destructive illness that is as dangerous as drug addiction or gambling. I honestly feel sorry for the majority of capable and able bankers, impossible is the situation some are now facing. It is a crazy situation with no resolution of the differences in sight because there is a basic mistrust between investors and those handling their money. The differences of opinion are wrecking the world with GAAP. Eventually, a shareholder in Basle will know who it was that dropped a paper clip through a crack in the floor in Darwin and be sueing them!
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Where this all got the rails twisted is as follows. Business borrows to fund its doings, that is the way it has been and the Clinton/Greenberg combo realised the process would work as a muck... (sorry) wealth spreader to masses if they purchased property and accumulated wealth in the form of home equity. Of course banks and finance hijacked the scheme into a gravy train of interest payments when infact what was required was paying down principal. Everyone jumped on the bandwagon and cc's exploded. Now......... much else was occuring, the junk bond market found Insurance and business began using insurance to cover balance sheet deficiencies during troubles, it was all lucrative, dodgy business. Kinda frowned upon when it goes public or the holier than thou get a finger into it with only half the story to hand.
Flip side of the coin, Investors, many professional who know the game, others with gold teeth, personality problems, criminal proceeds, inherited wealth they don't understand and greed factors as big as Nelson's Column. They would buy into business and think they own it - a debatable point because, they were not in at the start building up an enterprise and sharing risks, they just sit back and call in expensive accountants to screw every penny that can be taken in profits for themselves, hence low pay. They don't put up money for expansion or development,...oh no, no, no............ the usinesses have to borrow. From banks, who make a living lending money............. you can begin to see how a problem developed.
Investors and their accountants got the idea that get rid of the borrowing and interest payments to banks and all that interest payment money could divert to them. That is why there will be no growth and that is why the system is firked. Insanity. There is much, much, more but that's the general state of play. The lending, generated growth and some people decided the lending is a problem. There will be fireworks once everyone - all parties, erm....... humanity gets a real handle on what has gone on and where a few people want it to go. It is not governments doing this. It really isn't. File that one with the trash!
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above should read Clinton/Greenspan............
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Hero,the maximum liability for the hole derrivative structure is 60 TRILLION dollars or so according to estimates ,theirfore 1.4 trillion dollars of F'ED diddle doe to back stop paper loooooosses that prevent greater exponential paper losses could, be electronic paper well spent from the standpoint of supporting the financial administrative house of cards .
I say could be, because the blood sucking leacheAse ruinning the banking system are creaming off bonuses derived purelely from the FED intervention dollars that they have USED TO CREATE AAArty fishall ASSET BUBBLES IN SPECIFICALY TARGETED MARKETS ie used it to create brand new ponzi pie/s in the sky to sell to maaawons from which their paper proffits bonus are derived before rolling up their bags and leavink destined to be ghost towns, monies, which if left in the banking system would support many times their face value in leviraged credit[capital] to the real economy on main street as opposed to mind games on wall street.
Theoretically the fed could and probably will Monet ayes the AAA's hole structure at a cost of 60 trillion dollars[Give me your tiered and mhuddled AAA'sses yearning to be F'ed] this would not in itself cause inflation unless panic insued[as if it wouldnt ha] as everyone went for doors at the same time to the few real lifeboats[assets] [now].Fortunately the money would be electronic and one lapto]p would be necessaaairy with no trees being saccrificed.
The banking system has spent two IN Godlessness WE TRUST decades consuming its seedcorn [wheeling it through the front door icons past shareholders with a laaabottomy icons in wheelbarrow icons as banksters bonuses in orgiaaastic greed fittingly described as a bonfire of the vanities and replacing it with ultimately worthless derrivatives, ie it has raided old mother hubboards cupboard replaceing her stock of real food with sausages made from whatever was in the skin at the time of slaughter and canned[embaaalmed and untraded ] Strategicaly Hyped Investmen Tranches .
Real capital produces growth as Fekete has explained and it is the equivalent of semen in male sperm ,the devastation of the capital markets is taking place behind a torrent of money[semen] produced by the federal reserve bankers that has lost its wrigglies and doesnt know where to find them like poor BOE Peep and which was put in holes where it had nowhere to go anyway, ie the federal reserve is firing blanks into AAA's holes with the help of the banksters high on diddledoe no longer interested in society as a whole but only trying to save themselves and their index linked AAA's holes .
True capital is concentrated and gets to the egg in an environment that is conducive to growth[womb service] ,low interest rates coupled with massive leverage destroys previous capital investments that can never be liquidated but can only be written off or sold to taxpayerrs intent on an eternity of bondage[Fekete].
The house of cards cannot sustain demographic shifts with YOUr0peans destined to poverty in old age with no children of their own to care for them and depreciated capital or non existant pension pot ,while the origanal GuAAArdians of the financial system swAAAn arround the Med looking for sky of their favourite shade of blue..
FED Monies that should be used FIRSTLY to revive main street economy and theirfore automaticaly reviving derivatives markets is being used to by pass main street and injected into asset bubbles to create AAAcountancy fictions that preserve the right of rotten stAAAtAAAs QE'rs to eat pension monies to inkfinity and beyond
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No 26 "Even the Chinese have accountants."
Actually the Chinese have a surfeit of accountants at the moment. In the 80s, when China relaxed it rules on traveling abroad, many students left the country to study abroad. Because of historic reasons and because of the influence of the overseas Chinese, the subjects of choice were medicine, engineering and accounting, in that order.
Now, they still need desperately more doctors and their massive infrastructure projects still need more engineers but accountants are in over-supply !!
Where once, all accounting was done by hand, many if not most accounting are now computerised especially since China is the world's largest manufacturer of PCs !! The need for more accountants have shrunk.
All this from a boring old ex-bean-counter and old China hand !! :-)
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No 30 J-f-H "2 Pounds to the Euro anyone!"
Naaw !! Considering the relative strenghts of manufacturing, exports and spendings, I think it'll be more like 1 quid 50 to a Euro with the "arrogance" card played to the bitter end !!
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N0 39 "(see the recent furore over childcare vouchers for example)."
The cut in childcare vouchers are a politically motivated cut that has absolutely no basis in economic reality. It hits working (and tax-paying) mums while *MAYBE, just MAYBE* benefiting the schooling of 2 year olds from poorer families who already contribute nothing to the economy.
This is more "burning of crops" in Our Glorious Leaser's "scorched earth" policies in the lead up to the next election as he probably finally realise that *HE* cannot win the next election. Labour *MAY* have a chance with a different leader but not when "scorched earth" policies are practiced under the Labour banner !!
Looks like Our Glorious Leader will lead the Labour Party into 21 more years in the wilderness !!
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At 11:06pm on 11 Nov 2009, ddelanom wrote
That QE was helping the economy because:
it's exactly like putting cash in the seller's bank account and then the seller's bank taking that cash and putting it on deposit at the BoE. It all cancels out, except the seller now has cash in its bank account instead of gilts on its balance sheet, and the BoE both owns the gilt and is "holding in reserve" the corresponding cash on behalf of the seller's bank.
What's the good of that? It replaces assets on the balance sheets of the previous owners of the gilts (banks/insurance co's) with cash. This improved liquidity is supposed to give those institutions (banks) the confidence to lend more or go out and spend money on other assets.
Agreed, but the other assets they’re spending it on are new gilts issued by the DMO, they’re not lending it out to business!
That’s why there’s a problem.
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Get ready for our nation's "renegotiation" of its debts:
http://www.prudentbear.com/index.php/thebearslairview?art_id=10307
"So which major country, the United States, Japan or Britain, will default first on its foreign debt?"
"The worst budget balance of the three deficit countries is in Britain, where the forecast budget deficit for calendar 2009 is a staggering 14.5% of GDP. Furthermore, the Bank of England has been slightly more irresponsible in its financing mechanisms."
"Default (doubtless disguised as with Argentina as 'renegotiation') would in that case inevitably follow."
So when our country financially capitulates in the not too distant future, our leaders will revel in the glory of being the ones who negotiated an economic truce, rather than a surrender!
Ahh, makes you proud to be British.
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98 Hawkeye - see paragraph from bottom of article you pulled your info from - this is an exaggerrated column designed to fear and forecast the worst - the truth is likely to be somewhere beter than this but worse than everything you read and hear elsewhere.
The Bears Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere
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66. At 11:06pm on 11 Nov 2009, ddelanom wrote:
#1 and others
It's often asserted by bloggers (see the very first blog #1 in this chain)
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No we're told by the government BoE and BBC editors
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that QE is a means of the BoE funding the Govt, as if through QE the BoE is "printing money" which is then used to fund Government, ie pay for public sector wages, infrastructure investment, etc. This is based on a mis-understanding of QE.
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Indirect financing of government - the government needs to raise cash by selling its gilts - if no is buying then QE is required?
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While QE poses a number of risks,
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We can we agree on something!
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it doesn't represent direct financing of Government by the BoE and so it doesn't mean that, once QE stops, that the Government suddenly needs to find a huge quantum of new buyers for its debt - at least not directly.
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You're definitely writing rubbish now and repeating yourself
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Read on if you're interested just how QE raises inflationary risks and impacts the Government funding challenge...
Must we ...this is really boring!
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This mis-perception about QE arises because people think that QE represents the direct purchase of gilts by the BoE from the Debt Management Office (ie from the Government).
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After several months of government lies most of us on this blog have figured this out for ourselves
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This is not the case. QE represents the purchase of existing gilts (ie gilts that have already been sold by the Government) from the private sector owners of those gilts - typically, banks, insurance companies, pension funds, etc.
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According to you - It get's worse - the gilts are re-purchased as at a more favourable bond yield otherwise no one would re-purchase them? More long term IOU for the taxpayer?
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When it purchases a gilt from such an institution, the BoE doesn't literally deliver cash to the seller, it electronically "creates" the money by providing that the seller's bank account is credited and by simultaneously creating a corresponding reserve (a credit) at the BoE for the seller's bank.
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It's 'funny money' and represents an imbalance of liability and actual money supply - the kind that can be inflationary
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Effectively, it's exactly like putting cash in the seller's bank account and then the seller's bank taking that cash and putting it on deposit at the BoE.
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Who is the seller ? The HM Treasury and the BofE are effectively one and the same?
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It all cancels out,
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NO IT DOES NOT! QE IS A LIABILITY THAT WAS NOT THERE BEFOREHAND!
