Rebalancing, deferred
Maybe we can't devalue our way out of trouble after all.
That was one of the fears sending the value of the pound down again this morning, when the January trade figures showed a surprise widening in the UK trade deficit from £2.6bn to £3.8bn, the highest since August 2008.
The figures showed that lower exports - not higher imports - were responsible for most of the change. Excluding erratic items like oil, the volume of good exports fell by 6% during the month. Imports, on the same measure, actually fell by 1.2%.
Yes, these are only one month's figures, which may have been distorted by the bad weather. But this is not the first time that the trade figures have disappointed. Whether it's the GDP data or the trade figures, you'd be hard-pressed to find any evidence of export-led growth. Quite the reverse.
According to those recent GDP figures, net trade actually subtracted from growth throughout the second half of 2009. This, despite the fact that the pound has lost about 28% of its value, in trade-weighted terms, since mid-2007.
What's supposed to happen when a country's currency depreciates is that its exports become cheaper, in terms of foreign currency, and imports become more expensive. In other words, its terms of trade deteriorate: you can buy fewer imports for one unit of exports.
Though Harold Wilson famously tried to claim otherwise, that means that "the pound in our pocket" is worth less in the global marketplace than before.
But, other things equal, it should also mean that UK-manufactured goods do better against their competitors - both abroad and in their home market. As a result, we should be buying more UK-made products because they're cheaper. And so should foreigners.
Except, as I've mentioned before, that is not what we've seen. What we've seen is exports and imports falling - along with the wider economy - but exports more than imports. And there has been almost no change in our terms of trade.
In other words, UK manufacturers seem to have taken the opportunity to increase their margins - here and abroad - rather than pick up new sales.
Melissa Kidd, at Lombard Street Research has alerted me to a recent article on this subject from the Bank of England. As that note points out, there are lots of reasons why Britain's terms of trade [439KB PDF] might not have responded to the fall in sterling.
Over time, the higher margins could still attract more companies into the export sector and thus encourage more rebalancing of the economy, along with lower export prices.
That is more or less what happened after we left the ERM in 1992. As the same chart shows, the terms of trade didn't fall very much then either, but we did - belatedly - enjoy a brief period of more balanced growth.
There is no doubt that the sharpest fall in the value of sterling since the war happened at a bad time for exporters to make the most of it. As the pound was falling, so were our export markets - right off a cliff.
Under the circumstances, it's perhaps not surprising that our exporters tried to extract every last penny out of the demand that was still there.
By supporting cashflow, this response to the lower pound may even have contributed to the smaller number of insolvencies in this recession, relative to the decline in output.
On this optimistic view, a pick-up in export volumes is only a matter of time. As the world recovers, so will exports. (True, we don't export much to the markets that are actually growing at the moment - like China. But remember this is supposed to be the optimistic view.)
Exporters have been making positive noises in recent company surveys by both the CBI and the PMI. Here, as elsewhere, the hard numbers may be a few steps behind reality.
However, the pessimists would say that, in a global economy, 28% depreciations don't buy as much growth as they used to.
With global supply chains now so much more integrated across borders, even self-described "exporters" will rely a lot on imported components as well as raw commodities.
That means the net benefit from even a significant depreciation is almost certainly lower than it used to be, even if it's unlikely to be zero.
Indeed, it could be that in this globalised world. The big gainers from depreciation are not UK exporters, or workers in UK factories, but UK shareholders in UK-listed companies who operate around the world and can now expect the sterling profitability of those operations to go up.
Supposedly, that kind of optimism about future earnings has helped drive the recent rise in the FTSE. Though today, even that recent rally seems to have petered out.
Oh yes, and there was a disappointing housing-market survey, and some words of warning about the deficit from Fitch, the leading ratings agency. All in all, not a good day for UK plc.
I'm 
© MMX
~RS~q~RS~~RS~z~RS~43~RS~)
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Ms Flanders wrote: 'Maybe we can't devalue our way out of trouble after all'
Possibly true, but then we can devalue our way into trouble instead.
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Looks like this best placed economy (Gordon the saviour of the worlds words) will be in a worse state if we get him for 5 more years or even worse a hung parliment
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Stephanie,
"Indeed, it could be that in this globalised world. The big gainers from depreciation are not UK exporters, or workers in UK factories, but UK shareholders in UK-listed companies who operate around the world and can now expect the sterling profitability of those operations to go up."
Now that would be a nice thought if it were true. However, when we follow the line to where the big bucks in UK shareholding are, that rise in sterling profitability will not be spent here but in other countries.
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So, exports aren't growing despite the near-disintegration of sterling (because what else would you call a 25% devaluation?)
Well, pretty obviously, to exploit a weak currency, you need to have businesses capable of exporting. And that's the fundamental problem.
Look at the 'offer' that we as a country make to businesses thinking of starting up in the UK - excessive petty regulation, excessive taxation (and don't forget business rates), unpredictability, tax authorities which exploit every possible loophole in the 10,000-page tax code, constant meddling from moralising politicians, and an unhelpful political attitude towards our biggest market (Europe).
Unless the UK becomes more business-friendly, and concentrates more on efficiency and less on trying to remodel society, this is the way it's going to be. And remember, we're no longer net exporters of energy - so we need exports to pay for our essential imports of oil and gas as well as of food.
If we don't shape up on this issue we're going to be in very big trouble.
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So there is no easy way out. Big surprise. The only way we will be able to take the first steps to recovering as a nation, is if the government stops taking action to maintain asset price inflation and allows the deflation of the bubble.
Those who are leveraged on over-valued assets will need to take a haircut - but that is capitalism, and the nature of speculation.
It simply MUST fall to those who have made risky investments (yes that does include property) to take the hit, or we are doomed.
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No surprise really our manufacturing capacity has been destroyed over many many years, firstly by incompetent management and stupid trade unions in the 60's and 70's and latterly be a failure in policy to encourage (I do NOT mean nationalise/support) key industries. The UK has also lost ownership of key sectors, and whilst in principal I am in favour of the free movement in capital, this only works if the playing field is level, eg France/China/US to name but a few they are highly protective of ownership of certain industries. We have been extremely stupid, and the chickens have come home to roost.
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Having worked in a business where up to 25% of our profit came from exchange rate gains, you do just bank the profit at times like this. You increase you output using existing resources to the max, but new investment is just too risky, so I'd be surprised by any leap in export growth
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For all the chatter about Emerging Economies, face facts: The UK is a submerging economy, submerging under grotesque levels of consumer and government debt.
The politicans blame the bankers, but they do so to hide their own blushes: The deficit's primary reason is structural (Govt spending > Income over the cycle). Why? Last time i looked we had spendt something in th eregion of £68bn in "tax credits". just look at the figures for yourselves.. its all been done for political reasons.
As for the consumers... what politican is going to crack down on consumer credit in the middle of a bubble to stop that voter buying that nice shiny new car to put in front of the house they cant afford...
...and they want to get re-elected. un-believe-able.
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We were encouraged to take up personal debt, and now we are being told off for paying the debt off and not spending.
Maybe some psychologists should explain basic human nature to the 'experts'.
Without cash how can we buy anything?
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Thanks Steph - for listening and covering this news.
A good summary. Yep - reality not looking too good at the moment for the UK.
This news has ramifications for the already overcooked growth forecasts which are designed to arrest the UK deficit/debt.
Some hard analysis needs to be caried out. Time for wishful thinking is over.....
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Stephanie, any chance of extrapolating the likely impact on the wider economy of the pessimists and the optimists views?
What does this all mean for the man on the street, for the governments fiscal position going forward and for monetary policy if either scenario plays out?
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I'm no longer trading in Sterling. It's too unpredictable and the US still is a more attractive business base and stable. Consequently doing all my trade with the US. Previously, I did alot with the UK but shipping costs,are higher than for the US (yes, despite less distance).
The UK has got to change the way companies are taxed, rip off councils, unattractive taxes, greedy government, appalling internet speed and the lists go on. Sofar the Brownian government has just done nothing to help the standard business person.If they are waiting in hope for an improvement, then it may be a very long wait, in the meantime the bust continues.
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The widening trade gap was only a surprise to economists and talking heads on TV news. In the real world it is clear that we no longer compete and are in the final stages of decline.
The more we glide towards socialism the worst it will get, as witnessed by the public servants on strike due tot he fact their redundancy payments would be reduced to an outrageous 2 years of salary. Clearly these individuals do not understand that we are bankrupt, and like all those on the left, believe that they can live at the expense of others, especially the "rich".
The housing numbers in 12 months time will make today look like a golden age. 400,000 mortgages in arrears, interest rates forced to rise to defend the pound, people coming to the end of 2 year deals to go onto every incresing SVR, buy to let owners trying to bail, individuals trying to downsize to fund retirement or family consolidation.
We have no "right" to our lifestyle, it has to be earned not printed. And those that have the gold make the rules. The reaction to our reduced circumstances will be interesting. Sadly I believe it will be civil unrest, strikes and a more authoritarian government.
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So it looks like we are increasing margin in existing markets; not a bad thing. I'm not sure we are seeing global market growth happening at the moment; so perhaps we shouldn't be quite as surprised as Stephanie at import's performance. Price dropping in the current environment could just be giving money away.
However UK firms should be well positioned to address new markets - how, when and if this takes place will be interesting to see.
Interesting if this will help to address the general trade impbalance around the world, I am not convinced it will without further help from the government.
Without a real plan to build a growing world class manufacturing base we won't achieve it. Albeit we are still around the world's 6th largest manufacturing country, so well placed to develop if the government has the will to encourage it, the pound continues to be competitive and we maintain the flexible labour policy.
It's not all doom and gloom, we just need to stop moaning and start competing.
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Just like Britians factories it seems like your moderator(s) are working on short time and therefore not increasing output to take advantage of any the depreciating value of time/money. One hour awaiting moderation is a little excessive. Less than Sterling output. I can't wait to see what all the fuss is about.
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no mention of china's currency manipulation that keeps a currency that should the strongest in the world weaker than gbp?
the uk could devalue till it is quoted in seashells and it would still be cheaper to import goods from china.
china is at the root of the global economic instability. through currency manipulation they tip the table enough so all the water ends up their end. which is why they have all the money/gold and why we get poorer and deeper in debt [to them].
the currency market is not functioning correctly in sorting out imbalances.
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I can't see that this is any great surprise. We don't actually make much now so how in hell's name can we be expected to export anything? And those few things that we do make are generally from factories owned by foreign companies and can be closed at their whim ( Corus and Kraft currently). For the last 30 years or so governments of every hue have colluded with the City of London to sell off everything and anything for a fast buck (Bye bye Dover docks). This allows the City to gamble with huge stakes to make a few very rich people and organisations even richer. There are many figures quoted to show that most of the wealth of this country is in the hands of a very few people and whilst all of the figures will not be accurate the general premses is true. And this system compounds the troubles of 'broken Britain'. Taxation is unfair in that the lowly paid have to pay their taxes with no getouts whilst the higher paid employ people to make sure they pay as little as possible. People who are in work, reasonably well of and content generally do not commit crime. They resort to crime now as it is generally the only way they can hope to get rich. The gap between rich and poor is wide and getting wider and not one of the major parties in the run up to this election are acknowledging this fact or proposing anything that is likely to produce any meaningful changes to redistribute wealth more fairly. They cannot - they have sold their souls a long time ago. Both Labour and the Tories are still in the pocket of the City and will continue to look after the rich at the expense of the rest. Lib Dems are tinkering with the problem but are no where near radical enough. They should be proposing the abolition of every form of taxation except V.A.T. which should without exception be applied to everything that is bought sold and supplied. I believe that public purse would be awash with money under that system and no one could avoid paying their taxes, and that it is likely only the rich income tax avoiders would notice much difference overall. Of course this is all a pipe dream and we will continue to slip slowly towards the pleasure seeking end of our civilisation in line with all those that went before. Imports/exports are the least of our troubles.
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Steph, you mention the recent rise in the FTSE. Remember, the FTSE 100 is composed almost entirely of multi-national companies that earn most of their revenue outside the UK. A rise in the index is a vote of confidence in the global economy, not (unfortunately) in the UK economy.
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Stephanie Flanders wrote:
"Maybe we can't devalue our way out of trouble after all."
Glad to see that your are at last beginning to see things as they are! We must first tackle our internal debt mountain. The debt mountain built on unsustainable imaginary asset values has to undergo debt deflation in order that we can start to recover. (This realisation was why Irving Fisher changed his view of debt after the 1930's crash and recovery.)
I know I have been banging on about this for well over a year, but it is also probable that economists need to first see that their solution of returning to the status quo ante will fail/is failing. The only thing that QE and zero interest rates do on the downswing of a crash is to delay fixing the problem - they do NOT create a renewed upward path. However once the debt deflation has taken place then these same actions can boost recovery.
So, put up interest rates to rational levels - let the assets secured on over priced debt be released to the market at realistic prices - being prepared to nationalise the banks/mortgage companies to stop them going bust. Then after this has worked though say six to twelve months then start Keynesian reflation, by lowering interest rates. Then and only then can we get a real recovery.
Otherwise what we will see happening is the 20 year depression of the Long Depression - also by the way contributed to by a reluctance to sell on overpriced property assets at realistic prices. This is exactly what we see happening now!
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We're talking exchange rates, so a word about Australia here...
The Australian dollar has gained dramatically against almost every other currency.... but beware...