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except the seller now has cash in its bank account instead of gilts on its balance sheet, and the BoE both owns the gilt and is "holding in reserve" the corresponding cash on behalf of the seller's bank.
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AT WHAT INTEREST RATE OVER WHAT PERIOD ON WHAT SMALLPINT?
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What's the good of that?
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In an economic depression is temporarily stops the economy falling further on the expecation that a strong recovery is otherwise on the way
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It replaces assets on the balance sheets of the previous owners of the gilts (banks/insurance co's) with cash. This improved liquidity is supposed to give those institutions (banks) the confidence to lend more or go out and spend money on other assets.
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Well show us where this is being done - amounts dates, comapny names, banks, brokers, fees bonuses, projects - PROVE IT!
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It also maintains the price of gilts by creating 'artificial' demand from the BoE.
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Yes - we know this - there is weak demand for UK government and company gilts because buyers do not wish to be paid in BGP's - several years down the line in case the UK currency weakens significantly - currency risk!
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Maintaining gilt prices maintains the confidence of all those other investors who own gilts, again ensuring that they keep spending and lending. And high gilt prices obviously mean low yields and more attractive conditions for borrowers.
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The banks trade between themselves and get rich - and mouch of the money goes overseas and has zero benfit to the UK real economy
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Obviously there is a danger that all this 'cash' injected into the system stimulates inflation. That will present a risk to the Government as it will make it more difficult for the Government to sell gilts which it desperately needs to sell in order to bridge the fiscal deficit.
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So banks keep snapping up the cheap UK gilts at preferential rates, terms and conditions and are then free to spend/loan the money anywhere in the world or hide the money in a tax haven or lost in electronic communications, totally untraceable and without jurisdiction including using banker's satellites in space.
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But obviously the logic is that without QE we would face deflation - so the BoE is trying busily to balance the risks here.
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But without QE the government would have to cut public spending NOW with 'savage cuts' but it does not wish to do that as it hopes to spin and lie it's way into clinging on to power.
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My point is that withdrawing say, £20bn of QE, doesn't in itself mean that the Govt suddenly has a £20bn hole in its finances - which is what some bloggers seem to assume.
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What do you mean by withdraw?
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What it means is that gilt prices will be somewhat lower than they would otherwise have been and the cost of funding the Government debt will rise - ie the interest rate required to sell Government debt will be higher.
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The prices and rates must be extremely attractive and represents debt and liability for the UK taxpayer
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But it's important to note that a higher rate on Government debt means a BETTER deal for potential buyers of that Government debt UNLESS they think inflation will be worse as a result of the lower QE, which is unlikely.
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Fair point but the risk have not been explained - and if the Governeror of the bank of Engalnd cannot forecast growth infaltion and debt into the enxt year - how can you assert that QE will be beneficial on this basis
THIS IS BUFFOONERY!
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So withdrawing
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Withdrawing?
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QE doesn't pose a direct and immediate risk to the Government funding equation
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Poses a nasty and potentially damaging risk to the UK taxpayer through higher long term debt liabilities and inflation just so that the Great Perpe-'trator' Brown can stay in power!
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- but it will make it more expensive for the Government to borrow and will add more and more interest costs to be paid going forward - ultimately by taxpayers.
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How much extra in costs and debt and when and TO WHOM? THIS CONCERNS THE REAL PRICE OF QE!
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The danger to Government finances
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The danger to UK government finances is the Great Perpe-Trator!
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is not from stopping QE and somehow creating an immediate corresponding hole in the Government finances, but of QE being over-applied, thereby creating the spectre of rampant inflation which destroys the ability of the Government to borrow.
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YOU NEED TO APOLOGISE TO PEOPLE ON THIS BLOG WHO HAVE BEEN MAKING THE VEY SAME POINT FOR NERALY A YEAR!
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If this risk should arise (and it's perfectly possible, perhaps even likely) the Government will have no choice raise interest rates dramatically - with all the obvious implications for the real economy. Staglfation here we come.
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Already extremely well documented on this and other blogs - you really should do some research before writing inaccurate statements
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Of course, the impact of stopping QE could be negative - higher yields and gilt prices can ripple through to lower confidence and less borrowing and spending, and lower tax revenues but this is hardly an objection to QE. Just as QE is designed to stimulate confidence and borrowing, stopping QE is designed to choke off excess inflation.
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WE KNOW ALL THIS - what is the risk, probability, real latent liability cost to the taxpayer and opportunity cost damage of not making sure that the banks spend all of the QE money NOW and where it needs spending instead of syphoning some or all of it off around the world chasing interest rate movements over-night to grow bank profits and banker's bonuses
YOu really are not telling more than a handful of people on thos blog anything new - it's all been said.
Can yoy quantify the costs, effects, liabilities to the UK citizen in terms of banking sleaze, opportunity cost, debt, liabilities and immoral practice by our government?
If not then I think that apart from whinging about people being genuinely concerned about QE, the timing, cost and the way it is being used - then I put it to you that you have very little or anything to add to what has already been posted by those who you seek to criticise!
QE is just headline grabbing and the real details that really matter to the British public are deliberately cloaked in secrecy to evade proper scrutiny, transparency and examination.
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Here’s the basics, in how events of the past two years resulted in QE and why its not working.
I will endeavour to list the chain of events as they unfurled:
Mr King is an intelligent chap, and as such he was very displeased at having been caught out by the financial crisis. And this is not being caught out because he could not see a problem on the horizon, but being caught out by not positioning himself adequately to avoid the flak when the crisis developed.
In any event as the crisis developed he did see the problems prior to them occurring and he did warn the government about them, albeit not usually publicly.
After the failure of the RBS and Halifax it was abundantly clear to him that the volume of gilts that needed selling in tax year 2009 – 2010 would far outstrip anything that had been sold previously.
He checked market participants and found demand unusually weak, and particularly so from foreign investors.
He notified the government of this and devised what we know as the Quantitative Easing programme to facilitate the sale of gilts during this tax year.
Prior to announcing the programme he checked (as far as was possible) to ensure that such would not cause a collapse in sterling or the loss of the UK’s AAA credit rating.
Having done all of this, he then warned certain ministers that whilst it was possible to get away with Quantitative Easing short term, it could not be relied upon for ever.
And more particularly
The Government would need to reign in its spending on a large scale.
The said ministers thanked Mr King for his ingenious plan, noting that he had both significant influence and contacts in the financial world.
Mr King had therefore saved the country from impending disaster by keeping the government funded and by giving the government breathing space to get its budget expenditure under control, in the full and complete belief that they would do exactly that.
So far so good, unfortunately there are two potential problems now playing out:
1. The money he pays for gilts from existing holders is being used to buy more gilts, and therefore is not being lent out to business, because the government expenditure has not been reigned in, and the government’s gilt sales come before lending to business, thus stifling economic recovery.
2. He believed the ministers promise to reign in spending, and they haven’t been true to their word.
As a consequence he has put faith in minister’s promises, and now finds himself in a rather awkward position for having done so.
If financial stability is the Bank of England’s role, then it rather does prompt some obvious questions.
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Given that in the last twelve months GBP 200 billion has been donated to the banks as QE and the government has run up a fiscal deficit of another GBP 200 billion I would expect to see some sort of improvement in our prospects: GBP 400 billion is one awful lot of boodle.
I was talking to a business acquaintance a couple of days ago - he is a bit right-wing, none too bright but he is in the right business at the right time so is doing well - and he could see no recession other than the pubs are a bit less busy and it was easier to book a table at a restuarant. I then told him about the GBP 400 billion the government and the bank had pumped into the economy: his eyes glazed over and he made a gargling sound. I think he then realised that all this would have to be either paid back (cuts), financed somehow (tax) or withdrawn from circulation (interest rates).
We are living in a fool's paradise at the moment. The political class think this is just a blip after which normal service can be resumed as soon as possible. Most of the public are inclined to believe that view although many are adding a pinch or two of salt. For myself I remain a `W' man who thinks the worst is yet to come but who is unsure as to how soon that will be.
With regard to employment what the figures tell us is that many businesses have set out to retain their key staff for the simple reason they know they will need them for when the economy begins to recover. As you say a number of subterfuges have been adopted to resolve that difficulty. This is a good thing and shows that businesses learn. However, this does not help the young folk who are just starting out. They have my sympathy: there will be a bitter price we will all have to pay for this failure.
I cannot see how you can resolve a debt crisis with even more debt. Somehow that logic does not hold together. It will work for a while but you have to make the necessary structural changes in the interim so that you begin to pay back at some point early in the process. There is no evidence that these structural changes are even being conceived let alone considered or implemented.
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Nautonier #100
GREAT riposte to ddelanom #66
One suspects that ddelanom is some kind of Government plant - sounds very good and official but subject to scrutiny the argument has a good number of holes in it.
QE has been given a very easy ride so far because few understand the implications and unintended consequences......and I'll repeat again QE is regarded as extreme. The bottom line is it is creating money in some form - the danger that asset bubbles can occur both on the back of it and the expectation it provides.
In an FT article last week the BoE had been reduced to quoting that QE was nothing more than a placebo.......what science.............!
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This is all good training for the UK's new major industry - a Fantasy Island theme park.
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What is disappointing is that the BoE's 'economic' forecast as issued yesterady was so vague as to be virtually meaningless.
Has anyone got an idea how complex a QE contract is and how much due diligence is required to get a QE transaction between a bank and the BoE operative?
Essential detail by way of 'advice' from e.g Goldman Sachs type company, with a wad of charts, graphs and financial data would include:
RPI /CPI range forecasts? - 1 year 3years 5 years 10 years 15 years 20 years
UK MLR/base rate forecasts - same periods
GB Pound exchange rates - same periods
Euro currency exchange rates - same periods.
The financial/statistical back ground work to QE is massive in order to get the pricing instrument evaluated pre contract - and this is done as the line of lawyers, economists, accountants funnelling in and out of BoE premises shows. Also, the charges in fees to these advisors will run into several million pounds and be paid for by HM Treasury (UK taxpayer - no limit credit card).
The QE contracts will almost certainly contain a detailed appendices showing detailed calculation of the maturity prices of the various gilts sold/purchased under QE and this will provide for the gilt-holder being paid in either Euros and/or GBP's - or in any global currency.
The BoE may be gambling on the UK joining the Euro and this may well be written in the QE contracts.
QE contracts on the scale of billions are massive documents and will be claimed to be 'commercially sensitive' - I say that the public/media/ analysts need to know the 'devil in the detail' of these contracts and that they have a right to be told in full.
So when Mervyn King produces a rubbish forecast like he did yesterday - ask yourelf could he and should he have done better? Major corporates have been paid £ millions for advice on this and yet the UK taxpayer gets rubbish information at a critical time - What ever is going on at the BoE?
What type and amount of critical information is he hiding from the UK taxpayer?
The 'devil is in the detail with QE' - it represents a potentially colossal hidden liability to the UK taxpayer.
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At 09:47am on 12 Nov 2009, stanilic wrote:
"However, this does not help the young folk who are just starting out. They have my sympathy: there will be a bitter price we will all have to pay for this failure."
What really confused me about yesterday's Newsnight, was the fact that the young people leaving University are finding it hard to get jobs, probably have large student debts, yet there is no sign of a growing frustration among them.
Have we neutered them with iPods, mobile phones and Nintendos?
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If a forecast predicts what will happen then surely it is an aftcast - as opposed to a backcast) that postdicts what happened?
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I recently read that currently some 60% of small businesses in this country employ just one person.
The reason why appears to be that the weight of legislative responsibility upon the business owner i.e. employment law and the complexities of employee tax, practically ensures that one-person outfits are loathe to expand their businesses by taking on more people.
Indeed, they may actually be putting their business at risk by doing so under the current legislative framework.
If Government was not so detached from the world of business, particularly that of small and medium sized enterprises, then they would make a high priority of this issue.
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108. At 10:59am on 12 Nov 2009, JohnConstable wrote:
I recently read that currently some 60% of small businesses in this country employ just one person.
You reasoning is correct, and I am one such person.
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All,
I had read on here (another blog) that Jaded Jean was in fact a French philanthropist, and that an obituary was posted on the BBC website.
A person of some standing if this was in fact Jaded Jean.
JM
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Used to employ people, now I don't and wouldn't if you paid me.
The same is true in France, people will not take on staff because of the costs and liabilities. Once the local bar has made enough money for the day they shut the doors as the taxation system doesn't make it worth their while to stay open.
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Message 106 Hawkeye_Pierce
The bank of Mum & Dad helps in many cases at the moment and the gap year concept is quite flexible. Also they are young so are going to live forever.
Yet give it another two to three years....Remember the riots in the Eighties happened when things were beginning to get a little bit better.
The cynic in me suggests that the second part of the W recession is being timed to fall into place a couple of years into the next government allowing a Labour Party, cleansed by Milliband but now in opposition to adopt another absurd posture. All a bit like the Eighties again....
Who was it who said if you refuse to learn the lessons from history you are doomed to relive it?
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Errata for 110, I meant anthropologist.
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The jobless figure don't tell the whole story.
Look at the increase in part-time work, and you'll see many people are opting for less hours rather than unemployment.
Also, we're in the quarter where seasonal jobs ramp up for the Christmas and New Year blitz.
Another marker is when sales start, and they already have. That tells you just how confident many retailers are.
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Trillions of artificial wealth generated by financials aided and abetted by goverments inflated asset values and borrowings
This artificial wealth was punted around the system inflating asset prices and inducing High leveraged borrowing by everyone.
The sudden realization that there was no money behind the borrowings and leverage when sub prime fraud initiated the artificial bank meltdown.
Trillions of this artificial wealth created by the financial Institutions and goverments now needs to be repaid or refinanced.
This is the case from Dubai (Islamic bonds) to commercial property in the US 30-50% down so far and -50% UK.
The destruction of the artificial wealth/capital that is in the system will be purged somehow and ultimately its all owned by the banks
The trillions thrown at the banks to maintain life as we know it is only softening and delaying true value of asset declines.
The worldwide govermental cash injections so far are in the order of less than 5% of the percevieved wealth generated that has to be destroyed to balance the books.
The banks will need more capital as the artificial wealth generated and the asset values that they then based their loans become nonsensicle with default the only route.
Sceptics may ask why have property prices increased in the UK for the past 6 months, whilst US have tanked, with US commercial being affected less. Good question ask Gordo and Merv, Bar & Ben they are creative accounting known as fiddling the books to avoid a total catastrophe and delaying a disaster until next year onwards. US leans to Commercial, UK to Private.
The disaster outcome, depression/deflation or inflation/default take your pick
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I have just looked through my local rag, the Maidenhead Advertiser. Virtually nothing in terms of jobs advertised despite the time of year, no real hope for people looking for a job. Absolute desperation I would say in fact and no cheer either.
Also, an article ran that house prices in the area are rising and the average house price is now 15 times the average local salary and prices are 'expected' to keep on rising. There is a storm coming and we deserve everything we get.
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73,
You are off your head!!!
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This comment was removed because the moderators found it broke the House Rules.
113. At 11:59am on 12 Nov 2009, JavaMan1984 wrote:
Errata for 110, I meant anthropologist.
------
Does that make you an apologist?
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Absolutely beyond my comprehension and common sense? Graph 2 indicates the mean average bank/s projection of GDP growth is going to be at an even greater rate year on year than that leading to the financial bust of 2008, someone please explain.
I guess its the only way the banks can see their way out of total default is by projecting GDP growth greater than that experienced to advocate reinflation of their devalued asset prices and related loan defaults. Would you believe what a bank would predict?
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Cheer up everyone!...you never know, you might win the lottery next week.
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103. At 10:16am on 12 Nov 2009, Rugbyprof wrote:
Nautonier #100
GREAT riposte to ddelanom #66
One suspects that ddelanom is some kind of Government plant - sounds very good and official but subject to scrutiny the argument has a good number of holes in it.
>>>>>>>>>>>>>>>>>>>>>
Thanks - and/or a representative of one of the consultant analysts/economists giving advice and cashing in big-time on consulantcy fees - see...
105. At 10:29am on 12 Nov 2009,
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So after reading 122 posts I think I can sum it all up easily.
1. Deflation (Governments HATE that) or
2. Inflation (Phew, that pesky debt is now worth less in real terms).
question is, is it a good time to buy a house (assuming a mortgage is required) or a bad time?
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JavaMan1984 #110
"All,
I had read on here (another blog) that Jaded Jean was in fact a French philanthropist, and that an obituary was posted on the BBC website.
A person of some standing if this was in fact Jaded Jean."
Rumours of JJ's death are greatly exaggerated.
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28. At 5:29pm on 11 Nov 2009, Friendlycard
....aren't you forgetting we're a consumption based Economy, the tax hikes will kill consumption (which you may argue is a good thing) - but the knock on effect is the same businesses (and retail) wil go bust.
The ONLY solution is to declare a state of emergency, lock down the country for a 'hibernation period' where we only produce the essentials (food, water) and we don't come out until the books are balanced and the debts paid (or rather until inflation eats them away).
When the British public come back from their 6 month holiday they will be refreshed and ready for work - full of renewed enthusiasm.
...better still some people might spend the time educating themselves in Economics so we don't make the same mistakes again (the chancellor, the FSA, the banks etc)
Best of all we can spend the 6 months on volunteer projects like 'upgrading the east coast mainline' or 'building the olympic stadia' - neither of which are likely to get finished in the next 30 years now that we're skint.
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The QE quandry is annoying, Where did it go?................ ho hum, wakey wakey, everyone. Not where people 'think' it went!
SpartacusmartyrAAAs, your #93. The credit machine was destroyed by removing a huge dollop of collateral. At one stage one third of all the wealth ever created, since money was invented, was just vapourised. One third of accumulative real wealth as it exists in the world today. People need to look at raw numbers and get their heads outside the monetary theory with which they sit so comfortably. The model has been altered. There are people who believed that should happen, excuse me, l missed the public debate. That such devastation can occur on a whim, the GAAP accounting, must be addressed regardless of the behaviour and problem it addresses.
Things should pick up as orders and then production feed into the system and growth returns. Look at Japans raw export numbers for this 3rd quarter. Not trade balance, raw numbers for exported goods, then look to all the other majors.
That 1+Trillion $'s is a good part of the credit now missing from the ex consumer society. It has been generated because the finance problems that stemmed from ths GAAP killed credit. The world has changed, the economic model has been altered. It's a round about of opinions but the Fed in USA are putting in liquidity, read lending shortfall, to a society which has changed its spending habit, that trillion or so, spent in the real economy and leveraged into the monetary fun & games should have delivered extrordinary growth in the real economy. That isn't taking place. There is a quaintly named measure, OUTPUT GAAP, which is a useful yardstick of economic progress. Years of growth and wealth creation have simply been vapourised and no-one, anywhere, understands the cause, certainly not publicly. It is a very simple problem to resolve WHAT happened. The why's of the matter are deeper, profound and an issue that should be aired, the sooner the better.
The house of cards theory related to finance is valid??? and easy to contrive BUT is only a reality because of negative minded, small people who considered the over leveraging of finance to be their liability. It works and works very well with low interest rates - that IS proven.
Strong minded, positives, go getters, the ingenious and engaged who actually do do things in this world would simply counter that you regulate properly, adjust and power through to increased general wealth and prosperity. Competition, rivalry with foreign markets... and on and on....... this that is taking place is/was a power play/greed about who reaps benefit from business. Why bother with hard work and effort when you can simply sit back and short the world for huge profit.
In the process of sneaking changes into economic process someone Hertz'd the world with a piece of accounting that favours actually no-one, is a plain simple mistake and has destroyed the credit markets. As you say SpartacusmartyrAAAs, the real economy needs the boost, a kick up the rump, and shots af adrenalin and steroids or a new succesful economic model to replace the tatters of consumerism. It is an interesting prospect, running ahead flatout to be dragged backwards.
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ydnaharap, your 115 - that is what happened, but the views and opinions which caused it were negative people, accountants and people who think short. Low interest rates were the crucial factor that made the economic model viable as principal debt was repaid to create general wealth. Th interest rate gravy train was the problem, where things go from here is a very interesting problem that economists should be losing sleep over. One third of global wealth accumulated over the ages destroyed in a few quarters. Hello......... anyone actually watching what really took place?
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Is it true that JJ is too busy with part time day job at a jewish fertility clinic, whilst holding down post as classroom assistant at a Brixton special needs centre for Sub Saharan imigrants with learning difficulties?
Apparently it's getting in the way of the advisory work he does for Goldman Sachs and Liberty!
No doubt when things calm down a bit the usual service of crackpot genetics and pseudo-Quinian claptrap will continue
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#44
Get down the job centre and sign on.