Aussie banks are hitched up totally with the Aussie property market, which in many areas is seriously over-priced.
The OZ government is paying the deposits for many first-time buyers....beware again.
Australian banks are riding on a very dodgy tightrope.
And Australian businesses are becoming un-competetive...beware again.
Aussie hopes are resting on raw-materials to China....not sheep.
So the poms won't buy the houses, and neither will anyone else.
In the meantime the ratio of average Aussie earnings to house-prices is a little skew-whiff.
Aussies.....don't fall down the same hole as the rest of the Western World.
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Personally I'm beginning to believe we should adopt the US/Boeing attitude to imports.
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How long before the GDP has shrunk by 10% from the peak?
How long before Gordon Borowin comes clean over the fact..he didn't save the world after all...maybe boom and bust hasn't been abolished
Obviously he won't
Darling did at least reflect the worst recession in 70 years, so the Budget will be very interesting
The pendulum is swinging very much towards the cut sooner camp
How bad will the GDP figures be? Due before the third debate, so I hope that one is on the economy..does anyone know?
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A On the other hand retail sales were up 2.5% in February and online sales up 15.5%!
http://www.digitallook.com/news/3326075/Retail_sales_warm_up_in_February.html?&username=&ac=
B Yes the property scene was not as cheery but the fact remains that most estate agents expect prices to keep on rising this year......which will mean a lot of negative equity is wiped out and recently-classed-as-rotten toxic assets start to smell ok again.And when property analysts say that common sense implies that currently rising property prices are unsustainable methinks it means they will keep on going up, because since when has common sense ever had anything to do with property?
C There is lots and lots of cash out there, now accounting for nearly a third of property sales, which tends to offset the idea of indebted Britain.
http://blogs.thisismoney.co.uk/2010/02/cash-buyers-snap-up-30-of-homes.html
A buyer with a cash sale has no mortgage and has higher disposable income than if they had taken out a mortgage.
WHEN MORTGAGE FUNDING BECOMES MORE AVAILABLE PRICES ARE GOING TO ROCKET, AS THEY HAVE MANAGED TO CLIMB WHEN THERE WAS HARDLY ANY MORTGAGE FUNDING AT ALL.
C The gloomy news, quoted by Steph, has the interesting effect of reducing the interest payable on UK government debt ....every cloud has a silver lining...
http://uk.finance.yahoo.com/news/economic-data-boosts-gilts-digilook-f5e944a05429.html?x=0
D And not everyone thinks a low pound is a bad thing......
Roger Bootle, for instance .....
http://www.telegraph.co.uk/finance/comment/rogerbootle/2789036/Pound-fall-is-UKs-get-out-of-jail-free-card.html
E Shares up 57% in 12 months ....hardly a sign of doom and gloom is it?
http://uk.finance.yahoo.com/news/ftse-100-has-gained-57pc-as-first-anniversary-of-its-low-arrives-tele-d70b99da3f10.html;
Yes I know it is a lot but we are nowhere near where we were 3 years ago.
F I think what we are seeing is that the emergence from recession is happening anyway, which leads to an increase in consumtpion and therefore imports.
The increase in exports will take a little while to filter through, as UK companies are only now beginning to see their order books improve and there is a time lag , and as Europe is slipping into the doldrums, their need for UK products has not picked up yet .....but it will.
G The rise in stamp duty andVAT and the January tax demands made people feel skint....but as the weather improves my wife will be out shopping again ,people will be buying patio furniture in B&Q, and al-fresco drinking and eating will seem less insane.
We have turned the corner, we just haven't had time to sit down and relax.
G Onward-ho has been given the go-ahead for a new £2m project and the banks are smiling again.
THIS PROJECT STALLED THE WEEK NORTHERN ROCK CRASHED.
Now it's back on again.
H I spoke to my builder today, hoping the downturn would allow for a good discount.......
Guess what ...he is run off his feet with new contracts.
That means more labourers and sparks and plumbers.
I It has been a long,cold hard,winter.
And we all know what that means......
It is going to be a fantastic summer!
YOU CAN QUOTE ME ON THAT!
Where did you read it ?
Here!
HO SAYS ALL SYSTEMS GO!
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#4 Friendlycard - 'If we don't shape up on this issue we're going to be in very big trouble' Hear hear to your observation on the business unfriendly culture this Government appears to believe is progress. Come on Cameron, commit yourself to creating encouraging business conditions (facts please not waffle) and we will apply ourselves. We don't make much in UK but we do innovate better than anyone in the world, but we need some incentive. I am getting too old to waste energy trying to work out how to turn a fair profit. I would prefer to perfect world class projects.
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'All in all, not a good day for UK plc'
And more reasons why we simply have to ditch Gordon Brown and New Labour.
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Perhaps one of the reasons for the drop in exports is that we no longer manufacture anything to export. We have allowed foriegn investors to buy UK companies, close down the UK factories and move the manufacturing abroad.
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How difficult can it become?
I can remember when the Govermnent through the BoE managed the economy by focusing on Balance of Payments/Trade when that failed they concentrated on the Exchange rate (following the Deutsch Mark) then after that failed they moved on to the Rate of Infation (remember were used to be pegged at 2%) now that has failed. I think bailing out the banks via QE (at £200B) seems to have failed, don't you. What emergency measures can save us now...
I note the Chinese government has recently recommended its people to buy gold. The BoE used to have some just for such an emergency as we have now. Unfortunately, Gordon "Bullyon-Boy" Brown got his hands on it 10 years ago and sold it because he thought he could elimate boom and bust. Well we've had 10 years of boom (much longer than normal) so prepare for a very long time of being bust. Unless of course you had the foresight to have purchased your own seat in the lifeboat with a little gold. It's probably still not too late but you'd be better having shares in a goldmine since governments have a habit of taking your physical gold when things get really tough.
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I starting to think that the government has turned this country into a fledgling banana republic. We're going down fast.
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All this talk of the UK 'exporting' itself out of trouble through manufacturing? What manufacturing? Not one of the engineering companies I dealt with ten years ago is still in business.
Remember Thatch's "We don't need manufacturing, we can just be a service economy"? We reap what she sowed...
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For years successful British exporters have had to sell on quality not price, they will never compete with low cost countries just on price. I don't expect BMW's are 25% dearer in the UK now the pound is weak because there is a market price. BMW take the pain just as Jaguar do abroad when the pound is strong. When currency is to a manufacturers advantage they spend more on marketing, but that takes time to show in sales. If manufacturers did drop their prices, assuming they have the capacity to fill extra orders, they would be in big problems raising their prices in a year or 2 when exchange rates went the other was as they inevitably do over time.
Bigger orders, from commercial customers, are more price sensitive but such orders can take weeks, months and even years between first contacting a potential customer to goods actually leaving the country. A current although extreme example in the news is EADS and the US Airforce refuelling tankers. On those sorts of jobs a weak pound for a couple of months is irrelevant and if it is long term wouldn't show immediately.
Where the quick wins will probably show are areas like tourism where a Strong Euro hasn't helped Greece and Spain but seems to have helped the UK both in us holidaying in the UK and encouraging foreign visitors.
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Lord Mandleson the Business Minister will no doubt be on News Night to explain the Governments position and how we are doing GB down.
Steph, just a matter of interest, I believe that the UK holds a substantial amount of US debt? If this is the case presumably we earn interst on this debt which we can then use to finance our own debt. Also, why are holding US debt when we have enough of our own.
Seriously, any readers thoughts would be appreciated.
Thanks
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It is good news about house prices today, not bad. House prices can either fall quickly like in America, roughly 40% from their peak in 2007, or they can fall slowly like in Japan, 40% from their peak in 1989. Its going to happen one way or the other but if you go the Japanese way it costs the country (taxpayers) billions trying in vain to swim against the tide of economic reality. Its not worth it, the price is just too high.
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#5 Roy. There is no way out, either easy or hard.
Falling property prices are at some point inevitable. That will just exacerbate the problem. People thrown out of their homes, downward pressure on construction and ancillary businesses and banks taking possession of lots of lots of houses at a lot less than book value. Cue another banking crisis as market to fantasy accounting crashes head on into reality.
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It is always good to look at reputable foreign newspapers and magazines to see how the rest of the world views the state of our economy and governance. This chart from the Wall Street Journal shows how they rate our sovereign debt to be at greater risk than Italy or Spain. In fact only Ireland, Greece and Portugal are in worse situations than according to their assessment. Check it out at http://s.wsj.net/public/resources/documents/st_heatmap022010_20100223.html to see for yourselves.
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Bah humbug. I'm only a layperson but not convinced there's much of a story here. It's just one month's figure, in January, before the additional fall in exchange rates. And it's only goods, which is now a pretty small part of the economy. And changes take a while to filter through. And compared to the average of the last couple of decades, the pound isn't that low against the dollar. I don't feel this means much either way. I also guess that a lower value of the pound will help things eventually.
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WELCOME TO THE FUTURE!
I can feel a 'Statist' coming on.
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This is what happened when the main root cause of the problem is not addressed. By just discussing the situation won't make it improve.
Addressing the cause problem will question the current status quo so I don't know who could be brave enough.
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"UK manufacturers seem to have taken the opportunity to increase their margins here and abroad - rather than pick up new sales".
In 1995 messers Hall, Wales and Yates of BoE conducted a survey of company pricing policies and published it under a title called "How do UK companies set prices" in BoE Quarterly Journal 1996 pp180-192. There conclusion was that "cost-based rather than market-lead pricing was widespread" (p190) Their fear was that unless companies changed from cost plus to marginal pricing policies it would affect the BoE efforts to control inlfation. The assumption of economists then was that prices were not "sticky" and costless so prices would react efficientlty. 15 years later and with the wealth of information and econometric models available for sophisticated pricing decision support and the opposite deflationary market, your evidence suggests that the same pattern is occuring. Ihe problem is not the avaialility of good models or knowledge about how to set prices it is more about cultural, behavioural and pyshcological cultures that exist in companies. In 15 years nothing seems to have changed, as they say: those who don't learn from history are doomed to repeat it.
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Stephanie wrote:
"Yes, these are only one month's figures, which may have been distorted by the bad weather."
Let's not get too excited! February's figures might show this is a trend?
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Steph your comment "This, despite the fact that the pound has lost more than 25% of its value, in trade-weighted terms, since mid-2007" Though accurate is a misnomer. Since Sterling is floating and is acted upon by traders every minute of every day few businesses use the spot price. They buy forward or hedge. It takes a good deal of time between signing a contract and delivery/payment and many deals are done on the basis of fixed prices or even in another currency. If we look back over the last 20 years you can see that Sterling has regularly fluctuated between about 1.4 to 2USD to the pound except in 1985 it dipped as low as about 1.05. Infact over the last two decades I would guess the average was about USD1.65 to the pound. On that basis we are very close to our long range average against the Worlds Reserve Currency so one would not expect our "normal" exports to fluctuate widely. This just shows we have been in long term decline for many years. Fighting wars and greatly expanding socialism is very expensive and something our wealth creating businesses couldn't afford to pay for. Now the banks have gone bust taking 25% of tax with them we can no longer continue to be the spendthrift society we have become and we will be paying the price of our hubris for many years to come.
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pop pop pop go the bubbles............
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Onward-ho has been given the go-ahead for a new £2m project and the banks are smiling again.
THIS PROJECT STALLED THE WEEK NORTHERN ROCK CRASHED.
Now it's back on again.
So those banker's bonuses are making a way into the economy then. I'm glad some of my future taxes are making your days so happy.
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More figures and abstract concepts from an economist's point of view. I've had an admittedly quick squint at the Institute of Directors' Manifesto for Business 2010 and the CBI's Shape of Business Next Ten Years.The BBC should have a good read. Neither document references exports as driving growth near term. Much talk of less government,deficit reduction, less red tape, better education and skills, more flexibility in labour, less taxes, more productivity in public services. The CBI reckon some key aspects of the current UK economy will come under the control of overseas governments and prominent businesses in services and manufacturing may move overseas.
Lets wake up and smell the coffee.We aint going to survive or thrive on competitive or fabricated devaluation ( or banking). You cant QE this one!
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#16 jauntycyclist. Ah yes the Chinese, and their inscrutible oriental ways - just ask Prince Philip.
However you are a little early. The power$ have yet to issue the instruction to whip up a media frenzy in relation to all things Chinese. That is most likely being saved for the last act in the tragedy.
There is no evidential reason to believe that the Chinese currency should be the strongest in the world. It is just another fiat currency and it is doomed along with all the rest. All that grows in the Chinese garden is not rosy
http://globaleconomicanalysis.blogspot.com/2010/02/goldman-says-something-brewing-in-china.html
http://globaleconomicanalysis.blogspot.com/2009/12/china-faces-crash-scenario.html
Aint no way out.
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34. At 7:56pm on 09 Mar 2010, Voter_Graham wrote:
It is always good to look at reputable foreign newspapers and magazines to see how the rest of the world views the state of our economy and governance. This chart from the Wall Street Journal shows how they rate our sovereign debt to be at greater risk than Italy or Spain. In fact only Ireland, Greece and Portugal are in worse situations than according to their assessment. Check it out at http://s.wsj.net/public/resources/documents/st_heatmap022010_20100223.html to see for yourselves.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Yes - some interesting stuff out there although the list of countries is nonsense though - massive problems in South Smerica and hardly a mention - in North America there has always been sceptism and competition with the Euro which the North Americans see as a rival to the dominant US dollar - so the list of countries is, I think, 'political' as on the other side of the Atlantic, 'Eurozone woes' makes them all feel very much better.
I think what we are seing is the start of verbal currency wars before the real currency wars start on the trading floors - there are negative people out there who intend to make vast fortunes in the coming years by borrowing huge amounts of money from certain banks ('our money' in effect) which shall be nameless except they will have 'men with Sachs of gold' ready to put into the mix and bet against weakening currencies so that when a national economy collapses e.g. Greece or Portugal or somewhere else - the investors move in and buy and rock bottom prices again.
Without stressing the point further - its hard to get objective viewpoints from anyone regarding these matters - as most are paid by someone - whether they're non dom spin meister property vultures taking the UK government shilling or city analysts.
It is worrying that the UK keeps cropping up as a high in the list sovereign debt risk - which may be a view looking forward rather than where we are right now?
The point that is frequently over-looked is whether a sovereign debt risk needs to be actioned by 'negative trading' in order to become a real currency catastrophe - I think that it doesn't just happen by itself - debating point for another time - how much sway do the speculators have regarding the stability of individual currencies and will the banks and 'rich families' restrain themselves from this kind of potential nation wrecking?
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Evening Stephanie,
may I ask, do you drive a car? Do you go shopping for food at the local supermarket?
I notice that the prices of these items (fuel and supermarket food) are going up much, much faster than any rate of inflation. Fuel is up 20% in a year and my shopping bill has increased by about 10% in one year.
So what is going on? Why is fuel so expensive when there is a world glut?
My energy bill is also beyond a joke (notwithstanding that my supplier -NPower has announced a 7% cut in gas prices) it's the electricity cost that's hurting our household.
We have a fixed income, no significant interest on our meagre savings and roaring REAL inflation.
Perhaps you could use your good offices to do an expose on the real cost of living sometime?
Parliament is a poor joke, the Quangos appointed by Mr Brown do not work nor produce anything useful as far as I can see, abolish them all, I say.
I notice that Parliament found the time to vote themselves a 1.5% pay rise for this year- these MPs are really beneath contempt. Ah well, only three more days on which it is possible to call a General Election, perhaps this misery will be over soon (one way or another).
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What surprises me most of all, is that everyone is so surprised by this news.
The world economy effectively died two and a half years ago when the folly of creating businesses, jobs and lifestyles based on credit-led consumption unravelled. In its place governments worldwide have resorted to stimuli packages to prop up this farce up artificially in the inane hope that at some point everything will somehow recover of its own accord and we can carry on as we did before, happy ever after.
Dream on!
We are simply living on borrowed time.
The world economy without either unsustainable government support or unsustainable borrowing is not an economy.
We need to accept that the economic worldview, which has lasted for 200 years has reached the end of the line, which is why neither left nor right has a clue what to do next.
Time to think out of the box.
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When manufacturing has been reduced to 13% of GDP from 23% of GDP since 1997 and a million jobs have been lost in the same sector during the same period, I am not exactly sure why the powers that be hope for an export led recovery. Quite what a car scrappage scheme is supposed to achieve is also beyond me when practically all the smaller models in demand are imported. So hardly surprising that the trade gap has risen.
No more boom and bust doesn't quite have the same ring about it now that Mr Brown's over-reliance on the City of London has been exposed for the sham that it was.
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"Britain has lost a potential £4.6 billion in export orders after Northrop Grumman and EADS, which owns Airbus, pulled out of a bid to supply air-refuelling tankers to the United States Air Force."
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article7054934.ece
Surely its these types of orders that would take us out of the exporting doldrums, and this is probably more significant news than a month's trade figures.
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2. At 5:32pm on 09 Mar 2010, jim3227 wrote:
Looks like this best placed economy (Gordon the saviour of the worlds words) will be in a worse state if we get him for 5 more years or even worse a hung parliment
Indeed; will no one rid me of this turbulent priest? For that we can be responsible. Better to lose these people before they lose the wheels for our cart. The story of how they have been burning our economy at both ends and from the inside is staggering. This has been a con trick and, as Rees-Mogg recently observed, each Labour government is responsible for careless expenditure, and succeeded by a government that has to balance the books and is subjected to argumentum ad hominem abuse when it does the necessary.
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My question is how much lag is there in the system?
If I have a sole customer and contract to sell at a certain price in his currency for the next 5 years, a devaluation in my currency means I will get more pounds but my export level will remain the same until the contract expires. Thus a change in the exchange rate will take time to work its way into my income in the foreign currency unless I expand to new contracts.
Are there any macro-economic statistics that evaluate what the delay in the growth of the GDP is due to this effect?
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When export businesses don't exist it doesn't matter the level of Sterling, the government has been hoping for some over night miracle. The reality is the government hasn't done anything for years to grow or support export businesses. Just compare the situation with export credit, between the German approach and UK. This or a future government needs to put together a multi-year industrial and export strategy.
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#27 Gary Mellon. It can and will become a lot more difficult. Did "Bullyon" Brown sell gold because he was stupid, or did he sell gold because he had received orders to do so?
http://gata.org/node/8405
Gold mines are often not what they seem - the derivatives boys have attatched themselves to the mines. Check out Barrick and remember caveat emptor.
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This might have been said already, but some obvious points:
What do we export? I know we put together cars and move them on....but does that kind of activity count as exporting? I can hardly think of anything in the high street that is actually made in the UK...and as we have no primary resources to speak of most of what we do make requires imported raw materials.
We have some big earning industries...tourism being one. The Media industry being another. Both industries only require natural talent or resources (eg tourist attractions) that we already have. Is the government promoting investment in these?
Education and training? If you were a highly intelligent yr 8 kid what would you / your parents choose....design technology...or a career that led to the finance industry or property development?
?
Does it matter how much the pound depreciates...it still won't go down far enough to allow us to compete with the artifically weak Chinese currency.
I could go on.......
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35 Arny5000 "Bah humbug. I'm only a layperson but not convinced there's much of a story here. It's just one month's figure, in January"
39. dontmakeawave
'Stephanie wrote: "Yes, these are only one month's figures, which may have been distorted by the bad weather." Let's not get too excited! February's figures might show this is a trend?'
The trend has been there for some time.
From 2006 to 2008 the UK trade deficit rose by 55%:
2006 > £60 billion
2007 > £89 billion
2008 > £93 billion
Figures are from a very interesting June 2007 article in Moneyweek on the UK's growing trade deficit.
"As Elliott and Atkinson put it, the New Labour view is that the UK is now a “knowledge economy”... But... the knowledge economy will not be enough to balance our finances. Even if you include services the UK exported last year, the trade deficit only falls from 5% to around 4.2% of GDP for 2006."
http://www.moneyweek.com/news-and-charts/economics/the-uk-trade-deficit---does-it-matter.aspx
The 2006 deficit represented 5% of GDP. According to investment guru John Mauldin, no country has “ever run a [trade] deficit of more than 5% without at least a 30% drop in the value of its currency”.
A 30% drop in the value of sterling ? On top of the 25% drop in sterling due to QE ?
What does an aggregate 55% sterling devaluation do the price of a weekly shop when 40% of our food is imported? If nothing else, we will all be spending a lot more time in the garden...
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Another Labour government, another economic crisis made far worse by the socialist fantasy. Ask yourself: where is the money to come from to pay for all the spending? The answer: the debt has been projected into the future, and our children and their grandchildren will be paying for the Blair-Brown years for the next few generations.
Labour have triumphed at one export type: War. Under Labour, the UK has exported war and misery to new parts of the globe. Reaching these hitherto untapped markets has cost us dearly. Are we strong enough to be a war economy?
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"Surprise widening". I wonder WHO it is was surprised. Every non-Labour party leaning prediction I have seen is of only bad and worse economic news to come for the UK.
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49 jonearle
"Britain has lost a potential £4.6 billion in export orders after Northrop Grumman and EADS, which owns Airbus, pulled out of a bid to supply air-refuelling tankers to the United States Air Force."
I think you will find the order was only cancelled due to the exceedingly bad weather in January (which is responsible for every other bit of bad news these days...)
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44. armagediontimes 'There is no evidential reason to believe that the Chinese currency should be the strongest in the world. It is just another fiat currency and it is doomed along with all the rest. All that grows in the Chinese garden is not rosy'
It's a lot rosier than it is elsewhere. Their SEZs are, I suggest, serving as sink holes or 'singularities' for capitalist profligacy. That is, they are doing a very good hit job on their ideological enemy using capitalism to destroy itself. Deng said they could always kill the flies later. The Chinese are clever, they work as a nation state. They have managed their population whilst the liberal-democracies have let them deteriorate or be sabotaged, take your pick.
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47. At 8:49pm on 09 Mar 2010, DHA wrote:
What surprises me most of all, is that everyone is so surprised by this news.
>>>>>>>>>>>>>>>>>>>>>>>
Que?
Some of us have been saying this about the dire situation of the UK economy on 'Stephanomics' and other blogs for well over a year now and some of us like myself have been verbally attacked and called insane, delusional etc for doing so..
I'm sorry but we ... had got it right back in 2008, and 2009 and now 2010!
It's about the 'fairness', 'moral compass' and remember ...'prudence' that's how the UK is now worse off than it ought to be
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Well,Well - we have an ever widening trade gap - why is anyone suprised - we don't produce anything that China can't supply cheaper for the mass consumer. The rest of our exports will be tied up with flagging demand around the world - aerospace,defence,bio-technology and financial products.
Now that we have allowed our manufacturing, firstly to be bought up by every foreign corporation and then allowed it all to be moved east - what a suprise that we have nothing to export - also no R & D to create anything for the future - We are a bankrupt nation and soon the service industry economy will also collapse because we will have no wealth creation to allow us to pay for it.
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It's a tightrope act - the BOE must stop arbitrarily holding down the base rate, in the hope that cheaper exports will drive UK Plc. out of the slump. If we continue like this 'Stagflation' is most likely - in fact we may already be experiencing it!
Commodities are going to get more expensive as the rest of the world's demands go up, so we will need a higher valued pound to maintain comparable purchasing power. It's not just oil this time. The UK could and should be leading the world in advanced energy capture/conversion and generation - our European cousins aren't just sitting on their hands either. This is a time for radical innovation (something the people of UK are in fact good at!).
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23. At 7:13pm on 09 Mar 2010, onward-ho wrote:
B Yes the property scene was not as cheery but the fact remains that most estate agents expect prices to keep on rising this year...
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When Estate Agents, Banks, Surveyors and the CML start talking up House Prices look for the common denominator, vested interest comes to mind so Buyers beware.
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But I thought that we entered this recession better prepared than most other industrialised countries? Or did I dream that I heard the Prime Minister say this if not in my words - something pretty much like them.
I do recall that it took a long time for Gordon Brown or Mervyn King to acknowledge that we were in recession. No surprise then in what Stephanie has penned above - incidentally a good article I think.
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One gets the feeling that even ardent political defenders of the government are sensing the game is up.
For the first time I sense that I don't need to be critical of Stephanie anymore of shall we say being selective in her focus. I must say I was surprised having called for this story to be covered all day on the previous blog comment for Stephanie to finally report on it.
The economic delusion may finally be being uncovered. People might just sense that the 'good news stories' have just been that - stories of the highest spin for as long as I and others can remember.
When you also consider that NHS cuts of £10-20 billion which are already underway but are being blanketed from mainstream news amongst other stories that are beginning to seep out, and the rise of yet more strike action this time in the rail industry - one senses that the ill-informed electorate just might begin to feel hoodwinked.
The export 'growth story' has just been another cynical spin on the back of so many spins when economic fundamentals are comsidered, as a number of contributors have already commented.
I denote a real lack of any left-leaning contribution in recent days - save for onward-ho who continues to feed on magic mushrooms.
Perhaps now we start to deal with the truth...........
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If we were exporting commodities then a falling exchange rate would automatically lead to a surge in exports as we could reduce prices and take a greater market share. Perhaps the reason it is not is that we are now largely exporting differentiated premium priced products (otherwise we would have lost out to China years ago). Pricing theory suggests that we should not set the price of such products based on the cost to produce but on what the customer is willing to pay. The price customers are willing to pay in say dollars does not change when the exchange rate changes - however, happily, UK firms will make higher profits and reinvest this to grow more quickly than foreign firms over time.
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This country might be able to create and export if it wasn't for the Straight-jacket of 10 years of increasing red tape and bureaucracy, lead by a Control-freak Gordan Brown. However, if we vote for a bunch of spoilt rich kids, the Conservatives, they will likely crash the economy by help making the wealthy become even richer (at the expense of the workers) based on the mistaken belief of the 'trickle down effect'; every one knows the rich are the stingiest members of society, just take Non-Dom Lord Ashcroft for example who will spend millions helping his buddies, but won't pay TAX for the likes of you and me. QED)
Question: Has anyone tried to work out what the total cost (direct and indirect, on government and business) has been for implementing the last 10 years of added bureaucracy? I would love to know.
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When as a country you import so many necessities (energy, food, raw materials for the handful of value-add manufacturers left)and you have a massively negative balance of trade (which my elementary grasp of economics suggests means you import massively more than you export), it's not a huge leap of imagination to see that it's going to hurt and not just in the short term, assuming the markets we export to are still consuming.