You are aiding and abetting a state sponsored fraud by not registering your status, plus you should have been eligible for £60/wk Jobseekers allowance for the first six months unless of course you are subject to state sponsored ageism ie close to retirement age, when of course you are entitled to zilch. Oh and if you are not retired and 29 years employment makes it sound that way, they will pay your NI stamp, which might be useful when they are forced to increase the number of contributions needed for full state pension after listening to all the demands to cut government costs on this blog. Plus you can get some monies towards retraining, though if you've a highly technical skill they don't really have enough to pay for that sort of training.... so you'll have to fund most of that - oh and make sure you do that before six months u/e is up, cos if you don't retrain before then you lose it (another of their caring policies).
But then the whole government ethos on u/e is that it is YOU that are at fault for not getting another job, or that you are a scrounger, living it up on their generous benefits. They conveniently forget that this is a national cock-up of their (and their future employers/ex comrades) making, and that 99% of those unemployed as a result of it would love to get back to work in something like the job they had before even at reduced pay, and even though the job was pretty naff.
Lots of the supplicants at the fount of unemployment largess have been on short time for up to a year before losing their jobs. Others went in to the temp market two or three weeks after losing their permanent job, and found they were only being offered 1 or 2 days a week, but they were 'employed', ie hidden from the offical stats, but earning less than if they had sensibly stayed unemployed, and of course they can't get full benefits anymore if they leave voluntarily.
You'll hear some great stories of how 'Fred' was one of 300 applicants for a job, and they interviewed him for a total of 3 minutes, got his name wrong, and thought his 20 years relevant experience and regular skills updates was immaterial relative to his ability to lick boots, and then how they never even bothered to tell him he hadn't got the job.
So basically I think Steph has got it wrong. We are in the trough of a many 'false peak' W, and unemployment will rise rapidly as employers who have been trying to keep going finally collapse, and the millions of teenagers forced into inappropriate post GSCE courses hit the job market over the next 6 months (which of course will be strung out to September or even longer if they can find some way to hide the reality
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Heros Rest - please explain as briefly as you possibly can FAS157 and the 820 - I come on this blog to learn but I struggle to read your posts as this accounting standard seems the basis for a lot of your blogs and I do not know what it set out to do nor the impact it had on the world.
When I ask for briefly I'm hoping for a couple of 3 line paragraphs and no links - is this possible?
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Herosrest - sorry I'm not picking on you I'm just trying to understand what you are saying as you are a prolific contributor.
Post 127
One third of global wealth accumulated over the ages destroyed in a few quarters. Hello......... anyone actually watching what really took place?
Can you please explain what you mean - again just a couple of 3 line paragraphs with no links would be great if that is possible?
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The News article here was an axcellent piece - http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/03/the_international_monetary_fun.html
9 March 2009 - How much is it all going to cost? - The International Monetary Fund often saves its best stuff for Friday afternoons. So it was last week, with the release of no fewer than eight weighty reports on the costs of the financial crisis so far. I wish I could tell you that I had now read every word. But I've read enough to think them worth sharing.
There is realistic and important data collated by the IMF and it is worth review. Since 2008, quarterly reviews have consistently upgraded the scale, the size, of problem advanced economies face. Early 2008 some may remember was the time of an attempt by private US banking to throw together a an $80Bn package to rescue the problem they faced. Realising the actual scale of the problem they walked away - value was not defended and here we all sit 2 years later in the aftermath of a Black Swan event.
Now i'm going to lay out an oddity, Prime numbers, they are scattered with utter randomness through the spread of numbers. They pop up anywhere and despite the greatest minds working this mathematical problem, the best available today is an elegantly ugly forecast of their probability. One certain fact though, before they range out to a fractured infinity, the early concentrations of primes is staggering, statistically. A black Swan event occured to the economic model. Another is just around the corner. That is the way it works. I am not into armageddon or fatalistic or in fact a soothsayer of doom, the underlying problems are not dealt with, people who should know better have their heads buried in the sand and it is not a probability but fact that more write offs from finance have to occur unless the balance applied to derivatives is corrected. Then the Insurance Industry will experience exactly the same meltdown in 2010 and then the intention is to correct the behaviour of the Mutuals and Pensions. Madmen are at work and they are answerable to on-one, not even themselves.
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superiorsnapshot, your #128 - There are Jaded Jeans on E-Bay.
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To Stephanie Flanders
Compare the difference of who was holding gilts before and after QE started.
(£millions) at end of Q4 2008 Q2 2009
Insurance Companies and Pension Funds 245,758 230,812
Overseas Investors 216,411 207,535
Other Financial Institutions 109,833 104,881
Households 17,855 9,550
Building Societies 7,762 10,011
Local Authorities and Public Corporations 1,368 1,465
Banks incl Bank of England 17,908 122,932
TOTAL 616,895 687,186
Now the major players are not buying gilts, and Bank of England is clearly taking up the slack. Imagine the position if this were not so.
As gilts become due for redemption they are being cashed in by those who would normally be purchasing in them.
So I ask the question, when QE ends, and what will happen then?
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GRIMUPNORTH77, your 131. The initial shockwave of devaluation that swept the planet was of the order of 30%, property value, collateral, credit, spending, orders, trade......... right the way through the numbers. Stock markets are bouncing back, that is not surprising, there is no where else to invest. In the states, that stock market was, until the uptick rule was restored being used as a piggy bank of withdrawls. Waves of investment swept into stocks but shorting pulled a fortune back out, l assume this was hedge funds (in meltdown) drawing down on Bulls to fund their their funds. A shockwave went through the world economy, it is best seen in the Chinese/US Trade figure for 2007 and 2008. Japan has had a trading disaster this quarter, no one, anywhere, is spending or investing.
There was major concern over false/inflated accounting in finance. GAAP was the solution.......... disaster it is. Anyone with dodgy accounting, panic'd. It continues.
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126 Hero
Money is not wealth [gold],it is a lien on wealth[A receipt for wealth that does not yet exist}, a completely different thing .
Money discerns relative values but not absolute values until it is worth no more than the calorific value of the paper it is printed on for those fortunate enough to have paper fiat.
.
Money has dissapeared because AAAcountant realised that it and its derrivatives represented wealth that never really existed in the first place ,which could no longer be sustained through brilliant works of fiction hithertoo written by AAAccountants.
Parliament and Banks are failed treatment centres for the clinickly insAAAne spendAAAholics who cannot discern the differance between paper or electronic diddledoe and real wealth
As Peter Warburton has said as far as I can remember "the debasement of currency AND derrivatives is inflation but not as we know it "
Madoff ran an empty ponzi with those investors who died before the bubble was popped deliberately or accidently, doing so with a smile on their face thinking that they were millionaaaires.
Neither before nor after the ponzi colapse did reality change,only the perception of it.
The great Gordoneowes decade long economic miracle AND ABOVE AVERAGE gdpGROWTH has dissapeared in a puff of smoke "shAAAzAAAm" now you see it now you do not.
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#130
My economics is not strong enough to meet your request for a quick summary; I am still trying to get a clear picture on this. The following three links make for useful reading I think. They are chronological from 2007.
I would be interested in other people's opinions of Hero's contention
http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/article2852547.ece
http://www.chinadaily.com.cn/world/2008-11/21/content_7229070.htm
http://dealbook.blogs.nytimes.com/2008/07/01/blaming-the-bean-counters/
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GAAP is a set of accounting principals being applied across the globe. It is a rolling program of principals to address financial abuses in Finance and across the spectrum of business. We are being corrected. Illegal and dubious financia practice is being addressed, along with the bathwater, baby was slung out. FAS157 applied accounting principles to the derivative finance market. The assets were brought onto balance sheets, they were assessed and audited and the world fell apart.
The principals are working through finance at the moment, less than half the assets in finance that must be brought onto balance sheets, have been. If you thought the last two years were bad, joo ain't seem nothin yet.
After Finance, comes the global Insurance industry. Then the Savings and Pensions ansd on and on without end, there simply will not be an economy to measure and account for. FAS157 was part of a set of rules, they were worked up and implemented from 2006 onwards and coincided with the derivative melt down. That is the accounting standards Board's story. In fact the rules caused the melt down. Huge, continuing rows are continuing about this affair and these rules in the US, a few people brave enough to stand up and call it are consistently trampled under foot for the vision of a beauifully correct world of robots controlled by Gnomes and their computerised accounting principal. Social engineering gone mad.
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135 - I realise I risk getting in over my head but reading your explanation I'm not sure that Global Wealth has been destroyed at all.
For example - before the crash I had a house and some shares in companies and a pension fund.
They are all now worth less 'money' but I still have a house, some shares in companies and a pension fund. The pension fund is worth less but is presumably still invested in the same property and shares as it was before so still owns the same things. That pension fund will, if nothing changes, produce less income than it would have but this income may still enable me to buy the same things - only time will tell.
Nothing has been destroyed. There is still the same level of food and natural resources in the world as there was before the crash.
What has changed is that the UK strategy for its future prosperity has been uncovered as a strategy based on straw and hence our future wealth as people who live in this country has been destroyed because we are fast becoming the poor men of the world.
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To Stephanie Flanders
The previous blog on this subject didn’t re-format very well, so here is another try:
Compare the difference of who was holding gilts before and after QE started.
The first figure is Q4 2008 and the second Q2 2009
Insurance & Pension funds: £245,758,000 down to £230,812,000
Overseas Investors: £216,411,000 down to £207,535,000
Other Institutions: £109,833,00 down to £104,881,000
Households: £17,855,000 down to £9,550,000
Building Socs: £7,762,000 up to £10,011,000 (likely index linked)
Local Authorities and Public Bodies £1,368,000 up to £1,465,000
Banks incl Bank of England: £17,908,000 up to £122,932,000
Overall increase in debt in nine months from £616,895,000 to £687,186,000
Now the major players have lost interest, and Bank of England is clearly taking up the slack. Imagine the position if this were not so.
As gilts become due for redemption they are being cashed in by those who would normally be purchasing in them.
So I ask the question, when will QE end, and what do you think will happen then?
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For rocket scientists
The only certainty about fiat currencies from an historical point of view is that they are terminal and that although they are suseptible to once in a billion years unusual catastrophic events ,their are a ten million different types of unusual even that can trigger their colapse.