Oh, the countries we export to are all in the "same" brown stuff we are? (Actually they're only paddling around the edges mostly, where we're being sucked around the U-bend). Then exports aren't going to rise in a major way either are they? (The sterling value of them might, but then sterling is now approaching parity with the sheet of toilet tissue).
Even if there was any manufacturing capacity left. Which basically there isn't.
If it wasn't so serious, it would be funny. Not that I expect any incoming government to do anything better (or worse).
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As someone who has sizeable export orders, but has tried every high street bank to finance them, and been turned down, I'm not in the least surprised the gap has widened.
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Very interesting, so where do people think future growth in 'real' employment will come from? I mentioned the other day on the BBC's 'banking' blog (if its not about banks or bonuses guess the author would not be interested) the closure of a high tech R & D facility with the lose of 1200 jobs, I have no personal involvement in that site but it was an observation because these are surely the sort of jobs that can benefit the country and am concerned when these sorts of sites are closed down
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Stephanie:
Could yourself or someone do a piece explaining the different definitions of National Debt, I have read numbers for the UK ranging from 56% to 365% (scary - http://en.wikipedia.org/wiki/List_of_countries_by_external_debt) of GDP. Debt as defined by the Labour government, debt as defined by Mervin King, Debt as defined by the European union. Talk about confusion. How can anyone have a clear picture, or understanding when there are so many definitions, and different ones are used when talking about different countries. Am I fantasising or is it possible to have a table with countries down the side and different definitions of debt across the top, and a note explaining how worried we should be about each column.
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64
Gordon Borowin just calls it a WORLD recession, even now..to be fair Mervyn King did talk of it before it happened, although rates weren't cuyt quickly enough for my liking in 2008
65
In general, I truly hope you are right. How the Labour Party can be more trusted on the Economy is beyond me
The next polls will be interesting
I feel that the usual economic 'rules' don't apply due to the mess we are in, and we need to think outside the box
The fact is there is no single 'silver bullet' solution, we need the opposite to a death by 1000 cuts..not sure if there is an appropriate saying
The TV debates will be difficult for Brown, as if the rules are equitable he will find it difficult to 'bluster' his way through
I don't share the view there is no way out, although it is pretty obvious we are in for tough years to come, and I do not underestimate that
No wonder Mervyn King called it the 'nasty decade'
I just feel the deflationary pressures in the economy will cancel out a fair chunk of the inflation
In keeping with this economic meltdown, our public sector start striking!!!!
Our MPs get a pay increase!!!
Talk about missing the public mood
Mind you, maybe it is so big now, that the public sector is the public mood
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We manufacture and export 95% of what we make, and have done since we started in 1992. And there are a lot of SMEs that do this.
However, in my experience these factors are why the figures aren't so good:
1) the States our biggest market has only just started to buy again, so the up curve is only just starting.
2) We've contracted, and are only just starting to grow again. I can't/ won't borrow, so all expansion will have to be paid out of cashflow. Don't expect miracle growth.
3)GBP has been overvalued for the last 3 years, so our foreign prices have had to be reduced compared to the locals to be competitive. Now the pound is back at nominal sensible values, we are slowly adjusting prices. It will take some time
4)While there are many thousand exporting SMEs, mostly in some form of engineering, there are 60+ million Brits. Far too many people involved in moving things round in circles. We simply don't have enough industry. Think 10-20 years of sustained push to remedy this.
5)Altough I have world beating products, I can't sell into China or India. They have a good personal luxury market, but a low internal quality business market. Think 10 years again before they will look to buy precision business tools across all sectors.
So don't knock us, we're doing our bit, but the rest of Britain isn't. And it's going to take a generation before we can realistically change this. I'm going to continue to make our balance of payment better, extracting money from other countries, but I can't feed all of us...
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Apologies for any typos in the above: I hit the post button before the preview...
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Stephanie, you make no mention of the J curve effect or the Marshall Lerner condition, is this in play here? The depreciating currency may be expected to worsen the trade balance in the short-term, as existing trading contracts are locked into, but do you think there will be an improvement in the longer term. I suspect the real problem is that the elasticities of exports and imports is overall still inelastic. Of course our export markets are only slowly awakening from the slumbers of recession and that is hindering export led growth.
The comment on businesses increasing their prices to take advantage of the Sterling cost advantange still smacks to me of short-termism. A decade ago the strong pound and El Nino were blamed for everything, but that proved to be merely a smokescreen hiding the fundamental issue that the UK has a balance of payments constraint to growth. The poverty of our manufacturing sector remains unchecked. Easy enough to achieve a buoyant domestic sector, but imports get sucked in, weakening GDP growth. Our manufacturing performance continues to decline and there seems no coherent strategy from government to improve the non-price competitiveness of our exports. This remains the biggest conundrum and illustrates starkly the structural weakness of the UK economy in the 21st century.
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Whilst everyone is moaning about Gordon Brown, they all seem to have forgotten one or two points:
The recession was global and tiggered by primarily American Banks (well known socialist institutions)
It was a Conservative government that lead the way in the deregulation of financial institutions (not Gordon Brown)
It was a Conservative government that destroyed most of our manufacturing base whilst on an idealistic "crusade" against the trade unions.
I am undoubtedley worse off because of the current economic situation but I certainly don't blame Gordon Brown and certainly don't think David Cameron and his cronies can fix it.
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#38., coznz
Why so suprised? Before now I have had to take pen and paper out in the boardroom of a FTSE company to explain the theory of marginality and marginal cost pricing to senior executives! Now, what chances is there of then understanding or even employing market-led pricing strategies.?
One SME owner on this board even said that the customer was not the most important factor for his organisation and others agreed with him! Studies by the Institute of Directors, Chartered Management Institute and the Chartered Institute of personnel and Development all clearly show how far behind the UK lags when it comes to professional business management. So I suppose that we can be thankful that they have achieved the little that they have.
Our chances of an export led recovery are slim to minimal at best. Yet the whole sector complains about the barriers put in their way; too high a tax rate (even though their total tax liabililities are veru comparable wuth our European counterparts), under-qualified workforce (see above) and too costly labour rates (when UK executive pay is already amongst the highest in the world).
Now I am sure that this post will provoke a rage. I will be accused of being either a marxist or a socialist or even wallowing in the politics of envy. Well I certainly nor envious and have earnt more money than many posters here will ever earn. I am certainly not a marxist. I am surely a socialist though my attackers appear to forget that socialism is best effected in a mixed-economy. Instead of bellyacheing that they are the wealth creators they should take a good long hard look at themselves and take the moat/plank whatever out of their own eyes!
I am not saying that there are many in the private sector who do not work hard, who do not make sacrifices and who really have a concern for the wellbeing of the country as a whole. I am saying that all that stops the private sector is not purely imposed upon them by either the government or a lazy workforce.
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#28 >>I starting to think that the government has turned this country into a fledgling banana republic. We're going down fast.
fledgling ?? We are getting to a Zimbabwean style disaster !!
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I think it's great that Comrade Brown abolished boom and bust. Looking at the situation we're in now I dread to think what it might look like had he not abolished the bust.
Or perhaps he just abolished Tory boom and bust (which I think were his words) and replaced them with Labour boom and total collapse. That seems more likely.
I can go back to sleep now.
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"Maybe we can't devalue our way out of trouble after all. "
Sound of a penny dropping.
Devaluation has never worked for the UK in my experience.
We do not have a critical mass manufacturing sector exporting high-added value goods like the Germans.
Rolls Royces and Burbery tend to be more damaged than helped by devaluation.
What devaluation does is import inflation.
History repeats in this country but we never learn.
The terrible truth is the UK economy is a basket case.
It can be fixed but it needs major restructuring which will take at least two generations.
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#76
"Whilst everyone is moaning about Gordon Brown, they all seem to have forgotten one or two points:
The recession was global and tiggered by primarily American Banks (well known socialist institutions)"
Yes, yes we all know this.
But an economic storm will hurt 'economic cripals' more than the 'economic able bodied.'
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44
...There is no evidential reason to believe that the Chinese currency should be the strongest in the world. ..
yes there is. if it was floated it would rise so fast people would think it was the numbers on a petrol pump during an oil price bubble.
the currency rate in part reflects the confidence investors have in that country and where interest rates are more likely to rise. given the choice between uk and china which would you bet 10 billion on having a growing economy in the next 2 years? That is why it would rise.
by not having a floating exchange rate china is conducting economic warfare on the rest of the world. until it is floated worldwide taxes should be put on all chinese goods to reflect where the exchange rate should be. otherwise the uk will just keep inevitably declining as it unable to compete with the rigged market.
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#43 >>Lets wake up and smell the coffee.
I would love to but the cost of coffee is getting prohibitive these days !!
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Hi Stephanie.
I'm a bit puzzled at the idea that the devaluation has something to do with the British economy.
If I remember correctly, sterling reached its peak a couple of years ago because currency traders were using it as a proxy currency for the euro. The dollar was looking unattractive at the time, and the euro was a bit too volatile.
If indeed that was the case, perhaps the pound's long term devaluation has more to do with the US and Eurozone economies than Britain. Certainly, those posters who see the devaluation as an indictment of Britain's economic failure might do well to consider this.
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"Supposedly, that kind of optimism about future earnings has helped drive the recent rise in the FTSE. Though today, even that recent rally seems to have petered out.
Oh yes, and there was a disappointing housing-market survey, and some words of warning about the deficit from Fitch, the leading ratings agency. All in all, not a good day for UK plc."
========================================================================
When the history books are written 2009 and the 2010 pre-election period will be known as the 'Dead Cat Bounce Era'.
I mean 0.5 per cent base rate and 2BN of QE has had some effect.
Sharp drop from now and then a slow steady decline. I see no grounds for optimism only stagnation and inflation.
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#44 The last link contains two apparently contradictory headlines
China Plans To Control Property Prices
and
China Is Overbuilding Already
How can there be a property bubble when there are masses of empty properties ?? Something doesn't add up !!
What I understand is that the Chinese are trying to cool their property market. One way is to reduce the demand by reducing the number of people moving to the cities. And the way to do that is to spread the government stimulus throughout the countryside which they have done. Unfortunately, they forgot that by keeping the workers in the countryside, they deprived the factories of their needed workers, so there is a sudden sellers' market in the labour market.
Swings and roundabouts, I suppose.
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Every week Fitch warns on the deficit but stresses our AAA rating is safe.
Every week the Chairman of BasketCase United warns on recent poor results but stresses that the Managers job is safe.
Hmmmm.
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#10
"This news has ramifications for the already overcooked growth forecasts which are designed to arrest the UK deficit/debt.
Some hard analysis needs to be caried out. Time for wishful thinking is over....."
Unfortunately this urgent task will not start until the 'fat lady sings' on May 6 or whenever the election is held.
Until then just fudge and the markets are watching.
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#61 >>We are a bankrupt nation and soon the service industry economy will also collapse because we will have no wealth creation to allow us to pay for it.
Oh, I think the service industry will go on for quite a good, long while; so long as there is demand for the world's oldest profession !!
We would have had a knowledge-based industry, too but this government wrecked education with their obsession with targets and quotas (oh, so very Soviet) !! It appears that they think meritocracy is a dirty word !!
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#64 >>Or did I dream that I heard the Prime Minister say this if not in my words - something pretty much like them.
Of course, you did !! The Ministry of Truth categorically refutes the allegation that the PM ever made such a statement. They might change their minds tomorrow and say something else !!
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#65 >>One gets the feeling that even ardent political defenders of the government are sensing the game is up.
Guess who were the first to attempt a hazardous crossing into Allied-held territory when the Russians were approaching Berlin ??
>>I denote a real lack of any left-leaning contribution in recent days - save for onward-ho who continues to feed on magic mushrooms.
Surely not !! Not least because its illegal since they are an endangered species because of rapacious harvesting (probably for sale near Westminster) !!
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Isn't it ironic that China now holds the mortgage on the capitalist system... if they ever wanted to prove a point re their "superiority" they could always pull the final rug out, at a cost to themselves sure, but if it were to destroy an opposing philosophy, might they consider it?
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#72 >>The fact is there is no single 'silver bullet' solution, we need the opposite to a death by 1000 cuts..not sure if there is an appropriate saying
It's called the "Guillotine" and I've been suggesting that we need one up Tyburn Hill (aka Marble Arch, these days) !!
>>In keeping with this economic meltdown, our public sector start striking!!!!
In keeping with the reality meltdown, our media pointed fingers at the Greek public sector strikes !!
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#76 - Andy
Look at the Balance of Trade figures and how they've moved since 1997.
The "everything's great, everyone deserves everything" mentality was encouraged for its short term feel good factor; driving up personal and government debt.
We were already spending beyond our means when the bubble was fully inflated, and thus massively geared and vulnerable to any economic downturn.
The economy was run on a high risk basis for political capital, the "economic miracle" was a lie, merely asset inflation based on excessive money supply, ever heard of "the Emperor's new clothes"?
At best inept, short term economic management based on wishful thinking and a wilful denial of reality, at worst; deliberate neglect and deceit in order to buy votes and secure re-election... until reality eventually bites.
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#82 >>by not having a floating exchange rate china is conducting economic warfare on the rest of the world. until it is floated worldwide taxes should be put on all chinese goods to reflect where the exchange rate should be. otherwise the uk will just keep inevitably declining as it unable to compete with the rigged market.