EG I have a billion to one chance of dying from slipping on a banana
i have a billion to one chance of being hit by a boomerange thrown by myself from Bernankes helicopter
I have a billion to one chance of contracting small pox
I have a billion to one chance of being run over by Gordon brown on a skate board using a blind fold.
Rocket scientists can predict the unlikely nature of an event after the fact ,but cannot quantify the number of the miryaaad of improbable events .
In the financial world few asked "what if" and therefore no contingencies were made
Gordon the Gaaargaaantuaaan sujests that the failure of the banking system could be attribute to a failure of global legislation ,which brings us to the millenium dome built for 800 million pounds sold in a parliamentary one pound shop....was that due to a failure of global legislation? naye it was a precurser of things to come from Mr MidAAA's touch in reverse himself in cooperation with the great Tony ,chequey boys on financial sterroids
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SpartacusmartyrAAAs, your 136. The entire secondary banking system is a black hole, funded by current income and with virtually no capital reserves. The primary banking system is the same, and being forced to cater for the potential of a paic, a run on its reserves. The banking system is a black hole. IT WORKS and works well until the holier than thogh start running balance sheets over it.
The embarrassments over personal expenses that has evolved this year was a reminder to the holier than thou that they themselves are not angels. The direstion, the freedoms, the nature of our existence and conduct is being squeezed into a set of rules on the yellow brick road to Hades.
The people bringing this dark cloud of accounting perfection upon us do not even know how to balance accounts and these are accountants, they are squabbling and bickering amonngst their perfect selves and they actually screwed up the accounting for Derivatives when they had to be put onto balance sheets. Mark to market is a pricing exercise, properties are an investment, long term investment and so are the derivatives that finance them. The FAS157 rules devalued the derivatives through a stupid choice of method to value them. That stopped credit and devalued property, which destroyed collateral, which destroyed consumerism. A simple error with the accounting rules and further intransigence and rush to get it done is the cause of the financial disaster today. People can't see it for focusing on an economic problem that presents economic symptoms but the cause of it all is a broken equation. A cocked up accounting process.
People who really understood, went battering down President Bush's door and he listened and he understood and he got the US Congress to look at it as a matter of urgency, that was at the end of 2007. The righteous and mighty disdained change to the rules, no one was able to understand the warnings. No one ubderstands derivatives that is regulating them.
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133
searched the auction site:
genetic = 2917 items, racist=137,jaded jean=no results ?
Maybe he's relaxing with long term colonic irrigation therapy ? (=21 items)
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GRIMUPNORTH77, #139. A set of rules were imposed to clean up perceived illness with finance, to sort out the bad boys. We all are being punished. The way things work, for me a succesful system of trade and finance that was liberal and prone to abuses has been murdered for the simple reason that those bringing new rules made a serious error.
You are correct that nothing in essence has been destroyed. However, that £20.00 note in your pocket is in truth a concept. One that works and relates directly to the world around it. Considerable, in fact, massive wealth and its potential, have been destroyed as surely as dropping a nuclear weapon on human industry. It is because of an argument over wealth by the greedy sitting at different ends of the puddle that is life and business.
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Here is the type of problem - http://www.zerohedge.com/article/guest-post-goldman’s-global-oil-scam-passes-50-madoff-mark - the GAAP was reworked to cater for and clean up...... this particular enlightenment - free trade - is an argument, a debate between those profiting and those not, you if you drive at all, at all. It is not a straight forward scenario of right and wrong, it is though evil and manipulatory, symptoms of that plague greed. The greedy defend themselves, it an art form of mumbojumbo, arrogance and silence. The world is focused upon its economic blip and the resultant social fallout, earnest and ardent attempts are underway to drive the oil price through the roof. Unless you are part of the game or watching from the sidelines - no one knows. This stuff just happens.
Ferengi are at play.
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Mark to Market trading is a recipe to manipulate, steal and walk around with billion dollar smiles. It has been abused and a problem from the day someone dreamt it up. Trading practice is not economic theory - 'Mark to Market' trading practice is greed unbridled.
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Ok, so i think everyone on here is pretty much agreed that hard times are on their way. But this might not necessarily be such a bad thing. In fact some good old fashioned Darwinian selection pressures are long overdue.
25 million years of "survival of the fittest" had been undone in the last 20 years by "the fittest support the unworthy" and, by my own estimates, 64% of the current population are back down to homo habilis levels of intelligence. Tens of millions of people, multiplying like bacteria, without the means to suppot their own existance. Millions more who believe being a celebrity is a career choice, luckily most of these die from their own stupidity before making it to mating age (although mating age has dropped to 12 years old in some areas).
Some hard times to cleanse Britains gene pool are just whats required!!
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WARNING - 2010 - Year ot the mental Tiger - Remember FAS 167? The new accounting standard will eliminate qualified special-purpose entities (QSPEs) and lead to banks putting billions worth of securitised assets — mostly credit card trusts — back onto their balance sheets from 2010.
http://ftalphaville.ft.com/blog/2009/11/12/83026/fdic-saves-securitisation/
Black SWAN II
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#84 herosrest. You are correct that the US has a quite brutal way of inducing reality. It is being induced right now - although maybe not in the way that you would like to understand reality. You are heading to the final destruction of the US$ and with it the US economy, (and obviously its acolytes such as the UK) This is being deliberatly induced, or financially engineered, if you like whizzo phraseology.
Take a look at some more reality that is being created by the Pentagon faster than a JP Morgan derivatives contract. Look at that reality and glanafon will understand that well do I understand the answer if you increase 10% by an order of magnitude.
This is the reality - the clear and present reality that people refuse to see no matter how bright the light than is shone upon it. For the moment it is only the reality of the plan - things can still change, but I see no agent for change. Insane rulers allowed to rule by a supine population also afflicted by insanity, but the insanity of passive delusion.
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Hi 147, steer clear of lamposts. How large is your bonus, anyway?
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147 h4h
You wouldnt be a stroke affected jj by any chance.
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#131
Herosrest
Actually much of what you write seems like psychobabble. I am sure there's something worth reading in all that noise, but yeah, I agree with 131 - be less prolific.
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#150 My bonus (i prefer to call it "performance related pay") is not massive but is big enough to stop me bleeding the state dry, and thats all that counts.
#151 JJ was a mentalist, but some of the stuff he/she said did make sense.
why am i talking about JJ in the past tense? maybe he/she is dead!
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#137, Squarepeg
Thanks for the links.
Herosrest,
If I'm understanding you correctly, you're saying FAS 157 precipitated the crisis b/c it forced banks and other financial institutions to value derivatives, CDO's, etc., according to mark-to-market. This unspeakable injustice caused otherwise healthy banks to "artificially" be short on money
-> crisis.
Seems to me the boot's on the other foot. The banks were full of dodgy assets, made dodgier by the collapsing mortgage market, and FAS 157 merely called a spade a spade. The banks refused to face the reality of their (moral, intellectual, and financial) bankruptcy, and blackmailed governments around the world into keeping their sorry butts alive. They then wiggled out from under FAS 157:
http://www.reuters.com/article/ousiv/idUKTRE5314PX20090402
and are now happily marking-to-makebelieve. Acc'd to your theory this should have fixed the problem; yet it hasn't. Could it be that your "successful system of trade and finance" wasn't so successful?
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Noted, l have been spraying the walls... here from some whom peerhaps carry a li'l more weight.
Annals of unintended consequences, FDIC and FAS 166/7 edition - http://ftalphaville.ft.com/blog/2009/10/05/75611/annals-of-unintended-consequences-fdic-and-fas-1667-edition/
There is an ongoing train wreck in progress - it simply feeds asset devaluation after asset devaluation onto balance sheets. Whether they belong on the balance sheets should be a seriously hot topic, retrospective application, ie applying new rules after the fact to existing arrangements is suicide and despite the revaluations which occur, (devaluations) being isolated to contracts between counter parties, by destroying credit but not not mitigating (reducing consequent outstanding balances, which are the counter parties) an adjustment is forced into the asset underlying the credit - which is the value(price) of property. The FAS157 amendments, forced a devaluation of nearly 30% into property value (prices). This was because property markets are not valued properly. Property for sale is priced by its market. Mortgaged property, not for sale is priced by its finance contract at its Insurance Rebuild Valuation. It is a contractual trust, no insurance, no finance. The finance is trusted not to undermine the home owners investment. The losses because of the cocked up accounting rules belong with the derivatives counter parties not the home owners. It is straight forward logic, twisted by Trading practice which is allowed to value a property which is not for sale. It is market stuff, trading, mark to market is a licence to steal.
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Hi FaustKnits, your 154 - The actual nuts and bolts of the rules, the actual price aplied to derivative contracts was a devaluation, it was an error, a mistaken concept that endures. A few people who truly understood tried to prevent the disaster that occured but no one listened because A- they had agendas B - They don't understand the product they were regulating. It is a straight forward cock up by idiots. Those affected stuck their heads down, screamed for financial assistance and passed the damage down the feeding chain. I'm tired of this - people get what they deserve. There are a posse of up there own backsiders who haven't a jot's clue of how finance, its goods and bad, work messing with a bunch of sharks who either strike a kill or cirgle away leaving the mess behind. Sharks harpooning whales, it is. Idiots and their follies.
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139 grimup
I am not an economystic also.
I dont think the issue is assets. The issue is debt.
If you take money from the future then you are poorer when you get there. The only way to maintain your standard of living then is to borrow from the forthcoming future to plug the hole.
Stop the debt stream and the standard of living has to drop.
If actions create the immediate crystalisation of debt, ie the balance sheet demands the debt is repaid then there is no way out. That is what happened. Long term debt has been transfered to the short term account.
Long term borrowing - debt - was being fed with short term borrowing by the banks and the balance between domestic deposits and domestic borrow broken. Money was piped into the economy from abroad on short term deals and lent on in long term deals. Then an oops happened and the short term lenders overseas said I want my money back at the end of contract and the UK banks couldnt do it because they had lent it out long term.
Meanwhile with all the overseas money pumped into the UK economy it boomed. Mainly through housing. 1 percent of housing turnover the market stalls, 2 percent is normal, 4 percent creates a boom. Very roughly. This was deliberately allowed to happen, there are no two ways about it.
If the banks could not meet their liabilites they could not trade, they wher bust. If the banks were bust then everyone who had debt with them was also bust, the debt would be demanded in repayment forthwith, does not matter what the contract is the lender is bust. If nobody takes over the contract then everybody has to repay like now. So there was no way around it the banks had to be bailed.