02-01-01 02-01-10
CNY 12.38450 11.03680
AUD 2.67820 1.80130
Looks like we have to tax the damn Aussies too since they are also conducting economic warfare, aiding and abetting the Chinese !! Probably trying to get revenge for being sent to Botany Bay !!
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am i dumb ??? why not mobilize the best resource any nation has .. the people and build a land worth calling home.. stop making enemies, stop giving our wealth to the greedy.. provide for the needy.. get out your boxes and rebell against the sell out of our economy......if we cannot get our land to be self sufficient how can we have surplus to trade. its really all so simple.. or am i just dumb.
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#92 >>...but if it were to destroy an opposing philosophy, might they consider it?
Nope !! This is contrary to the teachings of Sun Tzu !! "Why destroy the country and get only ruins when you can destroy their leaders and get a grateful population on your side" !!
(See The Art of War by Sun Tzu; circa 500 BC)
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#96
Its because we're no longer prepared to work as hard as much of the rest of the world for as little...
..so we consume more than we produce, and borrow to do it.
Our entitlement mentality, combined with the pressure caused by demographics, makes us a lame duck.
The City of London and its cascade effect has been propping us up for years.
At least there's one thing, if enough people decide to seek sunnier climes, it might allow house prices to fall to a realistic level.
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#96 "the best resource any nation has .. the people"
Are you suggesting reintroducing slavery?
or the Chinese approach of selling the organs of executed criminals?
When we can buy things cheaper from "abroad" than what people fee they deserve for doing the work here, its difficult to rationalise "mobilising" the people; especially when many see no reason to be mobilised if others keep them.
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#97 >> ""Why destroy the country and get only ruins when you can destroy their leaders and get a grateful population on your side" !!"
Couldn't the destruction of capitalism, or at least the political structures and major corporations based on it be considered as doing exactly that?
Just enough collapse and chaos and then "come to the aid" of the people...
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The blog is thought provoking, but as the future looks disturbingly like Remarque's The Black Obelisk, could you spend more time exploring solutions? I think John_of_Hendon's discussion of devaluing debt is on target: debtors, whether individuals or states, will default if they are far enough underwater. The problem in the States is that while a huge part of the budget deficits has been financed by China, an equally huge part has been financed by borrowing from the Social Security trust funds, so devaluing the debt is also tantamount to reducing Social Security benefits. Otherwise, one would think renegotiating the debt in return for guarantees of better financial stewardship (guarantees of balanced budgets?) in the future would be good for all parties, far better than the spiraling chaos of speculation and currency devaluations. Would not confronting the issue now actually increase the value of pound or dollar? (To be sure, that wouldn't help exports much. But you might address how either Britain or the U.S. can achieve a favourable balance of trade in a free trade world without the agony of third world wages in a future blog.)
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#101 NWPennsylvania,
"Otherwise, one would think renegotiating the debt in return for guarantees of better financial stewardship (guarantees of balanced budgets?) in the future would be good for all parties, far better than the spiraling chaos of speculation and currency devaluations. Would not confronting the issue now actually increase the value of pound or dollar? (To be sure, that wouldn't help exports much. But you might address how either Britain or the U.S. can achieve a favourable balance of trade in a free trade world without the agony of third world wages in a future blog.)"
I believe the simple answer to that question would be a resounding YES. However, you have to consider the forces that are ranged against such a proposal. Those who gain from elements of the chaos. Those who seek to maintain power. Those who cannot afford for the velocity of their transactions to slow because if the do the basis of their wealth will be sen to be a fraud.
armagediontimes refers to them as the oligarchs. I would point to the likes of Goldman Sachs, Morgan Stanley, the hedge funds, Warren Buffett, George Soros, the Sultan of here and the Shiek of there. What they all have in common is that, for them, power really means the control of money. They see turbulent economic times are a danger to them because people start to question just what real wealth underpins all of those zeros in their accounts.
If, you can manage these elements, then the nation states can get together and decide in each of their best interest how to deal with the debt problem and how to re- balance international trade and hence the world economy.
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I dont think lower exports is January is a surprise given the weather.
If it's not the weather there would have to be something seriously bad going on.
You would expect
Exports invoiced in foreign currencies.
Payment exchanged at higher amount so an increase. No change in colume.
If any change overall, it would have to be an increase.
Exports invoiced in Sterling.
Now cheaper for customers but sterling amount would stay the same unless it attracted new business at the cheaper rate. Again if anything, an increase.
What else could the fall signify. The weather surely ?
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the giant ponzi scheme is slowly beginning to crumble protectionism is starting and we face economic collapse but we will survive.the sooner we get to a sustainable economy the better or is there no such thing ?.
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Another excellent piece, but (and with economics there's always a but) I would have to add:
1. In 1992,we weren't so ridiculously overdependent on financial services.
2. If you compare year-round manufacturing output as % of GDP then on a like-for-like with now, it was higher. Connected with this,
3. Our share of world manufacturing trade has fallen since then.
There may be short-term technical reasons why, with Sterling at three-quarters of the value it was, we are still not exporting successfully. But the long-term diagnosis remains the same: the UK lacks high-quality, well-priced goods that overseas markets want. As for the prognosis, unless there is a change of mindset (and preferably, Establishment) in Whitehall and Westminster, you don't want to think about it.
Much as I loathe the whole 'Tsars' drivel, Britain DOES need somebody whose job is to be the country's marketing director: not as a tourist destination, but as a brand. And beneath that person, we need to have marketing managers reviving old and nurturing new sectors that MAKE stuff.
The Bright Things will always skip page one. They landed us in this mess, but they will never get us out. Fresh thinking and new blood is required - but the dead wood comes first: New Labour and all its fellow-travellers must be removed from government.
The Slogger
[Unsuitable/Broken URL removed by Moderator]
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IMO the reason the government is happy with devaluation is that its the only way to erode the high value of property debt, the basic cause of our problems. With the weight of property debt reducing in real value, the hope is that some form of inflation will enter the system, if not immediately by wages but perhaps by overseas-fuelled property prices.
The only other way out of the hole is to maintain the value of the currency and debt-deflate, which is deemed unpalatable ie too cruel to borrowers as property prices tumble. However, the stronger currency would drive firms to improve productivity, which is the long term route back to prosperity. The nice thing for the government is that the way to induce devaluation and knacker the Tories first and only term is by continuing to borrow themselves, at high levels, whilst avoiding doing a Greece.
The people who pay the price for sterling borrowers getting let off the hook ion this way are sterling investors - foreign investors and domestic savers. Because they saw it coming, sophisticated investors of all persuasions have been avoiding the UK for years.
Devaluation may make people feel better, but its not good.
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British manufacturing was dismantled in the 1980s by Mrs Thatcher. As part of a global division of labour it was thought best that UK plc concentrated on the new industries so we specialised in finance and other knowledge based business.
Oops.
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News flash "Gordon" says that the economic storm is not over yet. He should get the nomination for stating the obvious. Although, has he not single handed saved the banking industry along with most things in the developed world. Yes the industry that keeps on taking. Northern Rock the last (for now) in a long line to still be declaring large losses. An organisation that has declared cost savings of 30%. However at what cost, it is widely know that they have had consultants crawling all over them since their sharp demise. How much has that cost and what have they delivered? And more importantly will it stick. Once again it is widely known that these savings tend to only have a short shelf life and the organisations generally return to type. It surely must be time where organisations and more importantly government bodies should pay the consultants on results and over a longer period. As we have asked for the bankers to their rewards in share options and over a longer period. However both are reluctant to do so as they both work for the here and now and are looking for quick money. My rant should now be over but also in the news once again is the NHS IT system. Yet another idea that looked good on paper. How much has been spent and what have we got for it. And now the Doctors, who we were assured had bought into this fiasco are now saying that it is not fit for purpose and not delivering what was promised. It was supposed to be a little like the ID scheme. At first optional and then compulsory. At no time in history, have so many paid so much for so little!
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Pounds taking another pounding. Geddit?
8. At 6:07pm on 09 Mar 2010, nilihist
Nilihist. I love that phrase 'Submerging economy' Can I use it ?
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No surprises.
Businesses are struggling to survive and will take every opportunity of increasing margin as volume is not there.
Consumers are desperate to turn their money into useful goods as it will deteriorate in equities, property or cash and further devaluation is on the cards. Thing is, there are hardly any useful goods made in the UK any more.
Exports are set to fall, and imports are set to rise; the trade deficit is set to widen further.
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108. At 09:11am on 10 Mar 2010, Chris London wrote:
News flash "Gordon" says that the economic storm is not over yet.
I feel sorry for the BBC because they have to report the jibbering soundbites of these numpties. Not only what the Govt says, they then have to quote what the tories say, then what the lib dems say. It's all very dull and uninformative because they say nothing.
What they need is a fourth paragraph quoting the bloggers, Flanders Floosies and Pesto's Pinkos telling it like it is.
That would soon liven up the reportage. Even Onward-Ho would be more entertaining providing WOTW could put a one liner at the bottom of his musings.
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Is anyone surprised that economists continue to be surprised?
What use is a business model if it says ‘sell’ at the same time as everyone else’s?
Every country is trying to do the same thing, and we are struggling to compete (although we seem to be better at devaluing our currency!)
As for manufacturing; I know we can't compete with China, but why can't we compete with Germany or the USA?
What are our big export industries anyway? Whisky? King Edward potato?
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One month's trade figures are often misleading. Labour lost the 1970 general election partly as a result of trade figures for one month which turned out to be heavily distorted by imports of jumbo jets for BOAC !
Bad weather has been shown to hit exports more than imports because snow and ice rarely disrupt shipping but they disrupt road and rail.
This means imports arrive on schedule and are "landed" - and counted, but goods destined for export often do not make it to the port.
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Maybe we can't devalue our way out of trouble after all.
We never could.
The Romans found this out, not before producing many wise advisers, probably with graphs and models arguing that they could. Cicero amongst others spoke well on this subject. Poor old King John also found this out, too late to prevent being forced to sign the Magna Carta. He died just a few months later having seen his kingdom ruined. There are hundred of other examples.
Some bloggers here have actually lived through the last disasterous attempt to try devaluation as a cure for profligacy, idleness and waste. I am too young to remember but people have told me that there were dead bodies being left unburried, garbage mountains on the streets and daily power cuts. The government were so weak that even as the country literally ran out of money they could not persuade or force the nation that radical change was coming one way or another and that it would be better to stop the rot immediately.
Can you not hear the screams from these people up and down our nation today - no no not again. And all we get in reply is your blog stuffed to the rafters with flapdoodle while a crumbling shamed government and an inept power hungry opposition repeat over and over "Eurasia has always been at war with Eastasia"
We need leaders. Where are they.
I might as well pay my £500 to register a new party called 'The Whatever' party and stand against my local conservative MP. My Catchphrase could be "Time for a lynching" My only policy would be that a forensic investigation into the finances of every public figure would take place and any 'Duck Ponds, bird brains, house flipping, CGT dodges, Off Shore fiddles, Hedge Fund insider traders oh and TV Estate Agents found guilty - and fear not they will be - will have their assets seized and by placed in stocks to be pelted with rotten fruit by laughing mobs up and down our great nation.
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If there is one thing I would like to see nailed on this forum, it is the idea that currency valuation is somehow a tool to effect the future. It is not - it is a reflection of where we have been.
Furthermore, Government debt will only worsen the position when a country already imports more than it exports. Why? Because Government A (let's call it the UK) borrows billions, much of it from abroad, and runs up a budget deficit. Whilst the incoming capital props up the currency (let's call it the £) the outgoing interest plus capital always makes the problem worse in the longer term. But a more immediate effect is that the government spends the money on job creation schemes and the people employed spend their wages on goods and services, some of which are imports.
The result is that whilst GDP may go up, the country gets much worse off.
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#107 IanMurray
This is just so much hackneyed nonsense about Thatchers so-called plan to dismantle manufacturing.
British manufacturing is in slow decline because, and its not entirely its fault, it is less competitive and productive than global markets. That's a natural process of evolution, but if you really attacked productivity you could perhaps do something about it - its up to firms to improve productivity and government to get out of the way.
Thatchers policies just show that when the UK labour market is given a choice, it naturally turns toward high value services where the UK still has a competitive advantage.
Individuals and businesses chose to back out of unproductive enterprise. Government didn't make it happen, Thatcher just let it happen.
The 1970's were a bleak hell-hole of industrial hopelessness we don't want to go back to.
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Pretty hard to export your way out of trouble when you have naff all to export. Successive governments (and greedy directors) flogging off and outsourcing mean that we don't have much of a manufacturing industry, Kraft/Cadbury being the best example, how long will it be before Cadbury is made in Eastern Europe/anywhere but the UK? Of course we can always rely on banking... China's growth is entirely of our own making, and it's bitten us hard and will continue to do so.
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"Except, as I've mentioned before, that is not what we've seen. What we've seen is exports and imports falling - along with the wider economy - but exports more than imports. And there has been almost no change in our terms of trade.
In other words, UK manufacturers seem to have taken the opportunity to increase their margins - here and abroad - rather than pick up new sales."
I assume that the mentioned fall in exports is measured in GBP - ie value not volume. An increase in margins (ie an increase in prices in GBP) would increase exports at static volumes. So export volumes must be falling to cause the fall in the GBP value of exports - and falling at a greater rate than the recorded fall in the GBP value of exports. And a fall in export volumes means a fall in export-driven production, and there is little optimism in domestic demand driven production.