The problem is the debt remains and has to be dealt with. It makes no odds whether it is dealt with by inflation, repayment programmes or a whip-around, or over a short period or a long period, it has to be paid for one way or the other.
This is one gigantic fraud, overseen by governments. Consider this, all UK mortgages have insurance against defaulting as part of the package. Paid for by the borrower. If due dilligence is followed then the insurance has to pay the bank who lent, and the insurer then has the option of pursuing the borrowed to bankruptcy. Yet C&G has declared a 230 Million mortgage fraud write-off, ie they cannot apparently recover from the insurer, draw your own conclusions.
Further in the US under 1930s depression legistlation householders are able to just throw the keys over the counter andf walk away free of debt. That is exactly what is happening with professional people who are looking at their options and saying that they do not want to pay for a decade plus of negative equity, it is easier to throw and walk, be clear in a few years without a downside, start again. To this can be added all the crazy martgages that where never going to be repaid, unsustainable. Meanwhile all these mortgages that are being defaulted on are sprinkled about throughout the world, not just in the US, they are here also.
So it is nothing to do with assets, it is everything to do with debt and the disruption of debt repayment processes.
Stamp duty in this country reached stunning levels, you can probably look it up. I wont quote from memory.
In almost all cases if you have longterm debt it is because you do not have the money here and now. Therefore if debt is recalled overnight you are in deep trouble. It is all about liquidity.
HMG has been running a unsustainable public sector expenditure and it has to drop, it is just a question of how.
There is also another truism floating about in all of this and that is that something has an intrinsic value and dropping the price of it does not make it sell.
There have been all to many nillionaires floating about. A nillionaire being somebody with absolutely nil in the bank but who acts like a millionaire, with the objective of spending OPM, other peoples money. I am sure a few will come to mind. It is much easier to spend other people's money than your own.
Just a point of view.
Yours in paying off other peoples debt.
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153 h4h
Something you need to understand is that we all live our own myth or illusion, JJ is no different, nor am I, nor are you. Congruency does not mean you are right, random numbers show congruency.
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Principal forbearance: Exhibit A - http://ftalphaville.ft.com/blog/2009/11/12/83011/principal-forbearance-exhibit-a/
Slowly but surely the US administration and Business Finance are realising the logical error that has ocurred. There was a Hertz. If this can pay off for Bank of America, it offers a solution, but............ it is long winded contract by contract and costs an arm and a leg. There is an easy way to sort the problem and relieve the downward pressure that destroys collateral and lending.
There is an easy option. The really weird part is that moving to Insurance rebuild cost as a property valuation, a real valuation, has no losers. No body is on the wrong side of its consequences. Everybody WINS. The mess of FAS157 and derivatives halts in its tracks. Smiles all around and omg....... how did no one realise what was going on. It is not economics. it is an accounting error!
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147 - up your street ?
http://cliodynamics.info/
Peter Turchin also peddles a neat line in Secular Cycles too. (but not on Fleabay )
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The conumndrum market proponents are at a loss with is th market, the market fixes the price... (literally). So here is a fact of life for all you marketeers, markets adjust. We are living through one of them now and they can adjust back to a solid based set of valuations which are real and cannot be manipulated. A real measure, real value, everyone knows where they stand and what stuff is worth. Hey bankers, finance that!
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You all stand advised. General Wealth...... man your battle stations!
Bringing it back (on balance sheet) - http://ftalphaville.ft.com/2009/08/17/67201/bringing-it-back-on-balance-sheet/
We've been through only the start of this madsense and much 'o much much more, is rolling along a conveyor belt of destruction. A stupid set of rules that completely ignore human nature and ingenuity. A steam roller of stupidity.
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A puzzle for the Friday 13th.. They did this in Rome.
http://www.youtube.com/watch?v=zmiMHJmqqXU&NR=1
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#153 hurrahforhedge. You can call your money what you like - but if you are interested in accuracy you might try "transitory" or "illisionary" 0.1% of the population own 6% of the wealth. Do you think that the 6% is their target? That they are happy now? That they will stop?
Or maybe you are one of the 0.1% just sneering at the 99.9%, or most likely you are in the 99.9% wondering how you can make the leap into the 0.1%. Forget it mate, there aint no vacancies, you are down with the plebs whether you like it or not.
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[Unsuitable/Broken URL removed by Moderator]
ASSESSMENT OF COMPLIANCE WITH THE BASEL CORE PRINCIPLES FOR EFFECTIVE BANKING SUPERVISION - Jurisdiction: United States of America as of July 31, 2009 - 270 pages of utter chaos.
What is tier 1, what is Tier 3. I haven't got a clue, lets ask the accountants. They haven't got a clue. Funny that, but none of them are trained up yet. Ok. we'll ask the Auditors.
Hmmmmmmmmm........ actually, you're bankrupt. Sorry old chap. Have a nice day. Our bill is in your e-mail, priority claim. I've left thr window open for y'all.
Under bank capital requirements, Tier 1 capital is assessed against a measure of a bank’s total assets, net of any allowance for loan losses. Therefore, previously unconsolidated assets that now must be recognized on the bank’s balance sheet will increase the denominator of the leverage capital ratio (resulting in a decrease of the leverage capital ratio). Although FAS 166 and FAS 167 will also affect the numerator of the risk-based and leverage capital ratios of affected banking organizations, in most cases these ratios will decrease as a result of the implementation of FAS 166 and FAS 167. The risk-based capital rules specify the components of regulatory capital and recognize variations of risk levels among different risk-weight assignments. The risk-based capital rules use GAAP as a basis for regulatory reporting requirements, but adjust GAAP balance sheet inputs where appropriate to capture an exposure’s risk.
The proposed rule also permits banking organization regulatory agencies to treat any unconsolidated structures as if they were consolidated for risk-based capital purposes.
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How things work. The commitee that put together the 'ASSESSMENT OF COMPLIANCE WITH THE BASEL CORE PRINCIPLES FOR EFFECTIVE BANKING SUPERVISION' linked above, met and did theiir thing while the G* leaders were here http://en.wikipedia.org/wiki/35th_G8_summit
So G8 was rocking saving the world while not to far away Basel Committee on Banking Supervision, http://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervision were ensuring our destruction. Super Gnomes with very sharp axes.
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#164
To be honest i was quite surprised when you quoted that statistic earlier, suprised that the 0.1% don't own more than 6% of the wealth, considering the vast majority of people struggle to get by with zero or negative wealth.
And I'm certainly not interested in being in the 0.1% either. I'm happy with a modest income. There are more inportant things in life than money. If fact, i am quite looking forward to this meltdown you talk about. No more 2 hour commute for me. I'll be happy living off the land growing my own carrots, providing that the spongers of this world, who can't be bothered to grow their own carrots, don't think they should be entitled to mine.
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#167 Hurrahforhedge. You seem to be confusing money with wealth - you cannot have negative wealth.
The concentration of wealth has never been higher - It is greater than just before the great depression. I don´t know the exact numbers but there have been other wealth concentrations preceeding the collapse of other civilizations.
You are on your way to answering your own question. Starving people will steal your carrots since they are starving. What would you do? Voluntarily starve? Not many will choose to go out with hunger in their stomachs but with their hearts filled with altuitrism and magnanamous thoughts. It´s just nature and it cannot be changed.
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Meanwhile several thousand miles away our military machine is floundering in the back yard of tribal warriors who have fought off all comers for a thousounds years since the hordes of Ghenis Khans sons rolled over them. They never surrender, they never give in, they do not want unity, they do not want a national government. Those little hillside villages is the way of life held dear. To send more troops is ridiculous, to plan a ten year campaign a joke.
The commanders of Nato forces in Afghanistan need there heads banged together and telling to to sort it out now. Find the quick miltary fix and tactics and sort it out now. If the answer is train up an effective national army that takes 18 months...... how long have our forces been deployed??? Oi, Mr. General, Proffesional soldier, get yer hands dirty and sort it out, sharpish while we can still afford to ship you back home.
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Re JJ
Lets be fair...even Chief Rabbi Jonathon Sacks appears to have been reading some of JJ's posts about TFRs...
http://www.guardian.co.uk/world/2009/nov/05/birth-rate-chief-rabbi-sacks
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#157 glanafon. OK if the situation is as you describe it then tell me:
So far the US financial system has been "bunged" $23.7 trillion. This is over twice what would have been needed to forgive all US household debts (mortgages, credit cards, car loans, student debt etc.)
Clearly not everyone in the US has defaulted (in fact not very many in % terms have defaulted). Why then is it necessary to periodically revisit the bailed out and bail them some more. Fannie Mae last week, and CIT allowed to file bankruptcy despite being given $2.8 billion of cash?
How can this be?
The situation is similar in the UK - why is it necessary to keep going back to Lloyds and RBS and bailing them out some more? Look at the level of UK home repossessions - It is not that high (by comparison to the bail out requirements). How can they keep running out of money?
It is not over, it has not stopped - they will be back for more bail outs. Not matter how much cash they are given they run out of it. Why?
Are you sure that your contention that you are paying off other peoples debts is correct?
Whose debts are they? They can´t be any of the people with debt since the bail outs are about 200% of the aggregate amount of peoples debts. Therefore you must be paying off the debts of people that do not have debt, but that does not make sense. Do you see the problem with your core understanding?
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#168 Arm n Leg
You sum up beautfully what is so tragic about the human race. Our great intelligence will ultimately lead to our downfall. Most people probably would help their lazy neighbour by giving them their last carrot, rather than survive themselves. This leads to the productive people dying out and the spongers keep on multiplying. How did evolution lead to such self destructive behaviour? Altruism reverses natural selection. It doesn't make sense.
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hurrahforhedge, your #172 - there is assuption implicit in those motified or happy to be in a situation of monetary reward and opportunity that all are alike. That is not so, those who worship the mighty zero sum are children of our time. Babies with bigger and bigger toys and ego's. Get some treatment if you feel the green stuff is all that matters. It is my desire and intent to live free in democracy. That privelage is a freedom l wish extended to all. I have no desire whatever for a masterplan, supermen or the holier than thou. Live and let live, worship your own god and if others kneel at the temple of lucre so be it. I will smile and do my thing if that happens to to rude, crass, ignorants - then so be it. Profit is theft. It is somthing for nothing 'given' in reward for service, to motivate and reward. It is not a right it is not a motive for existence. It does produce some very sad and warped minds who, in honesty need help and relieving of their obsession.