Yet we are told there is a return to growth (in Q4 2009).
The reality is that there is no return to growth in the economy as measured be any sensible measure. GDP is, and always has been, nonsense as a measure of an economy. If the government borrowed (and spent) £50bn in Q4 2009m, then that borrowing/spending is included in GDP - which grew by what, £5bn? So we are £45bn down. And that is not growth!
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I have just listened in full to Gordon Browns news briefing. It can be summed up in a single word.
Global, all that was bad was not our fault it was Global. I led the Global recovery. I saved the Global banking system which has now returned to profit (at which time the Northern Rock results were being flashed up accross the bottom of the screen).
How many GLOBAL's can one man get into his briefing and his Q&A session.
And how many times did he saved the world? Bringing it back from the edge of the precipice.
Whoever had written his speech and briefed him, obviously had looked at what the Conservatives had been saying. Cherry picking what they thought was good and more importantly what they thought would make a good sound bite.
It also felt that there were a number of plants in the room. How many Reuters questions were there. And it appeared very strange that he answered these questions in full and ducked the others by the mainstream press. The question that he avoided that may tell us about the way he is thinking was on VAT raises. He was less than subtle in avoiding this question.
There was a shift from the UK being out of recession to now be looking to emerge from recession. He also has started talking openly about debt reduction and the need for savings. Cuts are coming to the forefront. It appears there has been a significant movement on this front. It now looks as if he has had his hand forced and he will now have to outline where the savings are going to come from. This is going to be very difficult as he is going to alienate a vast number of his core supporters.
The budget will be a key factor in the run up to the election as it will have to outline public spending for the forthcoming year. If there are no savings outlined the markets will surely bolt. If there are then the unions will bolt. And if he tries to fudge it in the middle there will discord on all sides. Is he damned if he does and damned if he doesn't.
K
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Some bright spark would tell you that most of that £50 billion was investment so thats ok then
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UK trade gap widens and output is down. The same can be said across all of Europe and more worrying is that Germany is faltering just as much as the rest.
China's output up significantly and exports up by more than 46%.
An even playing field, I do not think so, for we are being told that we can trade our way out of this recession. But just who are we going to be trading with? The US and EU, our main markets, do not look like being open for trade for some time to come with barriers being put up openly and covertly.
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I need cheering up today. Can someone (Onward-ho perhaps) remind me of any significant announcement by a large scale technology/manufacturing company of investment and commitment to employment growth in the UK, made over the last 6 months?
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#122 - yep wasn't there an America Wind Turbine company looking at setting up in NE? If not I can't recall one but supermarkets & fast food have announced loads of jobs over last year....just as well we have record grads at the mo! Reminds me of an old Politics Grad with a job gag!
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82. '..by not having a floating exchange rate china is conducting economic warfare on the rest of the world. until it is floated worldwide taxes should be put on all chinese goods to reflect where the exchange rate should be. otherwise the uk will just keep inevitably declining as it unable to compete with the rigged market.'
Yup. But meanwhile the speculators here will continue to make a killing, as they don't care about anything but their short-term profits. They'll say anything along the way so long as they can keep doing what they do (see Newsnight last night). In the meantime, the outraged here will huff and puff about Stalinists and Hitlers, Holocausts and what have you, so that the electorate fears the very type of Governance which is running away with the world economy in order to nobble their ideological enemies, and all with the aid of the Hedge Fund managers (aka useful idiots).
That German regulators don't see what's going on shouldn't really surprise anyone, neither did the SEC or FSA remember. That's their job.
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.....a budget in 2 weeks, election in 6, I'd have gone to the electorate first if I were you Gordon as you are putting yourself in danger of writing the 2nd longest suicide note in history. Labour investment v tory cuts is going to be quite hard to square with explaining in detail how you will halve the budget deficit in 4 years. Good luck. Or wait a minute, maybe you won't explain it! Perish the thought.
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#122
Sorry JE NONE.
I'm sure that Onward-ho, having just had a nice chat with Gordon Brown, can come up with some lovely stuff about pink fairy exports in blue sky packaging in a Baron Von Munchausen way.................
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And the worst thing is of all is we don't have anyone to vote for in may.
New Labour - joke
Tories - joke
Lib Dem - joke
BNP - joke
where is old labour?
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This comment was removed because the moderators found it broke the House Rules.
The working Working Class and the working Middle Class support those above them and those below them on the "Pyramid".
Those on PAYE have the Governments hand permanently deep in their pockets, even those on decent salaries/wages. There is nothing left at the end of the Week/Month.
As regards coming out of this Depression, ( for that is what it is as the passage of time will show), it will require a "New Order".
A non-means tested minimum wage for ALL over 18 years of age.
As it is, neither SMEs nor Consumers will borrow at between 8% (business)to 40%(credit cards)usurious rates. Not when Bankers are borrowing money at 0.58% interbank rates or receiving it for free, (QE.) A "Social Wage" of £200 p week will encourage spending.
Regarding Employment prospects for the mass of people - there is not any.
In this apparently "Globalised " World that is being imposed upon us it will require the hourly wage rate in Britain to fall as the hourly wage rate in China, India, Indonesia,the Phillipines rises.
I would guess they will meet at around £2.00 p.hour in around a decades time.
Then Britain once more will be manufacturing bicycles, vacuum cleaners,TV sets etc.., as Chinese and Indian Entrepeneurs set up their "sweatshops" here.
It is a pity the Workers that produce them will not be able to afford to buy them.
Or we could try Protectionism.
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And now we are to have an extra 6000 EU civil servants under Lady Ashton to promote the EU's foreign policy. The questions is, who is going to have pay for this, who is going to run it and what foreign policy. The EU can't agree on what to do with it'd own members when they default and break their own rules. Who is going to decide on the policies?
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#121
" But just who are we going to be trading with? "
====================================================
Don't run before you can walk.
Can you put the following pre-requisites in the right order ?
1. Export cutting-edge high added-value goods and services.
2. Massive R&D spend
3. Top class fit for purpose universities.
4. Building a reputation for reliability.
5. Manufacturing said goods with tightly controlled unit labour costs.
6. Encouraging a culture of innovation.
7. Making things people actually want.
8. Creaing a culture where 'making things' is not looked down on.
The Victorians got very close. The Germans are the current masters.
Despite the advantage of speaking the world language from birth the British struggle.
We can always blame the beaurocrats in Brussels - oh damn the Germans seem to cope with the 'paperwork'.
Incidentally, a sharp devaluation in the Euro will make it easier for guess who to export.
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#116
"Individuals and businesses chose to back out of unproductive enterprise. Government didn't make it happen, Thatcher just let it happen."
====================================================================
True. But the decline started after the first world war and the end of empire.
After the second world war we created a millstone - the welfare state benefit system. I distinquish this from a single state education and state provided health care which are both highly desirable.
A major driver is our education system, together with lack of significant social change and the worst social mobility in the developed world.
Taking a very top level view this is what happenned.
The Victorians led the way. People like Stevenson, Arkwright, Brunel, et al succeeded.
They sent their sons to public school who then went into banking.
A huge empire kept top hats and flat caps on the same hymn sheet - bashing Johhny Foreigner - and the rest as they say is history.
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#129
"In this apparently "Globalised " World that is being imposed upon us it will require the hourly wage rate in Britain to fall as the hourly wage rate in China, India, Indonesia,the Phillipines rises.
I would guess they will meet at around £2.00 p.hour in around a decades time. "
========================================================================
This analysis is totally wrong.
Economic evolution is all about climbing higher up the value-added food chain. The acid test is can we make things people want.
Switch to high added-value manufacture and services and hand our old low added-value manufactures on to the third world who eventually will follow us up the food chain.
In this country there are some enterprises that are doing this but not enough. Germany by comparison is a bit like Santers Toy Factory - a hive of activity.
If we get it right - no chance in my opinion - we might be lucky enough to stand still (in living standards) over the next hundred years.
Get it wrong....
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122 Vauxhall are expanding and increasing their investment in UK ,Ford also back in profit, Honda lines whirring again , new investment also at the super-successful Qashqai plant where there is a new model,Jaguars flying out of the showrooms with new models, new Mini roadster and 4 door models also likely to do well ....lots of new investment actually! Only Toyota having a rough ride fo0 r obvious reasons but their UK plant will be another UK success story again when the brake and accelerator fiasco gets sorted.
160When there was a recession it was proof of our doom, when there is a recovery it is proff of our doom, .....really Rugbyprof,you should get out more.....have you not noticed the building sites are back in action?
Aren't you doom boys a bit noughtie?
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127. Simon 'where is old labour?'
Gone to China, Vietnam, N Korea etc (Zimbabwe is probably too hot)?
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55
How's the jobhunting going Arnold?
When you get a job we will know that we have turned the corner.
St Jude is still on order.
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Yes the trade figures did make poor reading and have been followed by poor industrial and manufacturing figures today. I was just logging on to see if you were going to update us on those Stephanie.
I also saw some interesting analysis of the impact of our inflation rate on our Balance of Payments over time on notayesmanseconomics web blog. Perhaps we are already beginning to erode any competitive advantage. Also I was fascinated by the review of Kate Barker's speech which made her look rather complacent at best...
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Richard Dingle
So the creation of a welfare state was a mere millstone? So the terms and conditions of labour pre-1939 were toally satisfactory were they? The living condititons of the vast majority of the population of this island were totally acceptable were they?.
As for your vaunted Victorians. The vast majority, having made their fortunes bought titles and ran off to play at being gentry. Then made sure that their sons did not go into trade or industry.
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"Excluding erratic items like oil"
Why? I mean it's not like our whole Economy is based on the price of oil!!
"which may have been distorted by the bad weather"
...now that's a familiar excuse - it also apparently meant the US job figures were 'worse than expected'. Is our Economy now as fickle as the weather?
"In other words, UK manufacturers seem to have taken the opportunity to increase their margins - here and abroad - rather than pick up new sales."
Have you considered that might be because their priority is 'survival to the end of the month' rather than 'future expansion'?
Stephanie - I would like to remind you this is a world wide recession / depression
Now I know you're too young to have experienced one before (well you certainly look young enough!) - but usually the trade balancing works because as your exports get cheaper - other countries buy them.
The problem is that those other countries are also in recession and are not buying our cheap goods
We are also in competition with other devaluing countries (Europe and US)
...this is known as an impasse - no way out I'm afraid. New thinking required urgently. We can't expect China to buy the entire worlds stock of junk.
Just like the markets do - the world has turned to sellers, there are not enough buyers. The fantasists talk about 'new markets' - but the nearest possibility is 52 million light years away and we don't know what Ameoba's like to buy in great quantities!!
This deficit is similar to Greece's, the US's and probably Europe as a whole (although I'm not sure about Europe) - who else buys 'stuff' in the world?
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#129 honestgradgrind,
"Or we could try Protectionism." OH NO buzzers and lights a la wro0ng answers on QI!!!!!
This lot are maninly so dim that they cannot think past their mantra of "it only leads to war"
BUT you've gone and said it now!
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12. At 6:18pm on 09 Mar 2010, steamdriver wrote:
"I'm no longer trading in Sterling. It's too unpredictable and the US still is a more attractive business base and stable"
you see folks - this is market mentality at it's best. The US is in no better shape than we are - but markets only look at the 'next worst' and not at the whole picture.
If they did then they would be out of investing alltogether. This is also why there will be a great shock to the markets when the US 'technically defaults' - despite it being a clear possibility this far ahead.
steamdriver - have you not asked yourself why the middle east is starting it's own currency (and on a fast track to do so)?
it's because they don't want their oil priced in Dollars once the greenback fails
It's been coming for a while - there is no reason why the Dollar won't default, or the US sees hyperinflation. They are printing vast amounts of money and haven't even made much noise about cutting the deficit (as Greece have had to do)
Why do you think Obama supports the Greeks - because he knows his country could be next
Back to the text books my friend....
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#133 Richard Dingle,
"Switch to high added-value manufacture and services and hand our old low added-value manufactures on to the third world who eventually will follow us up the food chain.
In this country there are some enterprises that are doing this but not enough. Germany by comparison is a bit like Santers Toy Factory - a hive of activity.
If we get it right - no chance in my opinion - we might be lucky enough to stand still (in living standards) over the next hundred years."
That was the plan before the plan before the plan that Thatcher wrote. Have you learnt nothing? It DIDN'T work!
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#134
What are you on.
Can I have some.
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#138
"As for your vaunted Victorians. The vast majority, having made their fortunes bought titles and ran off to play at being gentry. Then made sure that their sons did not go into trade or industry."
================================================================
Read my post.
Is that not what I said.
"They sent their sons to public school who then went into banking."
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Of course we can't devalue our way out of this crisis.That's the lazy option which Brits.take in everything.Buying more than we are selling ought to be obvious to you Ms.Flanders can only lead to bankruptcy.
This country really does need a wake up call and an understanding that improved efficiency,competitively priced goods,a lower cost base,less red tape hampering buisiness is the only way this country will get back on it's feet.Contrary to British belief,the world does not owe us a living-we have to earn it.
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#34 Voter_Graham
Thanks for the link. As the pundits say, the league table doesn't lie. Our 'much worse than average' fiscal deficit should see us hold on to the coveted 4th spot at the end of this latest historically disastrous 3rd Labour term. Way to go Bruin.