People knew there was trouble coming. People had decided there were problems with the way things were working, they were and remain, utterly wrong and l hold nought but contempt for these super beings who believe they are gods, special people. High interest rates were and remain the problem. Address that theft, that disgrace.
Gates' warning on executive pay - http://news.bbc.co.uk/1/hi/business/8356313.stm Gates has spoken up on a constituent part of the problem that has led to the accounting madness going on. Quote "What happened was a surprise to people and it comes from everybody being so optimistic and over ebullient and having a view of risk and price appreciation that was completely out of kilter," Mr Gates said about the financial crisis.
This guy and many others with more money to worry about than is in anyway healthy, knew of the stuff being heaped down on us mushrooms. I have terrific respect for this guys business acheivements, an innovator who spawned a trillion dollar industry. In the right place at the right time. But he and the Davos crowd and top tier finance regulators are in a world of their own, playing gods. The Gods of Lucre. I simply point it out. l find it disgusting. Despite the wonders that Microsoft brought to the world economy, the wealth (profits) it has provided those running it has come from overcharging its customers, whether they be business or individuals those charging for the products are overcharging to accumulate the fantastic wealth they hold. Both sides of the coin. Do not preach holier than though, you may be president one day!
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armagediontimes
Negative wealth is where one's liabilities exceed one's assets.
In your post no.171 you forgot to mention the indebtedness of the banks themselves. They believed their assets exceeded their liabilities, but when asked to repay their borrowings in cash during the credit crunch, the US and UK banks found their assets realised less cash than their net book value when sold on the open market. The banks' negative wealth was crystallised, and we now find ourselves in a world economic crisis. Governments had to step in to try to plug the holes in banks' balance sheets.
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171 Arm n Leg times
Individual debt is just one debt in the system. There is corporate and national. The whole culture is one of morbid debt obesity. I have no idea of the debt in the system. It almost certianly is more than the input resource.
But debt is the catalyst imo. It is the trigger. It is not the cause. The cause is the entire mentality. That is what 2012 is all about. 2012 is not the end of the world, it is simple the end of the approach that has gone before. We are still living with the Roman Empire, we collectively still aspire to be Romans, to behave like Romans, its just got a lot bigger. The end game is still the same.
Why should a small part of the population expect to consume the majority of the planets resource or the majority of the nonrenewables. It is all about imbalances. If you put lactobacillus in milk you get yoghurt. You keep puting milk in and everything is fine. Stop and the bacteria continue to replicate until they have exhausted all available resource in their world, the pot of milk, and then die in their own byproduct, pollution. If man wishes to be as mindless as bacteria then the outcome is obvious. The money business is just one aspect of the whole problem.
You worry too much about the accuracy of numbers. They are not accurate.
As for paying others debt. That is what is going on. Further, everytime an activity is shipped to a low labour zone the person who loses that job is paying for somebodyelses short term convenience. A reduction in choice follows, a longterm social problem results.
There are simply too many passengers in the West. The overall efficiency of processes in the West is steadily falling in terms of the whole population. Taking people out of the direct process and putting them on the sideline makes no differnce to the overall population situation, it is just displacement, like stirring the yoghurt around in the pot. It is a systematic failure. Therefore the situation in the West overall can only fall further. There is no way around it.
The outcome can only be a restructuring on an unprecidented scale. There are some signs this is begining to be recognised. It is pretty obvious that what used to be called overhead has to be removed. It is pretty obvious that the expansion of expectation of provision has have surgery on it. It is also pretty obvious that no government will accept a very significant section of the population doing nothing, it is too dangerous in so many ways.
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#157. glanafon about
Assets or Debt?
Is money not the problem? You can and do have ownership of assets without money, but you can't I think have debt without money. (Well, contradicting myself you probably can have debt without money in which case it is duty or obligation, perhaps.) Liabilities are a contingent future charge on assets.
When money costs nothing (as it does now for large borrowers - including and especially banks) what is the pressure to use it economically and to maximise the return on its investment - indeed when there is not return on investment (as there is now for the vast majority of owners of money.)
This is the basis of the problem with the so-called economic support - I can, using the argument above, make the case for it not being 'support' to have money that is worth nothing (or indeed for the recipients of QE - having a negative value).
Money has to be worth something - i.e. owning it as an asset must produce a return otherwise the whole basis of running an economy collapses - and that is Mervyn King's great error. His stupidity has removed the value of money and money having a value (or price) is critical to the operation of any economy. He is killing the Nation.
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Hi Mr. Tweedy, lay negative wealth at FAS157's doorstep - that is where the blame belongs, nowhere else.
Gordon Brown, video, from 01:20 in through 01:33. http://news.bbc.co.uk/1/hi/business/davos/7862451.stm
The problem is the accounting rules FAS157 as they were applied to the derivatives market. They are a cock up of the first magnitude that no one has discerned. That trouble was coming everyone in any position of trust or authority seems to have known and anticipated. That is a truth, a bubble was expected to blow but no one checked or even thought to audit the auditors(of course they are perfect). Hertz and his crowd, this is the whole shooting match l refer to, the international accounting bodies, have gotten this horribly wrong. It is that simple and nothing will get fixed until that realisation is made, understood and corrected. You Mr. Brown of all people understand balance sheets. Look at the pricing regime instigated by FAS157 for these financial instruments, dissect it.
Then get to grips with these clowns in Basel and the banking regulations. You run this country. Not a bunch of Gnomes who hold meetings when no-one is around to check out what they are up to.
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174 Mr T
Now is the winter of our discount tents : )
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#173 Hero
Man, reading your post i thought i was on acid there for a sec, you are one deep and cryptic guy/gal.
I think i catch your drift though and there are three points i would like to address. Appologies for doing a JJ and going off topic, but if the BBC editors themselves cannot be bothered with more than one economics post a week, or one a month if you are RP, then why should we be expected to fill their shoes!
So.....
1) "Get some treatment if you feel the green stuff is all that matters."
I refer you to #167 "And I'm certainly not interested in being in the 0.1% either. I'm happy with a modest income. There are more inportant things in life than money."
Money is the root of all evil as far as i'm concerned. People wanting more and more, more than they can possibly afford, basic greed. And not just the people taking out loans they can't afford to pay back, people who make vast sums by buying oil that they never have to receive, refine or sell on as a product, in turn driving up the cost for the rest of us who need to buy petrol.
I'm not against debt though. i think living off your future potential is perfectly acceptable, but i do believe that you shouldn't be held accountable if it all goes wrong, providing your debt was a true reflection of your future potential at the time.
2) I would never listen to anything Bill Gates has to say about money. I, as you, respect him for what he has achieved, but seriously, if you laid his $1 notes end to end it would reach to the moon and back. Definitely not in touch with reality.
and most importantly............
3) I am not preaching holier that thou. I was merely trying to describe how far away humans have moved from where we originated, and where we need to be if we wish to succeed as a species. Propping up the wasters of this world is not going to get us anywhere. Let them find their own way. Its a bit like giving a tramp a bottle of whisky, feed their craving and their craving remains. If we cut off their supply they may evolve, or at least get off their behinds, and start making a contribution.
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176 John From
Hi John
Its just a point of view. I see money as an energetic transfer. Its the mentality that is the problem, a cultural thing.
House prices are just the opium of the masses, the idea of easy wealth. The problem with people who are not used to getting an energetic transfer is they cannot cope with the energy and become disoriented, they will then follow the pied piper.
The value of everything falls when they follow the piper
But like I say, its just a point of view.
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hurrahforhedge, your 179. Regards, my apos. Pretty much of those wavelengths you are beaming rock on, we have a mess - the engine seized and l hold strong views as to the reasons why and they counter accepted wisdoms. Those propounding the broader interest and internationism and globalism l hope and pray keep a firm seat in reality, you can never trust anyone or anything and this global mess is not properly or substantially explained and therefore is not understood or is being swept under carpets. I believe the former to be the case. Banks were over extended, UK & US banks chiefly,...... our succes and innovation was envied, our risk taking and............ business acumen flying the jolly roger. AiG was an interesting story when you get into what they were actually insuring that blew up in their face. Lehmans seems to have been a fairy story in a minefield, the auditors in there are tip toeing through it now with sharks nipping at their heels.
It is my view that the practices work, the leveraging went ott, that was greed. Regulation failed. Costs and interest rates were way to high and repayments of principal should have been enforced, Regulation and oversight failed. The exercise as you say, was an investment in the tomorrow, it worked but scared the shizz out of a lot of stuffed shirts and abuse occured, regulation failed, the great white hope of GAAP is a disaster and only going to stifle and strangle business and innovation. Those cdo's worked, were expensive to unravel and the GAAP, murdered them. Call in Sherlock Holmes and the good Doctor. Some people cannot handle watching fast & free, when it is our bankers we must trust they know what they are upto, that is why when the argument blew over too much exposure during 2004 it should have rung alarm bells. The US palmed off trouble and an idiot or two fell for it.
Here's to tin pan alley............. life really is a beach.
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herosrest
FAS157's doorstep
You raise an interesting point.
In the good old days, the overriding principle in British accountancy was prudence. It was a time when men wore tweeds and women dressed in skirts, and bowlers and bonnets were to be seen in the shipyards of the Clyde.
With globalisation and the introduction of international accounting standards, prudence was disavowed in favour of mark to market. Unfortunately, in a bubble economy mark to market overstates the value of one's assets. At the same time general provisons were disallowed, in favour of specific provisions and reserves. This served to understate the value of provisions, which in turn overstates the net book value of assets.
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glanafon, your #180. I'm with the Bank of Alfa Centuri myself, they are real stars. House prices can be regulated effectively, they undely our economy and as things stand are a big fat target for the wolves and shark's. A valid real non market based valuation that finance can rely upon is the way to go. Safeguards designed into the root of the process rather than having to keep a regulatory eye upon the opprtunists and innovators. Using something reliable and self regulating such as rebuild cost offers a sedate secure way of ensuring security. With the amended and far more stringent lending rules now effected, the innovations that were a wild west can power a significant economic bedrock of growth, that is how the idea was intended originally but it truly was hijacked along the way.
General Wealth, I salute him and his low interest. There are formula's, financial gobbledeegook that define profitability and interest rates, l suggest that those equations are somewhat loaded in favour of those who carry some clout as greedy shareholders milking the system rotten from up where they belong. I still remember what my middle finger is for, 'n'est ce pas'.