I have noticed a large number of optimistic postings (I've not had time to read them all). Thanks for the attempt to cheer me up. It wouldn't stop me from short selling UK GILTS after the QE money tap gets turned off though. I am going to stock up on tins of baked beans in case it becomes too expensive to buy food and candles in the event of 'Brown' outs.
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Deflation may be the best alternative. We should recognize that the value of almost everything was driven up by the false economy created by the banks. As that has collapsed and we have all been given the bad debt of the banks, thanks to our governments, we should adjust the costs of goods and services downward. This is the only way the middle class will gain spending power. The economist should show the charts reflecting the actual increase in spending power for the middle class during the boom to show that little advancement was made and in some countries ground in buying power was lost. Deflation will increase the buying power of the middle class and contray to the belief of politicans, bankers and economist, the middle class is the fuel of the economic engine. The governments gave the money to the banks and nothing to the people who lost money, except added debt. That decision is why thing have stalled for everyone but the bankers.
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#140
"Protectionism"
=====================
The path to disaster.
Ask yourself, 'protectionism against what'.
Protectionism tends to protect innefficient industry and over-paid workers from economic reality.
The advantages of comparitive trade have been well documented and there is no counter-argument any more than there is a counter-argument against 'the earth is NOT flat' theory. Time to put this one away and move on.
Protectionism is seductive and intuitive to the intellectually challenged and to vote hungry politicians. Look at it closely and you will see it is an own goal.
An example. We stop imports of tvs from country A who give their workers minimum wages (by our standard) and no rights and we start to make said tvs in the UK.
What actually happens.
1. We deprive workers in country A of employment; they may actually choose to give up peasantry and work in a factory. Their choice.
2. Our consumers pay more for said TV.
3. Most important of all - our workers are PROTECTED from becoming more inneficient as they don't have to compete.
Protectionism may or may not lead to war. This is the least bad thing it does. Wars are short,usually, and lead to increased output.
Long term stagnation, the real child of protectionism, is worse.
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134. onward-ho wrote:
122 Vauxhall are expanding and increasing their investment in UK ,Ford also back in profit, Honda lines whirring again , new investment also at the super-successful Qashqai plant where there is a new model,Jaguars flying out of the showrooms with new models, new Mini roadster and 4 door models also likely to do well ....lots of new investment actually!
Er, Ford has stopped making cars at Dagenham, they do not have any UK sites now.
GM - more than 8,000 jobs are being cut across Europe, including around 360 in Luton. Although they have announced €1.9bn investment is intended in Europe, nothing specific for the UK that I have seen.
Nissan's Qashqai, made in Sunderland. They announced in Feb they are taking on 400 temporary workers because initial demand was good.
Haven't seen any news that the good level of Jag sales has increased employment.
So there is some positive news there, although I think you have given it in a bit of a "Tigger" way as usual. Sorry, I don't think you can use Winnie the Pooh characters as verbs, but it seemed appropriate!
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It would probably be useful if we stopped hiding behind right & left, capitalist and socailist labels, and just got on with the job in hand.
If you look up the definitions of Capitalism and Socialism ( try wikipedia), you should pretty quickly come to the conclusion that we are all ( or should be) socialists. I certainly don't want to die of the cold, cancer or toothache because I can't afford the cure. Nor do I wish that sort of fate on my family, friends, or anybody really. However it's clear that in the crash that has/is happening, capitalism has won over socialism: a few capitalists are holding all the capital and control the resources, the majority will now have to pay.
Simply we need to combine the best of both worlds - the drive, competition and efficiency that good capitalism can provide, with the saftey net and long term R&D and planning that socialism should do. What we don't want is the rapid greed and short termism of capitalism, and the all rights and no responsibilities of socialism.
It's not beyond us to improve, but we're still running round in circles slavishly believing that our "great" political leaders hold the answers. Instead you hold the answer: how you earn and distribute your money, what you teach your kids, how you live your lives will affect our future. At some point the Politicians will catch up, but at the moment its down to you.
So what ya going to do? Change your approach, or wait for somebody else to tell you what you can do?
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#142
"That was the plan before the plan before the plan that Thatcher wrote. Have you learnt nothing? It DIDN'T work! "
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It was never tried. Other than the feeble attempt by Harold Wilson.
The point is it takes decades and is much easier for a country starting from Ground Zero - a country that has just lost a war.
It is till the only long term option.
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#127 Simon H,
Make no mistake Old Labour is still there. It may be under-represemted in the political party but it is out there and on the streets in numerous guises. Just wait until the real pain of this depression starts to bite.
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"our workers are PROTECTED from becoming more inneficient "
Typo, this should have read
our workers are PROTECTED from becoming more efficient
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#150
"However it's clear that in the crash that has/is happening, capitalism has won over socialism: a few capitalists are holding all the capital and control the resources, the majority will now have to pay."
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Not in the EU. The crash has silenced the waverers who supported the Anglo Saxon Model - unfetterred markets.
That is the one good thing that has come out of it.
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#141 writingsonthewall. You say that there is a clear possibility that the US will default.
You are wrong. The destruction of the US$ and the US economy is a cast iron certainty. Obama is even on record as "promising" the bankruptcy of the US (although strangely the BBC do not consider this newsworthy).
Gordon Brown was right when he said that this crisis started in the US. He did not go on to say that it will also end in the US and the end will be catastrophic economic collapse and the reduction of the ideals of the Republic to so much toilet paper. The die it is cast. Defend yourself as best you can.
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150. At 2:48pm on 10 Mar 2010, Crookwood wrote:
It's not beyond us to improve, but we're still running round in circles slavishly believing that our "great" political leaders hold the answers.
I certainly don't believe they hold the answers. They are however in control of the army and the police, tax collection and the money supply through the banks.
I'd like to be able to ignore that but unless you adopt a WOTW solution it is impossible to move on.
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#152
"Just wait until the real pain of this depression starts to bite."
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Like 1920's and the General Strike. Nothing happenned.
We need a modern socialist party with a plan.
A modern socialist party that stands for...
1. abolition of the Royal Family (a rallying point for unearned privilege)
2. abolition of private education
3. dismantling the welfare culture BUT not the NHS
4. closer ties with modern solicialist parties in Europe (never a strong point with old labour)
5. increased social mobility.
In short we need a meritocracy worthy of the name.
Ye Olde Labour were about as potent as a dead sheep.
New Labour are a hideous PR experiment gone very, very wrong.
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If you look at our interest rate graph compared to the the eurozone's it the only once we dipped below the eurozone's rate that sterling devalued - we were always 0.5% above their rate and sterling was all the rage. It is a nice little switch the Governor has to turn on and off ( Gordon's best move) and when he feels the time is right, and we go just a touch above the eurozone's rate again, our econmy will look a lot better - we are a cash washing nation, just closed down for a bit of a refurbishment, but our banks will be open for business again and will be giving us what we want - we just need a bit of patience and to get this silly election and uncertainty out of the way - whoever wins, we will be alright until the next economic readjustment. We really live in a dream world if we think politicians can save us - they just oversee the economic cycles and react only with hindsight - and then help each other to the best city postings once their incompetence is exposed!!
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23. At 7:13pm on 09 Mar 2010, onward-ho wrote:
"A On the other hand retail sales were up 2.5% in February and online sales up 15.5%!"
....over the record lows of this time last year. Well I guess it proves that when you're at the bottom the only way is up!
"And when property analysts say that common sense implies that currently rising property prices are unsustainable methinks it means they will keep on going up, because since when has common sense ever had anything to do with property?"
...but interest rates do.
"WHEN MORTGAGE FUNDING BECOMES MORE AVAILABLE PRICES ARE GOING TO ROCKET, AS THEY HAVE MANAGED TO CLIMB WHEN THERE WAS HARDLY ANY MORTGAGE FUNDING AT ALL."
YOU'RE FORGETTING THE GOVERNMENT WAS SUBSIDISING THE MARKET - WHEN HALF THE SUBSIDY WAS REMOVED THE PRICES STARTED FALLING - THE OTHER HALF IS LOW INTEREST RATES.
"There is lots and lots of cash out there, now accounting for nearly a third of property sales, which tends to offset the idea of indebted Britain.
http://blogs.thisismoney.co.uk/2010/02/cash-buyers-snap-up-30-of-homes.html
A buyer with a cash sale has no mortgage and has higher disposable income than if they had taken out a mortgage."
The 'mystery' about the cash buyers are simply rich foreigners benefitting from the devaluation in the pound. Why buy a house in Europe when you can get one for half the price in Britain?
The increased disposable income is of no benefit to the UK balance of payments - nor it's recovery.
"Shares up 57% in 12 months ....hardly a sign of doom and gloom is it?"
Don't you think that might have something to do with the fall in the pound? I mean every UK listed share has become 20% cheaper for the foreign investors.
"I think what we are seeing is that the emergence from recession is happening anyway, which leads to an increase in consumtpion and therefore imports"
I think Stephanie indicated that the value of imports has risen, not the volumne. This is known historically as stagflation.
"The rise in stamp duty andVAT and the January tax demands made people feel skint....but as the weather improves my wife will be out shopping again"
Err with what? Loans from the banks on their negative equity? I mean the public ran out of money before their houses devalued - in fact that's where many people were getting the cash from. Maybe they'l be using their credit cards - or if they're still working, their declining wages perhaps. I'm afraid no matter how much your wife spends, she cannot replace the missing consumers.
"Onward-ho has been given the go-ahead for a new £2m project and the banks are smiling again."
Maybe that's because they think they can assess risk again.
"HO SAYS ALL SYSTEMS GO!"
I can see why you like unsustainable bubbles - you're clearly living in one!
I admire your optimism, but unfortunately the evidence and history are against you.
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56. At 9:15pm on 09 Mar 2010, PDWilliams wrote:
"Another Labour government, another economic crisis made far worse by the socialist fantasy."
Did you forget about the £850 BILLION the banks handed as a debt to the Government?
Just thought I would remind you...
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57. At 9:15pm on 09 Mar 2010, JRMacClure wrote:
""Surprise widening". I wonder WHO it is was surprised. Every non-Labour party leaning prediction I have seen is of only bad and worse economic news to come for the UK."
Yes I have noticed that all bad news is a surprise, but better than expected - and all good news is worse than expected, but not a surprise.
Seems to me the spin doctors are hard at it. The Northern rock headline has changed 3 times already today!
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58. At 9:22pm on 09 Mar 2010, ArnoldThePenguin wrote:
"I think you will find the order was only cancelled due to the exceedingly bad weather in January (which is responsible for every other bit of bad news these days...)"
I did hear the entire economic crisis was caused by the weather - we had 'Economic headwinds' and 'Economic storms' and I'm sure I heard 'green shoot retracted due to bad frost'
Wait a minute - here comes another weather forecast....
http://news.bbc.co.uk/1/hi/uk_politics/8558821.stm
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79. At 11:42pm on 09 Mar 2010, ThoughtCrime
Note for next time.
Only those leaders who renounce Capitalism can truly end boom and bust. It is inherent to the system.
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And the worst thing is of all is we don't have anyone to vote for in may.
New Labour - joke
Tories - joke
Lib Dem - joke
BNP - joke
where is old labour?
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We need to bring back "Clause IV" as a new Socalist party!!!
http://en.wikipedia.org/wiki/Clause_IV
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Dear Stephanie,
I note with great intrest the fact today the pound has now fallen below 1.095 to the Euro and yet still no out cry from the city or the hedge funds/speculators the only thing we here about is Greece and their terrible Budget deficit.
One of the smallest ecconomies in the Euro Zone and yet the UK is supposed to the 5th largest ecconomy in the world and it's budget deficite is equally if not worse than Greece and much more significant.
Is not the real reason behind the moves against Greece purely political and in fact the Speculators are desperate to bring down the social ecconomic model of Europe and keep the Anglo American "Free for all" chaos model going in order that they can continue freeloading at everyone elses expense?
Best Regards
JCW
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122. At 11:20am on 10 Mar 2010, jonearle wrote:
I need cheering up today. Can someone (Onward-ho perhaps) remind me of any significant announcement by a large scale technology/manufacturing company of investment and commitment to employment growth in the UK, made over the last 6 months?
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The Mission impossible team announces the production of a Goodon Broon lookalike doll which will answer any question put to it with:
"Global Recession" "Began in the US" "I saved the World" "I saved the banking system" "We need Global regulation" " It's not my fault" "Borrow for investment" "I have ended the Boom and left you with Bust"
"Who put that one in, was it Lord Ashcroft" "I will get him back by keep mentioning his name until I win the Election" "Lord Ashcroft" "Lord Ashcroft" "Lord Ashcroft" "Lord Ascroft" 5 "Lord Ascroft" 4 "Lord Aschcroft" 3 "Lord Ashcroft" 2 "Lord Ashcroft" 1 "Lord Ash--
The Brown stuff hits the fan
The Company expects mega sales resulting in many jobs and the Global World rejoices
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#147. ghostofsichuan wrote:
"Deflation may be the best alternative. We should recognize that the value of almost everything was driven up by the false economy created by the banks."
On deflation - I agree, but I don't think there is a choice. Debt deflation seems to be inevitable either by actual down pricing or by inflation either - way the over leveraged parts of the economy will suffer an unavoidable correction.
And in the above quote don't you actually mean 'the price' rather than 'the value'?
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150. Crookwood wrote:
"It's not beyond us to improve, but we're still running round in circles slavishly believing that our "great" political leaders hold the answers."
What is so depressing about our current political situation is that our political leaders are so lacking in tactics for our current situation (it'll all be right after the election seems to be the mantra). In the meantime we are bleeding to death.
Crookwood believes we, the people, should grab the reins and get on with it. I agree but the problem we have is this Government is so greedy for our money, that no sooner do we start making money then it taxes individuals and the Private Sector to death.
Whether we like it or not we need a realistic medium term plan to address our deficit. Not a Brown/Darling hopelessly rose tinted growth projection that sees the deficit nearly disappear in 4years. We can't start to move to a more efficient UK without a sound economic base.
Devaluation has given us a short term competitive advantage, so why not start to get rid of or reduce hindrances like Red Tape, business Taxes and NI to really kick start growth.
In the longer term we need some far sighted vision for the UK. It seems to me there are vast opportunities opening up. Off the top of my head, take a look at where we'll be in the next 10-15 years - Energy Shortages, More Global warming, a huge growth in the Middle Class in the BRIC's, electric cars and vehicles, huge Internet shopping networks, food shortages, new Digital devices, more efficient Supply Chains, etc etc. Surely there's opportunity there for us.
But this will only be achieved if Government gets off our backs and works with the entrepreneurs instead of taxing them to death.
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Alesha Soba wrote:
Agreed, there are many things out of our reach, but there are things still under your control. Simple things like:
1) use sites like Martin Lewis's to make sure you make competition work for your money, don't just give it to large concerns, esp. utilities
2) look at how your pension is used. Take it out of high growth, speculation funds, consider a SIP.
3) move your bank accounts to the co-op or similiar
4) Buy goods from local, British, European manufacturers, in that order.
5) always buy local seasonal food
6) Become energy efficient, and as self sufficient as you can.
7) teach your kids about money, and how ot use it
And so on. It looks really weak at first, but it's a numbers game: the more people that do it, the more effect it will have. Basically, don't give your hard earned money to companies and corporations who will use it to abuse you or your children's future.
The internet informs large numbers of people, and can be a force for good. I agree all the big decisions have been taken out of your hands, but you can still make a difference with a bit of work.
Certainly doing nothing and waiting for a politician to get on board isn't an option anymore.
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134. At 1:57pm on 10 Mar 2010, onward-ho
You're like a dynamo....
"Vauxhall are expanding and increasing their investment in UK ,Ford also back in profit, Honda lines whirring again"
Nothing to do with subsidised car trade in's worlwide of course....
"have you not noticed the building sites are back in action?"
Oh you need to visit where I work, the City of London, the biggest and most reliable property market in the world (possibly) - look at how many empty offices there are (I've never seen this many before)
Bishopsgate tower - about 2 floors out of 20
Broadgate circle - empty floors - check out number 4 - day traders only on a temporary basis.
New buildings being erected - no tennants for them.
Nearly all building has stopped - except for those already underway.
King road - I have never seen empty shops on Kings Road - and there are about a dozen now.
Maybe the property recovery is outside of London. However as a keen watcher of auctions I can see 'nearly news' being sold by the appointment of the mortgagee - as fast as they are being built!
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155. At 3:27pm on 10 Mar 2010, armagediontimes wrote:
"You are wrong. The destruction of the US$ and the US economy is a cast iron certainty. Obama is even on record as "promising" the bankruptcy of the US (although strangely the BBC do not consider this newsworthy)."
Sorry - I didn't want to upset the fantasists...
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Our export trade is dependent on the fortunes of other countries. Clearly most countries in Europe and North America, ie our primary export destinations, are continuing to experience major financial constraints and this impacts on their ability to buy our goods.
It makes little difference what the exchange rate is, and what the relative value of our domestically produced goods are, if other countries don't have the cash or credit to buy them.
Meanwhile, the cost of imported goods is starting to rise rapidly as a result of our weak pound and this is fuelling inflation. If you don't believe me just take look at the price of imported fruit and vegetables in the supermarket.
Whilst it is important to maintain a competitive pound, a very weak pound (as at present) will have harsh consequences to our personal finances if it persists into the medium and long term.
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We are exporter but we can only deal with the blue chip companies of this world and then only with a letter of credit even then the sixth largest oil company in world comes in for considerble scrutiny before we can get any credit on the LOC. Government export guarantee schemes disappeared into the woodwork long ago assistance for exportrs ,there is none! If a finance director or managing director had performed as badly as GB and this government they would have been at the Job centre years ago courtesy of the shareholders. We are the shareholders of GB PLC and our rights,opportunities, money and assets have been wasted and thrown away by this board of Directors and they seek re-election. some would say the brass necked cheek of it, i have another expression which I am sure some will recognise.!
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fdd
I would just like you to agree that the war of independence in the us and the boxer rebellion were started by protectionism
You said cobblers to my previous post
Hopefully you have your polite head on today
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164. Simon H wrote: 'We need to bring back "Clause IV" as a new Socalist party!!!'
We could apply for membership of the SCO like Iran.
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# kevin b
IF I have my "polite head" on then I trust that you are wearing your thinking head.
The US War of Indepenance wa fought for many reasons. It was not even uiversally supported by those who eventually called themselves Americans. However, protectionism was not a major factor. The settlers wished to continue trading with Britain and the taxation imposed by Britain was not based upon an exclusion of foreign goods other then French - now why may that have been?
I would dearly love to hear just how you manage to equate the Boxer Rebellion with protectionist policies.
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Indeed I have
I did say started for the american war of independence. I quite agree that it was not just that, and clearly not everyone in 'america' wanted independence
The point I have been trying to get you to see, is protectionism is either the direct cause, or the bridge to war
Who knows whether the war of independence would either have happened at all, or ended the way it did, if it hadn't have started when it did
I don't see how you can not see the Boston Tea Party started it off
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#157 Richard Dingle,
If you have to go back to the General Strike then you must be very desperate. A lot of learning has been undertaken since then. Part of that has been the realisation that legal adminisration in the UK values property over people and has always been prepared to bend (or shall we be polite and say interpreted) legislation in favour of its political inclinations.
Your 5 'points' clearly demonstrate just how litle you know and certainly how little you understand about socialism.
"In short we need a meritocracy worthy of the name." Well you certainly won't get that from the present Conservative Party.
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The boxer rebellion was a joke, thought you would enoy it
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Is there a link between the trade figures and the bad housing market data? Exports have been supported in recent years by debt, overseas lenders providing mortgage funding for the housing and commercial property markets. It follows that when housing numbers fall off mortgages exported will decline. So if housing picks up we can expect a trade improvement.
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170 wotw
Yup, there's no denying times have been, are, and will be hard, for millions of people, but the reality is that there is a new confidence in the property and construction sector which has been missing for three years.
We are getting there, it is a long way for sure, but the tide has turned, and all your gloom cannot hide the truth of this.
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155 armagediontimes
"The destruction of the US$ and the US economy is a cast iron certainty. . Obama is even on record as "promising" the bankruptcy of the US"
Interesting article about this in the Telegraph:
"Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget."
"The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. "It's a catastrophe", said the Schools Superintedent.
"In Alexander County, the sheriff's patrol cars have been repossessed; three-quarters of his officers are laid off; the local prison has refused to take county inmates until debts are paid.
"Florida, Arizona, Michigan, New Jersey, Pennsylvania and New York are all facing crises. California has cut teachers salaries by 5pc, and imposed a 5pc levy on pension fees. "
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7338857/Dont-go-wobbly-on-us-now-Ben-Bernanke.html
I've read elsewhere that California, the eigth biggest economy in the world - is in a similar boat and had to resort to paying staff in 'vouchers' (aka IOU's) last year. Also that 49 out of the 50 states in the US are ALL facing huge budgetry shortfalls and as deficits are illegal they are all making swinging cuts.
The above article also makes an interesting point from Mervyn King about how every country is cuttings its own spending and expecting other countries to buy their exports...
"I was struck by the mood at the G7, where several of the major economies around the world said quite openly that they were relying on external demand growth to generate growth. That can't be true of everybody," he said.
Fair point Mervyn.
Ambrose Evans-Pritchard at The Telegraph goes on to argue for more QE:
"The West risks a slow grind into debt-deflation unless central banks offset fiscal tightening with monetary stimulus – QE, of course – to keep demand alive. Yet the Fed and the European Central Bank are letting credit contract.
"Bank loans in the US have fallen at a 14pc rate this year, caused in part by Basel III rules pushing banks to raise capital ratios.
"The M3 money supply has fallen at a 5.6pc rate since September. The Fed's Monetary Multiplier dropped to an all-time low of 0.809 last week.
"The contraction of eurozone bank credit to firms accelerated to 2.7pc in January, while M3 fell by a further €55bn. Japan's GDP deflator has dropped to a record low of -3pc.
"These are epic warning signals, with echoes of 1931. Yet the Fed has just raised the Discount Rate. It is winding up liquidity operations, and preparing to reverse QE, even though the housing market has tipped over again. New home sales fell 11pc in January to 309,000 units, the lowest since data began, and 24pc of mortgages are in negative equity. "
Personally I'm not convinced QE will solve anything. There is only so much debt people and countries can reasonably service. There is only so far you can go in devaluing a currency before holders lose confidence in its' remaining 'value'. QE simply seems to be delaying the inevitable - buying time before an unavoidable and serious retraction.
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136 onward-ho
"How's the jobhunting going Arnold?"
Thanks for asking Onward ;O) Its on hold currently due to family illness so looking at retraining in something self-employed / home based!
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http://www.rics.org/site/scripts/press_article.aspx?pressreleaseID=200
http://www.rics.org/site/scripts/press_article.aspx?pressreleaseID=198
Hear it from the horses mouth, things are actually not as bad as you think WOTW.
So many forecasters are frightened of being shot down for being optimistic that even when things are looking up they have to say yes but it is temporary, it is receding, it will fade.
My cousin sold her house in 2 days last week.
Nice houses in my city are being snapped up like hotcakes whilst others are still languishing in the doldrums..... it is a strange time , it is not a palindromic recovery, it is uneven and some will never regain what they have lost.
Buy-to-letters are snapping up things again but for cash rather than on a mortgage.The old deals are not available and maybe never will come back.
The bling flashers are flashing again , eg a local pharmacist has a constantly varying array of new Cartier wrist watches.
I think a lot of folk have got bored with tales of austerity and are remembering that they are still flush,therefore why not be flash!
And this is not fair, it is not particularly discreet either,but it is true.
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183
Sorry to hear about your family illness,but wish you all the best for the future ..... I am sure things will work out for you.
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KevinB
My funny bone must be asleep tonight. Boxers aside let's not get caught in semantics. Therefore if we can agree upon what we really mean by protectionism we may have a start point.
As an economic strategy, I understand protectionism to be the defence of either a whole economy or specific elements of an economy from outside sources by means of prohibition, tarrifs or quotas (or a mixture of all 3). It is a defensive measure designed to protect the economy/industry so that it can recouperate from the ravages of a competitive environment that was critically detremental to it. To be effective, it is a short to medium term strategy (unless you wish to adopt a closed economy eg North Korea).
In the case of the UK our core manufacturing industries have been ravaged by globalisation. Now I can and will argue that gloabilsation can only provide short term gain by essentially ensuring long term loss. Further, I would claim that it is predicated upon a lie ie the demand for cheap prices and hence cost being the final arbiter. It has never been true in the purchase decisions of either individuals, households or organisations. Purchases are NOT made purely on the basis of cost. If it were then the concept of consumer buying groups (Innovators, Early Adopters, Early Majority, Late Majority and Laggards) would be a complete myth - research and results prove that it is not a myth. However, globalisation has had the full backing of the financial sector and the support of the 'bean counters' sorry accountants.
In the UK we have already seen the triple whammy of globilisation loss of industries, loss of employment prospects and skills, loss of government revenue flows. For the economic and social wellbeing a brake has to be applied now.
However, in the international environment, the UK is too small to undertake protectionism unilaterally. To be successful it would have to be done in union with the other members of the EU.
I accept that the EU's competitiors mainly China and USA would not like a protectionist policy being implemented. As far as China is concerned it would be a schytzophrenic response as it does not presently operate an open-door policy. However, all of them would come to terms with our strategy as ultimately they would have no option. It would not be the end of international tade as agreements between competeing countries or groups would be negotiated.
It would however allow the EU economies to be regularised and the people of Europe to be put back to productive work.
Now the whole strategy is far more complex but the above helps provide an outline and rationale.
However I still disagree with your argument that protectionism leads to war. From your examples:
American War of Independance - the underlying element here was political representation and not taxation per se. The slogan of the rebels was "No Taxation Without Representation" If you go to Boston and see the re-enactment of the Tea Party and listen to the commentry I'm sure that you will enjoy it. When I studied at Harvard I attended with an American historian friend of mine who was able to show me that all of the so-called facts given were in fact false! - but it still makes a good show.
American Civil War The North at no time attempted to take away the cotton market of the South. This really was a war of ideoloy
WW1 Perhaps this is the classic example of political brinkmanship gone mad. Whilst Germany sought to increase her economic power she did not accuse Britain or France of protectionism. Germany's spat with Russia was a direct result of her political ties with the Austro-Hungarian Empire.
WW2. Whilst we in the UK would like to argue that this was a pure fight between good and evil, it does have more to do with an ill-judged response to both poor political leadership after WW1 and economic depression in the 1930s. Again I could not support the contention that a prime mover for WW2 was protectionism
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