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Message 176 John_from_Hendon
Your very valid comment as to the prevailing value of money has caused some reflections as to current human behaviour.
There seems to be a perception at all levels of society that rather than have a frighteningly bottomless pit of debt the government has a bottomless pit of money instead. This justifies the continuation of the expenses, the bonuses, the benefits, the bread and the circuses. So it is all a case of let the good times roll.
It is not just the economy which is upside down it is the entire country. One is minded of that classical allusion: those whom the gods wish to destroy they first make mad.
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By now us Taxpayers must surely realise, slavery is already upon them....
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah4X24Z1sQs4&pos=2
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John from Hendon
The value of money is determined by its purchasing power.
When the price of goods and services is generally falling, the value of money increases.
Assets are stores of wealth, which can be converted into purchasing power: either through direct exchange for goods or services, or in exchange for money. Assets are only worth what someone is prepared to give in exchange for them.
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It seems to me that most of the posts on this blog are written as though the UK is acting in isolation rather than in concert with virtually all other western industrialised Capitalist economies.
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Ah well, just when you thought things couldn't get any worse......
The banks got too big - and created havoc by excessive risk taking - there were calls of 'too big to fail' and we all realised (although many already knew) - big is not beautiful in the corporate world.
So today the announcement of the BA and Iberia merger is being hailed by the city as a 'good deal'. This statement is a reflection of the disconnect between the city and the real world.
First of all both airlines are loss making - and both have industrial relations problems looming. There will inevitably be job cuts as duplicated services are removed - just what the Economies of Britain and Spain (the highest unemployment in Western Europe) need right now.
The city claims this is a good deal as they will make a lot of money from the merger - so they rub their hands with glee. As is the Ying and Yang of life, for there to be a winner, there must be a looser - and you guesed it - that would be the taxpayer in both countries who will have to deal with the unemployment produced.
So following the rise and rise of corporatisation - are we learning our lessons?
No - we are not.
I sincerely hope that the OFT stop this one (not that even that move won't create a huge waste) because this merger will probably kill both airlines and seriously damage the Economy of both countries.
Nonetheless - it won't stop the media talking their usual wind for a while trying to convince us that this is a good idea....
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100, 103, 122
Nautonier, I will indeed apologise for stating the obvious once some commentators stop missing the obvious. You are so angry about the state of the nation that you've msised innumberable points.
The issue is that if QE is buying EXISTING gilts it works in a totally different way you suppose. I don't pretend it's working - I am describing the rationale. I agree it DOESN'T WORK if the banks who have sold the gilts actually done lend more - and I agree it isn't working for that very reason.
I think the reason you object so strongly to my post is that you read it as an apology for the policy. It's not (the policy isn't working). It's an explanation of the real threat, not the imagined one.
To your heated objection that QE creates a liability that wasn't there, cool down, re-read my post and think again.
"you're definite repeating yourself and speaking rubbish" -
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100
Nautonier, I also agree that stopping QE makes it harder for the Govt to finance itself - again, my point is to highlight that it's not a direct impact of withdrawing funds from the Govt but an indirect impact - the withdrawal of QE will remove demand in the market for existing gilts and so newly issued gilts will be priced off lower market benchmarks and therefore will need to offer higher yields.
So what this means is that there is every chance that we get big rate rises next year forced on use by a Govt unable to fund itself any other way BEFORE we see any kind of recovery. So instead of inflation fears prompting big rate rises, we should perhaps expect big rate rises BEFORE any kind of inflation risk, not as a pre-emptive strik against inflation but simply in order to allow the Govt to make its debt attractive enough to sell. The impact of my point is that we should be less worried about the inflation you rightly observe everyone has been writing about for a year or more and more worried about big interest rate rises which are not driven by, and come far in advance of, any evidence of real economic recovery or growing inflationary risk.
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This comment was removed because the moderators found it broke the House Rules.
After the MPendind civil union between the QE'rs and the Banksterrs who will be taking whom up the AAAisle [again]
A public building should be made available for the happless inseparable couple, purrhaps the tower of london[they have on suite facilities for circumcision] ,or the public "room" under marble AAArch
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how many bankers do you know who prefer labour to the conservatives even inspite of the fact labour has saved them from oblivion,
pretty near none is the answerthe govenor of the BoE is no exception
he is carefully managing his forecasts to ensureGordon Brown does not get the credit he deserves for leading the way out of recession
both the US AND MOST OF THE Eurozone followed te model GB got the G20 to agreeconveniently forgotten by the media at large but particularly by the 80% tory largely forgein owned media which has questionable motives for our nations future and which cameron looks set to reward with a splitting and privateiseation of the bbc if god forbid he gets an overall majority
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"to ensure Gordon Brown does not get the credit he deserves for leading the way out of recession"
Funniest thing I've read all day.
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#172. hurrahforhedge
Could it be that it is the world view being expressed here which leads to your confusion?
A genuinely fair and open society would be one which, through its fundamental operation, provided fulfilling opportunity for all. I would grant you that the generation of perceived wealth through financial manipulation requires individuals with specific talents and educational opportunities but that only makes them more successful in the context of the society/system that has been developed.
Who is this system serving? Are there interests vested in polarising society in this way? Why, just because you can be successful in this model, are you inherently better than someone who cannot? The only way you can believe yourself better is to believe that the model itself is the best one.
Much of the opportunities that previously existed in primary and secondary employment sectors (mining, manufacturing, agriculture etc) are lost to the UK through mechanisation or off shoring. These jobs provided fulfilling work opportunities, often developing a sense of community (personal and collective identity) and deep social cohesion.
Do you really think that people become ‘lazy spongers’ because of the sequence of their DNA? Would you not concede that, to some degree, the society that we have developed fails to provide opportunity for a sufficiently diverse range of socially valuable activities which are fulfilling and inspiring to people with differing aptitudes?
Whatever side of Political Economics we stand on I think there are few that would entirely refute that the long term interests of the population as a whole are not served better by offering a meaningful and rewarding life to the largest number of people. Are we really working towards this goal through the excessive leverage of capital?
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193. At 12:55pm on 13 Nov 2009, desabled wrote:
how many bankers do you know who prefer labour to the conservatives even inspite of the fact labour has saved them from oblivion,
pretty near none is the answerthe govenor of the BoE is no exception
he is carefully managing his forecasts to ensureGordon Brown does not get the credit he deserves for leading the way out of recession
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Presumably EGOtallyhoAAAirionist Gordon of car tomb is leading from the rear, as Britain will struggle not to be last out
One of the two main countries [britain or usa]responsible for the "anglo saxon" credit crunch, either of them with more to lose than the others ,had to take the initshitive first.....usa was dragging its initishitive due to electioneering.
The operation was a suckcess but the taxpayer will die now that monopollytitian banksters who sqwalked the sqwalk are safely stapled to the perch pining for the scrAAApAAAge schemes whilst HOLDING plenty of get out of cage free cards and £200 BILLION cash for passing go despite landing on the go to jail square no matter how many times they threw the dice
Whos a pretty boy sqwalk whos a pretty boy skwalk sqwalk
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196 Whos a pretty boy sqwalk whos a pretty boy skwalk sqwalk
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Pieces of eight .pieces of eight sqwalk sqwalk
The Conservatives will have to opperate on the nations bottom line and remove long john silvers wooden leg ....the poor chap must be in AAAgony
According to law mantraps are illegal and Long John can now sue what remains of the pants off the British taxpayers who said "beam me up scottie"
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Ahoy there yeee Schwabs! (injoke that one - WEF) Unluckily 13 - Friday rocks............ apos
Consider a $ is 1 second of time, $100 is 1 min 40 seconds. You get the idea.contemplate then 1 million $, how about 1 billion. Well that is equivalent to 32 years. Quite impressive number. It gives an idea of scale of vastness - an obesity :)
OK - here we go. Logicality - $1 trillion is equivalent to 32,000 years. The calc is good, that is 32,000 years. You begin to get a handle on the cosmic scale of the amount of liquidity sloshing around US Finace, courtesy of their Fed.
Bernanke,our people as well are responding magnificently to a the mother monetary problems, they know their stuff, the response is truly confident magnificence. Those who may have tuned into my my replies of re4cent weeks know l see an unorthodox problem underlying our perceived financial crisis. An anomoly that is only now being recognised and is not yet properly analysed. Accounting, balancing books and broken equations. You know where i'm coming from or you don't. l pray somewhere in the etherness of webified gumbo that is our joy, someone somewhere can fathom the depth and truly catastrophic implications of my observation. I am not wrong,l hardly ever am. Odd l am in that respect, still.................
Now some serious freakiness and fun,fun, fun. USA are throwing 24 Trillion at their financial set backs, 24 x 32,000 years if you wanna Dr. Who it. 768,000 years. Awsome, awesome numbers.Hell, why not go for the shooting match, the million, one million years.
Well, they probably were attempting that but were devalued by 23.2% :) If you know what l've been on about, you know that is hilarious. Be well peeps, be fee free and hug the trees.
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Incredible result in the Glasgow North East by-election as a dramatic victory and an endorsement of Prime Minister Gordon Brown's policies.People are wising up. Now the economists need to, as well and tear this economic disater apart - it is not what it seems.It is a Black Swan and it is not alone, its friends are swimming up river towards us. The problem is a matter of balance.
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200 DOWN........ QUANTITIVE EASING. PASS THE GIRDLES!
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It seems rather odd to use unemployment as a leading indicator when it is not even a current one on the ILO measure. Much more interesting is vacancies. The ONS survey of vacancies show they are currently flat at around 430.000 but this is another moving average. KPMG a major private supplier of vacancy information seem to have told the recruitment agencies good news about rising vacancies and given the HR Mangers a more pessimistic outlook.
However typically unemployment in a upturn lags economic activity as organisations find they need less staff for the same output during the down turn until the boom starts. Productivity rises. But unfortunately we only have figures to Q2.of productivity.
The ONS have reorganised their report this month which shows 72.5 of people of working age 16-60 or 65 in employment but there are of course more people in employment than just those of working age. There over ten million of working age not in employment. This last is a dodgy figure. It is made up of 2.5M unemployed perhaps 2M in FT education, 2M incapacitated, and a number of single parents, none working housewives and househusbands, early retired etc. In principle all of these might be looking for work PT or FT but not available immediately
ONS report is here (first item on list)
http://www.statistics.gov.uk/pdfdir/lmsuk1109.pdf
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